SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2)
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BEXY COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-
6(i)(2) or Item 22(a)(2) of
Schedule 14A.
$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
(1) Title of each class of securities to which transaction applies:
Common Stock
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
625 Shares of Common Stock of the Acquiring Company
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
$120.00 per Share of Common Stock of the Acquiring Company
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$75,000.00
- --------------------------------------------------------------------------------
(5) Total fee paid:
$150.00
- --------------------------------------------------------------------------------
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
BEXY COMMUNICATIONS, INC.
16661 Ventura Boulevard, Suite 214
Encino, California 91436
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held Wednesday, June 26, 1996 at 10:00 a.m.
To the Stockholders:
NOTICE is hereby given that a Special Meeting of Stockholders of BEXY
COMMUNICATIONS, INC. (the "Company") will be held at Shutters On the Beach, One
Pico Boulevard, Santa Monica, California 90405 (Tel.: 310-458-0030) at 10:00
a.m. local time, on Wednesday, June 26, 1996 for the following purposes:
1. To approve a Plan of Reorganization (the "Reorganization") of the
Company pursuant to which the Company will change its business to the
exploration for and exploitation of oil and gas.
2. In connection with the Reorganization, in order to permit the
issuance of shares of common stock of the Company (the "Common Stock") to
stockholders of Cheniere Energy Operating Co., Inc. ("Cheniere"), to approve the
amendment of the Company's certificate of incorporation to change the authorized
capital stock of the Company to a total 21,000,000 shares, comprised of
20,000,000 shares of Common Stock, having a par value of $.003 per share, and
1,000,000 shares of preferred stock, the rights, powers and preferences of which
shall be set by resolution of the Board of Directors of the Company.
3. In connection with the Reorganization, to approve the amendment
of the Company's certificate of incorporation to change the name of the Company
to "Cheniere Energy, Inc."
4. In connection with the Reorganization, to approve the
distribution to the stockholders of the Company of the stock of the Company's
wholly-owned subsidiary, Mar Ventures, Inc. ("Newco"), to which the Company has
transferred the assets, subject to liabilities, of the Company's existing
business (the "Divestiture").
5. To approve the amendment of the certificate of incorporation of
the Company to limit the liability of the Company's directors and to provide for
indemnification of the officers and directors of the Company to the fullest
extent permitted by Delaware law.
<PAGE>
6. In connection with the Reorganization, to elect three (3)
directors nominated by Cheniere to hold office during the ensuing year until
their respective successors are elected and qualified.
7. To act upon such other matters as may properly come before the
meeting or any adjournment thereof.
Shares represented by properly executed proxies hereby solicited by
the Board of Directors of the Company will be voted in accordance with
instructions specified herein. It is the intention of the Board of Directors
that shares represented by proxies which are not limited to the contrary will be
voted in favor of the election as directors of the persons named in the
accompanying Proxy Statement, for proposals 1, 2, 3, 5 and 6 and in favor of
such other matters as recommended by the Board, as may properly come before the
Special Meeting.
If the amendment of the certificate of incorporation to change the
authorized capital stock is approved by the stockholders, following the filing
of the amended and restated certificate of incorporation with the Secretary of
State of the State of Delaware, each outstanding share of the Company's Common
Stock will be automatically converted into one-third of one share of newly
authorized Common Stock of the Company. If the proposals in respect of the
Reorganization and the changes in the Company's capitalization are approved, and
the nominees of Cheniere elected to the Board, the Company and Cheniere may, but
are not required to, proceed with the consummation of the transaction whereby
Cheniere will become a wholly-owned subsidiary of the Company, regardless of
whether the stockholders approve the other proposals set forth in the Proxy
Statement for consideration by the stockholders.
In addition, even if the stockholders approve the proposals relating
to the Reorganization, the Board of Directors of the Company may determine not
to distribute the stock of Newco to the stockholders of the Company if, in light
of the circumstances then existing, the Board determines that the Divestiture
would not be in the best interests of the Company and the stockholders.
Information concerning the matters to be acted upon as the Special
Meeting is set forth in the accompanying Proxy Statement. The Board of
Directors has established the close of business on April 30, 1996 as the record
date (the "Record Date") for the determination of stockholders entitled to
notice of and to vote at the special Meeting or any adjournments thereof.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. YOUR VOTE
IS VERY IMPORTANT, AND WE WILL APPRECIATE A PROMPT RETURN OF YOUR SIGNED PROXY
CARD. ANY STOCKHOLDER ATTENDING THE MEETING MAY REVOKE HIS OR HER PROXY AT THAT
TIME AND MAY THEN VOTE HIS OR HER SHARES IN PERSON EVEN IF HE OR SHE HAS
PREVIOUSLY RETURNED A PROXY.
By Order of the Board of Directors
<PAGE>
David Leedy, Secretary
Encino, California
June 6, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Revocability of Proxy . . . . . . . . . . . . . . . . . . . . . . . . 13
Person Making the Solicitation . . . . . . . . . . . . . . . . . . . . 14
Voting Shares and Vote Required . . . . . . . . . . . . . . . . . . . 14
INFORMATION CONCERNING CHENIERE . . . . . . . . . . . . . . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Exploration Agreement . . . . . . . . . . . . . . . . . . . . . . 16
The Zydeco Seismic Survey in West Cameron Parish, Louisiana . . . . . 17
Zydeco Energy, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 20
INFORMATION CONCERNING THE COMPANY . . . . . . . . . . . . . . . . . . . . 21
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Current Activities . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Recent Business Developments . . . . . . . . . . . . . . . . . . . . . 23
The Health Information Market . . . . . . . . . . . . . . . . . . . . . . . 23
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
MARKET FOR COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION . . . . . . . . . 25
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 25
Fiscal 1995 Compared to 1994 . . . . . . . . . . . . . . . . . . . . . 26
Fiscal 1994 Compared to 1993 . . . . . . . . . . . . . . . . . . . . . 27
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . 27
Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 29
Security Ownership of Certain Beneficial Owners and Management . . . . 29
Board Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Director's Compensation . . . . . . . . . . . . . . . . . . . . . . . 31
Certain Relationships and Related Transactions . . . . . . . . . . . . 31
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 31
THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Background of the Reorganization . . . . . . . . . . . . . . . . . . . 33
F-i
<PAGE>
Recommendation of the Board of Directors . . . . . . . . . . . . . . . 33
Cheniere's Purpose and Reasons For Participating in the
Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . 34
The Reorganization Agreement . . . . . . . . . . . . . . . . . . . . . 34
Distribution of Newco Stock; Exchange of Shares . . . . . . . . . . . 35
Certain Terms of the Reorganization . . . . . . . . . . . . . . . . . 36
Securities Act Status of New Shares Received by Cheniere Stockholders 38
INTERESTS OF CERTAIN PERSONS IN THE
REORGANIZATION AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . 38
Significant Stock Ownership . . . . . . . . . . . . . . . . . . . . . 38
Consulting Agreement; Other Agreements . . . . . . . . . . . . . . . . 38
Operation of the Company After the Closing of the Exchange . . . . . . 39
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . 39
Certain Federal Income Tax Consequences of the Exchange . . . . . . . 39
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
THE DIVESTITURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Background and Reasons for the Divestiture . . . . . . . . . . . . . . 41
Manner of Divestiture . . . . . . . . . . . . . . . . . . . . . . . . 43
Certain Federal Income Tax Aspects of the Divestiture . . . . . . . . 43
Effects on the Company . . . . . . . . . . . . . . . . . . . . . . . . 44
Effect on Stockholders of the Company . . . . . . . . . . . . . . . . 44
Back-Up Withholding . . . . . . . . . . . . . . . . . . . . . . . . . 46
Listing and Trading of Newco Stock . . . . . . . . . . . . . . . . . . 46
Divestiture Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 47
PROPOSALS TO BE VOTED ON AT THE SPECIAL MEETING . . . . . . . . . . . 47
PROPOSAL 1. REORGANIZATION OF THE COMPANY . . . . . . . . . . . . . . . . 47
PROPOSAL 2. AMENDMENTS TO CERTIFICATE OF INCORPORATION
RELATING TO CHANGE IN CAPITALIZATION . . . . . . . . . . . . . 48
Effect of the Proposed Amendment . . . . . . . . . . . . . . 49
PROPOSAL 3. AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY . . . . . . . . . . . . . . 49
PROPOSAL 4. DIVESTITURE OF THE EXISTING BUSINESS OF THE COMPANY. . . . . . 50
Effect of Divestiture . . . . . . . . . . . . . . . . . . . . . . 50
PROPOSAL 5. AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO LIMIT THE LIABILITY AND PROVIDE INDEMNIFICATION . . . . . . . 50
Effect of Adoption . . . . . . . . . . . . . . . . . . . . . . . 51
PROPOSAL 6. ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . 51
F-ii
<PAGE>
Nominees for Election . . . . . . . . . . . . . . . . . . . . . . 51
Background and Experience . . . . . . . . . . . . . . . . . . . . 51
DESCRIPTION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . 53
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 53
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . 53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AFTER GIVING
EFFECT TO THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . 54
PRO FORMA CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . 54
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
EXHIBITS
- --------
Exhibit A - Agreement of Reorganization . . . . . . . . . . . . . . . . . A-1
Exhibit B - Amended and Restated Certificate of Incorporation . . . . . . B-1
F-iii
<PAGE>
BEXY COMMUNICATIONS, INC.
16661 Ventura Boulevard, Suite 214
Encino, California 91436
__________
PROXY STATEMENT
__________
SPECIAL MEETING OF STOCKHOLDERS
To be Held on June 26, 1996
This proxy statement (this "Proxy Statement") and the enclosed proxy
card ("Proxy") are furnished in connection with the solicitation of proxies on
behalf of the Board of Directors of BEXY Communications, Inc. ("Company") to be
voted at the special meeting of stockholders of the Company (the "Special
Meeting") to be held at Shutters On the Beach, One Pico Boulevard, Santa Monica,
California 91045 (Tel: 310-458-0030) at 10:00 a.m. local time on Wednesday,
June 26, 1996 and at any adjournment thereof, for the purposes set forth in the
accompanying Notice of Special Meeting.
Only stockholders of record at the close of business on April 30, 1996
(the "Record Date") are entitled to notice of and to vote at the Special
Meeting. This Proxy Statement and the enclosed Proxy, together with the
accompanying Annual Report on Form 10-KSB for the year ended August 31, 1995,
constituting the Company's annual report to stockholders, are being mailed on or
about June 6, 1996.
INTRODUCTION
At the Special Meeting, stockholders will be asked to approve and
adopt a Plan of Reorganization (the "Reorganization") as set forth in a certain
Agreement and Plan of Reorganization dated as of April 16, 1996 (the
"Reorganization Agreement") among Cheniere Energy Operating Co., Inc.
("Cheniere"), the stockholders of Cheniere (the "Cheniere Stockholders"), the
Company and Buddy Young, the President & CEO and principal stockholder of the
Company ("Young"). Pursuant to the Reorganization, the outstanding capital
stock (the "Newco Stock") of Mar Ventures, Inc. ("Newco"), a newly-formed,
wholly-owned subsidiary of the Company, which holds the assets, subject to
liabilities, of the existing business of the Company, will be distributed to the
stockholders of record as of the Record Date (the "Divestiture"). In
consideration for the transfer of all of the issued and outstanding shares of
common stock of Cheniere (the "Cheniere Shares"), the Company will issue to the
Cheniere Stockholders shares of common stock (the "Common Stock") of the Company
(after giving effect to the amendment of the capitalization of the Company and
the Reverse Split described herein, the "New Shares") equal to approximately 93%
of the then issued and outstanding New Shares (the "Exchange") causing the
current stockholders' interest in the Company to be diluted to approximately 7%.
Thereupon, Cheniere
<PAGE>
will become a wholly-owned subsidiary of the Company and the principal business
of the Company will become the oil and gas exploration and exploitation business
conducted by Cheniere. See "THE REORGANIZATION -- The Divestiture; The
Background of the Reorganization; and The Reorganization Agreement; and
INFORMATION CONCERNING CHENIERE."
Cheniere is a Houston-based independent oil and gas exploration
company formed in February 1996 to participate in a joint venture with Zydeco
Exploration, Inc. ("Exploration"), a wholly-owned subsidiary of Zydeco Energy,
Inc. ("Zydeco"), a publicly traded company, the common stock of which is listed
on the Nasdaq SmallCap Market system. See "INFORMATION CONCERNING CHENIERE."
In order to facilitate the Reorganization, the directors of the
Company are asking the Company's stockholders to approve certain amendments to
the certificate of incorporation of the Company to change the authorized capital
stock of the Company to permit the issuance of shares of Common Stock of the
Company to the Cheniere Stockholders in exchange for Cheniere Shares. The Board
of Directors of the Company is also asking the stockholders to approve certain
other amendments to the certificate of incorporation of the Company to authorize
a new class of preferred stock, to change the name of the Company to "Cheniere
Energy, Inc." and to add provisions to limit the liability of the Company's
directors and to provide for the indemnification of the Company's officers and
directors to the fullest extent permitted by Delaware law.
In addition, in connection with the Reorganization, the stockholders
are being asked to vote for the election of three nominees as directors
designated by Cheniere.
Young, the President & CEO of the Company and the holder of shares
totalling approximately 57% of the issued and outstanding shares of Common Stock
of the Company, has agreed with Cheniere to vote his shares of Common Stock in
favor of each of the proposals set forth in this Proxy Statement. Following the
closing of the Exchange and the Divestiture, Young will own approximately 4% of
the then issued and outstanding New Shares and approximately 57% of the issued
and outstanding shares of Newco Stock. At the closing of the Reorganization
(the "Closing"), Young will resign as President & CEO and a member of the Board
of Directors of the Company and will enter into a consulting agreement (the
"Consulting Agreement") with the Company having a two-year term and providing
for payments of $75,000 per annum, pursuant to which Young will provide the
Company with advice and assistance regarding the transition of ownership and
shareholder relations. In addition, at the Closing, pursuant to the
Reorganization Agreement, Young and the Company will enter into agreements
providing that Young will not sell more than 10,000 shares per month for a nine-
month period after the Closing and that the Company will not engage in a reverse
stock split, other than as contemplated by the Reorganization Agreement, for an
eighteen-month period after the Closing.
Pursuant to the Reorganization Agreement, at the Closing, Young and
the Company will enter into an indemnification
-2-
<PAGE>
agreement (the "Indemnification Agreement") pursuant to which Young will agree
to indemnify the Company, Cheniere and the Cheniere Stockholders against any
cost, expense or other liability that any of them may suffer arising as a result
of or in connection with (i) the operation of the business of the Company prior
to the Closing, (ii) any untrue statement or omission of material fact made by
or with respect to the Company or Young in the Proxy Statement and other proxy
materials or the registration statement under the Securities Exchange Act of
1934 (the "Exchange Act") registering the Newco Stock and (iii) any tax
liability arising out of or in connection with the consummation of the
transactions contemplated by the Divestiture. See "THE REORGANIZATION -- The
Reorganization Agreement; -- Background of the Reorganization; -- The
Divestiture; and -- Interests of Certain Persons in the Reorganization and
Related Transactions."
The Board of Directors of the Company has determined that the
Reorganization is in the best interest of the stockholders and recommends that
the stockholders approve the Reorganization and each of the proposals to be
considered at the Meeting. In reaching this determination, the Board considered
(i) the Company's chronic losses from its existing line of business and the
potential earnings that may be obtained in the oil and gas business and (ii) the
benefits that may be obtained from separating two different businesses with
different management and operating requirements. The Board weighed these
benefits against (i) the possibility that, as a result of the distribution of
Newco Stock, stockholders may be deemed to receive taxable income without
receiving any cash to pay such taxes, (ii) the loss of the Company's net loss
carry forwards to shield future income, (iii) the possible inability to list
Newco Stock on the Electronic Bulletin Board and (iv) the potential issuance of
additional shares of Common Stock and shares of preferred stock that would
further dilute the stockholders' ownership interest in the Company.
All information in this Proxy Statement relating to Cheniere,
Exploration, Zydeco and the Joint Venture has been supplied by Cheniere, and the
management of the Company is relying upon the management of Cheniere for such
information.
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement and in Exhibit A (Agreement of Reorganization)
and Exhibit B (Form of Amended and Restated Certificate of Incorporation)
hereto. Certain capitalized terms used in this Summary are defined elsewhere in
this Proxy Statement. All statements in the following Summary are qualified by
and are made subject to the more detailed information contained in this Proxy
Statement and the Exhibits attached hereto. Stockholders are urged to review
this Proxy Statement and the Exhibits carefully and in their entirety.
-3-
<PAGE>
Special Meeting of Stockholders
------- ------- -- ------------
DATE, TIME AND PLACE The Special Meeting will be
held on Wednesday, June 26,
1996, at 10:00 a.m. local
time at Shutters On the
Beach, One Pico Boulevard,
Santa Monica, California
90405 (Tel.: 310-458-0030).
RECORD DATE Only holders of record of
shares of Common Stock at
the close of business on
April 30, 1996 will be
entitled to notice of and to
vote at the Special Meeting.
Holders of record of shares
of Common Stock on the
Record Date are entitled to
one vote per share,
exercisable in person or by
proxy. The presence in
person or by proxy of the
holders of a majority of the
outstanding shares of Common
Stock entitled to vote is
necessary to constitute a
quorum at the Special
Meeting. See "VOTING AT THE
SPECIAL MEETING."
-4-
<PAGE>
PURPOSE OF THE SPECIAL The purpose of the Special
MEETING Meeting is to consider and
vote upon the Reorganization
pursuant to which (1) the
Company will change its
existing business to the oil
and gas exploration business
of Cheniere by the transfer
by the Cheniere Stockholders
of the Cheniere Shares,
comprising all of the
capital stock of Cheniere,
to the Company in exchange
for New Shares, and (2) the
Company will distribute to
its stockholders as of the
Record Date all of the
issued and outstanding
shares of Newco Stock. See
"THE REORGANIZATION --
Background of the
Reorganization; and -- "The
Divestiture and "PROPOSAL 1.
REORGANIZATION OF THE
COMPANY."
Exchange, stockholders will
be asked to consider and
approve the amendment of the
certificate of incorporation
of the Company to change the
authorized capital stock of
the Company to a total of
21,000,000 shares, comprised
of 20,000,000 shares of
Common Stock, having a par
value of $.003 per share,
and 1,000,000 shares of
preferred stock, the rights,
powers and preferences of
which may be set by the
Board of Directors by
resolution.
-5-
<PAGE>
Upon approval by the
stockholders of the
amendment of the certificate
of incorporation with
respect to changes in the
Company's capitalization and
the filing of the Amended
and Restated Certificate of
Incorporation with the
Secretary of State of the
State of Delaware, each
three (3) outstanding shares
of Common Stock will
automatically be converted
into one (1) New Share. See
"PROPOSAL 2. AMENDMENTS TO
CERTIFICATE OF INCORPORATION
RELATING TO CHANGE IN
CAPITALIZATION."
In connection with the
Exchange, stockholders will
also be asked to approve an
amendment to the certificate
of incorporation to change
the name of the Company to
"Cheniere Energy, Inc.".
See "PROPOSAL 3. AMENDMENT
TO THE CERTIFICATE OF
INCORPORATION TO CHANGE THE
NAME OF THE COMPANY."
In addition, in connection
with the Exchange, the
stockholders will vote upon
the election of three (3)
directors nominated by
Cheniere. See "PROPOSAL 6.
ELECTION OF DIRECTORS."
-6-
<PAGE>
Under the Reorganization
Agreement, the Company and
Cheniere may waive any
c o n d i t i o n a n d ,
notwithstanding the failure
to satisfy the condition,
agree to close the remaining
a s p e c t s o f t h e
Reorganization.
Accordingly, it is possible
that stockholders could vote
t o a p p r o v e t h e
Reorganization but against
the Divestiture in which
case the Company would not
consummate the Divestiture
but, notwithstanding, would
elect to consummate the
Exchange. It should be
noted that the only
amendment to the Certificate
of Incorporation necessary
to consummate the
Reorganization is Proposal 2
relating to changes in the
capitalization of the
Company.
It should also be noted that
notwithstanding approval of
the Divestiture by the
stockholders, the Board of
Directors may determine, at
any time prior to the
consummation of the
Divestiture, to terminate
the Divestiture and not
distribute the Newco Stock
to the stockholders of the
Company, if in their
judgment, the distribution
of the Newco Stock would not
be in the best interest of
the Company and the
stockholders. In the event
that the Board determines
not to consummate the
Divestiture, it is
anticipated that the
business of Newco would be
liquidated and the
stockholders would no longer
have an interest in a
company engaged in the media
business.
Stockholders will be asked
to separately consider and
vote upon the Divestiture.
See "PROPOSAL 4. DIVESTITURE
OF THE EXISTING BUSINESS OF
THE COMPANY."
-7-
<PAGE>
The stockholders will also
be asked to consider and
vote upon the amendment of
the certificate of
incorporation to limit the
liability of the Company's
directors and to provide for
the indemnification of the
officers and directors of
the Company to the fullest
extent permitted under
Delaware law. See "PROPOSAL
5. AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
TO LIMIT LIABILITY AND
PROVIDE INDEMNIFICATION."
SHARES OUTSTANDING ON THE 1,802,859
RECORD DATE
VOTE REQUIRED The affirmative vote of the
holders of at least a
majority of the outstanding
shares of Common Stock
represented at the meeting
in person or by proxy is
required to approve the
Reorganization, including
the Divestiture and all
proposed amendments to the
c e r t i f i c a t e o f
incorporation. In addition,
directors are elected by a
plurality of the votes cast
at the Special Meeting.
Young owns approximately 57%
of the outstanding shares of
Common Stock and has agreed
to vote his shares in favor
of the Reorganization and
each of the other proposals
to be voted upon by the
stockholders at the Meeting.
-8-
<PAGE>
THE REORGANIZATION
------------------
BACKGROUND OF THE Pursuant to the Reorganization
REORGANIZATION Agreement, the Company, Young,
Cheniere and the Cheniere
Stockholders agreed to effect
a reorganization of the
Company whereby the Company
would (1) distribute to the
stockholders of the Company as
of the Record Date all of the
outstanding Newco Stock and
(2) issue to the Cheniere
Stockholders approximately 93%
of the then outstanding New
Shares in consideration for
all of the outstanding
Cheniere Shares, effecting a
change of control of the
Company and changing the
principal business of the
Company to the exploration of
oil and gas. Because of the
significant operating losses
of the Company, management of
the Company has determined
that the Reorganization is the
best alternative available to
the Company and its
stockholders and offers the
best available opportunity for
increasing shareholder value
by engaging in a potentially
profitable business,
notwithstanding the
uncertainties of entering into
a new line of business that is
in its initial start-up stage
and the dilution of the
stockholders' interest to
approximately 7% in the
aggregate after consummation
of the Exchange with the
likelihood that additional
dilution will occur as the
result of additional equity
financings.
Cheniere is participating in
the Reorganization in order to
provide it with a relatively
simple and inexpensive means
by which to give it a presence
in the public market. The
Board of Directors of Cheniere
believes that the
Reorganization will better
enable it to access capital
for the growth of its
business.
See "REORGANIZATION --
Background of the
Reorganization."
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<PAGE>
RECOMMENDATION OF THE BOARD OF The Board of Directors of the
DIRECTORS Company believes that the
Reorganization is in the best
interest of the stockholders
of the Company. Accordingly,
the Board of Directors has
unanimously recommended
approval by the Company and
the Stockholders of the
Reorganization, including both
the Exchange and the
Divestiture, the related
amendments to the Company's
certificate of incorporation,
the election of the nominees
of Cheniere as directors and
the other proposals set forth
in the Proxy Statement. The
current Board of Directors of
the Company consists of three
persons, one of which is the
principal stockholder of the
Company. See "THE
REORGANIZATION --
Recommendation of the Board of
Directors."
CONDITIONS; TERMINATION The Reorganization is subject
to certain conditions, which
may be waived by the Company
and/or Cheniere, as the case
may be, including the approval
of the stockholders of the
Company and certain financial
statement requirements
applicable to Cheniere and the
Company as of the Closing
Date. In addition, the Company
and Cheniere may terminate the
Reorganization Agreement under
certain specified
circumstances, including the
failure to satisfy certain
conditions. See "THE
REORGANIZATION -- The
Reorganization Agreement."
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<PAGE>
INTERESTS OF CERTAIN PERSONS Pursuant to the Reorganization
IN THE REORGANIZATION AND IN Agreement and the Consulting
RELATED TRANSACTIONS Agreement, at the Closing, the
Company and Young will enter
into the Consulting Agreement
which provides for the payment
of $75,000 per annum to Young
for a two-year period after
Closing. In addition, at the
Closing, Young and the Company
will enter into agreements
pursuant to which Young will
agree not to sell more than
10,000 new shares per month
for a nine-month period after
the Closing Date and the
Company will agree not to
engage in a reverse stock
split, other than as
contemplated by the
Reorganization Agreement and
as described herein, for an
eighteen-month period after
the Closing Date. At the
Closing, Young will agree to
indemnify the Company, and
Cheniere against certain
liabilities in connection with
the Reorganization, including
liabilities relating to taxes
arising in connection with the
Divestiture. See "THE
REORGANIZATION -- Interests of
Certain Persons in the
Reorganization and Related
Transactions."
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<PAGE>
FEDERAL INCOME TAX
CONSEQUENCES
OF THE REORGANIZATION
- THE EXCHANGE The Cheniere Stockholders will
not recognize gain or loss for
federal income tax purposes
upon their exchange of
Cheniere Shares for New
Shares. Each such stockholder
will have a tax basis in his
New Shares received in the
Exchange equal to his basis in
his exchanged Cheniere Shares,
and will have a holding period
for his New Shares received in
the Exchange which will
include his holding period for
his exchanged Cheniere Shares.
The Company will not recognize
gain or loss in connection
with its receipt of Cheniere
Shares in exchange for the
issuance of New Shares
pursuant to the Exchange. The
tax basis of the Company in
the Cheniere Shares that it
acquires pursuant to the
Exchange will equal the tax
basis of such shares in the
hands of the exchanging
Cheniere stockholders, and the
Company will have a holding
period for such shares that
will include the holding
period for such shares in the
hands of the Cheniere
Stockholders. As a result of
the consummation of the
transactions contemplated by
the Exchange, the Company will
cease to have available to it
for federal income tax
purposes certain net operating
loss carry forwards. See
"INTERESTS OF CERTAIN PERSONS
IN THE REORGANIZATION AND
RELATED TRANSACTIONS --
Certain Federal Income Tax
Consequences of the Exchange."
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<PAGE>
- THE DIVESTITURE It is anticipated that the
fair market value of Newco
Stock received in the
Divestiture will be treated
for federal income tax
purposes as a taxable
distribution to the
stockholders of the Company.
The amounts of the income, if
any, to be recognized by the
stockholders on such
distribution will be dependent
in large part upon the fair
market value of the Newco
Stock, which in turn is
expected to be dependent upon
the market valuation of the
shares as of the date
following the Divestiture, and
the earnings and profits of
the Company, as well as a
stockholders' basis in his
shares of Common Stock. See
"THE DIVESTITURE - Certain
Federal Income Tax Aspects of
the Divestiture."
The foregoing discussion is
for general information only
and is intended to be a
summary of the principal
income tax considerations of
the Exchange and the
Divestiture. It is not
intended as an alternative for
individual tax planning. Each
stockholder should consult his
own tax adviser concerning the
federal, state, local, and
other tax consequences to him
of the Exchange and the
Divestiture.
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<PAGE>
THE DIVESTITURE
- REASONS FOR THE The Board of Directors of the
DIVESTITURE Company believes that it would
be in the best interest of the
Company and its stockholders
to separate those activities
which involve television
production from its oil and
gas exploration business,
because the inherently
different costs, benefits,
risks and rewards of these
businesses involve different
investment considerations.
- SHARES TO BE Approximately 450,000 shares
DISTRIBUTED of Newco Stock, representing
all of the Newco Stock
outstanding on the Divestiture
Record Date, at a Distribution
Rate of one (1) share of Newco
Stock for each four (4) shares
of Common Stock.
- DIVESTITURE RECORD DATE Close of business on April 30,
1996.
- NEWCO STOCK LISTING Application will be made to
list the Newco Stock on the
Electronic Bulletin Board
under the symbol "MARV."
Newco Stock is not currently
eligible for inclusion on the
"Electronic Bulletin Board."
No assurance can be given that
the Newco Stock will ever meet
the standards for inclusion on
the Electronic Bulletin Board.
- NEWCO DIVIDEND POLICY The Board of Directors of
Newco currently does not
intend to declare regular
periodic dividends on shares
of Newco Stock.
APPRAISAL RIGHTS OF The stockholders of the
STOCKHOLDERS Company do not have any
appraisal rights with respect
to the Reorganization under
Delaware law. See
"REORGANIZATION -- Appraisal
Rights."
The Parties
--- -------
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<PAGE>
THE COMPANY The Company is currently
engaged primarily in the
production of traditional
television programming but,
prior to determining to effect
the Reorganization, had
determined to change its
business to the creation,
publishing and distribution of
health-themed information for
the general public through
print and electronic media.
CHENIERE Cheniere is a start-up company
formed to engage in the
exploration for and
exploitation of oil and gas.
NEWCO Newco is a newly-formed
subsidiary of the Company that
has been assigned the assets
of the Company, subject to
liabilities, relating to its
television production
business.
VOTING AT THE SPECIAL MEETING
REVOCABILITY OF PROXY
Execution of the enclosed Proxy will not affect a stockholder's right
to attend the Special Meeting and vote in person. If your Proxy is properly
signed, received by the Company and not revoked by you, the shares to which it
pertains will be voted at the Special Meeting in accordance with your
instructions. If a stockholder does not return a signed Proxy, his or her
shares cannot be voted by proxy. Any proxy given pursuant to this solicitation
may be revoked by the person giving it at any time before its use by delivering
to the Company a written notice of revocation or duly executed proxy bearing a
latter date or by attending the meeting and voting in person.
PERSON MAKING THE SOLICITATION
The cost of soliciting Proxies will be borne by the Company. In
addition to solicitation by mail, the Company will request banks, brokers and
other custodians, nominees and fiduciaries to send proxy material to the
beneficial owners and to secure their voting instructions if necessary. The
Company, upon request, will reimburse them for their expenses in so doing.
Officers and regular employees of the Company may solicit Proxies personally, by
telephone or telegram from some stockholders if Proxies are not received
promptly, for which no additional compensation will be paid.
-15-
<PAGE>
VOTING SHARES AND VOTE REQUIRED
On the Record Date, the Company had 1,802,859 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote on each matter
presented at the Special Meeting.
Directors are elected by the affirmative vote of a plurality of the
shares present in person or by proxy. In all other matters other than the
election of directors, the affirmative vote of a majority of shares present in
person or by proxy is required to approve the matter under consideration. Under
the law of Delaware, the Company's state of incorporation, "shares present" at a
meeting of stockholders and entitled to vote are determinative of the outcome of
the matters subject to vote. The affirmative vote of a majority of the
outstanding shares of Common Stock entitled to vote thereon is required to
approve the proposed amendment and restatement of the Company's certificate of
incorporation, including the amendments with respect to changes relating to the
Exchange, and to approve the Divestiture. An abstention from voting on a matter
by a stockholder present in person or by proxy and entitled to vote has the same
effect as a vote "AGAINST" the proposal. Broker non-votes will not be
considered "shares present" based on the Company's understanding of state law
requirements and the Company's certificate of incorporation and bylaws and will
not affect the outcome of the vote.
Unless specified otherwise, the Proxy will be voted (i) FOR the
Reorganization, (ii) FOR the amendment and restatement of the Company's
certificate of incorporation to (a) change the authorized capital stock of the
Company by changing the number and par value of the Common Stock and creating a
new class of preferred stock, (b) change the name of the Company, and (c) limit
the liability of directors and provide for indemnification of the Company's
officers and directors to the fullest extent permitted by Delaware law, (iii)
FOR the election of the three (3) nominees of Cheniere to serve as directors of
the Company until the next Annual Meeting and until their successors are duly
elected and qualified, and (iv) FOR the Divestiture. In the discretion of the
Proxy holders, the Proxies will also be voted for or against such other matters
as may properly come before the Special Meeting. Management is not aware of any
other matters to be presented for action at the Special Meeting.
If the Proposals in respect of the Reorganization and the changes in
the Company's capitalization are approved, the Company and Cheniere may, but are
not required to, proceed to consummate the Exchange, regardless of whether the
stockholders approve the other aspects of the Reorganization.
It should also be noted that notwithstanding approval of the
Divestiture by the stockholders, the Board of Directors may determine, at any
time prior to the consummation of the Divestiture, to terminate the Divestiture
and not distribute the Newco Stock to the
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<PAGE>
stockholders of the Company, if, in their judgment, the distribution of the
Newco Stock would not be in the best interests of the Company and the
stockholders.
INFORMATION CONCERNING CHENIERE
GENERAL
Cheniere is a start-up company located in Houston, Texas, that plans
to operate as an independent oil and gas exploration company. It plans to
participate with industry partners utilizing focused geologic concepts and
advanced 3-D seismic and computer aided exploration technology, including
enhanced structural and stratigraphic imaging and attribute analysis. It is
anticipated that Cheniere's initial activities will be in the Louisiana
transition zone, an area covering up to 5 miles north and south of the
coastline. The principal office of Cheniere is at 2 Allen Center, 1200 Smith
Street, 17th Floor, Houston, Texas 77002 and its telephone number is (713) 659-
1361.
BACKGROUND
Cheniere was incorporated in Delaware in February 1996 for the purpose
of entering the oil and gas exploration business, initially on the Louisiana
Gulf Coast. The principal stockholders of Cheniere are William D. Forster
("Forster") and BSR Investments, Ltd., a British Virgin Island corporation
("BSR"). During the past two years, Forster and BSR have been active in
providing financing to micro and small capitalization energy companies,
including Fortune Petroleum Corporation ("Fortune"), Zydeco and Harken Energy
Corporation. Forster and BSR organized Cheniere to capitalize on what they
perceive to be a unique opportunity to combine the use of leading edge seismic
exploration techniques and the specific knowledge of the geology of the
coastline (sometimes called the "transition zone") area of Louisiana possessed
by Cheniere's corporate partner, Zydeco, and apply it to what they consider an
unusually large prospective area of under-explored acreage in West Cameron
Parish, Louisiana. For additional information about Zydeco, see "Zydeco."
Forster, President & CEO of Cheniere, 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 7 years, and then in various other areas. In
1990, he founded his own private investment bank. In 1994, he became active
again in the oil and gas business when he began to work together with BSR, a
Paris-based private investment company, to provide financing for small energy
companies. Together, in the course of their financing activities with Zydeco,
Forster and BSR concluded that the opportunities inherent in Zydeco's latest
project in West Cameron Parish, Louisiana warranted the formation of a new
company and a shift to functioning as principals. Accordingly, Cheniere was
formed for this purpose.
THE EXPLORATION AGREEMENT
On April 4, 1996, Cheniere entered into a joint venture (the "Joint
Venture") with Exploration, pursuant to an Exploration Agreement dated April 4,
1996 (the "Exploration Agreement") between Cheniere
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<PAGE>
and Exploration. Under the Exploration Agreement, Cheniere will pay 100% of the
"Seismic Costs" (as defined below) up to $13.5 million, and 50% of the excess of
any such costs, to earn a 50% working interest participation in the leasing and
drilling of all prospects generated by Exploration in the Survey Area (as
defined below). "Seismic Costs" are defined in the Exploration Agreement to
include, among others, costs of acquiring and processing seismic data, and the
costs of obtaining any seismic permits (permission to shoot seismic signals),
including the Seismic Permit from Louisiana discussed below.
Exploration will perform 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. Cheniere has the right to review all data and
may elect to generate its own prospects. However, based on its assessment of
Exploration's management, it is Cheniere's current intention to have Exploration
generate the prospects from the Survey data (defined below). Neither party to
the Joint Venture is permitted to sell or license the data without the other's
approval. Since the term of the Seismic Option is for 2 years (18 months with a
6 month option to extend), it is expected that the data will remain proprietary
until Exploration and Cheniere have had ample opportunity to select their
prospects.
Cheniere is obligated to make payments for the Seismic Costs into a
joint venture account (the "Joint Venture Account") pursuant to a schedule that
provides for the initial installment of $3 million to be paid no later than May
15, 1996. Subsequent payments are due on the last day of each of the months of
June 30, 1996 through February 28, 1997. Under the Exploration Agreement, each
payment is required to be in the amount of $1 million, except for the two
payments at the end of September 1996 and February 1997 which are required to be
for $2 million and $1.5 million, respectively. There is a 30-day grace period
for each payment after the initial payment. In the event that Cheniere fails to
make all of the subsequent payments into the Joint Venture Account, the
Exploration Agreement provides for Cheniere's participation to be reduced to a
level which varies according to the amount of payments Cheniere has made at the
time it discontinues its payments. After paying a total of $8 million into the
Joint Venture Account, Cheniere will be entitled to not less than a 25% working
interest participation in the leasing and drilling of all prospects generated by
Exploration in the Survey Area. See "Financing."
There can be no assurance that Cheniere will be able to timely obtain
financing necessary to make the scheduled payments.
The Zydeco Seismic Survey in West Cameron Parish, Louisiana
A principal purpose of the Joint Venture is to provide a means by
which Cheniere could participate with Exploration in the first 3-D seismic
survey ever to be conducted across the most westerly 28 miles of the Louisiana
coastline in West Cameron parish. See "Zydeco."
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<PAGE>
262 Square Mile Survey Area
The 3-D seismic survey (the "Survey") will employ state of the art
technology over a 5 miles area on both sides of the Louisiana coastline and will
cover a combined offshore and onshore area of approximately 262 square miles
(the "Survey Area"). The Survey Area lies within an area which historically has
been one of the most highly prolific oil and gas provinces in the lower 48
states. However, the "transition zone", defined as the area of a few miles
either side of the coastline, has also been one of the most costly and
technically difficult areas from which to gather seismic data.
Offshore Area -- State Waters Exclusive Permit
On February 14, 1996, the State of Louisiana awarded Exploration the
exclusive right (the "Seismic Permit") to shoot and gather seismic data over the
51,000 net acres of Louisiana State waters (running out to a 3 mile limit) in
the western half of West Cameron Parish (the "Survey Area"). The term of the
Seismic Permit is for 18 months and may be extended for an additional 6 months
at Exploration's option. During this term Exploration has the exclusive right
to nominate for lease sale any acreage in the covered state waters.
The Survey Area, which extends 5 miles northward onshore and 5 miles
southward offshore, includes an area running southward over two miles of federal
waters. Exploration's seismic contractor will apply for U.S. Government permits
to shoot and receive seismic signals in the two mile area.
Exploration's rights regarding leases in the federal waters are not
exclusive, and there can be no assurance concerning the receipt, timing and
scope of these permits.
Onshore Area -- Prospective Permits, Lease Options, and Farmouts
Exploration has commenced discussions for the purpose of obtaining
farmouts, seismic permits or lease options, with certain of the large owners of
the mineral interests under the onshore portion of the Survey Area ("Onshore
Area"). Exploration is also in the process of seeking to obtain seismic
or lease options from the other small mineral rights owners within the
Onshore Area.
There can be no assurance that Exploration will be successful in obtaining
such farmouts, seismic permits or lease options.
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<PAGE>
West Cameron Parish
The Survey Area has a rich history of oil and gas exploration. In the
northeast quadrant of the Survey Area, the Mud Lake and Second Bayou Fields have
cumulatively produced more that 1.3 trillion cubic feet ("tcf") of natural gas
to date, with more than 250 billion cubic feet ("bcf") having been produced from
one bore hole. In the southwestern quadrant of the Survey Area, the West
Cameron Block 17 Field in the state waters has cumulatively produced more than
980 bcf to date.
However, the Survey Area has not been previously covered by any 3-D
seismic survey which crosses the coastline. Farther offshore, successful
exploration has resulted from the acquisition of 3-D data from seismic surveys.
In 1989, a 3-D seismic survey shot by Fairfield Industries along the shallow
federal waters in the western part of the Western Cameron area led to 4 new
field discoveries which have cumulatively produced in excess of 1/3 of a tcf and
more than 3 million barrels of oil equivalent. These volumes do not include the
additions discovered from existing field extensions.
There can be no assurance that the Survey Area will yield comparable
discoveries of oil and gas.
Data Acquisition
The 3-D Survey designed by Zydeco will employ state of the art
technology. Consistent use of the same type of sound source (dynamite) and
receivers (hydrophones) laid out in a symmetrical array are expected to yield
the highest achievable level of data accuracy with substantially reduced
acquisition costs compared to conventional transition zone surveys. The design
of the 3-D Survey has been led by Edward R. (Rudy) Prince, Zydeco's Vice
Chairman, who was formerly CEO and a founder of Digicon Geophysical Corp., a
leading seismic services company. The 3-D Survey will employ technology which
has been licensed on an exclusive basis for the Louisiana transition zone from
Wavefield Imaging, Inc., an advanced seismic technology company.
Data Processing and Interpretation
The 3-D Survey will also employ state-of-the-art seismic processing
technology to achieve high-quality results. Data will be transferred daily from
the field crew to Exploration's headquarters in Houston, where it will undergo
processing approximating real-time. This procedure will allow Exploration to
closely monitor 3-D data quality and make adjustments to the acquisition
parameters if necessary. The new technology also significantly reduces the
delay time between the Survey itself and ultimate drilling decisions.
Exploration will routinely employ another new technology, 3-D prestack
migration, designed to obtain superior quality subsurface images in spite of its
reduced cost design for field data acquisition. After completing seismic
processing, Exploration will also employ state-of-the-art 3-D Computer Aided
Exploration (CAEX) interpretation techniques to locate and define low-risk, high
potential prospects.
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<PAGE>
Schedule for the Joint Venture
Although the 18 month-term of the Seismic Permit may be extended
beyond its August 1997 expiration date for an additional six months until
February 1998, Exploration presently plans to adhere to the schedule summarized
below:
Dates Events
----- ------
April - May 1996 Onshore Permitting and Lease Optioning
July - October 1996 Conduct Seismic Survey and Simultaneously Begin
Processing & Interpretation of Data Received
4th Quarter 1996 Continue Processing and Interpretation
1st Quarter 1997 Complete Interpretation and Identify Prospects
2nd Quarter 1997 Nominate and Bid Offshore Leases, and Lease
Onshore
3rd Quarter 1997 Define Prospects; Propose and Contract for
Drilling
4th Quarter 1997 Commence Drilling of First Set of Prospects
There can be no assurance that the schedule can be met. Failure to
substantially adhere to the schedule, unless the term of the Seismic Permit is
extended, would materially and adversely effect the value of Cheniere's interest
in the Joint Venture.
Other Terms of the Exploration Agreement
Under the Exploration Agreement, Exploration and Cheniere have agreed
that the entire Survey Area (onshore and offshore) is an Area of Mutual Interest
("AMI") for the five years ending May 15, 2001, during which the two companies
together may continue to drill, test and develop prospects within the AMI.
Financing
Cheniere has privately placed 200 Cheniere Shares at a purchase price
of $15,000 (obtaining aggregate gross proceeds of $3 million) with certain
accredited investors in an offering exempt from registration under the
Securities Act of 1933 (the "Securities Act") pursuant to the safe harbor
provided by Regulation D thereunder. The purpose of the offering was to raise
the $3 million necessary for the initial funding required under the Exploration
Agreement and to obtain the capital that is a condition under the terms of the
Reorganization Agreement. Pursuant to the exchange formula provided in the
Reorganization Agreement, each of the newly issued Cheniere Shares will convert
into 10,000 New Shares of the Company, resulting in an effective purchase price
to purchasers in the private placement of $1.50 per New Share, assuming
consummation of the Reorganization.
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<PAGE>
The Company has made its initial $3 million funding requirement under
the Exploration Agreement. The current estimate of the amount of Cheniere's
remaining obligations under the Exploration Agreement is approximately $12
million consisting of (i) the remaining $10.5 million required to be paid into
the Joint Venture Account in monthly installments until February 28, 1997 and
(ii) an estimated $1.5 million required to satisfy Cheniere's obligation to pay
50% of the Seismic Costs in incurred by the Joint Venture in excess of $13.5
million.
In addition, additional funding will be necessary to fund the costs of
acquiring leases and drilling on exploration and development prospects, both
within the MOI area and elsewhere.
Management of Cheniere anticipates raising additional capital to fund
Cheniere's obligations under the Exploration Agreement and for working capital,
either through the sale of additional equity and/or debt or by the sale of a
portion of its participation interest in the Joint Venture to institutional
investors or other companies engaged in the oil and gas industry. In connection
with its efforts to raise additional capital, management of Cheniere has begun
preliminary discussions with prospective investors and has engaged an investment
banking firm, knowledgeable in the oil and gas industry, to assist it in raising
the required capital.
The issuance of additional equity by Cheniere or the Company will
further dilute the interest of stockholders in the Company to less than the 7%
aggregate interest that they will hold after the Exchange.
No assurances can be given that Cheniere will be able to obtain timely
and sufficient additional capital to fund its obligations under the Exploration
Agreement. Failure to obtain timely and sufficient additional capital would
have a material and adverse effect on the business and prospects of Cheniere.
Zydeco Energy, Inc.
Zydeco is a Houston-based, publicly traded (NASDAQ: ZNRG), independent
oil and gas exploration and service company, utilizing focused geologic concepts
and advanced 3-D seismic and computer-aided exploration technology, including
enhanced structural and stratigraphic imaging and attribute analysis. Zydeco's
efforts are focused primarily in the Louisiana transition zone and the Timbalier
Trench (Louisiana offshore waters).
The management of Cheniere believes that the caliber and breadth of
the professional team assembled at Zydeco is uncommon for an independent
operator. In addition to its President, Sam Myers, the team includes Edward R.
(Rudy) Prince, Vice-Chairman, who was a founder and former Chairman and CEO of
Digicon, a leading seismic services company; Steven W. Knecht, Executive Vice
President, Exploration, who has spent the last 16 years with Zydeco or its
predecessor company successfully exploring, with virtually sole focus on, the
Louisiana transition zone; and John W. McTigue, Jr., Vice President, Technology,
who has been involved with the development of 3-D technology since the early
stages, first at Shell
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<PAGE>
Development Company and later with GeoQuest Systems, Inc. and INEXS, Inc. In
addition, after Zydeco began publicly trading in December 1996, W. Kyle Willis
joined the company as its CFO. Previously he had served as Chief Financial
Officer of Reunion Resources.
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<PAGE>
INFORMATION CONCERNING THE COMPANY
Background
In 1983, in connection with a reorganization plan under the Bankruptcy
Code, the Company, then called All American Burger, Inc. ("AAB"), was
incorporated and acquired all of the assets, franchise agreements and leasehold
estate of 986 South Vermont Corporation, a California corporation ("South
Vermont"). For a time, AAB engaged in franchising "fast-food" restaurants and
food outlets in California, Nevada and New York under the "All American Burger",
"Wee Donuts" and "Pedro's" trade names. In 1988, AAB discontinued its
franchising operations.
In May 1987, AAB acquired all of the capital stock of Group S Films,
Inc., a California corporation ("Group S") engaged in the production and
distribution of theatrical motion pictures and other programming material, in
exchange for the issuance to the shareholders of Group S shares of the Company's
Common Stock. As a consequence of such transaction, the former shareholders of
Group S became the beneficial owners of in excess of fifty percent of the Common
Stock of the Company. AAB and Group S ceased all significant business
activities in the latter part of 1989.
In June 1993, the Company entered into an Agreement and Plan of
Reorganization pursuant to which the Company acquired all of the capital stock
of BEXY Communications, Inc., a California corporation ("BEXY"), in exchange for
the issuance to the sole shareholder of BEXY and its designees of 1,116,666
shares of Common Stock. As a consequence of such transaction, the sole
shareholder of BEXY became the beneficial owner of in excess of fifty percent of
the Common Stock of the Company, and BEXY became a wholly-owned subsidiary of
the Company. The Company is in the process of dissolving this inactive
subsidiary.
Current Activities
The current core business of the Company is the production of
traditional television programming. In 1993, the Company's management
determined to enter the business of creating, publishing and distributing
health-themed information for the general public through print and electronic
media. However, to date, no significant revenues have been generated by this
business.
Television Programming
The television programming currently being marketed by the Company
include:
(1) "FEELIN' GREAT," a weekly half hour television series hosted by
former "Dynasty" star John James. This twenty-six episode magazine style series
helps viewers make personal lifestyle choices with timely up-to-date
information.
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<PAGE>
(2) "HEARTSTOPPERS -- HORROR AT THE MOVIES," a two hour made-for-
television tribute to the horror film genre hosted by George Hamilton.
"Heartstoppers" was produced in 1993 and showcases the best horror films from
Hollywood and around the world, from the early days of motion pictures to the
special effects of today's graphic and thrilling horror motion pictures.
"Heartstoppers" is currently being distributed in the United States by MG Perin,
Inc. and internationally by International Entertainment Incorporated ("IEI").
It is a seasonal program aimed at the October/Halloween season, and marketing
efforts for "Heartstoppers" focus primarily on Japan, Australia, parts of Europe
and Latin America. "Heartstoppers" aired in the United States and several
foreign countries in October 1993, and was recently licensed to the Sci-Fi cable
network.
(3) "IT'S A WONDERFUL LIFE -- A PERSONAL REMEMBRANCE," a tribute by
Frank Capra Jr. to his father. Mr. Capra's tribute is in color and is
approximately 15 minutes in length. The black-and-white version of "It's A
Wonderful Life" follows the tribute. In 1992 the program was licensed for a
period of ten years to The Walt Disney Company's Disney Channel. The program is
now being distributed throughout the world by IEI. IEI has licensed the program
in approximately 17 countries, including Mexico, Spain, Sweden, England, Germany
and Greece. Again, the film and tribute are also seasonal programming and are
marketed accordingly. The Company recently licensed the home video rights for
"It's A Wonderful Life -- A Personal Remembrance" to Republic Pictures.
(4) "CHRISTMAS AT THE MOVIES," a one hour special/tribute to class
Christmas films, co-owned and co-produced by the Company in 1990, hosted by Gene
Kelly. All American Communications, Inc. ("AAC") is the co-producer and
distributor for this program. This special incorporates clips from such classic
Christmas motion pictures such as "It's A Wonderful Life," "Santa Claus, The
Movie," "When Harry Met Sally," "The Bells of Saint Mary's," "Meet John Doe,"
and "A Christmas Carol," to name but a few. As with Heartstoppers and It's A
Wonderful Life, this special is focused upon a particular season of the year and
is marketed accordingly. In addition to distributing the special in the United
States, AAC has also licensed the special in 18 foreign countries, including
Canada, the United Kingdom, New Zealand and the Philippines, as well as parts of
Europe and South East Asia.
(5) "VICTIMS," a half hour television pilot for a first run strip
series. The pilot show re-creates survivors' personal accounts of tragic,
catastrophic and unexpected events that emotionally or physically altered their
lives. Such events include being the victim or target of the "system," a
criminal "scam," a natural disaster, a crime or some other life changing event.
The Company co-financed the pilot with First Media Entertainment, Inc. ("FME").
As a result of its investment in the pilot, the Company acquired a one-half
interest in the program, and the distribution rights to "Victims." The Company
has been unsuccessful in its efforts to license the program.
Although the Company continues to market its film library, management
does not anticipate generating significant revenues as a result of this
activity.
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Recent Business Developments
In August 1994, the Company and Hammond Productions ("Hammond")
entered into an agreement for the purchase by the Company from Hammond of all
rights and title to "Feelin' Great." Under the terms of the agreement, the
Company acquired the twenty-six half-hour episodes produced in 1994. The
"Feelin' Great" television series was licensed to cable television in Canada and
started airing in January 1995 on the Life Network, a new Canadian cable
network.
In August 1995, the Company and Hammond amended the agreement to
reassign the series to Hammond in consideration for the cancellation of amounts
owed to Hammond by the Company for the purchase of the series. Under the terms
of the amendment, the Company will continue to have the non-exclusive right to
distribute the series throughout the world.
During 1995, the Company reduced the carrying value of its program
library by $235,500 in order to reflect a lower of cost or market valuation on
certain program inventory. In addition, the Company wrote off its $10,000
investment in the "Victims" television series.
The Company's current activity in the domestic and international
television market place is the continued exploitation of its non-health related
programming and the marketing, on a non-exclusive basis, of the 26-episode
television series entitled "Feelin' Great," now owned by Hammond.
The Health Information Market
The health media marketplace is divided into three main segments:
(1) "Wellness," which relates to everyone who is and seeks to remain
in good health;
(2) "Acute care," which includes people with a short-term illness
possibly requiring a short hospital stay; and
(3) "Chronically ill," which are people suffering from a disease from
which there is no recovery.
The largest part of the health information market is the "wellness"
market. The Company plans to initially develop and market products to this
segment of the market. In the future, as the Company gains recognition in the
health information market, it plans to expand its efforts to include the
marketing of products to other market segments.
Competition
In the development and marketing of its diversified health media
services the Company expects to compete with larger and better financed
companies seeking to enter an
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emerging industry. Companies such as Krames Publishing, Hope Publishing, Crisp
Publications and Great Performance, produce, publish and distribute health-
themed videos, newsletters, magazines, books, CD-ROMs and other related
products. Universities and hospitals, such as the Harvard Medical School,
Cornell University, the Mayo Clinic and John Hopkins Hospital, have also
established themselves as providers of health-themed information to the general
public. The Company anticipates being able to compete in the health information
market by delivering products that are entertaining as well as informative and
by marketing these products to the general public in an innovative manner.
Competition in the financing, development, production and distribution
of television programming is highly intense. The Company's programming competes
with other first-run programming, network re-runs and programs produced by local
television stations. In addition, the Company competes for the creative
services of producers, technical personnel, writers and performing artists. In
both areas of competition, the Company competes with companies that have been
acquiring, developing, producing and distributing programs for many years, many
of which have greater financial resources than those of the Company. These
competitors include large television and film studios such as Paramount, MCA,
and 20th Century Fox, as well as other television distribution companies such as
Republic Pictures and King World Entertainment.
The Company's success is highly dependent on various unpredictable
factors such as the viewing preferences of television audiences. The Company's
programming competes not only with other television programming, including
satellite and cable programming, but also with movie theaters, pre-recorded
videocassette rentals, live performances and other forms of entertainment and
leisure time activities.
MARKET FOR COMMON STOCK
From 1989 through December 1993, there was no public trading market
for the Company's Common Stock. In December 1993, the Company's Common Stock
began trading on the Electronic Bulletin Board "Electronic Bulletin Board" of
the National Association of Securities Dealers, Inc. ("NASD"). The following
table sets forth the high and low bid prices reported on the Electronic Bulletin
Board. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
HIGH LOW
---- ---
Fiscal year ended August
31, 1994:
First Quarter N/A N/A
Second Quarter $13.50 $2.625
Third Quarter 18.00 4.50
Fourth Quarter 6.00 3.00
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HIGH LOW
---- ---
Fiscal year ended August
31, 1995:
First Quarter $ 4.00 $ 2.00
Second Quarter 4.50 3.00
Third Quarter 5.00 4.00
Fourth Quarter 6.25 4.50
HIGH LOW
---- ---
Fiscal Quarter ended
November 30, 1995: $7.00 $6.00
Fiscal Quarter ended
February 29, 1996: $6.00 $4.00
March 1 to April 19, $4.00 $1.50
1996:
On April 19, 1996 the bid price for a share of Common Stock was $1.50.
The prices for the second and third quarters of fiscal 1994 are stated
as if a 1 for 6 reverse stock split which took place in the fourth quarter of
1994 had taken place during the first quarter of such year.
As of April 30, 1996 there were 936 record holders of the Common
Stock.
The Company has never paid any cash dividends on the Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements of the Company, including the notes thereto, which appear at pages F-
3 to F-15 of this Proxy Statement.
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Results of Operations
License revenues from the Company's film library for the six months
ended February 29, 1996 decreased $13,920 or 25%, from $56,178 in the
corresponding period ended February 28, 1995. This is due to a significant
decrease in first quarter revenues from recurring customers and management's
focus on other revenue-producing opportunities for the Company.
The costs of programs and distribution fees during the six months
ended February 29, 1996 decreased $59,417 or 70%, from $84,662 in the
corresponding period ended February 28, 1995. This was due to the significant
amortization costs incurred in 1995. At August 31, 1995, the Company
accelerated the amortization ($122,630) of its film library to reflect its
estimated reduced value.
Expenses during the six months ended February 29, 1996 increased
$104,162, or 165%, from $63,210 in the corresponding period ended February 28,
1995. This was due to consulting fees paid to the Company's President to
supervise operations, raise equity capital and pursue other business
opportunities for the Company. The Company is paying $3,500 per month in
consulting fees to its President. In addition, the Company incurred significant
expenses in funding the start-up costs of IQL, a company owned by the Company's
President and majority shareholder. In exchange for funding the start-up costs,
the Company was granted an option to purchase IQL for $50,000.
Fiscal 1995 Compared to 1994
Revenues from the distribution of the Company's film library showed a
slight decrease of $4,574 from $130,228 in 1994 to $125,654 in 1995. Based on
the continued lower than forecasted revenues of its film library, the Company
re-evaluated the future market value of its program library in the fourth
quarter and recorded a write-down to reflect its value at the lower of cost or
market. The adjustment totaled $235,500 and was recorded in "Amortization of
Film Costs" in the statements of operations.
Expenses increased $33,933 from $169,182 in 1994 to $203,156 in 1995
as a result of increased consulting fees incurred in connection with the
Company's entry into the healthcare film industry and funding of certain start-
up costs of a Company owned by the Company's majority shareholder.
The net loss of $394,633 for the year ended August 31, 1995 includes
non-cash expenses of amortization of program inventories of $249,044.
Distribution and advertising costs related to programs amounted to $63,087.
As of February 29, 1996, the Company had cash of $101,446 and
shareholders' equity of $131,588.
In their report on the Company's financial statements for the fiscal
year ended August 31, 1995, the Company's independent auditors stated that the
Company's recurring losses
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from operation raised substantial doubt about the Company's ability to continue
as a going concern. Management of the Company believes forecasted revenues and
additional equity and debt financing will be adequate to finance the Company's
cash flow requirements during the balance of fiscal 1996. Management has also
formulated additional plans to address the cash flow requirements of the
Company, including the sale or merger of the Company and obtaining additional
financing sources.
Fiscal 1994 Compared to 1993
In 1993, the Company determined to change its core business from the
production of traditional television programming to the production, distribution
and publishing of health-themed information for the general public, through
print and electronic media.
In fiscal 1993, the Company's revenues were $317,946. In fiscal 1994
the Company's revenues were $130,228, a decrease of $187,718. The primary
reason for the decrease in revenues was that the Company did not produce and
market any new programming during fiscal 1994. The revenues generated during
fiscal 1994 were a result of the continued licensing of the Company's existing
film library. No revenues were generated by its health-themed information
business.
The film amortization expense reported during the 1994 period relates
to the Company's film library. The amortization of the film library is
calculated based upon the estimated revenues to be received on the film library.
Distribution costs remained relatively comparable at 40% of revenues in 1994
versus 42% in 1993.
Total expenses decreased $96,691, or 36% from $265,873 in 1993 to
$169,182 in 1994. The primary reason for the decrease relates to a reserve on
advances to former employees recognized in 1993.
The Company completed production of "Heartstoppers -- Horror at the
Movies" during the year ended August 31, 1993.
License revenues earned during fiscal 1994 from its film library
amounted to $130,228.
The net loss of $213,620 for the year ended August 31, 1994 includes
non-cash expenses of $122,630 from the amortization of program inventories.
Distribution and advertising costs related to programs amounted to $52,036.
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The foregoing results of operations reflect the results obtained by
the television production business. Since it is currently contemplated that the
Company will divest itself of this business and enter the oil and gas
exploration and exploitation business, historical results will not be indicative
of or comparable to results that will be achieved by the Company in the future
if the Reorganization is approved.
Liquidity and Capital Resources
At August 31, 1995, the Company had working capital of $128,772.
Development costs and operating expenses were financed through borrowings from
the Company's majority stockholder and the sale of Common Stock totalling
$235,966 in net proceeds. Cash flows from operations for the year ended August
31, 1995 were negative in the amount of $94,250, primarily because of lower than
anticipated license revenues from the Company's film library, cost incurred in
connection with the Company's entry into the healthcare film business and
certain other start-up costs.
During 1995, the Company borrowed approximately $35,000 from its
majority stockholder to fund current operations. In addition, the Company
repaid approximately $155,000 in borrowings from its majority stockholder.
During September 1995, the Company sold through a private placement 85,000
shares of Common Stock for total gross proceeds of $93,500.
At February 29, 1996, the Company's working capital decreased to
$70,287. The Company's cash and accounts receivable are insufficient to insure
the Company's continued existence as a going concern. During the period ending
February 29, 1996, the Company had a negative cash flow from operating
activities of $148,823. Management expects to meet its current cash
requirements through license revenues, borrowings from a related party as
necessary and the sale of equity.
In the event that the Reorganization is not consummated and the
Company has additional cash requirements, there can be no assurances that the
related party will advance funds in order to meet the Company's requirements, or
that the Company will be successful in selling further equity.
Plan of Operation
Cheniere is a start-up company and has had no operations to date other
than in connection with the negotiation and execution of the Exploration
Agreement with Exploration and the negotiation and execution of the
Reorganization Agreement, including related financing. Following the
consummation of the Exchange and the Divestiture, the only business of the
Company will be the business of Cheniere.
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<PAGE>
Cheniere plans to operate as an independent oil and gas exploration
company acting in partnership with industry participants. Cheniere intends to
form alliances to utilize focused geologic concepts and advanced 3-D seismic and
computer aided exploration technology, including enhanced structural and
stratigraphic imaging and attribute analysis. As its initial project Cheniere
has entered into a Joint Venture with Exploration to generate, develop and
exploit oil and gas exploration prospects in the coastal Louisiana area.
For a discussion of the Joint Venture, including Cheniere's
anticipated cash requirements, see "INFORMATION CONCERNING CHENIERE."
Property
In August 1995, the Company leased office space from an unaffiliated
third-party under a one year lease, for $1,150 per month, located at 16661
Ventura Boulevard, Suite 214, Encino, CA 91436. Following the consummation of
the Reorganization, the Company will relocate its offices to Cheniere's offices
in Houston, Texas.
Executive Compensation
The Company has paid no salaries or bonuses to its officers or
directors during the fiscal years ended August 31, 1995, 1994 and 1993. Young,
President & CEO and Chief Financial Officer of the Company, assumed his offices
on June 30, 1993.
No options were issued to the CEO of the Company during 1995.
Stock Option Plan
In November 1993, the Company adopted a stock option plan that covers
certain key employees, consultants and directors as determined by the Board of
Directors. The aggregate number of shares of Common Stock that may be issued
pursuant to options granted under the Plan may not exceed 416,666.
In November 1993, the Board of Directors granted nonqualified options
to the Company's President and principal stockholder for the purchase of 58,333
shares of Common Stock. All of the options are currently exercisable and expire
on November 11, 2003. These options are all currently exercisable at an
exercise price of $0.60 per share and expire on November 11, 2003. The value of
the options to purchase 58,333 shares of Common Stock held by Young at April 19,
1996, based on the bid price of $1.50 per share on such date, was $52,500.
Under the terms of the Plan, the number, exercise price and other
terms of options issued under the Plan may be adjusted in certain circumstances.
The Company, Cheniere and Young have agreed that following the consummation of
the transactions contemplated by the Reorganization, the options held by Young
shall be converted into options to purchase 19,444.33 New Shares at an exercise
price of $1.80 per New Share.
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning the
beneficial ownership of the Company's outstanding Common Stock as of April 30,
1996, by each person known by the Company to own beneficially more than 5% of
the outstanding Common Stock, by each of the Company's directors and by all
directors and officers of the Company as a group. Unless otherwise indicated
below, to the knowledge of the Company, all persons listed below have sole
voting and investment power with respect to their shares of Common Stock except
to the extent that authority is shared by spouses under applicable law.
Percentage of
Name and Address Number of Shares Class
- ---- --- ------- ------ -- ------ --------
Buddy Young(1) and
Rebecca Young as Trustees
of the Young Family Trust
16830 Ventura Blvd.,
Suite 206, Encino,
California 91436 1,091,333(2)(3) 58.6%(4)
Steve Katten(5) 7,500 *
Hathaway Productions
535 Fifth Avenue
New York, NY 10017
David Leedy(6) 4,167 *
7 White Oak
Scroggins, Texas 75480
All Officers and Directors
as a Group (3 persons) 1,103,000 59.3%
____________________
*Less than 1%
(1) Young is the President and CEO and a director of the Company.
(2) An aggregate of 83,333 additional shares are held by the son and daughter
of Young and their spouses for themselves and as custodians for their
children. Young disclaims any beneficial ownership in such shares.
(3) Includes 58,333 shares that such stockholder has the right to acquire upon
exercise of stock options.
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<PAGE>
(4) Based on 1,802,859 shares of Common Stock outstanding as of April 30, 1996.
(5) Katten is a director of the Company.
(6) Leedy is the Secretary and a director of the Company.
Board Meetings
The Board of Directors held 5 meetings in 1995. All directors
attended 75% or more of all Board of Directors' meetings.
Director's Compensation
The Board of Directors of the Company is comprised of Young, David
Leedy and Steven Young. Board members do not receive any compensation for
serving as directors.
Certain Relationships and Related Transactions
From inception in 1993 through April 19, 1996, Young, an officer,
director and principal stockholder of the Company, advanced funds in incremental
amounts as needed to the Company for operating expenses and film productions
totaling $566,301 (before repayments), represented by promissory note(s) of the
Company. The advanced funds accrue interest on outstanding amounts at a rate of
8% per annum. A portion of the funds raised through equity financing have been
used to reduce the debt owed by the Company to Young. As of February 29, 1996,
the Company owed Young $37,208 in accrued and unpaid interest. The liability
has been assumed by Newco and will be paid by Newco from available funds.
As of August 31, 1995 the Company had expended $9,000 to help develop
the business of International Quote Link ("IQL"), a corporation that provides
investor relations services to publicly held companies utilizing the worldwide
Internet, and owned and controlled by Young, in return for an option to purchase
IQL for $50,000 that expires on August 31, 1996. The Company does not intend to
execute this option and does not intend to have any further relationship with
IQL.
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Executive Officers
The following table sets forth names, ages and offices of the
Company's executive officers.
Name Age Offices
---- --- -------
Buddy Young 60 President & CEO; Chief
Financial Officer
David Leedy 55 Secretary
Young established BEXY in January 1992. From June 1983 to December
1991 Young was President and Chief Executive Officer of CST Entertainment
Imaging, Inc., which is involved in colorizing black and white motion pictures.
Young has been involved in the entertainment industry for more than 25 years.
Mr. Leedy is Chief Financial Officer of ReelEfx, a special effects
company, and prior thereto he was Controller of Games Animations, Inc., a
wholly-owned subsidiary of Viacom International, Inc. He has been chief
financial officer or controller of other companies in the entertainment industry
for more than 20 years.
THE REORGANIZATION
Background of the Reorganization
Because of the significant operating losses experienced by the
Company, management of the Company has been exploring various alternatives,
including merging with another company and obtaining additional financing from
third parties. In March 1996, the Company and Young entered into discussions
with the principals of Cheniere concerning a possible transaction whereby the
Cheniere Stockholders would acquire control of the Company in consideration for
the outstanding stock of Cheniere.
As part of these discussions, the parties discussed either liquidating
the existing business of the Company or distributing it to the stockholders of
the Company.
Following a series of negotiating sessions, the parties entered into a
non-binding letter of intent dated as of April 1, 1996 which contemplated the
merger of Cheniere with and into the Company, a reverse split of the Common
Stock and the distribution to the stockholders of the Company of the existing
business of the Company. Thereafter, the Company and Cheniere entered into
negotiations regarding the definitive terms of the transaction.
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Under these terms, as described in greater detail elsewhere in this
Proxy Statement, it is contemplated that the Cheniere Stockholders will exchange
their Cheniere Shares for New Shares and Cheniere will become a wholly-owned
subsidiary of the Company. In addition, it is contemplated that the Newco Stock
will be distributed to the stockholders of the Company as at the Record Date.
The Company previously has transferred its existing business to Newco.
At a telephonic meeting of the Board of Directors of the Company held
on April 16, 1996, the Board of Directors unanimously approved the
Reorganization, on the terms and subject to the conditions contained in the
Reorganization Agreement.
It should be noted that, notwithstanding the approval of Proposal 4 by
the stockholders of the Company, the Board of Directors may determine, in light
of the circumstances then existing, that it would not be in the best interests
of the Company and the stockholders to consummate the Divestiture. In such
event the Divestiture would not occur.
Recommendation of the Board of Directors
By unanimous vote of the Board of Directors at its telephonic meeting
on April 16, 1996, the Board determined that the Reorganization, including,
without limitation, the Exchange and the Divestiture, is fair to, and is in the
best interests of, the Company and its stockholders. The Board of Directors is
comprised of three members, one of whom is Young, the principal stockholder of
the Company.
The terms of the Reorganization Agreement are the result of arm's-
length negotiations among Young and the other members of the Board of Directors
and Cheniere. In reaching its decision to enter into the Reorganization
Agreement and recommend that the stockholders of the Company approve the
Reorganization, the Board of Directors of the Company considered a number of
factors, including, without limitation, the following: the Board's familiarity
with the Company's business, operations and prospects; the fact that the
Company's other alternatives would provide no long term solution to the
Company's chronic losses from operations; the fact that the transaction would
not require the Company's stockholders to give up their investment in a company
engaged in the Company's existing business since in the Divestiture they would
receive without the payment of additional cash consideration the stock of a
company engaged in the existing business of the Company; the fact that all
stockholders will share equally, in proportion to their respective holdings of
Common Stock, in the benefits of the Reorganization; and the favorable prospects
of the business proposed to be conducted by the Company through Cheniere
following the Closing. In addition, the Board of Directors considered the
possible adverse consequences of the Reorganization to the Company and its
stockholders, including, without limitation, the uncertainties of entering into
a new line of business that is in its initial start-up stage and the dilution of
the interest of the stockholders in the Company to approximately 7% in aggregate
after the consummation of the Exchange with the likelihood that additional
dilution will occur as the result of additional equity financings.
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The Board of Directors does not attach any relative weight to any of
the foregoing factors.
THE COMPANY'S BOARD OF DIRECTORS BELIEVES THAT
THE TERMS OF THE REORGANIZATION ARE FAIR TO,
AND ARE IN THE BEST INTERESTS OF, THE COMPANY
AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THE
APPROVAL OF THE REORGANIZATION BY
THE COMPANY'S STOCKHOLDERS.
Cheniere's Purpose and Reasons For Participating in the Reorganization
The objective of Cheniere in discussing a transaction with the Company
was to provide a relatively simple and inexpensive means for giving Cheniere a
presence in the public market. The management of Cheniere believe that such a
presence will aid it in accessing capital to fund the growth of Cheniere's
business.
The Reorganization Agreement
General
The terms of the reorganization are contained in the Reorganization
Agreement, a copy of which is attached as Exhibit A to this Proxy Statement.
------- -
The description in this Proxy Statement of the terms of the Reorganization is
qualified in its entirety by reference to the Reorganization Agreement.
Under the terms of the Reorganization Agreement, and subject to the
approval of the stockholders of the Company, (1) the Company will distribute all
of the outstanding shares of Newco Stock to the stockholders of record of the
Company on the Record Date and (2) the Cheniere Stockholders will transfer to
the Company all of the Cheniere Shares in exchange for shares of Common Stock
equal to approximately 93% of the issued and outstanding shares of Common Stock.
As the result of the Exchange, the former Cheniere Stockholders will control the
Company, Cheniere will become the wholly-owned subsidiary of the Company, and
the business of the Company will change to the exploration for and exploitation
of oil and gas.
As a result of the Divestiture, Newco will no longer be a subsidiary
of the Company. It will exist as an independent operating entity owned by and
in approximately the same proportion as the Company prior to the Closing, having
the same assets, liabilities, and business as the Company, immediately prior to
the Closing. See "THE DIVESTITURE."
The obligations of the Company, Young, Cheniere and the Cheniere
Stockholders to effect the Reorganization are subject to the satisfaction of the
conditions described below. See "Certain Terms of the Reorganization --
Conditions."
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The Company is not aware of any regulatory requirements that must be
complied with or any regulatory approval that must be obtained in order to
consummate the Reorganization, other than the filing of the Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware.
It should be noted that (i) if the stockholders of the Company fail to
adopt Proposal 4 relating to the divestiture of Newco, the Board may, but is not
obligated to, determine to consummate the Exchange and the other transactions
contemplated by the Reorganization Agreement, and (ii) adoption of Proposals 1
and 2 by the stockholders is necessary to consummate the Exchange.
In addition, it should be noted that, notwithstanding the approval of
Proposal 4 by the stockholders of the Company, the Board of Directors may
determine, in light of the circumstances then existing, that it would not be in
the best interests of the Company and the stockholders to consummate the
Divestiture. In such event the Divestiture would not occur.
Distribution of Newco Stock; Exchange of Shares
The distribution of the Newco Stock to the stockholders of the
Company at the Record Date will occur at the Closing which immediately follows
the Special Meeting, if the stockholders approve the Reorganization and the
Divestiture and all of the other conditions to the Reorganization are satisfied
or waived in accordance with the Reorganization Agreement.
For a discussion of the procedures to be followed in connection with
the Divestiture, see "DIVESTITURE."
The transfer of the Cheniere Shares in exchange for the issuance of
New Shares will occur at the Closing which immediately follows the Special
Meeting, if the stockholders approve the Reorganization and the proposal
relating to changes in the capitalization of the Company, and all of the other
conditions to the Reorganization are satisfied or waived in accordance with the
Reorganization Agreement.
Certain Terms of the Reorganization
Conditions
The obligations of the Company and Cheniere to consummate the
Reorganization are subject to the satisfaction or waiver of the general
condition that the stockholders of the Company approve the Reorganization at the
Special Meeting, including the Exchange and the Divestiture, and all other
transactions contemplated by the Reorganization Agreement, and the satisfaction
of all requirements prescribed by law necessary to the consummation of the
Reorganization.
The obligations of the Company to consummate the Reorganization are
also subject to the satisfaction or waiver of the following additional
conditions: (i) the approval by
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the Securities and Exchange Commission (the "SEC") of the Proxy Statement and
the other proxy materials; (ii) the continued truth as of Closing of the
representations and warranties of Cheniere and the Cheniere Stockholders made in
the Reorganization Agreement and the compliance by Cheniere with all of its
agreements made under the Reorganization Agreement; (iii) confirmation that no
legal, administrative, arbitral, investigatory or other proceeding is pending
before any court which seeks to challenge or prevent the Exchange or any
transaction contemplated by the Reorganization Agreement; (iv) the receipt by
the Company of all state securities or "blue sky" law permits or other
authorizations necessary to issue the New Shares in the Exchange in the manner
contemplated by the Reorganization Agreement; (v) the delivery by Cheniere to
the Company of the written agreement of any additional Cheniere Stockholders to
sell all of their Cheniere Shares to the Company on the terms and conditions set
forth in the Reorganization Agreement; (vi) the confirmation by Cheniere that it
has not less than $3 million in total capital, including not less than $2
million in equity capital on the Closing Date; and (vii) delivery to the Company
of the legal opinion of counsel to Cheniere.
The obligations of the Cheniere to consummate the Reorganization are
also subject to the satisfaction or waiver of the following additional
conditions: (i) the approval by the SEC of the Proxy Statement and the other
proxy materials; (ii) the continued truth as of Closing of the representations
and warranties of the Company and Young made in the Reorganization Agreement and
the compliance by the Company with all of its agreements made under the
Reorganization Agreement; (iii) confirmation that no legal, administrative,
arbitral, investigatory or other proceeding is pending before any court which
seeks to challenge or prevent the Exchange or any transaction contemplated by
the Reorganization Agreement; (iv) the receipt by Company of all state
securities or "blue sky" law permits or other authorizations necessary to issue
the New Shares in the Exchange in the manner contemplated by the Reorganization
Agreement; (v) amendment of the certificate of incorporation of the Company,
substantially in the form set forth in the Amended and Restated Certificate of
Incorporation attached to this Proxy Statement as Exhibit B; (vi) the
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confirmation by the Company that, as of the Closing, the Company shall have a
positive net worth, not more than $100,000 in liabilities and a positive working
capital; and (vii) delivery to Cheniere of the legal opinion of counsel to
Company and Young.
It should be noted that (i) if the stockholders of the Company fail to
adopt Proposal 4 relating to the divestiture of Newco, the Board may, but is not
obligated to, determine to consummate the Exchange and the other transactions
contemplated by the Reorganization Agreement, and (ii) adoption of Proposals 1
and 2 by the stockholders is necessary to consummate the Exchange.
Representations and Warranties
In the Reorganization Agreement, the Company has made certain
representations and warranties to Cheniere and the Cheniere Stockholders with
respect to, among other things, the Company's organization, capitalization and
authorization to enter into the Reorganization and
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with respect to the New Shares and Young has made certain representations and
warranties with respect to authorization and validity of the Reorganization
Agreement. In the Reorganization Agreement, Cheniere has made certain
representations and warranties to the Company with respect to, among other
things, their organization and authority to enter into the Reorganization
Agreement, and the Cheniere Stockholders have made certain representations and
warranties to the Company with respect to, among other things, the Cheniere
Shares.
Expenses
The Reorganization Agreement provides that fees and out-of-pocket
expenses in connection with the Reorganization Agreement and the transactions
contemplated thereby will be paid as follows: (i) fees and disbursements of
counsel, consultants and accountants shall be paid by the party employing such
person; (ii) except as otherwise provided, expenses in connection with obtaining
approval of the transactions contemplated by the Reorganization Agreement by the
Company's stockholders, including proxy solicitation costs, shall be paid by the
Company; (iii) expenses in connection with any necessary qualifications of the
New Shares under state securities or blue sky laws shall be paid by the Company;
(iv) expenses in connection with the printing of the Proxy Statement and the
other proxy materials and any SEC filing fees and expenses shall be divided
between Cheniere and the Company; and (v) all other fees and out-of-pocket
expenses incurred in connection with the transactions contemplated by the
Reorganization Agreement shall be paid by the party incurring such expense. See
also "THE DIVESTITURE -- Divestiture Costs."
Termination and Amendment
The Reorganization Agreement may be terminated at any time prior to
Closing (i) by the mutual consent of the parties; (ii) by the Company or
Cheniere, if there has been a material misrepresentation or breach of any
warranty on the part of the other party and there is no reasonable possibility
of cure of such breach prior to the Closing Date; (iii) by the Company or
Cheniere, if Cheniere shall not have obtained at least $3 million in total
capital, including at least $2 million in equity capital, within a reasonable
time after the date of the Reorganization Agreement; or (iv) by the Company or
Cheniere, if the stockholders of the Company shall not have approved the
Exchange and the other transactions contemplated by the Reorganization Agreement
within a reasonable time after the date of the Reorganization Agreement.
Securities Act Status of New Shares Received by Cheniere Stockholders
The offer and sale by the Company of New Shares to the Cheniere
Stockholders in connection with the Exchange will be exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act. The
New Shares received by the Cheniere Stockholders will be "restricted securities"
as defined in Rule 144 under the Securities Act and cannot be resold without
registration under the Securities Act or an exemption therefrom. It is
anticipated that promptly after Closing, the Company will prepare and file with
the SEC a registration statement registering the New Shares issued to the
Cheniere Stockholders for resale under the Securities Act.
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In addition, it is anticipated that after Closing the Company will
apply to the NASD to list the New Shares for quotation on the Nasdaq SmallCap
Market system.
INTERESTS OF CERTAIN PERSONS IN THE
REORGANIZATION AND RELATED TRANSACTIONS
SIGNIFICANT STOCK OWNERSHIP
Young, the President & CEO and principal stockholder of the Company
(approximately 57%), will become the owner of approximately 4% of the New Shares
following the consummation of the Reorganization and will own approximately 57%
of the shares of Newco Stock.
CONSULTING AGREEMENT; OTHER AGREEMENTS
Pursuant to the Reorganization Agreement, at the Closing, Young and
the Company will enter into a Consulting Agreement providing for the payment to
Young of $75,000 per annum for a two-year period, pursuant to which Young will
provide the Company with advice and assistance regarding the transition of
ownership and shareholder relations. In addition, at the Closing, Young and the
Company will enter into agreements pursuant to which Young will agree not to
sell more than 10,000 New Shares per month for a nine-month period after the
Closing Date and the Company will agree not to engage in a reverse stock split,
other than as contemplated by the Reorganization Agreement and described herein,
for an eighteen-month period after the Closing Date. At the Closing, Young will
also agree to indemnify the Company, Cheniere and the Cheniere Stockholders
against certain liabilities in connection with the Reorganization, including
liabilities relating to taxes arising in connection with the Divestiture.
OPERATION OF THE COMPANY AFTER THE CLOSING OF THE EXCHANGE
After the Closing, the Cheniere Stockholders will be the principal
stockholders of the Company and, in particular, BSR and Forster will each own
approximately 32% of the total outstanding New Shares. Following the
Divestiture, the Company will no longer have any operations and its only assets
will be the Cheniere Shares. At the Closing, Young will resign his offices as
President & CEO and Chief Financial Officer and as a director of the Company.
It is anticipated that Forster will be elected and serve as President & CEO of
the Company and that Charif Souki, the Secretary and Chief Financial Officer of
Cheniere, will be elected and serve as Secretary and Chief Financial Officer of
the Company. Souki is the son of Samyr Souki, the beneficial owner of BSR.
ACCOUNTING TREATMENT
The Exchange will be accounted for as the recapitalization of Cheniere
and the issuance of stock for the net assets of the Company.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The following summary describes the material United States federal
income tax considerations applicable to the Exchange as described in this Proxy
Statement. This summary applies solely to investors who hold the Cheniere
Shares as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"). This summary is based upon the
provisions of the Code and the regulations (the "Regulations"), administrative
rulings and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. There can be
no assurance that the Internal Revenue Service (the "Service") will take a
similar view as to any of the tax consequences described below. No ruling has
been or will be requested from the Service on any tax matters relating to the
Exchange.
This summary does not purport to deal with all aspects of United
States federal income taxation that may be relevant to a particular holder or to
certain types of holders subject to special treatment under the federal income
tax laws (for example, S corporations, banks, dealers in securities, life
insurance companies, tax-exempt organizations, foreign taxpayers, debtors under
the jurisdiction of a court case under Title 11 of the United States Code or in
a receivership, foreclosure, or similar proceeding, or an investment company as
defined in Section 351(c) of the Code) or to shareholders who acquired their
Cheniere Shares pursuant to the exercise of employee stock options or otherwise
as compensation. In addition, the following summary does not consider the
potential effect of any applicable foreign, state, local or other tax laws, or
estate or gift tax considerations. This discussion is provided for general
information purposes only, and is not intended as tax advice.
Section 351(a) Exchange
Section 351(a) of the Code sets forth the general rule that no gain or
loss will be recognized by one or more persons transferring assets to a
corporation solely in exchange for the corporation's stock if, immediately after
the exchange, the transferors are "in control" of the transferee corporation.
"Control" for this purpose is defined as the ownership of stock possessing at
least 80 percent of the total combined voting power of all classes of stock
entitled to vote and at least 80 percent of the total number of shares of all
other classes of stock of the corporation.
The Cheniere Stockholders will receive approximately 93% of the voting
power and total number of the outstanding shares of stock of the Company in
exchange for their Cheniere Shares. Such exchange should therefore be treated
as a transfer of the Cheniere Shares to the Company in a transaction to which
Section 351(a) of the Code applies.
Tax Consequences to Cheniere Stockholders
The Cheniere Stockholders will not recognize gain or loss for federal
income tax purposes upon their exchange of Cheniere Shares for New Shares. Each
Cheniere Stockholder will have a tax basis in his New Shares received in the
Exchange equal to his basis in his
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exchanged Cheniere Shares, and will have a holding period for his New Shares
received in the Exchange which will include his holding period for his exchanged
Cheniere Shares.
Each Cheniere Stockholder who receives New Shares pursuant to the
Exchange is required by Section 1.351-3(a) of the Regulations to file with his
federal income tax return for 1996 a statement that provides details relating to
the property transferred and the stock received in the transaction. The Company
is unable to predict whether the filing of such a statement by any person will
enhance the likelihood of an audit of his federal income tax return. If the
Service were to audit the federal income tax return of a person who receives New
Shares pursuant to the Exchange, the Service might propose adjustments that
relate to the Exchange or that pertain to unrelated matters.
Tax Consequences to the Company
The Company will not recognize gain or loss in connection with its
receipt of Cheniere Shares in exchange for the issuance of New Shares pursuant
to the Exchange. The tax basis of the Company in the Cheniere Shares that it
acquires pursuant to the Exchange will equal the tax basis of such shares in the
hands of the exchanging Cheniere Stockholders, and the Company will have a
holding period for such shares that will include the holding period for such
shares in the hands of the Cheniere Stockholders.
The consummation of the transactions contemplated by the Exchange
should result in an "ownership change" of the Company for purposes of Section
382 of the Code. Under Section 382, a corporation's ability to utilize existing
net operating losses (as well as certain unrealized "built-in losses") to offset
its income following such an ownership change is generally limited on an annual
basis to a certain specified amount. Assuming a range of $0.25 to $1.25 per
share for the quoted selling price of the Company's stock at the date of closing
and a long-term tax exempt rate of 5.68%, the Company will be allowed to utilize
approximately $25,600 to $128,000 of net operating loss per year. However, if,
following such an ownership change, the corporation does not continue its
business enterprise as in place at the time of the change for a period of at
least two years, the net operating (and certain built-in) losses in place at the
time of such change will be disallowed in their entirety.
As of August 31, 1995, the Company had net operating losses available
for carryforward for federal income tax purposes equal to approximately
$740,000. Since, as a result of the Divestiture, the Company will not continue
its historic business enterprise following the ownership change precipitated by
the Exchange, it will not be able to utilize these existing net operating losses
following the Exchange. However, the net operating loss limitation does not
apply to any divestiture gain since this gain is "built-in gain" at the time of
closing. The Company believes that the net operating loss carry forwards will
be sufficient to offset any tax liability arising out of the Divestiture.
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The pro forma financial statements of Newco have been excluded based
on the Company's belief that such statements would effectively mirror the
historical financial statements and provide little, if any, useful information
to the reader.
The foregoing discussion is for general information only and is
intended to be a summary of the principal income tax considerations of the
Exchange. It is not intended as an alternative for individual tax planning.
Each Cheniere Stockholder should consult his own tax adviser concerning the
federal, state, local, and other tax consequences to him of the Exchange.
Appraisal Rights
There are no appraisal rights available to any stockholder of the
Company or Cheniere in connection with the consummation of the transactions
contemplated by the Reorganization under applicable Delaware law.
THE DIVESTITURE
Background and Reasons for the Divestiture
Prior to the Reorganization, the most significant activities of the
Company have consisted of marketing health information through print and
electronic media, principally television.
The Board of Directors has recently determined that it would be in the
best interests of the Company and its stockholders to separate the oil and gas
exploration activities to be acquired upon consummation of the Exchange from the
Company's health information business. In particular, the Board of Directors
believes that the separation will give stockholders the flexibility to analyze
and deal with their investments in those respective activities separately in
accordance with their investment objectives and their views of the business
prospects of those respective activities. In addition, the Board of Directors
believes that the separation will enable the Company and Newco to separately
pursue the strategies best suited to their individual markets, goals and needs,
thereby maximizing their respective business opportunities and stockholder
values. The Divestiture is being submitted to stockholders for approval. See
"PROPOSAL 4. DIVESTITURE OF THE EXISTING BUSINESS OF THE COMPANY."
It should be noted that notwithstanding approval of the Divestiture by
the stockholders, the Board of Directors may determine, at any time prior to the
consummation of the Divestiture, to terminate the Divestiture and not distribute
the Newco Stock to the stockholders of the Company, if in their judgment, the
distribution of the Newco Stock would not be in the best interest of the Company
and its stockholders.
It should be noted that (i) if the stockholders of the Company fail to
adopt Proposal 4 relating to the divestiture of Newco, the Board may, but is not
obligated to, determine to consummate the Exchange and the other transactions
contemplated by the
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Reorganization Agreement, and (ii) adoption of Proposals 1 and 2 by the
stockholders is necessary to consummate the Exchange.
The Divestiture may be abandoned at any time prior to its
consummation. If abandoned prior to the date of the Meeting, the decision to
abandon will be made by the existing Board of Directors. However, the newly-
elected Board of Directors may also determine to abandon the Divestiture.
To effectuate the separation, the health information activities of the
Company (including the assets and liabilities associated therewith) have been
contributed to Newco pursuant to an Asset Transfer Assignment and Assumption
Agreement ("Assignment Agreement") in exchange for 450,000 shares of Newco Stock
(representing 100 percent of the issued and outstanding shares of Newco Stock).
These assets include: furniture and fixtures of $1,222, accounts receivable of
$43,920, program inventory of $54,566, cash of $2,500 and other assets of
$6,722, or a total of approximately $108,920. Liabilities of $84,144 were
assumed by Newco in connection with the Assignment Agreement. The Assignment
Agreement provides for Newco to indemnify the Company for any liabilities
relating to the assets transferred by the Company to Newco or the conduct of the
business of the Company prior to the Closing Date.
In addition, pursuant to the Reorganization Agreement, Young has
agreed to indemnify the Company, Cheniere and the Cheniere Stockholders from,
among other things, tax liabilities arising from or in connection with the
Divestiture.
It is expected that following the Divestiture Newco will become an
independent, publicly-traded company that will operate on a stand alone and
self-financing basis. The senior management of Newco following the Divestiture
will consist solely of Young, who is currently the sole executive officer and a
director of the Company. Young will resign from all positions with the Company
on closing of the Exchange. See "INTERESTS OF CERTAIN PERSONS IN THE
REORGANIZATION AND RELATED TRANSACTIONS -- Operation of the Company After the
Closing of the Exchange."
A principal purpose of the Divestiture is to position the separate
entities so that they will be able to pursue the strategies best suited to their
individual markets, goals and needs. In addition, Newco will become an
independent, publicly-traded company by means of the Divestiture, and the
effectuation of the Divestiture will enable it to raise capital on its own. The
Divestiture is intended to place Newco in a position to seek additional capital
for its activities independently.
Manner of Divestiture
The Divestiture was approved by the Board of Directors of the Company
on April 16, 1996. If Proposal 6 is approved by the stockholders at the Special
Meeting, the Company will distribute to its stockholders of record as of the
Record Date (the "Divestiture Record Date"), one (1) share of Newco Stock for
each four (4) shares of Common Stock held at the
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Record Date (pre-reverse split). The Divestiture will be deemed to be effective
as of the Closing Date.
To effect the Divestiture, the Company will transfer to U.S. Stock
Transfer Company (the "Divestiture Agent") for distribution to holders of record
of shares of Common Stock on the Record Date, shares of Newco Stock in
proportion to their ownership of shares of Common Stock on the Record Date. No
certificates or scrip representing fractional shares of Newco Stock will be
issued to such stockholders of the Company. In lieu of receiving fractional
shares, each holder of Shares of Common Stock who would otherwise be entitled to
receive a fractional share of Newco Stock will receive one whole share if the
fraction is equal to or greater than one-half, otherwise the fractional shares
shall be canceled.
No holder of shares of Common Stock receiving shares of Newco Stock
will be required to pay any cash or consideration for the shares of Newco Stock
that he will receive in the Divestiture or to surrender or exchange New Shares
in order to receive shares of Newco Stock. The Divestiture will not affect the
number of outstanding New Shares.
Certain Federal Income Tax Aspects of the Divestiture
The following summary is a general discussion of certain of the
expected federal income tax consequences of the Divestiture. The summary does
not discuss all aspects of federal income taxation that may be relevant to a
particular stockholder of the Company in light of his personal investment
circumstances or to certain types of stockholders subject to special treatment
under the federal income tax laws (for example, S corporations, banks, dealers
in securities, life insurance companies, tax-exempt organizations and foreign
taxpayers) applies solely to investors who hold their shares of the New Shares
as capital assets within the meaning of Section 1221 of the Code, and does not
discuss any aspects of state, local, or foreign tax laws. This discussion is
provided for general information purposes only, and is not intended as tax
advice.
Each stockholder of the Company is advised to consult his own advisor
as to the specific tax consequences to such stockholder of the proposed
transaction, including the application and effect of state, local, and foreign
income and other tax laws.
The Company has received no written opinion on any of the following
matters. No ruling has been or will be requested from the Service on any
matters relating to the formation of Newco or the Divestiture. The following
discussion is based upon existing law, decisions, regulations, and rulings, all
of which are subject to change, perhaps with retroactive effect. There can be
no assurance that the Service will agree with the following discussion.
Effects on the Company
Under Section 351 of the Code, the contribution of the Company's
assets to Newco and the assumption by Newco of the Company's liabilities will
not result in the recognition of gain or loss by the Company or Newco.
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Under Section 311(b) of the Code, the Divestiture of Newco Stock by
the Company will result in the recognition by the Company of taxable gain as if
the Newco Stock had been sold to the stockholders of the Company at its fair
market value. Accordingly, the Company will recognize taxable gain on the
Divestiture equal to the excess of the fair market value of such common stock
over its adjusted basis in such stock. For federal income tax purposes, fair
market value generally means the price at which the property would change hands
between a willing buyer and a willing seller, neither being under any compulsion
to buy or sell and both having reasonable knowledge of all relevant facts. It
is not possible to predict with any certainty the fair market value of the Newco
Stock to be distributed by the Company on the date it is distributed. In
analogous situations, where there has been a market for stock on an over-the-
counter market, as is expected here, the Service has considered the quoted
selling prices on the date of the distribution (or, on the date over-the-counter
sales first occurred if such date is within a reasonable period of the date of
the distribution) as important evidence in determining the fair market value per
share.
The Company's basis in the shares of Newco Stock to be distributed
equals approximately $25,000. Assuming a range of $.25 to $.50 per share for
the quoted selling price of the shares of Newco Stock immediately after the
Divestiture and that fair market value equals the quoted selling price, the
amount of taxable gain recognized by the Company (after adjustment of such basis
for such contribution as reduced by estimated taxes, fees, costs and expenses
estimated to be deducted therefrom as described above) is estimated to range
from $75,000 to $175,000. The Company has a net operating loss carryforward of
approximately $740,000 available to offset any taxable gain arising out of the
Divestiture. Accordingly, based on the above-estimated range of taxable gain to
be recognized by the Company on the Divestiture, no tax liability will be
incurred by the Company as a result of the Divestiture.
Effect on Stockholders of the Company
The distribution to the Company's stockholders of the Newco Stock will
constitute a taxable distribution for federal income tax purposes. Under
Section 301(b)(1) of the Code, the amount of the distribution to each
stockholder of the Company will equal the fair market value of the Newco Stock
received. Under Section 301(c)(1) of the Code, this amount will be taxable as a
dividend to the extent paid from the Company's current and/or accumulated
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earnings and profits. Under Sections 301(c)(2) and 301(c)(3) of the Code, to
the extent that the amount of this distribution exceeds the Company's current
and accumulated earnings and profits, the distribution will first be treated as
a tax-free return of capital, causing a reduction (but not below zero) in the
adjusted basis of the Common Stock held by a distributee (thereby increasing the
amount of gain, or decreasing the amount of loss, to be recognized by such
distributee on a subsequent disposition of the Common Stock), and the balance in
excess of such adjusted basis will be taxed as if it were capital gain
recognized on a sale or exchange of such stock.
For this purpose, the Company's current earnings and profits will be
computed as of the close of the taxable year without diminution by reason of any
distributions made during the taxable year, and without regard to the amount of
the earnings and profits at the time the Divestiture was made. Since the
Company's current taxable year ends on August 31, 1996, the amount of the
Company's current earnings and profits, if any, will therefore not be
ascertainable until after the Divestiture. Accordingly, there can be no
assurance that earnings and profits will not be substantial and that
stockholders of the Company who receive Newco Stock will not be deemed to have
received dividend income.
The portion of the Divestiture taxable as dividend income to a
corporate stockholder of the Company may be eligible for the 70% (or, in certain
cases 80%) dividends-received deduction available under Section 243 of the Code,
subject to certain taxable-income and holding-period requirements. However, to
the extent that the corporate shareholder incurs indebtedness that is directly
attributable to an investment in the stock on which the dividend is paid, all or
a portion of the dividends-received deduction may be disallowed. In addition,
dividend income that is not subject to the regular federal income tax as a
consequence of the dividends-received deduction may be subject to the federal
alternative minimum tax.
CORPORATE STOCKHOLDERS OF THE COMPANY SHOULD CONSULT THEIR TAX
ADVISORS TO DETERMINE HOW THE DIVIDENDS-RECEIVED DEDUCTION AND ITS LIMITATIONS
MIGHT APPLY TO THEM.
Corporate stockholders of the Company should also consult their tax
advisors to determine whether Section 1059 of the Code, which requires corporate
stockholders to reduce the basis of the stock in the case of certain
extraordinary dividends, is applicable to their receipt of the Newco Stock.
Under Section 1059, if a corporate holder of shares of the Company receives an
"extraordinary dividend" (as defined in Section 1059) from the Company with
respect to any share of such stock and has not held the underlying stock for
more than two years before the dividend announcement date (i.e., the date on
----
which the Company declared, announced, or agreed to the payment of such
dividend, whichever is earliest), the basis of the underlying stock must be
reduced (but not below zero) by the "nontaxed portion" of such dividends. The
"nontaxed portion" generally is the excess of the amount of the dividend over
the taxable portion (i.e., the taxable dividend less the applicable Section 243
----
deduction). Such a reduction in basis, generally will occur immediately before
any disposition of the shares of the Company, thereby increasing any gain
realized by the holder on a sale redemption or other disposition of such stock.
If the reduction exceeds such stock basis, the amount of such excess also will
be taxable as gain from the sale or exchange of the shares of the Company.
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On March 19, 1996, President Clinton released a set of legislative
proposals as a part of his plan to balance the federal budget. These proposals
include, among other things, proposals to (i) reduce the 70-percent dividends-
received deduction to 50 percent, (ii) modify the holding period requirements
for corporations claiming the dividends-received deduction, and (iii) require
immediate gain recognition under Section 1059 of the Code for the non-taxed
portion of certain extraordinary dividends (to the extent such non-taxed portion
exceeds the shareholder's basis in the underlying stock). As currently
proposed, the changes to the dividends-received deduction provisions would be
effective for dividends paid or accrued more than 30 days after the enactment of
final legislation, and the proposed changes to Section 1059 would generally
apply to distributions occurring after September 13, 1995. The Company cannot
predict which, if any, of the president's proposals will ultimately become law
or, if enacted into law, what the effective dates of such provisions would be.
Shareholders should consider the potential effect of the President's proposals
in making their investment decision.
Back-Up Withholding
A holder of Common Stock may be subject to "back-up withholding" at a
rate of 31% with respect to certain "reportable payments," which generally
include dividend payments. These back-up withholding rules apply if such
holder, among other things, (i) fails to furnish a social security number or
other taxpayer identification number ("TIN") certified under penalties of
perjury within a reasonable time after the request therefor, (ii) furnishes an
incorrect TIN, (iii) fails to report properly interest or dividends, or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalties of perjury, that the TIN furnished is the correct number and
that such holder is not subject to back-up withholding. Any amount withheld
from a payment to such a holder under the back-up withholding rules is
creditable against such holder's federal income tax liability, provided the
required information is furnished to the Service. Back-up withholding will not
apply, however, with respect to payments made to certain persons, including
corporations, tax-exempt organizations and certain foreign persons, provided
their exemption from back-up withholding is properly established. If the
Company does not have a Form W-9 for the back-up withholding rules apply to a
stockholder, the Newco stock distribution for such stockholder will be deferred
until its value can be determined and 31% thereof withheld.
Listing and Trading of Newco Stock
There currently is no public market for the Newco Stock. A "when-
issued" trading market may develop prior to the Divestiture Date and continue
until the certificates have been mailed by the Divestiture Agent. The term
"when-issued" means that shares can be traded prior to the time certificates
actually are available or issued. Prices at which Newco Stock may trade cannot
be predicted. Until Newco Stock is fully distributed and an orderly market
develops, the prices at which such stock trades may fluctuate significantly.
The prices at which Newco Stock trades will be determined by the marketplace and
may be influenced by a number of factors, including, among others, the depth and
liquidity of the market for the Newco Stock, investor perceptions of Newco,
Newco's dividend policy and general economic and market conditions.
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Newco expects to file a registration statement on Form 10-SB (the
"Registration Statement") with the SEC to register the Newco Stock under the
Exchange Act. The Registration Statement will become effective by operation of
law 60 days after the filing thereof, unless accelerated. After such
effectiveness, Newco will be required to file annual, quarterly and other
reports under the Exchange Act and comply with the SEC's proxy rules thereunder.
Assuming it can fulfill and complete any prerequisites, Newco intends to apply
to the NASD to have its stock listed on the Electronic Bulletin Board under the
symbol "MARV". However, Newco Stock is not currently eligible for inclusion on
the Electronic Bulletin Board. No assurance can be given that the Newco Stock
will ever meet the requirements for inclusion on the Electronic Bulletin Board.
Based on the stockholders of record of the Company as of the
Divestiture Record Date, Newco initially will have approximately 936 holders of
record of its Common Stock.
Shares of Newco Stock distributed to the stockholders of the Company
in the Divestiture, generally, will be freely transferable, except for shares
received by persons who may be deemed to be "affiliates" of Newco under the
Securities Act. Persons who may be deemed to be affiliates of Newco after the
Divestiture generally include individuals or entities that control, are
controlled by, or are under common control with, Newco and may include certain
officers and directors of Newco as well as principal stockholders of Newco.
Persons who are affiliates of Newco will be permitted to sell their shares of
Newco Stock only pursuant to an effective registration statement under the
Securities Act or an exemption from registration thereunder, such as the
exemption afforded by Section 4(1) of the Securities Act and Rule 144
thereunder.
DIVESTITURE COSTS
The Company estimates that the printing, legal, accounting, Divestiture
Agent and other fees and expenses incurred in connection with the Divestiture
will be approximately $20,000. Such fees and expenses are being paid by Newco.
PROPOSALS TO BE VOTED ON AT THE SPECIAL MEETING
PROPOSAL 1. REORGANIZATION OF THE COMPANY
The Board of Directors has unanimously approved the Reorganization of
the Company as set forth in the Reorganization Agreement, including the Exchange
and the Divestiture.
-50-
<PAGE>
EFFECT OF APPROVAL OF THE REORGANIZATION
As described above, the Exchange will result in the issuance of New
Shares to the Cheniere Stockholders in exchange for their Cheniere Shares,
resulting in the issuance to the Cheniere Stockholders of approximately 93% of
the New Shares, being the only class of capital stock of the Company
outstanding. Following the Exchange, Cheniere will become the wholly-owned
subsidiary of the Company.
As described above, it is contemplated that the Divestiture will
result in the distribution to the stockholders of the Company as at the Record
Date of all of the outstanding shares of Newco Stock, resulting in the ownership
of Newco by these stockholders in proportion to their ownership on the
Divestiture Record Date of shares of Common Stock.
The combined effect of the Exchange and the Divestiture will be to
change the business of the Company from the film and health information
businesses to the business of exploring for and exploiting oil and natural gas.
It should be noted that, notwithstanding the ability of the Company
and Cheniere to waive conditions to consummating the Closing of the
Reorganization under the Reorganization Agreement, the approval of Proposal 2 by
the stockholders of the Company with respect to the amendment to the certificate
of incorporation is a necessary prerequisite to the consummation of the Exchange
since without it the Company does not have sufficient authorized shares of
Common Stock to effect the Exchange in accordance with the terms of the
Reorganization Agreement.
It should also be noted that it is necessary but not sufficient for
the stockholders to approve this Proposal 1 in order to effect the Divestiture.
It is also necessary that the stockholders approve Proposal 4. In the event
that the stockholders adopt this Proposal 1 and Proposal 2 relating to certain
changes in the capitalization of the Company, the Board of Directors may, but
are not required to, proceed with the Exchange and not consummate the
Divestiture.
In addition, it should be noted that, notwithstanding the approval by
the stockholders of this Proposal 1 and Proposal 4, the Board of Directors of
the Company may determine not to consummate the Divestiture if they determine,
in light of the circumstances then existing, that to do so would not be in the
best interests of the Company and the stockholders.
PROPOSAL 2. AMENDMENTS TO CERTIFICATE OF INCORPORATION
RELATING TO CHANGE IN CAPITALIZATION
The Company's Board of Directors has unanimously approved the
following amendments to the Company's certificate of incorporation: to (a)
change the aggregate number of authorized shares of capital stock of the Company
from 25,000,000 shares of Common Stock,
-51-
<PAGE>
$.01 par value per share (the "Old Shares"), to a total of 21,000,000 shares,
comprised of 20,000,000 shares of Common Stock, $.003 value per share (the "New
Shares") and 1,000,000 shares of preferred stock, the rights, powers and
preferences of which will be set by resolution of the Board of Directors; and
(b) provide that each three (3) outstanding Old Shares shall be automatically
converted into one (1) New Share.
For the reasons set forth below and elsewhere in this Proxy Statement,
the Board of Directors has determined that it is in the best interests of the
Company and its stockholders to amend the certificate of incorporation of the
Company to effect those changes in the capitalization of the Company and
recommends that shareholders vote for the proposal to amend the certificate of
incorporation.
EFFECT OF THE PROPOSED AMENDMENT
If the stockholders adopt the proposed amendment to the certificate of
incorporation, the aggregate number of New Shares held by existing shareholders
will be one-third of the number of Common Shares currently held by them.
Approval of this Proposal 2 is a necessary prerequisite to give effect to the
Reorganization, including the Exchange. Fractional New Shares will be issued as
necessary, rounded to the nearest hundredth of a share (.01) to give effect to
the Reverse Split.
Although the Company is not currently contemplating an offering of the
preferred stock, it is the current intention of the Company that shares of the
preferred stock will be issued in connection with corporate finance
transactions. However, because of the ability of the Board of Directors of the
Company to set by resolution of the Board, the rights, powers and preferences
of the preferred stock, it should be noted that the preferred stock could be
utilized as an antitakeover device, causing a potential purchasers of the
Company's capital stock to incur additional costs and otherwise discourage a
potential bidder for the Common Stock. Moreover, because of this antitakeover
effect, the existence of the "blank check" preferred could negatively impact
upon the value of the New Shares.
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock as of the Record Date is required for adoption of the
proposed Amended and Restated Certificate of Incorporation. Exhibit B to this
------- -
Proxy Statement contains a complete copy of the proposed Amended and Restated
Certificate of Incorporation, including the amendment with respect to the change
in the capitalization.
PROPOSAL 3. AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
The Board of Directors of the Company unanimously recommends approval
by the stockholders of the amendment to the certificate of incorporation to
change the name of the Company to "Cheniere Energy, Inc."
-52-
<PAGE>
The Board of Directors believes that the change in the name of the
Company will be consistent with the name identifying the Company's operating
subsidiary and will provide the Company with greater recognition in the
marketplace.
Exhibit B to this Proxy Statement contains a complete copy of the
------- -
proposed Amended and Restated Certificate of Incorporation, including the
amendment with respect to the change of name of the Company.
PROPOSAL 4. DIVESTITURE OF THE EXISTING BUSINESS OF THE COMPANY
The Board of Directors of the Company unanimously recommends approval
by the stockholders of the Divestiture of the existing business of the Company
by distribution of the outstanding shares of Newco Stock to the stockholders of
the Company as at the Divestiture Record Date. For the reasons set forth below
and elsewhere in this Proxy Statement, the Board of Directors has determined
that it is in the best interests of the Company and its stockholders to
distribute to its stockholders the Newco Stock.
Effect of Divestiture
The effect of the Divestiture will be to separate the existing
business of the Company from the new oil and gas exploration and exploitation
business that will be acquired upon consummation of the Exchange. Each
stockholder of the Company as of the Divestiture Record Date will receive one
(1) share of Newco Stock for each four (4) shares of Common Stock. After the
consummation of the Divestiture, Newco will be a separate entity owned by the
stockholders of the Company as of the Divestiture Record Date and operated by
Young, the current President and CEO of the Company.
It should be noted that, notwithstanding the approval by the
stockholders of Proposal 1 and this Proposal 4, the Board of Directors of the
Company may determine not to consummate the Divestiture if they determine, in
light of the circumstances then existing, that it would not be in the best
interests of the Company and its stockholders to consummate the Divestiture. In
such event, the Divestiture would not occur.
PROPOSAL 5. AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO LIMIT THE LIABILITY AND PROVIDE INDEMNIFICATION
The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law generally provides that a corporation is empowered to
indemnify any person who is made a party to any threatened, pending or completed
action, suit or proceeding by reason of the fact that he is or was a director,
officer, employee or agent of the company or is or was serving, at the request
of the company, in any of such capacities of another corporation or other
enterprise, if such director, officer, employee or agent acted in good faith and
in a manner he reasonable believed to be in or not opposed to the best interests
of the company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct
-53-
<PAGE>
was unlawful. This statute describes in detail the right of a Delaware company,
such as the Company, to indemnify any such person.
The Board of Directors of the Company unanimously recommends approval
by the stockholders of the adoption of the amendment to the certificate of
incorporation to limit the liability of the directors of the Company and to
provide indemnification of the officers and directors of the Company to the
fullest extent permitted under Delaware law.
EFFECT OF ADOPTION
The effect of adoption of this proposal will be to provide significant
protection to individuals who serve as directors and officers of the Company and
encourage individuals possessing the skills and abilities required by the
Company in conducting its business to accept such offices.
Exhibit B to this Proxy Statement contains a complete copy of the
------- -
proposed Amended and Restated Certificate of Incorporation, including the
amendment with respect to the limitation of liability of directors and the
provision of indemnification for the officers and directors of the Company.
PROPOSAL 6. ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
Three (3) persons have been nominated by the Cheniere Stockholders to
serve as directors until the 1997 Annual Meeting of Stockholders and until their
successors have been elected and qualified. Following the consummation of the
Exchange, all of the existing members of the Board of Directors will resign.
Accordingly, the nominees named below, if elected, will constitute the entire
Board of Directors of the Company.
Unless otherwise directed by a stockholder in his Proxy, the persons
named in the Proxy will vote for the election of the nominees named below. It
is not anticipated that any of the nominees will be unable to serve on the Board
of Directors, but if for any reason any nominee should not be able to serve, it
is intended that the persons named in the Proxy will vote for a new nominee to
be selected by the Board of Directors. The Board of Directors has no separate
nominating committee. The Board of Directors will consider nominations by
stockholders for persons to serve as directors, subject to the terms of the
Company's by-laws and applicable state laws and rules and regulations of the
Securities and Exchange Commission.
Set forth below are the names, ages and background of each nominee:
BACKGROUND AND EXPERIENCE
William D. Forster, 49, is currently President and CEO of Cheniere.
If the stockholders approve the Reorganization, it is contemplated that Cheniere
will become a wholly-
-54-
<PAGE>
owned subsidiary of the Company as more fully described below. 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. In
1994, he became active again in the oil and gas business when he began to work
together with BSR, a Paris-based private investment company, to provide
financing for small energy companies. He is a director of Equity Oil Company, a
Nasdaq National Market System company. From July 1995 to March 1996, he was a
director of Fortune, a small oil and gas company listed on the American Stock
Exchange. He holds a Bachelor of Arts degree from Harvard College and a Master
of Business Administration degree from Harvard Business School.
Charif Souki, 43, is currently the Secretary and Chief Financial
Officer of Cheniere and an independent investment banker and investor with
twenty years of experience in the industry. In the past few years he has
specialized in providing financing for promising microcap companies with an
emphasis on companies in the oil and gas industry. From July 1995 to March
1996, he was a director of Fortune, a small oil and gas company listed on the
American Stock Exchange. He holds a Bachelor of Arts degree from Colgate
University and a Master of Business Administration from Columbia University.
Efrem Zimbalist, III, 48, is president and chief executive officer of
Times Mirror Magazines, a division of Times Mirror Co., and 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 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 (with distinction) from the Harvard University School
of Business Administration.
-55-
<PAGE>
DESCRIPTION OF COMMON STOCK
Assuming approval by the stockholders of the Company of Proposal 2
relating to changes in the capitalization of the Company, the authorized capital
stock of the Company will consist of 21,000,000 shares (20,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock) of which 8,843,375 shares
of Common Stock will be issued and outstanding after giving effect to the
transactions contemplated by the Reorganization.
The holders of Common Stock are entitled to dividends after
distributions if, as and when declared out of funds available therefor. Every
share of Common Stock is entitled to one vote on any matter to be voted upon by
the holders of Stock. There are no cumulative voting rights pertaining to
shares of Common Stock. Upon liquidation, each share of Common Stock is
entitled to share equally in any distribution available to holders of Common
Stock. The Common Stock is not subject to any redemption provisions or
preemptive rights. The outstanding shares of Common Stock are fully paid and
nonassignable.
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer Company.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information may be inspected and copies made at the public reference
facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and
regional offices of the SEC located in the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite
1300, New York, New York 10278. Copies of this material may also be obtained by
mail upon payment of the SEC's customary fees from the SEC's principal office at
450 Fifth Street, N.W., Washington, D.C. 20549.
INDEPENDENT PUBLIC ACCOUNTANTS
Farber & Hass examined the financial statements of the Company for the
fiscal years ended August 31, 1994 and 1995. Merdinger, Fruchter, Rosen &
Corso, P.C. examined the balance sheet of Cheniere as at April 15, 1996 and the
pro forma combined financial statements of the Company, including Cheniere,
included herein.
It is not anticipated that the accountants will be present at the
----------------------------------------------------------------------
Meeting.
- --------
-56-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AFTER GIVING
EFFECT TO THE REORGANIZATION
Name No. of New Shares % Ownership (1)
---- ----------------- ---------------
BSR Investment Ltd. 2,846,211 32.2%
William D. Forster 2,846,211 32.2%
Buddy Young 363,778(2) 4.1%
(1) Based upon a total of 8,843,375 New Shares outstanding.
(2) Includes 19,444 New Shares issuable upon the exercise of options held by
Young.
PRO FORMA CAPITALIZATION
The following table sets forth the pro forma capitalization of the
Company giving effect to all of the transactions contemplated by the
Reorganization. This table should be read in conjunction with the Company's and
Cheniere's statements and the pro forma combined financial statements and
related notes appearing elsewhere in this Proxy Statement.
Stockholders' equity:
Common Stock, $.003 par value, 20,000,000 shares of Common Stock
authorized; 8,843,375 shares outstanding (1) and Preferred Stock,
1,000,000 shares authorized; no shares
outstanding . . . . . . . . . . . . . . . . . . $26,530
Additional paid-in capital . . . . . . . . . . . 48,743
Retained earnings . . . . . . . . . . . . . . . - -
Total stockholders' equity . . . . . . . . 75,003
Total long-term debt and stockholders'
equity (2) . . . . . . . . . . . . . . . . 300,000
____________________
(1) Does not include 416,660 shares of Common Stock reserved for issuance
pursuant to the Company's Plan, under which options for 19,444 shares were
outstanding at April 22, 1996; or
(2) The Company will have no short-term or long-term debt on a pro forma
combined basis.
-57-
<PAGE>
GENERAL
The Company's Annual Report on Form 10-KSB for the year ended August
31, 1995 accompanies this Proxy Statement, together with a Letter to
Stockholders from the Company President. These materials do not form any part
of the material for the solicitation of Proxies.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors is not
aware of any business to be presented for action at the Special Meeting except
as set forth herein. However, if any other matters properly come before the
Special Meeting, the persons named in the enclosed Proxy will vote upon such
matters in accordance with their best judgment.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY
By Order of the Board of Directors
David Leedy, Secretary
-58-
<PAGE>
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
----
THE COMPANY
--- -------
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report F-3
Balance Sheet as at
August 31, 1995 F-4
Statements of Operations
for the Two Years Ended August 31, 1995 F-5
Statements of Shareholders' Equity
for the Two Years Ended August 31, 1995 F-6
Statements of Cash Flows
for the Two Years Ended August 31, 1995 F-7
Notes to Financial Statements F-9
UNAUDITED FINANCIAL STATEMENTS:
Balance Sheet as at
February 29, 1996 F-12
Statements of Operations
for the Three and Six Month Periods
Ended February 29, 1996 and
February 28, 1995 F-13
Statements of Cash Flows
for the Six Month Period
Ended February 29, 1996 and
February 28, 1995 F-14
Notes to Financial Statements F-15
F-1
<PAGE>
CHENIERE
--------
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report F-16
Balance Sheet as at April 22, 1996 F-17
STATEMENT OF INCOME
(Inception) February 21, 1996
to April 22, 1996 F-18
STATEMENT OF CASH FLOWS
(Inception) February 21, 1996
to April 22, 1996 F-19
STATEMENT OF SHAREHOLDERS' EQUITY
(Inception) February 21, 1996
to April 22, 1996 F-20
NOTES TO FINANCIAL STATEMENTS F-21
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS:
Pro Forma Condensed Combined Balance
Sheet Unaudited F-23
Notes to Unaudited Pro Forma
Condensed Combined Financial Information F-24
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Bexy Communications, Inc.:
We have audited the accompanying balance sheet of Bexy Communications, Inc. (the
"Company") as of August 31, 1995. We have also audited the statements of
operations, shareholders' equity and of cash flows for the two years ended
August 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at August 31, 1995, and the
results of its operations and its cash flows for each of the two years ended
August 31, 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 6. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Farber & Hass
November 9, 1995
F-3
<PAGE>
BEXY COMMUNICATIONS, INC.
BALANCE SHEET
AUGUST 31, 1995
ASSETS
CASH $ 114,134
ACCOUNTS RECEIVABLE 63,200
PROGRAM INVENTORY, Net 55,456
FURNITURE AND FIXTURES - Net of
accumulated depreciation of $2,564 956
OTHER ASSETS 6,722
----------
TOTAL ASSETS $ 240,468
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 36,310
Accrued interest expense to related party 42,189
Note payable to related party 7,519
Deposits 2,000
Deferred income 16,000
-----------
Total liabilities 104,018
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value - $.01, 25,000,000 shares
authorized, 1,558,947 issued and outstanding 133,654
Contributed capital 992,831
Accumulated deficit (943,361)
Notes receivable from shareholders (46,674)
----------
Total shareholders' equity 136,450
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 240,468
==========
See accompanying notes to financial statements.
F-4
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE TWO YEARS ENDED AUGUST 31, 1995
1995 1994
---- ----
REVENUES $ 125,654 $ 130,228
--------- ---------
COST OF PROGRAMS AND DISTRIBUTION FEES:
Amortization of film costs 254,044 122,630
Distribution fees 63,087 52,036
--------- ---------
Total cost of programs
and distribution fees 317,131 174,666
--------- ---------
EXPENSES:
Advertising 2,300 22,552
General and administrative 65,227 54,227
Depreciation 1,208 850
Interest 9,593 10,167
Professional fees 108,315 60,105
Rent 16,513 21,281
--------- --------
Total expenses 203,156 169,182
--------- --------
NET LOSS $(394,633) $(213,620)
========= =========
NET LOSS PER SHARE $ (.27) $ (.17)
========= =========
See accompanying notes to financial statements.
F-5
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE TWO YEARS ENDED AUGUST 31, 1995
<TABLE><CAPTION>
COMMON STOCK
------------
SHARES CONTRIBUTED ACCUMULATED
OUTSTANDING AMOUNT CAPITAL DEFICIT
----------- ------ ------- -------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 1, 1993 7,164,333 $126,970 $502,575 $(335,108)
ONE-FOR-SIX REVERSE STOCK SPLIT (5,970,277)
SALE OF SHARES 120,833 1,208 181,767
ISSUANCE OF SHARES FOR SERVICES 45,062 451 12,179
CONSTRUCTIVE ISSUANCE OF SHARES
RELATING TO THE PURCHASE OF
PROGRAM INVENTORY 50,000 500 89,500
NET LOSS (213,620)
---------- -------- -------- ---------
BALANCE, AUGUST 31, 1994 1,409,951 129,129 786,021 (548,728)
CANCELLATION OF CONSTRUCTIVE
ISSUANCE (50,000) (500) (89,500)
SALES OF SHARES 151,000 4,573 231,393
ISSUANCE OF SHARES FOR SERVICES 45,168 452 64,917
ISSUANCE OF SHARES FOR ROUNDING 2,828
NET LOSS (394,633)
---------- -------- -------- ---------
BALANCE, AUGUST 31, 1995 1,558,947 $133,654 $992,831 $(943,361)
========== ======== ======== =========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED AUGUST 31, 1995
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(394,633) $(213,620)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 1,208 850
Amortization of film costs 239,044 122,630
Issuance of stock for services 65,369 12,630
Write-off of investment 10,000
Changes in operating assets and
liabilities:
Increase in accounts receivable (28,000) (22,151)
Decrease in program inventory 3,083
Increase in other assets (4,601) (2,121)
Decrease in accounts payable
and accrued expenses (8,230) (24,149)
Increase in deferred income 16,000
Increase in accrued interest expense 9,593 10,030
Increase in deposits 2,000
--------- ---------
Net cash used by operating activities (94,250) (110,818)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,577)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment on note payable (2,038)
Borrowings from related party 34,519 38,000
Repayments to related party (155,000)
Sale of common stock 189,292 49,975
Collections on note receivable 133,000
--------- ----------
Net cash provided by financing activities 201,811 85,937
--------- ----------
NET INCREASE (DECREASE) IN CASH 107,561 (27,458)
CASH, BEGINNING OF PERIOD 6,573 34,031
--------- ---------
CASH, END OF PERIOD $ 114,134 $ 6,573
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ -0- $ -0-
Cash paid for income taxes $ 1,566 $ 800
F-7
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED AUGUST 31, 1995
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
During 1995, the Company reduced the carrying value of its program inventory by
$235,500 in order to reflect a lower of cost or market valuation on certain
program inventory. In addition, the Company wrote-off its investment ($10,000)
in the "Victims" television series.
During 1994, the Company issued a note payable amounting to $185,000 and common
stock amounting to $90,000 for the acquisition of a program series entitled
"Feelin' Great". During 1995, the Company negotiated with the seller to cancel
the acquisition and the related debt and common stock. The program was returned
to the seller.
During 1995, the Company issued shares of common stock in exchange for notes
receivable totalling $46,674. In addition, the Company issued 45,168 shares of
common stock in exchange for services.
See accompanying notes to financial statements.
- -----------------------------------------------------
F-8
<PAGE>
BEXY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Information - Bexy Communications, Inc. (the "Company") was
incorporated under the laws of the State of Delaware. The Company is
engaged in the production and distribution of television programming,
focusing on health information for the general public through print and
electronic media that entertains as well as informs.
Effective July 18, 1994, the Company approved a one-for-six reverse split of
its outstanding common stock.
Going Concern - The Company experienced significant operating losses for the
fiscal years ended August 31, 1995 and 1994. The financial statements have
been prepared assuming the Company will continue to operate as a going
concern which contemplates the realization of assets and the settlement of
liabilities in the normal course of business. No adjustment has been made
to the recorded amount of assets or the recorded amount or classification of
liabilities which would be required if the Company were unable to continue
its operations. As discussed in Note 6, management has developed an
operating plan which they believe will generate sufficient cash to meet its
obligations in the normal course of business.
Unclassified Balance Sheet - In accordance with the provisions of SFAS No.
53, the Company has elected to present an unclassified balance sheet.
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash and trade receivables. The Company has substantially all of its cash
on deposit in one financial institution. The Company routinely assesses the
financial strength of its customers and normally does not require collateral
to support customer receivables. At August 31, 1995, the Company had four
customers which accounted for approximately 81% trade accounts receivable.
Furniture and Fixtures - Furniture and fixtures are recorded at cost and
depreciated over an estimated useful life of 3 years using the straight-line
method.
License Agreements - Revenue from television licensing agreements and the
related film costs are recognized upon the execution of a licensing
agreement, provided certain conditions have been met, including availability
of the film for broadcast.
General and Administrative Expenses - The Company has expended approximately
$12,000 through August 31, 1995 and an additional $24,000 through November
9, 1995 to fund certain start-up costs of a company owned by the Company's
majority shareholders. In exchange for funding the start-up costs, the
majority shareholder has granted the Company an option to purchase the
company for $50,000.
Income Taxes - The Company accounts for its income taxes in accordance with
the provisions of Statement of Financial Accounting Standards 109 ("SFAS
109"). The asset and liability method
F-9
<PAGE>
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between tax bases
and financial reporting bases of other assets and liabilities.
The Company has net operating loss carryforwards of approximately $740,000
and $269,000 available to offset future Federal and California taxable
income, respectively. Such loss carryforwards expire starting in 2006
through 2008.
Per Share Information - Net loss per share for the years presented is
computed on the basis of the weighted average common share outstanding. The
number of shares used in the computation was 1,459,365 for the year ended
August 31, 1995 and 1,256,444 for the year ended August 31, 1994.
2. PROGRAM INVENTORY
Program inventory is stated at the lower of cost or estimated net realizable
value, determined on a film-by-film basis. During 1995, the Company reduced
the carrying value of its inventory by $235,500. Film costs include
production, print and pre-release costs. These costs are amortized in the
ratio of the current year's gross revenue to management's estimate of
remaining gross revenues from all sources on an individual film basis.
At August 31, 1995, the program inventory consisted of the following:
"Heartstoppers...Horror At The Movies"
A two-hour television program hosted by
George Hamilton $ 416,636
"Christmas At The Movies" - A one-hour
television program hosted by Gene Kelly 106,000
"It's A Wonderful Life - A Personal
Remembrance" hosted by Frank Capra, Jr. 41,786
----------
Total 564,422
Less: accumulated amortization (508,966)
----------
Program Inventory, Net $ 55,456
==========
3. NOTE PAYABLE TO RELATED PARTY
Through August 31, 1995, a Trust controlled by Buddy Young, an officer,
director and majority shareholder of the Company, advanced funds to the
Company for operating expenses and film productions. The advanced funds
accrue interest at a rate of 8% per annum. The balance of the note
totalling $7,519 and accrued interest of $42,189 are currently due and are
collateralized by the program inventory.
4. STOCK OPTION PLANS
In November 1993, the Company adopted a nonqualified stock option plan that
covers certain key employees, consultants and directors as determined by the
Board. The aggregate number
F-10
<PAGE>
of shares of common stock that may be issued pursuant to options under the
plan will not exceed 416,666. Price and terms are determined at the
discretion of the Board.
On November 11, 1993, the Board of Directors granted options to the
President and principal shareholder. Options to acquire 58,333 shares of the
Company's common stock were granted at an exercise price of $.60 per share.
All of the shares are currently exercisable and expire on November 11, 2003.
5. COMMITMENTS AND CONTINGENCIES
The Company leases its primary office space under a one-year lease agreement
expiring July 1996. Monthly rent on such lease is $1,150. The Company has
an option to extend the lease for one year. Total rent expense for all
operating leases for the years ended August 31, 1995 and 1994 was $16,513
and $22,945, respectively.
6. MANAGEMENT PLANS
In fiscal 1995 and 1994, the Company generated net negative cash flows from
operating activities of $94,250 and $110,818, respectively. Management
expects that the forecasted sales and additional equity and debt financing
will be adequate to finance the 1996 cash flow requirements. If the Company
does not achieve the forecasted sales, the Company may have difficulty in
continuing as a going concern. Management has developed alternative plans
which include but are not limited to, merging with another company and
obtaining additional financing sources.
7. SUBSEQUENT EVENT (UNAUDITED)
In September 1995, the Company sold 85,000 shares of its common stock for a
total of $93,500.
- --------------------------------------------------------------------------------
F-11
<PAGE>
BEXY COMMUNICATIONS, INC.
BALANCE SHEET
FEBRUARY 29, 1996 (Unaudited)
ASSETS
CASH $ 101,446
ACCOUNTS RECEIVABLE 61,300
PROGRAM INVENTORY, Net 53,657
FURNITURE AND FIXTURES - Net of
accumulated depreciation of $3,164 922
OTHER ASSETS 6,722
-----
TOTAL ASSETS $ 224,047
= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 37,251
Accrued interest expense to related party 37,208
Deposits 2,000
Deferred income 16,000
------
Total liabilities 92,459
------
SHAREHOLDERS' EQUITY:
Common stock (par value - $.01,
25,000,000 shares authorized,
1,803,459 issued and outstanding) 147,404
Contributed capital 1,116,581
Accumulated deficit (1,092,442)
Notes receivable from shareholders (39,955)
-------
Total shareholders' equity 131,588
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 224,047
= =======
See accompanying notes to financial statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS (Unaudited)
- ---------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ 39,736 $ 30,680 $ 42,258 $ 56,178
---------- ---------- ---------- ----------
COST OF PROGRAMS
AND DISTRIBUTION FEES 20,949 60,243 25,245 84,662
------ ------ ------ ------
EXPENSES:
Advertising 6,502 185 8,059 225
Consulting fees to
majority shareholder 25,000 38,500
General and administrative 34,866 13,811 90,428 20,198
Depreciation 300 302 600 604
Interest 2,143 4,610
Professional fees 18,501 4,255 21,986 21,598
Rent 3,885 8,598 7,799 15,975
----- ----- ----- ------
Total expenses 89,054 29,294 167,372 63,210
------ ------ ------- ------
OTHER INCOME 673 1,279 4,162
--- ----- -----
NET LOSS $ (69,594) $ (58,857) $(149,080) $ (87,532)
========= ========= ========= =========
NET LOSS PER SHARE $ (.04) $ (.04) $ (.09) $ (.06)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 1,781,500 1,415,450 1,724,000 1,413,000
========= ========= ========= =========
See accompanying notes to financial statements.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(149,080) $87,532)
Adjustments to reconcile net loss to
net cash provided (used) by
operating activities:
Amortization of film costs 1,800 38,837
Depreciation 600 604
Changes in operating assets and
liabilities:
Accounts receivable (3,690)
Accounts payable and accrued expenses 20,567
Accrued interest expense 1,900 4,610
-----
Net cash used by operating activities 939 (26,604)
-------
(4,982)
------
(148,823)
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and fixtures (566)
Net change in notes receivable 6,720 46,375
----- ------
Net cash provided by investing activities 6,154 46,375
----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 137,500 15,000
Repayment on note payable (5,000)
Repayment to related party (7,519) (32,400)
------ -------
Net cash provided (used) by financing
activities 129,981 (22,400)
------- -------
NET DECREASE IN CASH (12,688) (2,629)
CASH, BEGINNING OF PERIOD 114,134 6,573
------- -----
CASH, END OF PERIOD $ 101,446 $ 3,944
= ======= = =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 4,981 $ 0
Cash paid for income taxes $ 800 $ 0
See accompanying notes to financial statements.
F-14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
BEXY COMMUNICATIONS, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. The accompanying Financial Statements have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have
been included. Certain reclassifications have been made to the prior period
to conform to the current periods presentation.
For further information refer to the Financial Statements and footnotes
included in the Registrant's Annual Report on Form 10-KSB for the year
ended August 31, 1995.
The Results of Operations for any interim period are not necessarily
indicative of the results to be expected for the full fiscal year ended
August 31, 1996.
Unclassified Balance Sheet - In accordance with the provisions of SFAS No.
53, the Company has elected to present an unclassified balance sheet.
Per share information - Net loss per share for the periods presented is
computed on the basis of the weighted average common shares outstanding.
2. GENERAL AND ADMINISTRATIVE EXPENSES - The Company has expended
approximately $46,000 through February 29, 1996 to fund certain start-up
costs of a company owned by the Company's majority shareholder. In
exchange for funding the start-up costs, the majority shareholder has
granted the Company an option to purchase the company for $50,000.
F-15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CHENIERE ENERGY OPERATING CO., INC.
We have audited the accompanying balance sheet of CHENIERE ENERGY OPERATING CO.,
INC. as at April 22, 1996 and related statements of income, stockholders equity,
and cash flows for the period from (inception) February 21, 1996 to April 22,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CHENIERE ENERGY OPERATING CO.,
INC. as of April 22, 1996 and the results of its operations and its cash flows
for the period from (inception) February 21, 1996 to April 22, 1996 in
conformity with generally accepted accounting principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C
Certified Public Accountants
New York, New York
April 22, 1996
F-16
<PAGE>
CHENIERE ENERGY OPERATING CO., INC.
BALANCE SHEET
APRIL 22, 1996
ASSETS
CURRENT ASSETS
Cash in Bank $
75,003
FIXED ASSETS
Furniture and Fixtures 22,505
OTHER ASSETS
Organization Costs 55,800
------
Total Assets $ 153,308
= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses 78,305
------
Total Liabilities 78,305
STOCKHOLDERS' EQUITY
Common Stock, 2,000 shares authorized,
issued and outstanding 625 shares,
no par value 75,003
------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 153,308
= =======
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
CHENIERE ENERGY OPERATING CO., INC.
STATEMENT OF INCOME
(INCEPTION) FEBRUARY 21, 1996 TO APRIL 22, 1996
REVENUE
Income $ -
EXPENSES -
NET PROFIT (LOSS) $ -
===========
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
CHENIERE ENERGY OPERATING CO., INC.
STATEMENT OF CASH FLOWS
(INCEPTION) FEBRUARY 21, 1996 TO APRIL 22, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Increase in Organization Costs $( 55,800)
Increase in Accounts Payable 78,305
------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,505
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Fixed Assets ( 22,505)
NET CASH USED BY INVESTING ACTIVITIES ( 22,505)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Common Stock 75,003
NET CASH PROVIDED BY FINANCING ACTIVITIES 75,003
------
NET INCREASE IN CASH 75,003
CASH - BEGINNING OF PERIOD -
CASH - END OF PERIOD $ 75,003
=============
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
CHENIERE ENERGY OPERATING CO., INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(INCEPTION) FEBRUARY 21, 1996 TO APRIL 22, 1996
Common Stock
------ -----
Shares
Outstanding Amount
----------- ------
Sale of Shares 625 75,003
----------- ------
Balance - April 22, 1996 $ 625 $ 75,003
============= ========
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE>
CHENIERE ENERGY OPERATING CO., INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 22, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
a. Background
----------
Cheniere Energy Operating Co., Inc. ("The Company") incorporated in
Delaware on February 21, 1996, is a Houston, Texas based
independent oil and gas exploration business focusing initially on
the Louisiana Gulf Coast. The Company has entered into a joint
venture agreement with another entity, whereby the Company is
attempting to raise capital in return for a 50% working exclusive
interest participation in the leasing and drilling of all prospects
generated along a particular section of the Louisiana Coast.
b. Fixed Assets
------------
The Company has capitalized furniture and fixtures and will be
depreciating them under the straight line method over seven years.
c. Organization Costs
------------------
The Company has capitalized legal and accounting fees related to
its organization and will amortized them over a 60 month period.
F-21
<PAGE>
The following proforma condensed balance sheet presents the combined
financial position of Cheniere Energy Operating Co., Inc. as of April 22, 1996.
Such proforma information is based upon balance sheet data of Cheniere Energy
Operating Co., Inc. and Bexy Communications, Inc., giving effect to the
recapitalization of Cheniere Energy Operating Co., Inc. and the issuance of
stock for the net assets of Bexy Communications as well as indicating the
combined balance sheet in the event that the divestiture does not occur. This
combined balance sheet should be read in conjunction with the other unaudited
proforma financial information, the accompanying proforma notes and the
financial statements of the respective companies and related notes thereto
included elsewhere in this proxy statement as incorporated herein by reference.
F-22
<PAGE>
<TABLE>
<CAPTION>
PROFORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
Cheniere Bexy Resulting
Energy Communications Adjustments Proforma
Co., Inc. Inc. Combined Debits (Credits) Combined
--------- -------------- ---------- ---------------- ---------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C> <C> <C>
Cash $ 75,003 $ 101,446 $ 176,449 $( 101,446) $ 75,003
Accounts Receivable - 61,300 61,300 ( 61,300) -
Program Inventory - Net - 53,657 53,657 ( 53,657) -
Furniture and Fixtures 22,505 922 23,427 ( 922) 22,505
Other Assets 55,800 6,722 62,522 ( 6,722) 55,800
------ ----- ------ ---------- ------
Total Assets $ 153,308 $ 224,047 $ 377,355 $( 224,047) $ 153,308
=========== =========== ============ =========== ===========
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Accounts Payable and
Accrued Expenses $ 78,305 $ 37,251 115,556 $ 37,251 $ 78,305
Accrued Interest Expense to
Related Party - 37,208 37,208 37,208 -
Deposits - 2,000 2,000 2,000 -
Deferred Income - 16,000 16,000 16,000 -
----------- ------ ------ ------ -----------
Total Liabilities 78,305 92,459 170,764 92,459 78,305
SHAREHOLDERS EQUITY
Common Stock (issued and
outstanding 8,843,375) 75,003 147,404 222,407 195,877 26,530
Contributed Capital - 1,116,581 1,116,581 1,068,108 48,473
Accumulated Deficit - (1,092,442) (1,092,442) (1,092,442) -
Notes Receivable from - ( 39,955) ( 39,955) ( 39,955) -
Shareholders ----------- ----------- ----------- ----------- ----------
Total Shareholders Equity 75,003 131,588 206,591 131,588 75,003
Total Liabilities and
Shareholders' Equity $ 153,308 $ 224,047 $ 377,355 $ 224,047 $ 153,308
=========== ========== ============ =========== ===========
</TABLE>
F-23
<PAGE>
NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED
FINANCIAL INFORMATION
NOTE 1 - Proforma Adjustments
--------------------
The Proforma condensed combined financial information
reflects: (a) The assignment of assets and liabilities to a
new and separate company; (b) The distribution of capital to
the original shareholders of Bexy. The nature and effect of
these transactions is to transfer the individual assets and
liabilities of Bexy at their book value as of the most recent
balance sheet date to a new and separate entity. The nature
and effect of these transactions on the original shareholders
of Bexy is that they will become shareholders of the new and
separate entity.
NOTE 2 - Fiscal Year-End's
-----------------
Bexy's year-end is August 31st. Cheniere's year-end has been
determined to be December 31st. For purposes of preparing
the Proforma Condensed Combined Financial Information,
unaudited six months figures for Bexy have been used with the
April 22, 1996 audited numbers of Cheniere.
NOTE 3 - Reorganization Expenses
-------------- --------
No provision has been reflected in the Proforma Condensed
Combined Financial Information for direct expenses related to
the acquisition which are expected to be $100,000.
NOTE 4 - Federal Income Tax Consequences of the Acquisition
--------------------------------------------------
The Proforma Condensed Combined Financial Information assumes
that there will be no tax due on a corporate basis.
NOTE 5 - Intercompany Transaction
-----------------------
There were no significant intercompany transactions between
Cheniere and Bexy during the periods presented in the
Proforma Condensed Combined Financial Information.
F-24
<PAGE>
WBAM DRAFT 5/28/96
EXHIBIT A
---------
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BEXY COMMUNICATIONS, INC.
Under Sections 242 and 245 of the
Delaware General Corporation Law
The undersigned, being the President of BEXY COMMUNICATIONS, INC., a
corporation existing under the laws of the State of Delaware (the "Company"),
does hereby certify as follows:
FIRST: The name of the Company is BEXY COMMUNICATIONS, INC.
SECOND: The certificate of incorporation of the Company was filed by
the Secretary of State of the State of Delaware on the 25th day of March, 1983.
THIRD: The amendments to the certificate of incorporation effected by
this Certificate are as follows:
(1) To change the name of the Company to "Cheniere Energy, Inc.;"
(2) To change the total number of shares of capital stock which the
Company shall have authority to issue to 21,000,000 shares;
(3) To amend and supplement the provisions of the certificate of
incorporation relating to personal liability of the directors of the Company and
indemnification by the Company;
(4) To change the total number of the shares of common stock which
the Company shall have authority to issue to 20,000,000 shares;
A-1
<PAGE>
(5) To change the par value of the common stock to $.003 per share;
(6) To add a provision authorizing the issuance of 1,000,000 shares
of a new class of preferred stock, the rights, powers and preferences of which
shall be set by resolution of the Board of Directors of the Company;
(7) To change the registered office of the Company in the State of
Delawre to 1013 Centre Road, City of Wilmington 19805, County of New Castle; and
(8) To change the registered agent of the Company in the State of
Delaware to Corporation Service Company, 1013 Centre Road, City of Wilmington
19805, County of New Castle.
FOURTH: The amendments and the restatement of the certificate of
incorporation have been duly adopted in accordance with Sections 242 and 245 of
the General Corporation Law of the State of Delaware by the unanimous vote of
the Board of Directors.
FIFTH: The text of the certificate of incorporation of said BEXY
Communications, Inc. is hereby restated as amended by this Certificate, to read
in full, as follows:
A-2
<PAGE>
CERTIFICATE OF INCORPORATION
of
Cheniere Energy, Inc.
(Pursuant to Section 102 of the General
Corporation Law of the State of Delaware)
FIRST: The name of the corporation is Cheniere Energy, Inc.
-----
(hereinafter referred to as the "Company").
-------
SECOND: The address of the registered office of the Company in the
------
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle,
Delaware 19805. The name of the registered agent of the Company at such address
is Corporation Service Company.
THIRD: The nature of the business or purposes to be conducted or
-----
promoted by the Company are to engage in, promote, and carry on any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (hereinafter referred to as the "GCL").
FOURTH: The total number of shares of stock that the Company shall
------
have authority to issue is 21,000,000 shares, consisting of:
(1) 20,000,000 shares of Common Stock, having a par value of $.003
per share; and
(2) 1,000,000 shares of Preferred Stock.
The Board of Directors of the Company is authorized, subject to
limitations prescribed by law and by filing any certificate prescribed by law,
to establish the par value of such Preferred Stock, to provide for the issuance
of such Preferred Stock in series, and to establish the number of shares to be
included in each such series, the full or limited voting powers, or the denial
of voting powers of each such series, and such designations, preferences and
relative, participating, optional or other special rights, and the
qualifications or restrictions and other distinguishing characteristics, if any,
of the shares of each such series. The authority of the Board of Directors with
respect to the shares of each such series shall include, without limitation,
determination of the following:
(a) the number of shares of each such series and the designation
thereof;
A-3
<PAGE>
(b) the par value of shares of each such series;
(c) the annual rate or amount of dividends, if any, payable on shares
of each such series (which dividends would be payable in preference to any
dividends on Common Stock), whether such dividends shall be cumulative or non-
cumulative and the conditions upon which and/or the date when such dividends
shall be payable;
(d) whether the shares or each such series shall be redeemable and,
if so, the terms and conditions of such redemption, including the time or times
when and the price or prices at which shares of each such series may be
redeemed;
(e) the amount, if any, payable on shares of each such series in the
vent of liquidations, dissolution or winding up of the affairs of the Company;
(f) whether the shares of each such series shall be convertible into
or exchangeable for shares of any other class, or any series of the same or any
other class, and, if so, the terms and conditions thereof, including the price
or prices or the rate or rates at which shares of each such series shall be so
convertible or exchangeable, and the adjustment which shall be made, and the
circumstances in which such adjustments shall be made, in such conversion or
exchange prices or rates; and
(g) whether the shares of each such series shall have any voting
rights in addition to those prescribed by law and, if so, the terms and
conditions of exercise of voting rights.
FIFTH: The Board of Directors of the Company shall have the power to
-----
adopt, amend or repeal the Bylaws of the Company at any meeting at which a
quorum is present by the affirmative vote of a majority of the whole Board of
Directors. Election of directors need not be by written ballot. Any director
may be removed at any time with or without cause, and the vacancy resulting from
such removal shall be filled, by vote of a majority of the stockholders of the
Company at a meeting called for that purpose or by unanimous consent in writing
of the stockholders.
SIXTH: Personal liability of the directors of the Company is hereby
-----
eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of
Section 102 of the GCL, as the same may be amended from time to time.
SEVENTH: The Company shall, to the fullest extent permitted by
-------
Section 145 of the GCL, as amended from time to time, indemnify all persons whom
it may indemnify pursuant thereto.
A-4
<PAGE>
IN WITNESS WHEREOF, the undersigned being thereunto duly authorized
has executed this Amended and Restated Certificate of Incorporation this ___ day
of May, 1996.
______________________________
William D. Forster
President
A-5
<PAGE>
CONFORMED COPY
EXHIBIT B
---------
____________________________
AGREEMENT AND
PLAN OF REORGANIZATION
by and among
BEXY COMMUNICATIONS, INC.,
a Delaware corporation,
BUDDY YOUNG,
an individual
and
CHENIERE ENERGY OPERATING CO., INC.
a Delaware corporation
and
THE STOCKHOLDERS OF CHENIERE ENERGY OPERATING CO., INC.
Dated:
April 16, 1996
_______________________________
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I THE ACQUISITION AND RELATED MATTERS . . . . . . . . . . . . . . . 3
1.1 Transfer and Exchange of the Cheniere Shares . . . . . . . . . . 3
1.2 Exchange of Cheniere Securities . . . . . . . . . . . . . . . . . 4
1.2.1 Exchange of Cheniere Shares . . . . . . . . . . . . . . . . 4
1.2.2 Exchange of Cheniere Warrants . . . . . . . . . . . . . . . 4
1.3 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 Certain Events at the Closing . . . . . . . . . . . . . . . . . . 5
1.5 Change in Structure of Transaction . . . . . . . . . . . . . . . 7
ARTICLE II REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 8
2.1 Representations and Warranties of Cheniere . . . . . . . . . . . 8
2.2 Representations and Warranties of the Cheniere Stockholders . . . 8
2.3 Representations and Warranties of BEXY . . . . . . . . . . . . . 8
2.4 Representations and Warranties of Young . . . . . . . . . . . . . 9
ARTICLE III FURTHER COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . 9
3.1 Access and Information . . . . . . . . . . . . . . . . . . . . . 9
3.2 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Submission to Stockholders . . . . . . . . . . . . . . . . . . . 11
3.4 Consulting Agreement . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Limited Lock-Up Agreement . . . . . . . . . . . . . . . . . . . . 11
3.6 Agreement Regarding Reverse Splits . . . . . . . . . . . . . . . 12
3.7 Indemnification Agreement . . . . . . . . . . . . . . . . . . . . 12
3.8 Divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.9 Reverse Split . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.10 Agreement to Vote for Reorganization . . . . . . . . . . . . . . 13
3.11 Cheniere Warrants . . . . . . . . . . . . . . . . . . . . . . . . 13
3.12 Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.13 Exchange Act Reports . . . . . . . . . . . . . . . . . . . . . . 14
3.14 Stock Transfer Agent . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . 14
4.1 General Conditions . . . . . . . . . . . . . . . . . . . . . . . 14
4.2 Conditions to Obligations of BEXY . . . . . . . . . . . . . . . . 14
4.3 Conditions to Obligations of Cheniere . . . . . . . . . . . . . . 16
ARTICLE V TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES . . . . . . . . . 18
5.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . 18
5.3 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 20
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<PAGE>
6.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Publicity and Reports . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.5 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 22
6.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-ii-
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit No. Description
Exhibit A Amended and Restated Certificate of
Incorporation
Exhibit B BEXY Warrant Agreement
Exhibit C Representations and Warranties of Cheniere
Exhibit D Representations and Warranties of the
Cheniere Stockholders
Exhibit E Representations and Warranties of BEXY
Exhibit F Representations and Warranties of Young
Exhibit G Consulting Agreement
Exhibit H Limited Lock-Up Agreement
Exhibit I Agreement Regarding Reverse Splits
Exhibit J Indemnification Agreement
Exhibit K Cheniere Warrant Agreement
Exhibit L Opinion of Counsel of Whitman Breed Abbott
& Morgan
Exhibit M Opinion of Counsel of Hand & Hand
SCHEDULES
Schedule No. Description
Schedule A Cheniere Stockholders
Schedule B Exchange of Cheniere Stock
Schedule C Exchange of Cheniere
Warrants
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into as of this 16th day of April, 1996, by and among BEXY COMMUNICATIONS, INC.,
a Delaware corporation ("BEXY"), BUDDY YOUNG, an individual ("Young") (as to
Sections 2.4, 3.4, 3.5, 3.6, 3.7, 3.8 and 3.10), and CHENIERE ENERGY OPERATING
CO., INC., a Delaware corporation ("CHENIERE"), and the Stockholders of Cheniere
listed on Schedule A attached hereto (collectively, the "Cheniere
----------
Stockholders").
RECITALS
1. BEXY desires to effect a reorganization (the "Reorganization")
consisting of:
the assignment of substantially all of the assets of the
existing business of BEXY, subject to liabilities, to a newly-formed,
wholly-owned subsidiary of BEXY ("Newco") and the distribution of all
of the shares of outstanding capital stock of Newco (the "Newco
Stock") to the existing stockholders of BEXY (the "Divestiture"); and
the transfer by the Cheniere Stockholders to BEXY (the
"Acquisition") of all of the issued and outstanding capital stock of
Cheniere on the Closing Date (as hereinafter defined) in exchange for
newly issued shares of common stock, par value $.01 per share (or par
value $.003 per share after giving effect to the amendment to BEXY's
certificate of incorporation described below), of BEXY (the "BEXY
Stock"), representing approximately 93% of the then issued and
outstanding shares of BEXY Stock (which will be the sole class of
stock of BEXY then issued and outstanding), thereby constituting a
tax-free exchange under Sections 351 and 368(a)(1)(B) of the Internal
Revenue Code.
<PAGE>
2. Because BEXY does not currently have sufficient shares of BEXY
Stock authorized to effect the Acquisition, the Board of Directors of BEXY have
determined that it is in the best interest of the stockholders of BEXY (the
"BEXY Stockholders") to amend the certificate of incorporation of BEXY (the
"BEXY Certificate of Incorporation") to increase the authorized capital stock of
BEXY, and to further amend and restate the BEXY Certificate of Incorporation to
(x) change the name of the corporation to "Cheniere Energy, Inc.," and (y)
change and add certain other provisions of and to the Certificate of
Incorporation, as set forth in the form of Amended and Restated Certificate of
Incorporation, substantially in the form of Exhibit A hereto (the "Amended and
------- -
Restated Certificate of Incorporation"), effective upon the consummation of the
Acquisition.
3. A special meeting of the BEXY Stockholders will be called by the
Board of Directors of BEXY (the "BEXY Stockholders Meeting") in order to obtain
the approval of the BEXY Stockholders to the Reorganization, including the
Acquisition, the amendment of the BEXY Certificate of Incorporation, the
Divestiture and the election of new directors of BEXY to take office following
the Closing of the Acquisition.
4. In connection with the BEXY Stockholders Meeting, BEXY will
prepare and file with the Securities and Exchange Commission (the "SEC") and
distribute to the BEXY Stockholders, a proxy statement (the "Proxy Statement")
and certain other proxy materials (collectively, the "Proxy Materials").
5. In order to facilitate the Reorganization, Young has agreed to
vote his shares of BEXY Stock at the BEXY Stockholders Meeting in favor of the
Reorganization and to indemnify BEXY against certain potential liabilities which
could arise in connection with the Divestiture.
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<PAGE>
6. The Board of Directors of BEXY has determined that the
Reorganization is in the best interests of BEXY and the BEXY Stockholders and
the Board of Directors of Cheniere has determined that the Acquisition is in the
best interests of Cheniere and the Cheniere Stockholders, and each Board of
Directors has approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
benefits to be derived from the Reorganization and of the representations,
warranties, conditions and agreements in this Agreement, the parties hereby
agree as follows:
ARTICLE I
THE ACQUISITION AND RELATED MATTERS
1.1 Transfer and Exchange of the Cheniere Shares. On the terms and
-------- --- -------- -- --- -------- ------
subject to the conditions of this Agreement, the Cheniere Stockholders,
including all parties that shall become Cheniere Stockholders after the date of
this Agreement and at the Closing, shall transfer and exchange all (but not less
than all) the shares (the "Cheniere Shares") of common stock, no par value per
share, of Cheniere (the "Cheniere Stock") then issued and outstanding as at the
Closing Date for the number of shares of BEXY stock provided in Section 1.2
hereof.
1.2 Exchange of Cheniere Securities.
-------- -- -------- ----------
1.2.1 Exchange of Cheniere Shares. The aggregate number of
-------- -- -------- ------
shares of BEXY Stock to be issued to the Cheniere Stockholders in exchange for
their Cheniere Shares shall be 24,727,265 based on 1,802,859 million shares of
BEXY Stock; and options to purchase 58,333 shares of BEXY Stock being
outstanding, representing approximately 93% of
-3-
<PAGE>
the issued and outstanding shares of capital stock of BEXY measured by voting
power and number, calculated prior to giving effect to the Reverse Split of the
BEXY Shares described in Section 3.9 below, or 8,242,421.6 shares of BEXY Stock
after giving effect to the Reverse Split (the "Consideration"). The parties
understand and agree that it is understood that the Consideration is not
inclusive of any consideration which will be required to be issued in respect of
any Cheniere Shares that may be issued upon the exercise of the Cheniere
Warrants described in Sections 1.1.2 and 3.11 below. At the Closing, Cheniere
shall deliver to BEXY Schedule B setting forth the proportionate share of the
-------- -
Consideration that shall be allocated to each Cheniere Stockholder for such
Cheniere Stockholder's Cheniere Shares.
1.2.2 Exchange of Cheniere Warrants. At the Closing, as required
-------- -- -------- --------
under the Cheniere Warrant Agreement (as hereinafter defined), each Cheniere
Warrant will be exchanged for a warrant to purchase BEXY Stock (the "BEXY
Warrants") and Cheniere shall deliver to BEXY Schedule C setting forth the
-------- -
number of Cheniere Warrants outstanding and the number of BEXY Warrants (and the
number of shares of BEXY Stock issuable upon exercise of the BEXY Warrants) to
be delivered in exchange therefor. In the event of the exercise of any Cheniere
Warrants prior to the Closing, the Cheniere Shares issued upon such exercise
shall be exchanged at the Closing in consideration for additional shares of BEXY
Stock as set forth in the Cheniere Warrant Agreement. The terms and conditions
of the BEXY Warrants shall be as set forth in the form of BEXY Warrant Agreement
attached hereto as Exhibit B.
------- -
1.3 The Closing. The Acquisition shall be consummated at a closing
--- -------
(the "Closing") at the offices of Whitman Breed Abbott & Morgan, 200 Park
Avenue, New York 10166, at 11:00 local time immediately following the conclusion
of the BEXY Stockholders
-4-
<PAGE>
Meeting and the filing of the Amended and Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware, or on such other date or
in such other place to which the parties shall mutually agree (the "Closing
Date").
1.4 Certain Events at the Closing. At the Closing, in addition to
------- ------ -- --- -------
such other actions as may be provided for herein:
Each Cheniere Stockholder shall deliver to BEXY a certificate or
certificates representing the aggregate number of Cheniere Shares owned by such
Cheniere Stockholder (duly executed and in proper form for transfer).
BEXY shall deliver to each Cheniere Stockholder a certificate or
certificates representing the number of shares of BEXY Stock to be delivered to
such Cheniere Stockholder.
Cheniere shall deliver to BEXY Schedule B setting forth the names
-------- -
of the Cheniere Stockholders and the number of Cheniere Shares held by each
Cheniere Stockholder and the number of shares of BEXY Stock that will be
exchanged for such Cheniere Shares.
Each of the holders of the Cheniere Warrants shall deliver to
BEXY a certificate(s) representing the Cheniere Warrants owned by such holder as
provided for in Section 1.2.2 (duly executed and in proper form for transfer).
BEXY shall deliver to each of the holders of the Cheniere
Warrants a BEXY Warrant Agreement and certificate(s) for BEXY Warrants
representing such number of BEXY Warrants as provided in their respective
Cheniere Warrant Agreement.
-5-
<PAGE>
Each holder of Cheniere Warrants shall deliver to BEXY a BEXY
Warrant Agreement with respect to such number of BEXY Warrants as provided in
their respective Cheniere Warrant Agreement.
Cheniere shall deliver to BEXY Schedule C setting forth the names
-------- -
of the holders of the Cheniere Warrants.
BEXY shall delivery to the Cheniere Stockholders the opinion of
counsel provided for in Section 4.3(e) hereof.
Cheniere shall deliver to BEXY the opinion of counsel provided
for in Section 4.2(g) hereof.
Cheniere shall deliver to BEXY the certificates provided for in
Sections 4.2(b) and (f) hereof.
BEXY shall deliver to Cheniere and the Cheniere Stockholder the
certificates provided for in Sections 4.3(b) and (g) hereof.
BEXY shall deliver to Young the Consulting Agreement provided for
in Section 3.4 hereof.
Young shall deliver to BEXY the Consulting Agreement provided for
in Section 3.4 hereof.
Young shall deliver to BEXY and the Cheniere Stockholders the
Indemnification Agreement provided for in Section 3.7 hereof.
BEXY and the Cheniere Stockholders shall deliver to Young the
Indemnification Agreement provided for in Section 3.7 hereof.
Young shall deliver to BEXY the Limited Lock-Up Agreement
provided for in Section 3.5 hereof.
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<PAGE>
BEXY shall deliver to Young the Limited Lock-Up Agreement
provided for in Section 3.5 hereof.
BEXY shall deliver to Young the Reverse Stock Split Agreement
provided for in Section 3.6 hereof.
Young shall deliver to BEXY the Reverse Stock Split Agreement
provided for in Section 3.6 hereof.
This Agreement, the Cheniere Warrant Agreement, the Consulting
Agreement, the Indemnification Agreement, the Limited Lock-Up Agreement and the
Reverse Stock Split Agreement are individually a "Transaction Document" and
collectively "Transaction Documents".
1.5 Change in Structure of Transaction. Notwithstanding anything in
------ -- --------- -- -----------
this Agreement to the contrary, if at any time after the date hereof, it shall
appear that any change or changes in the structure of the transactions
contemplated hereby shall be necessary or desirable to comply with applicable
law or the requirements of regulatory authorities having jurisdiction over the
transactions or for any other reason, the parties hereto agree to cooperate in
making such changes in this Agreement, and other documents contemplated hereby
and in taking such other actions as may be required to effect such changes;
provided, however, that neither party hereto shall be required by this Section
- -------- -------
1.5 to agree to any change in the amount or form of consideration set forth
herein or to any other material term hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
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<PAGE>
2.1 Representations and Warranties of Cheniere. To induce BEXY to
--------------- --- ---------- -- --------
enter into this Agreement and to consummate the transactions contemplated
hereby, Cheniere hereby represents and warrants to BEXY that each of the
representations and warranties set forth in Exhibit C hereto is true and correct
------- -
at and as of the date hereof and will be true on the Closing Date.
2.2 Representations and Warranties of the Cheniere Stockholders. To
--------------- --- ---------- -- --- -------- -------------
induce BEXY to enter into this Agreement and to consummate the transactions
contemplated hereby, each Cheniere Stockholder hereby severally represents and
warrants to BEXY that each of the representations and warranties set forth in
Exhibit D hereto is true and correct at and as of the date hereof or will be
- ------- -
true at and as of the date that any additional Cheniere Stockholder enters into
and delivers this Agreement and will be true on the Closing Date.
2.3 Representations and Warranties of BEXY. To induce Cheniere and
--------------- --- ---------- -- ----
the Cheniere Stockholders to enter into this Agreement and to consummate the
transactions contemplated hereby, BEXY hereby represents and warrants to
Cheniere and the Cheniere Stockholders that each of the representations and
warranties set forth in Exhibit E hereto is true and correct at and as of the
------- -
date hereof and will be true on the Closing Date.
2.4 Representations and Warranties of Young. To induce Cheniere and
--------------- --- ---------- -- -----
the Cheniere Stockholders to enter into this Agreement and to consummate the
transactions contemplated hereby, Young hereby represents and warrants to
Cheniere and the Cheniere Stockholders that each of the representations and
warranties set forth in Exhibit F hereto is true and correct at and as of the
------- -
date hereof and will be true on the Closing Date.
ARTICLE III
-8-
<PAGE>
FURTHER COVENANTS AND AGREEMENTS
3.1 Access and Information.
------ --- -----------
(a) BEXY and Cheniere agree that each of them may, prior to the
Closing Time, and through each of their respective employees, agents,
accountants, counsel, auditors, and other representatives (its "Agents"), make
or cause to be made such investigations of the business, properties and
personnel of the other party hereto as the party making such investigations may
deem necessary or advisable, and that such investigations shall not affect the
representations and warranties made by BEXY and Cheniere herein to the other or
the rights of BEXY and Cheniere hereunder. During normal business hours, and
upon reasonable notice, BEXY and Cheniere and their respective
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<PAGE>
Agents shall have full access to the premises and to all the properties, books,
contracts, commitments, and records of the other party hereto, and the officers
of BEXY and Cheniere shall furnish to the other party hereto, and their
respective Agents, such financial and operating data and other information (or
copies thereof) with respect to its business, properties, and personnel as BEXY
or Cheniere (as the case may be) and their respective Agents may from time to
time reasonably request. Furthermore, BEXY or Cheniere will each instruct their
respective auditors, accountants and counsel to cooperate with the other party
hereto and their respective Agents in making available to them all financial and
legal information requested, including the right to examine all working papers
pertaining to audits of BEXY or Cheniere (as the case may be) and to make copies
and extracts thereof.
(b) Until the Closing or, in the event of termination of this
Agreement without consummation of the transactions contemplated hereby, until
June 30, 1996, BEXY and Cheniere hereby covenant and agree that each of them and
their respective Agents shall keep confidential any information (unless readily
ascertainable from public or published information or sources) obtained from the
other party hereto or its Agents; provided, however, that BEXY and Cheniere may
-------- -------
furnish such information to any person pursuant to legal process. In the event
this Agreement is terminated, then promptly after such termination BEXY or
Cheniere (as the case may be) and their respective Agents shall return to the
other party hereto all documents, work papers or other written material obtained
from such other party or its respective Agents in connection with this Agreement
and not theretofore made public (including all copies thereof).
3.2 Cooperation. The parties hereto shall cooperate with each other
-----------
in every way in carrying out the transactions contemplated herein, including but
not limited to (i) in obtaining all required approvals and authorizations, (ii)
-10-
<PAGE>
in furnishing information required for use in preparing and filing with the SEC
the Proxy Materials which shall be used in connection with the BEXY Stockholders
Meeting to be held for the purpose of considering the transactions contemplated
by this Agreement, (iii) in preparing and filing with the SEC a Registration
Statement on Form 10 under the Securities Exchange Act of 1934 (the "Exchange
Act") (or such other Form as may be appropriate) covering the shares of Newco
Stock to be issued to the BEXY Stockholders in connection with the Divestiture
to the BEXY Stockholders (the "Registration Statement"), (iv) in preparing and
filing such other reports and applications with federal and state regulatory
authorities as may be required and (v) in preparing, negotiating, executing
and/or delivering and filing all agreements, instruments, certificates,
applications, consents, schedules and other documents deemed necessary or useful
by any party. BEXY and Cheniere each promptly shall provide the other with
copies of all such applications and all amendments and supplements thereto filed
or made in connection with the
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<PAGE>
transactions contemplated hereby and promptly shall advise the other of the
substance of all oral or written comments received thereon from applicable
regulatory authorities.
3.3 Submission to Stockholders. BEXY shall take all such actions as
---------- -- ------------
may be required to submit the Reorganization, including the amendment of the
BEXY Certificate of Incorporation, the Acquisition, the election of new
directors and the Divestiture, and the other transactions contemplated by this
Agreement to the BEXY Stockholders at the earliest practicable date. The Board
of Directors of BEXY shall recommend such approvals by its stockholders as are
required to effectuate the Reorganization and the other transactions
contemplated hereby.
3.4 Consulting Agreement. BEXY shall enter into a Consulting
---------- ---------
Agreement, substantially in the form attached as Exhibit G hereto (the
------- -
"Consulting Agreement"), pursuant to which Young will agree to provide BEXY with
certain consulting services for a two-year period following the Closing.
3.5 Limited Lock-Up Agreement. Young will enter into an agreement,
------- ------- ---------
substantially in the form attached as Exhibit H hereto (the "Limited Lock-Up
------- -
Agreement"), pursuant to which Young will agree not to sell more than 10,000
shares of BEXY Stock each month for a nine month-period following the Closing
Date.
3.6 Agreement Regarding Reverse Splits. BEXY will enter into an
--------- --------- ------- ------
agreement with Young, substantially in the form attached as Exhibit I hereto
------- -
("Reverse Stock Split Agreement"), pursuant to which BEXY shall agree not to
engage in a reverse split of the BEXY Stock, other than the Reverse Split
contemplated by this Agreement, for an eighteen (18) month-period following the
Closing.
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<PAGE>
3.7 Indemnification Agreement. Young will enter into an agreement
--------------- ---------
with BEXY, Cheniere and the Cheniere Stockholders, substantially in the form
attached as Exhibit J hereto, pursuant to which Young will agree to indemnify
------- -
BEXY, Cheniere and the Cheniere Stockholders against any cost, expense or other
liability that any of them may suffer arising as a result of or in connection
with (i) the operation of the business of BEXY prior to the Closing, (ii) any
untrue statement or omission of material fact made by or with respect to BEXY or
Young in the Proxy Materials or the Registration Statement and (iii) any tax
liability arising out of or in connection with the consummation of the
transactions contemplated by the Divestiture.
3.8 Divestiture. Following the BEXY Stockholders Meeting and
-----------
immediately prior to the consummation of the Acquisition, BEXY agrees that it
shall distribute the shares of Newco Stock to the BEXY Stockholders of record as
of April 30, 1996 and prepare and file the Registration Statement registering
the Newco Stock under the Exchange Act.
3.9 Reverse Split. Following the BEXY Stockholders Meeting and the
------- -----
filing of the Amended and Restated Certificate of Incorporation with the
Delaware Secretary of State and immediately prior to the consummation of the
Acquisition, BEXY shall effect a reverse split of the BEXY Stock in which each
BEXY Stockholder shall receive one (1) new share for each 3 shares of existing
BEXY Stock owned by such BEXY Stockholder (the "Reverse Split").
3.10 Agreement to Vote for Reorganization. Young agrees with
--------- -- ---- --- --------------
Cheniere, the Cheniere Stockholders and BEXY to vote any shares of BEXY Stock
owned by him as of the record date for the BEXY Stockholders Meeting in favor of
all matters recommended by
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<PAGE>
management of BEXY in the Proxy Statement, including without limitation, all
aspects of the Reorganization.
3.11 Cheniere Warrants. Cheniere may from time to time prior to the
-------- --------
Closing issued warrants to purchase up to seventy (70) shares of Cheniere Stock
for a purchase price of not less than $30,000 per share (the "Cheniere
Warrants") and having such other terms and conditions as are set forth in the
warrant agreement relating to the Cheniere Warrants, a form of which is attached
hereto as Exhibit K (the "Cheniere Warrant Agreement"). BEXY hereby agrees to
------- -
issue BEXY Warrants in exchange for each Cheniere Warrant. As provided in the
BEXY Warrant Agreement, each BEXY Warrant shall be exercisable for 10,000 shares
of BEXY Stock at $3.00 per share.
3.12 Form 8-K. BEXY will file, within 15 days of the Closing Date, a
---- ---
Current Report on Form 8-K with the SEC, reporting the Divestiture, the
Acquisition and such other transactions contemplated by this Agreement that are
required to be reported under the Exchange Act in such report.
3.13 Exchange Act Reports. BEXY shall file all reports required by
-------- --- -------
Section 13 of the Exchange Act and shall maintain its books and records in
accordance with Sections 12 and 13 thereof.
3.14 Stock Transfer Agent. BEXY agrees not to change its stock
----- -------- -----
transfer agent and registrar for the BEXY Stock for a nine-month period
following the Closing Date unless such stock transfer agent and registrar ceases
to be engaged in such business or the Board of Directors of BEXY determines in
its reasonable judgment that to continue such engagement would be materially
disadvantageous to BEXY.
-14-
<PAGE>
ARTICLE IV
CONDITIONS OF CLOSING
4.1 General Conditions. Except as may be waived by BEXY and
------- ----------
Cheniere, the obligations of BEXY and Cheniere to effect the Acquisition and to
consummate the other transactions contemplated hereby shall be subject to the
satisfaction of the following conditions at or prior to the Closing Date:
(a) Approvals. The BEXY Stockholders shall have approved the
---------
Reorganization, including the Acquisition and all other transactions
contemplated by this Agreement, and all other approvals and other requirements
prescribed by law, including all approvals and other requirements that are
necessary to the consummation of the Acquisition, shall have been satisfied.
4.2 Conditions to Obligations of BEXY. Except as may be waived by
---------- -- ----------- -- ----
BEXY, the obligations of BEXY to consummate the Reorganization and all other
transactions contemplated by this Agreement shall be subject to the satisfaction
of the following additional conditions at or prior to the Closing:
(a) SEC Approval. The Proxy Materials shall have been approved
--- --------
by the SEC.
(b) Representations and Warranties True; Compliance with
--------------- --- ---------- ----- ---------- ----
Obligations. The representations and warranties of Cheniere and the Cheniere
- -----------
Stockholders contained in this Agreement and in any other document delivered by
Cheniere to BEXY in connection therewith shall be true and correct at and as of
the Closing Date as though given at and as of the Closing Date (or at and as of
the date made or given with respect to any representation or warranty that
specifically relates to an earlier date); Cheniere shall have
-15-
<PAGE>
complied with all of its agreements, covenants and obligations under this
Agreement, and BEXY shall have received a certificate of the appropriate
authorized representative(s) of Cheniere dated the Closing Date as to each of
the foregoing.
(c) Pending Litigation. No legal, administrative, arbitration,
------- ----------
investigatory or other proceeding shall be pending before any court, tribunal or
governmental authority at the Closing Date which seeks to challenge or prevent
the Acquisition or any transaction provided for in this Agreement or which seeks
to obtain a remedy at law in connection therewith.
(d) State Law Compliance. BEXY shall have received all state
----- --- ----------
securities or "blue sky" law permits or other authorizations necessary to issue
the BEXY Stock in the Acquisition in the manner contemplated by this Agreement.
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<PAGE>
(e) Agreement of Additional Cheniere Stockholders. Cheniere
--------- -- ---------- -------- ------------
shall have provided BEXY with the written agreement of any additional
stockholders of Cheniere to sell all of their Cheniere Stock to BEXY on the
terms and conditions set forth in this Agreement.
(f) Capital. Cheniere shall have not less than $3,000,000 in
-------
total capital, including not less than $2,000,000 in equity capital, on the
Closing Date and at the Closing Cheniere shall deliver to BEXY a certificate of
an appropriate authorized representative of Cheniere to such effect.
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<PAGE>
(g) Opinion of Counsel. Whitman Breed Abbott & Morgan, counsel
------- -- -------
to Cheniere and the Cheniere Stockholders, shall have delivered to BEXY an
opinion, dated the Closing Date, substantially in the form of Exhibit L attached
------- -
hereto.
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<PAGE>
4.3 Conditions to Obligations of Cheniere. Except as may be waived
---------- -- ----------- -- --------
by Cheniere, the obligations of Cheniere to consummate the transactions
contemplated hereby shall be subject to the following additional conditions:
(a) SEC Approval. The Proxy Materials shall have been approved
--- --------
by the SEC.
(b) Representations and Warranties True; Compliance with
--------------- --- ---------- ----- ---------- ----
Obligations. The representations and warranties of BEXY and Young contained in
- -----------
this Agreement and in any other document delivered by BEXY to Cheniere in
connection therewith shall be true and correct at and as of the Closing Date as
though given at and as of the Closing Date (or at and as of the date made or
given with respect to any representation or warranty that specifically relates
to an earlier date); BEXY and Young shall have complied with all of its
agreements, covenants, and obligations under this Agreement and Cheniere shall
have received certificates of the appropriate authorized representative(s) of
BEXY and of Young, each dated the Closing Date as to each of the foregoing.
(c) Pending Litigation. No legal, administrative,
------- ----------
arbitrational, investigatory or other proceeding shall be pending before any
court, tribunal or governmental authority at the Closing Date which seeks to
challenge or prevent the Acquisition or any transaction provided for in this
Agreement or which seeks to obtain a remedy at law in connection therewith.
(d) State Law Compliance. BEXY shall have received all state
----- --- ----------
securities or "blue sky" law permits or other authorizations necessary to issue
the BEXY Stock to the Cheniere Stockholders in the Acquisition in the manner
contemplated by this Agreement.
(e) Opinion of Counsel. Hand & Hand, counsel to BEXY and Young,
------- -- -------
shall have delivered to Cheniere and each of the holders of Cheniere
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<PAGE>
Stockholders an opinion, dated the Closing Date, substantially in the form of as
Exhibit M attached hereto.
- ------- -
(f) Amendment of BEXY Certificate of Incorporation, etc. The
--------- -- ---- ----------- -- -------------- ----
BEXY Certificate of Incorporation shall have been amended and restated,
substantially in the form set forth as Exhibit A hereto. The persons designated
by Cheniere shall have been elected directors and officers of BEXY and the
directors and officers of BEXY holding office prior to the Closing Date shall
have resigned.
(g) Liabilities; Working Capital. As of Closing, BEXY shall
------------ ------- -------
have (i) a positive net worth, (ii) not more than $100,000 in liabilities and
(iii) a positive working capital and at the Closing, BEXY shall deliver to
Cheniere and the Cheniere Stockholders a certificate of an appropriate
authorized representative of BEXY to such effect.
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<PAGE>
ARTICLE V
TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES
5.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Closing Date, whether before or after the approval of the BEXY
Stockholders shall have been obtained as follows:
(a) By mutual consent of the parties;
(b) By BEXY or Cheniere, if there has been a material
misrepresentation or breach of warranty on the part of the other party in the
representations and warranties set forth herein or in any certificate or other
writing delivered pursuant hereto and there is no reasonable possibility of cure
of such breach prior to the Closing Date (provided that a termination occasioned
by such misrepresentation or breach by either of such party shall not release
such party from liability therefore to the other party); or
(c) By BEXY or Cheniere, if Cheniere shall not have obtained not
less than $3 million in total capital, including not less than $2 million in
equity capital, within a reasonable time after the date hereof; or
(d) By BEXY or Cheniere, if the BEXY Stockholders shall not have
approved the Acquisition and the other transactions contemplated by this
Agreement within a reasonable time after the date hereof.
5.2 Effect of Termination. In the event that this Agreement is
------ -- -----------
terminated pursuant to Section 5.1, all further obligations of the parties under
this Agreement shall terminate without further liability of any party to
another, provided that the obligations of the parties contained in Sections
3.1(b), 5.3, and 6.3 through 6.10 hereof shall survive any such
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<PAGE>
termination, and provided further that a termination under Section 5.1 hereof
shall not relieve any party of any liability for a breach of this Agreement or
for any misstatement or misrepresentation made hereunder, prior to such
termination, or be deemed to constitute a waiver of any available remedy for any
such breach, misstatement or misrepresentation. If the Acquisition and the
other transactions contemplated hereby are consummated, the representations,
warranties and agreements of the parties set forth in this Agreement and in the
officers' certificates to be delivered at the Closing shall not survive the
Closing, and shall be terminated and extinguished at the Closing Date and from
and after the Closing Date none of the parties hereto nor their respective
stockholders, directors or officers shall have any liability to the other on
account of any breach or failure of any representations, warranties or
agreements hereunder.
5.3 Payment of Expenses. The parties agree that fees and out-of-
------- -- --------
pocket expenses in connection with this Agreement and the transactions
contemplated hereby shall be paid as follows:
(a) Fees and disbursements of counsel, consultants and
accountants shall be paid by the party employing such person;
(b) Except as provided in subsection (d) below and subsection
(a) above, expenses in connection with obtaining approval of the transactions
contemplated hereby by the BEXY Stockholders, including proxy solicitation
costs, if any, shall be paid by BEXY;
(c) Expenses in connection with any necessary qualifications of
the BEXY Stock under state securities or blue sky laws shall be paid by BEXY;
(d) Expenses in connection with the printing of the Proxy
Materials and any SEC filing fees and expenses shall be divided between Cheniere
and BEXY; and
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<PAGE>
(e) All other fees and out-of-pocket expenses incurred in
connection with the transactions contemplated hereby shall be paid by the party
incurring such expenses.
ARTICLE VI
MISCELLANEOUS
6.1 Amendments. Subject to applicable law, this Agreement may be
----------
amended at any time prior to the Closing Date, whether before or after the
approval of BEXY's stockholders have been obtained, upon approval of the
respective Boards of Directors of BEXY and Cheniere, by written agreement of the
parties hereto or thereto, as the case may be.
6.2 Publicity and Reports. Until the Closing Date, BEXY and Cheniere
--------- --- -------
each shall consult with the other as to the content of any formal communication
to their respective stockholders or to the public that relates to the
transactions contemplated hereby.
6.3 Governing Law. This Agreement and the legal relations between
--------- ---
the parties shall be governed by and construed in accordance with the internal
laws of the State of Delaware without regard to principles of choice or
conflicts of law, except to the extent certain matters may be governed as a
matter of law by the laws of the United States.
6.4 Notices. Any notices or other communications required or
-------
permitted hereunder shall be sufficiently given if delivered personally or three
(3) days after being sent by registered or certified mail, return receipt
requested, postage prepaid, or transmitted by telecopy with oral confirmation,
addressed as follows or to such other address of which the parties may have
given notice in accordance with this Section 6.4:
If to BEXY or Young:
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<PAGE>
BEXY Communications, Inc.
16661 Ventura Boulevard, Suite 214
Encino, CA 91436
Attn: Mr. Buddy Young, President & CEO
Fax: (818) 784-8660
With a copy to:
Hand & Hand
24901 Dana Point
Harbor Drive, Suite 200
Dana Point, CA 92629
Attn: Jehu Hand, Esq.
Fax: (714) 489-0034
If to Cheniere or the Cheniere Stockholders:
Cheniere Energy Operating Co., Inc.
237 Park Avenue, Suite 2100
New York, NY 10017
Attn: Mr. William D. Forster
Fax: (212) 490-0131
with a copy to:
Whitman Breed Abbott & Morgan
200 Park Avenue
New York, NY 10166
Attn: Robert C. Brighton, Jr., Esq.
Fax: (212) 351-3131
6.5 No Assignment. Neither this Agreement nor any rights or
-- ----------
obligations of any party hereunder or thereunder, may be assigned by the parties
hereto, by operation of law or otherwise, except with the written consent of the
other party.
6.6 Headings. The descriptive headings of the several Articles and
--------
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
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<PAGE>
6.7 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to each of the other parties hereto.
6.8 Entire Agreement. This Agreement together with the schedules,
------ ---------
lists, exhibits and certificates required to be delivered hereunder and any
amendments hereafter executed and delivered in accordance with Section 6.1
hereof constitute the entire agreement of the parties hereto pertaining to the
transactions contemplated hereby and supersede all prior written and oral (and
all contemporaneous oral) agreements and understandings of the parties hereto
concerning the subject matter hereof. This Agreement is not intended to confer
upon any other person not a party to this Agreement any rights or remedies
hereunder.
6.9 Waiver. Any party hereto may waive any of the conditions to its
------
obligations except those conditions specified in Section 4.1(a) hereof as relate
to approval of the Acquisition, which conditions may not be waived by any
individual party or by the mutual agreement of both parties. No waiver of a
condition shall constitute a waiver of any of such party's other rights or
remedies, at law or in equity, or of any other conditions to the other party's
obligations.
6.10 Severability. If any portion or provision of this Agreement is
------------
determined by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any jurisdiction, such portion or provision shall be
ineffective as to that jurisdiction to the extent of such invalidity, illegality
or unenforceability, without affecting in any way the validity or enforceability
of the remaining portions or provisions hereof in such jurisdiction or rendering
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<PAGE>
that or any other portions or provisions of this Agreement invalid, illegal or
unenforceable in any other jurisdiction.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereupon duly authorized, all as of
the date set forth above.
BEXY COMMUNICATIONS, INC. CHENIERE ENERGY OPERATING CO., INC.
By: /s/ BUDDY YOUNG By: /s/ WILLIAM D. FORSTER
--- ----- ----- --- ------- -- -------
Buddy Young, President William D. Forster, President
ACCEPTED AND AGREED:
(as to Sections 2.4, 3.4, 3.5, 3.6,
3.7, 3.8 and 3.10)
/s/ BUDDY YOUNG
- --- ----- -----
Buddy Young, individually
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<PAGE>
<PAGE>
(This space reserved for Stockholder's Name and Address)
P R O X Y
SOLICITED BY THE BOARD OF DIRECTORS
Special Meeting - May 30, 1996 - Santa Monica, California
The undersigned hereby appoints Buddy Young, with full power of substitution
and to act alone, as proxyholder for the undersigned to vote all the shares
of common stock that the undersigned would be entitled to vote at the Special
Meeting of Stockholders of BEXY COMMUNICATIONS, INC. and at any adjournment
thereof, upon all matters described in the Proxy Statement for the Meeting
referred to on the reverse side of this card in the manner there indicated,
and, in his discretion, upon any other matters which properly come before the
Meeting.
PLEASE FILL IN REVERSE SIDE, SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE
<PAGE>
<TABLE>
<CAPTION>
PROPOSAL 1 PROPOSAL 2
Reorganization of the Company Amendments to Certificate of Incorporation
Relating to Change in Capitalization
<S> <C> <C> <C> <C> <C>
[ ] [ ] [ ] [ ] [ ] [ ]
For Proposal 1 Against Abstain From For Proposal 2 Against Abstain From
Proposal 1 Proposal 1 Proposal 2 Proposal 2
</TABLE>
<TABLE>
<CAPTION>
PROPOSAL 3 PROPOSAL 4
Amendment to the Certificate of Incorporation Divestiture of Existing Business of the Company
to Change the Name of the Company
<S> <C> <C> <C> <C> <C>
[ ] [ ] [ ] [ ] [ ] [ ]
For Proposal 3 Against Abstain From For Proposal 4 Against Abstain From
Proposal 3 Proposal 3 Proposal 4 Proposal 4
</TABLE>
<TABLE>
<CAPTION>
PROPOSAL 5 PROPOSAL 6
Amendment of the Certificate of Incorporation Election of Directors
to Limit Liability and Provide Indemnification If no other indication is made, the Proxyholder
shall vote for the election of all the Director
Nominees set forth below.
<S> <C> <C> <C> <C> <C>
[ ] [ ] [ ] [ ] [ ] [ ]
For Proposal 5 Against Abstain From For All Withhold For Only
Proposal 5 Proposal 5 Nominees From All Nominees the Nominees
Indicated
</TABLE>
William D. Forster
--------------------------------
Charif Souki
--------------------------------
Efrem Zimbalist III
--------------------------------
INSTRUCTIONS TO MARK YOUR VOTE FOR EACH PROPOSAL:
[1] Please mark your vote with an X in your choice of one of the 3 boxes
provided for each proposal.
[2] Joint owners must each sign. If acting as attorney, trustee, executor or
in another representative capacity, sign and print your name and title.
[3] The total number of votes you cast for all nominees may not exceed your
total number of shares.
[4] You may withhold authority to vote for any nominee by lining through or
striking out the name of any nominee.
[5] Please return promptly in the enclosed envelope.
<TABLE>
<S> <C> <C>
------------------------------- ----------------------------- -------------------------------
Signature Title Date
-------------------------------- ---------------------------- -------------------------------
Signature Title Date
</TABLE>
