<PAGE>
As filed with the Securities and Exchange Commission on March 14, 1997
Registration No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CHENIERE ENERGY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1382 95-4352386
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Code Number) Identification No.)
</TABLE>
CHENIERE ENERGY, INC.
TWO ALLEN CENTER
1200 SMITH STREET, SUITE 1710
HOUSTON, TEXAS 77002-4312
(713) 659-1361
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
WILLIAM D. FORSTER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHENIERE ENERGY, INC.
TWO ALLEN CENTER
1200 SMITH STREET, SUITE 1710
HOUSTON TEXAS 77002-4312
(713) 659-1361
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of all communications, including all communications sent
to the agent for service, should be sent to:
TIMOTHY J. ALVINO, ESQ.
DEWEY BALLANTINE
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 259-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]_________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
PROPOSED PROPOSED
NUMBER OF SHARES MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.003
per share............................ 839,639 $4.5205 $3,795,588.10 $1,150.18
====================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(2) Calculated pursuant to Rule 457(a). 2,884,211 shares of Common Stock were
previously registered pursuant to Registration Statement 333-10905 and in
accordance with Rule 429 is being carried forward hereto. A registration fee
of $3,127.00 (which was calculated using 1/29th of 1% of the proposed
maximum aggregate offering price) was paid therewith. Remitted herewith is
$1,150.18, representing the registration fee for the additional 839,639
shares of Common Stock (calculated using 1/33rd of 1% of the proposed
maximum aggregate offering price) being registered on this Registration
Statement.
PURSUANT TO RULE 429, THE PROSPECTUS CONTAINED IN THIS REGISTRATION
STATEMENT WILL ALSO BE USED IN CONNECTION WITH THE OFFERING OF PREVIOUSLY
REGISTERED SECURITIES PURSUANT TO THE COMPANY'S REGISTRATION STATEMENT
(FILE NO. 333-10905). IN THE EVENT SUCH PREVIOUSLY REGISTERED SECURITIES ARE
OFFERED PRIOR TO THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT, THEY WILL
NOT BE INCLUDED ANY PROSPECTUS HEREUNDER.
================================================================================
<PAGE>
PROSPECTUS
3,683,850 SHARES
CHENIERE ENERGY, INC.
COMMON STOCK
(PAR VALUE $.003 PER SHARE)
This Prospectus relates to 3,683,850 shares of issued and outstanding
common stock of Cheniere Energy, Inc., a Delaware corporation ("Cheniere"), par
value $.003 per share (the "Common Stock"). The Common Stock was originally
issued by Cheniere to certain holders of shares of common stock of Cheniere
Energy Operating Co., Inc., a wholly-owned subsidiary of Cheniere, to certain
"accredited investors" (as defined in Rule 501(a) promulgated under the
Securities Act of 1933, as amended (the "Securities Act")), pursuant to
Regulation D promulgated under the Securities Act, and to another investor
pursuant to Regulation S promulgated under the Securities Act. See "Description
of Capital Stock".
The Common Stock (ticker symbol "CHEX") is traded on the over-the-counter
market and quoted on the OTC Bulletin Board (the "Bulletin Board"). On
March 13, 1997, the last reported sale price of the Common Stock on the Bulletin
Board was $5.00 per share.
The Common Stock has been registered for sale by Selling Stockholders (as
defined herein) and may be offered by Selling Stockholders from time to time in
transactions in the over-the-counter market, in negotiated transactions or a
combination of such methods of sale, in each such case, at fixed prices which
may be changed, at market prices prevailing at the time of sale, at prices
related to prevailing market prices, or at negotiated prices. The Selling
Stockholders may effect such transactions by selling shares of the Common Stock
to or through broker-dealers, and such broker-dealers may receive compensation
in the form of discounts, concessions or commissions from Selling Stockholders
and/or purchasers of the Common Stock for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). To the
extent required, shares of the Common Stock, the name of the Selling
Stockholder, the public offering price, the names of any such agent, dealer or
underwriter, and any applicable commission or discount with respect to any
particular offer will be set forth in an accompanying Prospectus Supplement. See
"Selling Stockholders" and "Plan of Distribution".
None of the proceeds from the sale of the Common Stock will be received by
Cheniere. Cheniere has agreed, among other things, to bear all expenses
(other than underwriting discounts and commissions, fees and expenses of
investment bankers and brokerage commissions) incurred in connection with the
registration and sale of the Common Stock covered by this Prospectus, including,
without limitation, all registration, listing and qualification fees, printers
and accounting fees and fees and disbursements of counsel to Cheniere.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT
IN THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is March __,1997
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus.
THE COMPANY
GENERAL
Cheniere Energy, Inc., a holding company ("Cheniere," together with
Cheniere Operating (as defined below) and Cheniere California (as defined
below), the "Company"), is the owner of 100% of the outstanding common stock of
Cheniere Energy Operating Co., Inc. ("Cheniere Operating") and Cheniere Energy
California, Inc. ("Cheniere California"). Cheniere is a Houston-based company
formed for the purpose of oil and gas exploration and exploitation. Cheniere
Operating is currently involved in a joint exploration program which is engaged
in the exploration for oil and natural gas along the Gulf Coast of Louisiana,
onshore and in the shallow waters of the Gulf of Mexico. The Company commenced
its oil and gas activities through such joint program in April 1996. Cheniere
California has signed a Purchase and Sale Agreement with respect to certain
undeveloped leases offshore Santa Barbara County, California.
Cheniere Operating is involved with one major project in the pre-drilling
stage. Cheniere Operating has entered into a joint exploration program pursuant
to an Exploration Agreement between Cheniere Operating and Zydeco Exploration,
Inc. ("Zydeco"), an operating subsidiary of Zydeco Energy, Inc. (the
"Exploration Agreement"), with regard to a new proprietary 3-D seismic
exploration project in southern Louisiana (the "3-D Joint Venture"). Cheniere
Operating has the right to earn up to a 50% participation in the 3-D Joint
Venture. Cheniere Operating believes that the 3-D seismic survey (the "Survey")
is the first of its size to cross the shoreline within the Transition Zone of
Louisiana, an area extending a few miles on either side of the Louisiana State
coastline. The Survey is to be conducted over certain areas located within a
total area of approximately 255 square miles running 5 miles south and generally
3 to 5 miles north of the coastline in the most westerly 28 miles of Cameron
Parish, Louisiana (the "Survey AMI"). The 3-D Joint Venture does not currently
have rights to survey the entire Survey AMI and the extent of the Survey AMI
which the 3-D Joint Venture will be entitled to survey is dependent upon its
ability to obtain survey permits and similar rights. Currently, the 3-D Joint
Venture has permits and similar rights to survey approximately 80% (203 square
miles) of the Survey AMI and is attempting to acquire rights to survey
additional portions of the Survey AMI. There is no assurance that the 3-D Joint
Venture will successfully obtain rights to survey additional portions of the
Survey AMI. The 3-D Joint Venture will survey specific sections selected by it
within the areas covered by such permits and rights. A seismic data acquisition
contract was signed and acquisition of data commenced in September, 1996. Prior
to discontinuing operations in late November due to weather conditions, 28
square miles of data had been acquired. Zydeco, the program operator,
anticipates that work on the project will resume in April 1997 under the terms
of an amended contract now being negotiated by Zydeco.
Cheniere California has signed a Purchase and Sale Agreement with Poseidon
Petroleum, LLC ("Poseidon") to acquire Poseidon's 60% working interest in six
undeveloped leases in the Bonito Unit (the "Bonito Unit") of the Pacific Outer
Continental Shelf (OCS) offshore Santa Barbara County, California. A significant
interest in the Bonito Unit is owned by Nuevo Energy Company. Torch Operating
Co. is the operator of the Bonito Unit, pursuant to an agreement with Nuevo.
Poseidon estimates that the net proved undeveloped reserves attributable to its
interests are approximately 47 million barrels of oil equivalent. As payment for
this interest, Cheniere California will pay Poseidon production payments equal
to three percent of the production revenue from the leases assigned up to an
aggregate amount of $18,000,000. Minimum prepayments of the production payment
shall be made at the rate of $540,000 per year, payable in advance, and shall be
retained by Poseidon even if there is no production. Poseidon will have a
reserve report prepared with respect to the leases which is subject to Cheniere
California's acceptance. The principal amount of the production payment and the
required minimum yearly payments are subject to adjustment based on the results
of the reserve report. Subject to the satisfaction of certain conditions by
Poseidon and/or Cheniere, it is anticipated that the closing of the purchase
will occur during the second calendar quarter of 1997. There can be no assurance
that Cheniere California will successfully consummate the transaction.
Moreover, if the transaction is consummated, Cheniere California expects that
development of the reserves will not occur for at least four years. There can be
no assurance that the reserves will be successfully developed or will yield
sufficient quantities of oil and gas to be economically viable.
The Company has not yet established oil and gas production, nor has it
booked proven oil and gas reserves.
2
<PAGE>
BUSINESS STRATEGY
The Company's objective is to expand the net value of its assets by growing
its oil and gas reserves in a cost efficient manner. The Company intends to
pursue this objective by following an integrated strategy that includes the
following elements:
. FOCUS ON FEW PROJECTS WITH LARGE RESERVE POTENTIAL.
Louisiana Gulf Coast Transition Zone. Cheniere Operating's current activities
are focused within one area, the Transition Zone of Louisiana. The Company
believes that the Transition Zone, including the westernmost 28 miles of
Louisiana coastline that are within the Survey AMI, has significant remaining
undiscovered reserves. The 3-D Joint Venture therefore plans to focus its
efforts on certain areas, all located within the Survey AMI. In addition, the
substantial infrastructure along the Gulf Coast and in the shallow Gulf of
Mexico permits Cheniere Operating to lower its operating costs compared to
those in other geographic regions and facilitates the timely development of
oil and gas discoveries. The Company's officers and Zydeco have extensive
experience both onshore and offshore in the Gulf Coast and believe the 3-D
Joint Venture is well positioned to evaluate, explore and develop properties
in the area.
Offshore California. Cheniere California has signed a Purchase and Sale
Agreement with Poseidon to acquire Poseidon's 60% working interest in six
undeveloped leases in the Bonito Unit of the Pacific Outer Continental Shelf
(OCS) offshore Santa Barbara County, California. Poseidon estimates that the
net proved undeveloped reserves attributable to its interests are
approximately 47 million barrels of oil equivalent. Subject to the
satisfaction of certain conditions by Poseidon and Cheniere California, it is
anticipated that the closing of the purchase will occur during the second
calendar quarter of 1997. Moreover, if the transaction is consummated,
Cheniere California expects that development of the reserves will not occur
for at least four years. See "Business and Properties."
. MAINTAIN A SIGNIFICANT WORKING INTEREST IN EACH PROJECT. Cheniere Operating
has the right to earn up to a 50% participation in the 3-D Joint Venture.
Under the terms of the Exploration Agreement, Cheniere Operating must timely
meet its payment obligations to the 3-D Joint Venture in order to reach a 50%
participation. Cheniere Operating does not intend to be an operator in the
area, but intends to maintain a significant working interest to better
leverage its administrative and technical resources and to better influence
operator decisions.
. UTILIZE THE LATEST EXPLORATION, DEVELOPMENT AND PRODUCTION TECHNOLOGY. The
Company intends to use the latest technology to enhance the efficiency and
economy of its exploration, development and production efforts. These include
the use of advanced 3-D seismic acquisition and processing techniques in the
Survey AMI.
. CONTROL OVERHEAD COSTS. The Company plans to maintain a small, but
experienced working staff, and to leverage their talents by focusing on a
relatively few projects which have high reserve potential in which it can
obtain a high working interest, and to employ outside consultants and seek
industry partners with the appropriate geographic and technical experience.
Currently, the Company has no employees other than its executive officers and
one administrative assistant.
3
<PAGE>
RISK FACTORS
An investment in the common stock, par value $.003 per share, of Cheniere
(the "Common Stock") involves a significant degree of risk. The
following factors, together with the information provided elsewhere in this
Prospectus, should be considered carefully in evaluating an investment in the
Common Stock of Cheniere.
FACTORS RELATING TO THE COMPANY
Limited Operating History
Cheniere Energy, Inc., a holding company ("Cheniere," together with
Cheniere Operating (as defined below) and Cheniere Energy California (as defined
below), the "Company"), is the owner of 100% of the outstanding common stock of
Cheniere Energy Operating Co., Inc. ("Cheniere Operating") and Cheniere Energy
California, Inc. ("Cheniere California"). The Company has a limited operating
history with respect to its oil and gas exploration activities which were
commenced through a joint exploration program in April 1996 by Cheniere
Operating. Following a reorganization with Bexy Communications, Inc. ("Bexy"),
Cheniere Operating became a wholly-owned subsidiary of Cheniere. During the
fiscal year ended August 31, 1996, the Company incurred net losses of $286,819
and for the six month period ended February 28, 1997, the Company incurred net
losses of $298,249. The Company is likely to continue to incur losses during the
remainder of 1997, and possibly beyond, depending on whether it generates
sufficient revenue from producing reserves acquired either through acquisitions
or drilling activities.
Limited Assets
The Company has not yet established oil and gas production, nor has it
booked proven oil and gas reserves. Currently, the Company's primary asset is
its interest in a joint exploration program pursuant to an Exploration Agreement
(the "Exploration Agreement") between Cheniere Operating and Zydeco Exploration,
Inc. ("Zydeco") with regard to a new proprietary 3-D seismic exploration project
in Southern Louisiana (the "3-D Joint Venture"). Therefore, the Company is
highly dependent on the success of the 3-D Joint Venture and the Company's
ability to acquire operating assets in the future. While Cheniere California has
signed a Purchase and Sale Agreement to purchase a working interest in
undeveloped reserves in the Bonito Unit of the Pacific Outer Continental Shelf,
offshore Santa Barbara County, there is no assurance that Cheniere California
will successfully consummate the transaction contemplated by such Purchase and
Sale Agreement. Moreover, if the transaction is consummated, Cheniere
California expects that development of the reserves will not occur for at least
four years. There can be no assurance that the reserves will be successfully
developed or will yield sufficient quantities of oil and gas to be economically
viable. See "Business and Properties."
Need for Additional Financing
The Company presently has no operating revenues and does not expect to
generate substantial operating revenues in the foreseeable future. It is
expected that the Company will need substantial additional capital in order to
sustain operations and to enable Cheniere Operating to timely make required
payments to the 3-D Joint Venture. Such additional capital will also be
necessary in order for the Company to acquire additional oil and gas leases or
producing properties or to drill wells on potential prospects. Additional
capital may be secured from a combination of funding sources that may include
borrowings from financial institutions, debt offerings (which would increase the
leverage of the Company and add to its need for cash to service such debt),
additional offerings of Cheniere's equity securities (which could cause
substantial dilution of the Common Stock), or sales of portions of Cheniere
Operating's interest in the 3-D Joint Venture (which would reduce any future
revenues from the 3-D Joint Venture). The Company's ability to access additional
capital will depend on its results of operations and the status of various
capital markets at the time such additional capital is sought. Accordingly,
there can be no assurances that capital will be available to the Company from
any source or that, if available, it will be on terms acceptable to the Company.
Should sufficient additional financing not be available, Cheniere will be unable
to fund payments to the 3-D Joint Venture required to be made by Cheniere
Operating. See "Management Discussion and Analysis of Financial Condition and
Results of Operations -Liquidity and Capital Resources."
4
<PAGE>
Timeliness of 3-D Joint Venture Payments
Under the terms of the Exploration Agreement, Cheniere Operating is
required to make monthly payments to the 3-D Joint Venture aggregating, at
least, $13.5 million, $6 million of which has been paid by Cheniere Operating to
date. Cheniere Operating's potential participation in the 3-D Joint Venture
could be significantly reduced in the event of a failure by Cheniere Operating
to make such required monthly payments when due. Cheniere Operating has in the
past failed to make such payments when due. While Cheniere Operating has in such
instances succeeded in obtaining waivers under, and amendments to, the
Exploration Agreement extending the due dates for such payments, there can be no
assurance that Cheniere Operating will successfully obtain similar amendments
should it fail to timely make required payments to the 3-D Joint Venture in the
future. Neither Cheniere Operating nor Cheniere currently has sufficient capital
to meet its future payment obligations and there can be no assurance that
Cheniere Operating or Cheniere will successfully secure the necessary funds. See
"Business and Properties - 3-D Joint Venture Exploration Agreement."
Potential Acquisition of Working Interest in California Offshore Oil Reserves
Cheniere California has signed a Purchase and Sale Agreement with Poseidon
to acquire Poseidon's 60% working interest in six undeveloped leases in the
Bonito Unit of the Pacific Outer Continental Shelf (OCS) offshore Santa Barbara
County, California. While it is anticipated that the closing of the purchase
will occur during the second calendar quarter of 1997, the transaction is
subject to the satisfaction of certain conditions by Poseidon and Cheniere
California, and there is no assurance that Cheniere California will successfully
consummate the transaction contemplated by such Purchase and Sale Agreement.
Moreover, if the transaction is consummated, Cheniere California expects that
development of the reserves will not occur for at least four years. There can be
no assurance that Cheniere California will be able to make the yearly minimum
payments prior to development of the property. In the event that the minimum
payments are not made, and an amendment to the payment schedule cannot be
negotiated, then the property will have to be reassigned to Poseidon. There can
be no assurance that the reserves will be successfully developed or will yield
sufficient quantities of oil and gas to be economically viable.
Lack of Liquidity of the Common Stock
There is currently limited liquidity in the trading of the Common Stock.
The completion of the offering of the Common Stock provides no assurance that
the trading market for the Common Stock will become more active. Cheniere
is seeking to be listed on the Nasdaq SmallCap Market listing. There can be no
assurance that Cheniere will be approved for such listing.
Possible Issuance of Additional Shares
Cheniere's Certificate of Incorporation authorizes the issuance of
20,000,000 shares of the Common Stock. As of March 12, 1997 approximately
37% of the shares of the Common Stock remained unissued. Cheniere's Board of
Directors has the power to issue any and all of such shares without shareholder
approval. It is likely that Cheniere will issue shares of the Common Stock,
among other reasons, in order to raise capital to sustain operations, make
required payments to the 3-D Joint Venture and/or to finance future oil and gas
exploration projects. In addition, Cheniere has reserved 386,666 and 2/3
shares of the Common Stock for issuance upon the exercise of outstanding
warrants and 331,444 and 2/3
5
<PAGE>
shares of the Common Stock for issuance upon the exercise of outstanding
options. Any issuance of the Common Stock by Cheniere may result in a reduction
in the book value per share or market price per share of the outstanding shares
of the Common Stock and will reduce the proportionate ownership and voting power
of such shares. See "Description of Capital Stock."
Dependence on Key Personnel
The Company is dependent upon its executive officers for its various
activities. The Company does not maintain "key person" life insurance policies
on any of its personnel nor does it have employment agreements with any of its
personnel. The loss of the services of any of these individuals could materially
and adversely affect the Company. In addition, the Company's future success will
depend in part upon its ability to attract and retain additional qualified
personnel. Other than its officers, the Company has only one full-time employee,
an administrative assistant.
Dependence on Industry Partners
The future success of the 3-D Joint Venture is largely dependent upon the
experience and performance of Zydeco. As the Company has few employees and
limited operating revenues, the Company will be largely dependent upon industry
partners for the success of its oil and gas exploration projects for the
foreseeable future.
Control by Principal Stockholders
William D. Forster, President and Chief Executive Officer of Cheniere, and
BSR Investments, Ltd. ("BSR"), an entity under the control of a member of the
immediate family of Charif Souki, Chairman of the Board of Directors and
Secretary of Cheniere, own in the aggregate approximately 43.1% of the
outstanding Common Stock. Accordingly, it is likely that Mr. Forster and BSR
will effectively be able to elect all of the directors of Cheniere and to
control Cheniere's management, operations and affairs, including the ability to
effectively prevent or cause a change in control of Cheniere.
FACTORS RELATING TO THE 3-D JOINT VENTURE
Ability to Obtain Permits
The 3-D Joint Venture will conduct a 3-D seismic survey (the "Survey") over
certain areas located within a total area of approximately 255 square miles
running 5 miles south and generally 3 to 5 miles north of the coastline in the
most westerly 28 miles of West Cameron Parish, Louisiana (the "Survey AMI"). The
3-D Joint Venture does not currently have rights to survey the entire Survey AMI
and the extent of the Survey AMI which the 3-D Joint Venture will be entitled to
survey is dependent upon its ability to obtain survey permits and similar
rights. Currently, the 3-D Joint Venture has rights to survey approximately 80%
(203 square miles) of the Survey AMI and is attempting to acquire rights to
survey additional portions of the Survey AMI. There can be no assurance that the
3-D Joint Venture will successfully obtain permits or rights to survey
additional portions of the Survey AMI.
Louisiana State Waters - Timing Risks
Among certain other rights, the 3-D Joint Venture currently has the
exclusive right to shoot and gather seismic data over 51,360 net acres of
Louisiana State waters, located in the Western half of Cameron Parish,
Louisiana and constituting a sub-area of the Survey AMI and to nominate for
lease any acreage in such State waters (the "Louisiana Seismic Permit"). The
Louisiana Seismic Permit expires in August 1997, but may be extended at Zydeco's
option for an additional six months to February 1998 by payment of an additional
fee of $391,876.80. By December 1997, the 3-D Joint Venture is scheduled to
complete the Survey, process and interpret the Survey data and begin nomination
and bidding for leases. By early 1998, the 3-D Joint Venture is scheduled to
propose and contract for drilling, and commence drilling its first set of
prospects. Under the terms of the Louisiana Seismic Permit, the 3-D Joint
Venture will be liable to pay penalties of $783,753.60 in the event it fails to
(i) complete the acquisition of
6
<PAGE>
the seismic data covering the entire area subject to the Louisiana Seismic
Permit or (ii) provide access to such data to the State of Louisiana in a timely
manner. Under the terms of the Exploration Agreement, any such penalties payable
under the Louisiana Seismic Permit shall be borne equally by Zydeco and Cheniere
Operating. There can be no assurance that the 3-D Joint Venture will complete
its scheduled activities within the time period required under the Louisiana
Seismic Permit. Failure of the 3-D Joint Venture to complete its scheduled
activities within the term of the Louisiana Seismic Permit would materially and
adversely affect the value of the Cheniere Operating's interest in the 3-D Joint
Venture. See "Business and Properties - Permit and Lease Status within the
Survey AMI."
FACTORS RELATING TO THE OIL AND GAS INDUSTRY
Operating Risks
The oil and gas operations of the Company are subject to all of the risks
and hazards typically associated with the exploration for, and the development
and production of, oil and gas. Risks in drilling operations include cratering,
explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution
and other environmental risks. The Company's activities are also subject to
perils specific to marine operations, such as capsizing, collision, and damage
or loss from severe weather. These hazards can cause personal injury and loss of
life, severe damage to and destruction of property and equipment, pollution or
environmental damage and suspension of operations. In accordance with customary
industry practices, the Company intends to maintain insurance against some, but
not all, of such risks and some, but not all, of such losses. The occurrence of
a significant event not fully insured or indemnified against could materially
and adversely affect the Company's financial condition and operations. Moreover,
no assurance can be given that the Company will be able to maintain adequate
insurance in the future at rates considered reasonable by the Company. See
"Business and Properties - Operational Risks and Insurance."
Exploration Risks
The Company's exploration activities involve significant risks. There can
be no assurance that the use of technical expertise as applied to geophysical or
geological data will ensure that any well will encounter hydrocarbons. Further,
there is no way to know in advance of drilling and testing whether any prospect
encountering hydrocarbons in the Survey AMI by the 3-D Joint Venture will yield
oil or gas in sufficient quantities to be economically viable. In addition, the
Company is highly dependent upon seismic activity and the related application of
new technology as a primary exploration methodology. There can be no assurance
that the 3-D Joint Venture's efforts will be successful. See "Business and
Properties."
High Dependence upon Lease Acquisition Activities
Both the United States Department of the Interior and the State of
Louisiana award oil and gas leases on a competitive bidding basis and non-
governmental owners of the onshore mineral interests within the Survey AMI are
not obligated to lease their mineral rights to the 3-D Joint Venture except to
the extent they have granted lease options to the 3-D Joint Venture. Other major
and independent oil and gas companies having financial resources significantly
greater than those of the 3-D Joint Venture may bid against the 3-D Joint
Venture for the purchase of oil and gas leases. Accordingly, there can be no
assurance that the 3-D Joint Venture or any other oil and gas venture of the
Company will be successful in acquiring farmouts, seismic permits, lease
options, leases or other rights to explore or recover oil and gas. Consequently,
the proportion of the Survey AMI which could be surveyed or subsequently
explored through drilling would be reduced to the extent that the 3-D Joint
Venture is not successful at such acquisitions. See "Business and Properties -
Permit and Lease Status within the Survey AMI."
Lack of Diversification; Oil and Gas Industry Conditions; Volatility of
Prices for Oil and Gas
As an independent energy company, the Company's revenues and profits will
be substantially dependent on the oil and gas industry in general and the
prevailing prices for oil and gas in particular. Oil and gas prices have been
and are likely to continue to be volatile and subject to wide fluctuations in
response to any of the following factors: relatively minor changes in the supply
of and demand for oil and gas; market uncertainty; political conditions in
international oil producing regions; the extent of domestic production and
importation of oil in certain relevant markets; the level of consumer demand;
weather conditions; the
7
<PAGE>
competitive position of oil or gas as a source of energy as compared with other
energy sources; the refining capacity of oil purchasers; and the effect of
federal and state regulation on the production, transportation and sale of oil.
It is likely that adverse changes in the oil market or the regulatory
environment would have an adverse effect on the Company's ability to obtain
capital from lending institutions, industry participants, private or public
investors or other sources.
Intense Competition in Oil and Gas Industry
The oil and gas industry is highly competitive. Most of the Company's
current and potential competitors have significantly greater financial resources
and a significantly greater number of experienced and trained managerial and
technical personnel than the Company and the 3-D Joint Venture. There can be no
assurance that the Company or the 3-D Joint Venture will be able to compete
effectively with such firms. See "Business and Properties - Competition and
Markets."
Risks of Turnkey Contracts
The Company anticipates that any wells established by it will be drilled by
proven industry contractors under turnkey contracts that limit the Company's
financial and legal exposure. However, circumstances may arise where a turnkey
contract is not economically beneficial to the Company or is otherwise
unobtainable from proven industry partners. In such instances, the Company may
decide to drill, or cause to be drilled, the applicable well(s) on either a
footage or day rate basis and the drilling thereof will be subject to the usual
drilling hazards such as cratering, explosions, uncontrollable flows of oil, gas
or well fluids, fires, pollution and other environmental risks. The Company
would also be liable for any cost overruns attributable to downhole drilling
problems that otherwise would have been covered by a turnkey contract had one
been negotiated. See "Business and Properties - Operational Risks and
Insurance."
United States Governmental Regulation, Taxation and Price Control
Oil and gas production and exploration are subject to comprehensive
federal, state and local laws and regulations controlling the exploration for
and production and sale of oil and gas and the possible effects of such
activities on the environment. Failure to comply with such rules and regulations
can result in substantial penalties and may adversely affect the Company.
Present, as well as future, legislation and regulations could cause additional
expenditures, restrictions and delays in the Company's business, the extent of
which cannot be predicted and which may require the Company to limit
substantially, delay or cease operations in some circumstances. In most, if not
all, areas where the Company may conduct activities, there may be statutory
provisions regulating the production of oil and natural gas which may restrict
the rate of production and adversely affect revenues. The Company plans to
acquire oil and gas leases in the Gulf of Mexico, which will be granted by the
Federal government and administered by the U.S. Department of Interior Minerals
Management Service (the "MMS"). The MMS strictly regulates the exploration,
development and production of oil and gas reserves in the Gulf of Mexico. Such
regulations could have a material adverse affect on the Company's operations in
the Gulf of Mexico. The Federal government regulates the interstate
transportation of oil and natural gas, through the Federal Energy and Regulatory
Commission ("FERC"). The FERC has in the past regulated the prices at which oil
and gas could be sold. Federal reenactment of price controls or increased
regulation of the transport of oil and natural gas could have a material adverse
affect on the Company. In addition, the Company's operations are subject to
numerous laws and regulations governing the discharge of oil and hazardous
materials into the environment or otherwise relating to environmental
protection, including the Oil Pollution Act of 1990. These laws and regulations
have continually imposed increasingly strict requirements for water and air
pollution control, solid waste management, and strict financial responsibility
and remedial response obligations relating to oil spill protection. The cost of
complying with such environmental legislation will have a general adverse affect
on the Company's operations. See "Business and Properties - Governmental
Regulation."
8
<PAGE>
THE COMPANY
Cheniere Energy, Inc., a holding company ("Cheniere," together with
Cheniere Operating (as defined below) and Cheniere California (as defined
below), the "Company"), is the owner of 100% of the outstanding common stock of
Cheniere Energy Operating Co., Inc. ("Cheniere Operating") and Cheniere Energy
California, Inc. ("Cheniere California"). Cheniere is a Houston-based company
formed for the purpose of oil and gas exploration and exploitation. Cheniere
Operating was incorporated in Delaware in February 1996 under the name FX
Energy, Inc.
On July 3, 1996 Cheniere Operating consummated the transactions (the
"Reorganization") contemplated in the Agreement and Plan of Reorganization (the
"Reorganization Agreement") dated April 16, 1996 between Cheniere Operating and
Bexy Communications, Inc., a publicly held Delaware corporation ("Bexy"). Under
the terms of the Reorganization Agreement, Bexy transferred its existing assets
and liabilities to Mar Ventures, Inc., its wholly-owned subsidiary ("Mar
Ventures"), Bexy received 100% of the outstanding shares of Cheniere Operating
and the former shareholders of Cheniere Operating received approximately 8.3
million newly issued shares of Bexy common stock, representing 93% of the then
issued and outstanding Bexy shares. Immediately following the Reorganization,
the original Bexy stockholders held the remaining 7% of the outstanding Bexy
stock. In accordance with the terms of the Reorganization Agreement, Bexy
changed its name to Cheniere Energy, Inc. Subsequently, Cheniere distributed
the outstanding capital stock of Mar Ventures to the original holders of Bexy
common stock.
The Common Stock of Cheniere is traded on the over-the-counter
market and quoted on the OTC Bulletin Board (the "Bulletin Board") of the
National Association of Securities Dealers (the "NASD") (ticker symbol "CHEX")
with 12,648,409 shares outstanding as of March 12, 1997. Cheniere
is seeking to be listed on the Nasdaq SmallCap Market.
The Company's principal executive offices are located at Two Allen
Center, 1200 Smith Street, Suite 1710, Houston, Texas 77002. The Company's
telephone number is (713) 659-1361.
USE OF PROCEEDS
All shares of Common Stock covered hereby are being registered for the
account of the Selling Stockholders and, accordingly, Cheniere will not
receive any proceeds from the sale of the Common Stock by the Selling
Stockholders.
CAPITALIZATION
The following table sets forth the capitalization of Cheniere as of
February 28, 1997. All information set forth below should be read in conjunction
with the financial data of the Company and related notes that appear elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
<S> <C>
Shareholders' Equity
Common Stock - $.003 Par Value
Authorized 20,000,000 shares;
12,295,462 Issued and Outstanding(1) $ 36,886
Preferred Stock -
Authorized 1,000,000 shares; --
None Issued and Outstanding
Additional paid-in capital 10,982,363
Retained Deficit (1,528,429)
----------
Total Shareholders' Equity $9,490,820
==========
</TABLE>
9
<PAGE>
(1) In addition, (i) 274,166 and 2/3 shares of the Common Stock are reserved
for issuance upon exercise of outstanding warrants to purchase Common Stock
at an exercise price of $3.00 per share, (ii) 112,500 shares of the Common
Stock are reserved for issuance upon the exercise of outstanding warrants
to purchase Common Stock at an exercise price of $3.125 per share, (iii)
300,000 shares of the Common Stock are reserved for issuance upon exercise
of outstanding options granted by the Board of Directors to certain of
Cheniere's executive officers, at an exercise price of $3.00 per share,
(iv) 19,444 and 2/3 shares of the Common Stock are reserved for issuance
upon exercise of outstanding options granted to Buddy Young, at an exercise
price of $1.80 per share and (v) 12,000 shares of the common stock are
reserved for issuance upon exercise of outstanding options granted to Janet
L. Reinarz, at an exercise price of $3.00 per share.
MARKET PRICE AND DIVIDEND INFORMATION
From 1989 through December 1993, there was no public trading market
for the Bexy Common Stock. In December 1993, the common stock of Bexy began
trading on the Bulletin Board. In connection with the Reorganization, the
Company divested itself of the assets relating to the business of Bexy prior to
the Reorganization and has shifted its focus to oil and gas exploration.
Simultaneously with the Reorganization, each three outstanding shares of common
stock of Bexy was converted to one share of Common Stock and the stockholders of
Cheniere Operating were issued shares of Common Stock equaling approximately 93%
of the then issued and outstanding shares of Bexy causing the existing
stockholders of Bexy to be diluted to approximately 7%. On July 8, 1996, the
Common Stock began trading on the Bulletin Board (ticker symbol "CHEX"). As the
nature of the business and the Common Stock has changed as a result of the
Reorganization, this section describes the market price of the Common Stock
following the Reorganization on July 3, 1996.
The high ask and low bid prices of the Common Stock reported on the
Bulletin Board for the period from July 8, 1996 through March 12, 1997 were
$7.3125 and $2.125, respectively. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not reflect actual
transactions.
As of March 13, 1997 there were 772 record holders of the Common
Stock which does not include holders who hold their shares of the Common Stock
in "street name".
Cheniere has not paid any dividends since its inception and presently
anticipates that all earnings, if any, will be retained for development of the
Company's business and that no dividends on its Common Stock will be declared in
the foreseeable future. Any future dividends will be subject to the discretion
of Cheniere's Board of Directors and will depend upon, among other things,
future earnings, the operating and financial condition of Cheniere, its capital
requirements and general business conditions.
10
<PAGE>
SELECTED FINANCIAL DATA
The following income statement data and balance sheet data have been
derived from the financial statements prepared in accordance with generally
accepted accounting principles. The financial statements of Cheniere Energy,
Inc. and Subsidiary as of August 31, 1996 and for the year then ended have been
audited by Merdinger, Fruchter, Rosen & Corso, P.C. The financial statements as
of February 28, 1997 and for the six month period then ended are
unaudited. This information should be read in conjunction with the financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Pro Forma
September 1, 1995 September 1, 1996 September 1, 1996
to to to
August 31, 1996 February 28, 1997 February 28, 1997/1/
------------------- ------------------- -------------------
<S> <C> <C> <C>
Net operating revenues $ -- $ -- $ --
(Loss) from continuing operations (79,097) (298,249) (298,249)
Loss) from continuing operations per share of common
stock (0.008) (0.03) (0.03)
(Loss) from discontinued operations (207,722) -- --
Net (loss) per share of common stock (0.03) (0.03) (0.03)
Cash 1,093,180 3,843,088 2,759,882
Investment in 3-D Joint Venture 4,000,000 7,141,745 8,000,000
Total Assets 5,145,310 11,187,621 10,928,920
Long-term obligations -- -- --
Total Liabilities 718,855 1,696,801 84,300
Total Shareholders' Equity 4,426,455 9,490,820 10,844,620
Cash dividends declared per share of common stock -- -- --
</TABLE>
- -------------------
/1/ On March 4, 1997 $1,500,025 of Advances for Issuance of Common Stock were
transferred to capital, as the Company issued shares of Common Stock for
$1,500,025, and the Company funded an additional $858,255 investment in
the 3-D Joint Venture. This column reflects the selected financial data as
if the two events described herein, along with applicable costs and
expenses, had occurred as of February 28, 1997.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Cheniere Operating was incorporated in Delaware in February of 1996
for the purpose of entering the oil and gas exploration and exploitation
business, initially on the Louisiana Gulf Coast.
In March of 1996, Cheniere Operating entered into discussion with Bexy
Communications, Inc. ("Bexy") for a reorganization in order to give it a
presence in the public market.
On April 16, 1996, the Reorganization Agreement was entered into
whereby the Cheniere Operating stockholders would acquire control of Bexy in
consideration for the outstanding stock of Cheniere Operating.
Under the terms of the Reorganization Agreement, Bexy transferred its
existing assets of approximately $224,000 and its liabilities of approximately
$111,000 to Mar Ventures, Inc. ("Mar Ventures"), Bexy received 100% of the
outstanding shares of Cheniere Operating and the former shareholders of Cheniere
Operating received approximately 8.3 million newly issued shares of Bexy common
stock, representing 93% of the then issued and outstanding Bexy shares. Cheniere
Operating became a wholly-owned subsidiary of Bexy and the principal business
became oil and gas exploration. Bexy then changed its name to Cheniere Energy,
Inc, and distributed the outstanding capital stock of Mar Ventures to the
original holders of Bexy common stock.
The reorganization was accounted for as the recapitalization of
Cheniere Operating and the issuance of stock for the net assets of Bexy.
RESULTS OF OPERATIONS - AUDITED STATEMENTS YEAR ENDED AUGUST 31, 1996
The Company's operating results reflected a loss of $79,097, as there
were no revenues from continuing operations. General and Administrative expenses
of $73,814 comprised most of the loss.
The Company incurred one time losses of $207,722 from the
discontinuance of its former business in the television production and health
information field. Total losses were $286,819.
RESULTS OF OPERATIONS - UNAUDITED STATEMENTS SIX MONTH PERIOD ENDED
FEBRUARY 28, 1997
The Company's operating results for the six months ended
February 28, 1997 reflect a loss of $298,249, or $0.03 per share, as there were
no operating revenues. General and administrative expenses of $311,693 and
interest expenses of $8,552 were offset partially by interest income of $21,996.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1996, the Company's balance sheet reflected current
assets of $1,097,980 with liabilities of $718,855. Other assets reflected an
investment of $4 million in the proprietary 3-D seismic exploration project in
southern Louisiana (the "3-D Joint Venture"). As of August 31, 1996, the
Company's capital reflected sales of shares net of offering expenses of $609,451
and distribution of net assets of $112,902 from discontinued operations.
At February 28, 1997, total assets were $11,187,621 compared to
$5,145,310 at August 31, 1996. The increase is due primarily to the sale of
Common Stock. Net OF offering costs, $5,145,838 was received during the six
month period. Current assets increased to $3,996,409 from $1,097,980 during the
same period. Other assets reflected an increase in investment to approximately
$7.1 million from $4 million in the 3-D Joint Venture. This increase was funded
primarily from cash balances and equity proceeds. On March 4, 1997, the Company
funded an additional $858,255 investment in the 3-D Joint Venture, bringing its
total investment to date to $8,000,000.
At February 28, 1997, the Company had working capital of $2,299,608
For the fiscal year ended August 31, 1996, operating expenses and capitalized
costs were financed by the sale of Common Stock and Bridge Loan (as defined
below) funding as the Company had not yet generated revenues from continuing
operations. For the six month period ended February 28, 1997, operating
expenses and capitalized costs were financed by the sale of Common Stock as
revenues have yet to be generated. It is anticipated that future liquidity
requirements, including the commitment to the 3-D Joint Venture which will
amount to, at least, an additional $5.5 million (which is due in three payments;
$2 million each on April 22 and May 22, 1997, and $1.5 million on June 21,
1997, each of which has a 30-day grace period), will be met by sale of equity,
further borrowings and/or sales of portions of Cheniere Operating's interest in
the 3-D Joint Venture. At this time, no assurance can be given that such sale of
equity, further borrowings or sales of portions of Cheniere Operating's interest
in the 3-D Joint Venture will prove to be successful. Cheniere Operating has in
the past failed to timely
12
<PAGE>
make certain payments due to the 3-D Joint Venture. While Cheniere Operating has
in such instances succeeded in obtaining waivers under, and amendments to, the
Exploration Agreement extending the due dates for such required payments, there
can be no assurance that Cheniere Operating will successfully obtain similar
amendments should it fail to timely make required payments to the 3-D Joint
Venture in the future. Neither Cheniere Operating nor Cheniere currently has
sufficient capital to meet its future payment requirements and there can be no
assurance that Cheniere Operating or Cheniere will successfully secure the
necessary funds. See "Business and Properties - 3-D Joint Venture Exploration
Agreement."
Since its inception, the Cheniere Operating's primary source of
financing for operating expenses and payments to the 3-D Joint Venture has been,
originally, the sale of its equity securities, and since the reorganization with
Bexy, funding from Cheniere through the sale of Cheniere's equity
securities.
In May and June 1996, Cheniere Operating raised $2,883,000, net of
offering costs, from the sale of shares of its common stock (which were
exchanged for 2,000,000 shares of the Common Stock following the Reorganization)
to "accredited investors" (as defined in Rule 501(a) promulgated under the
Securities Act of 1933, as amended (the "Securities Act")) pursuant to Rule 506
of Regulation D promulgated under the Securities Act ("Regulation D"). The
proceeds were used to fund Cheniere Operating's initial $3 million payment to
the 3-D Joint Venture.
In order to finance a $1 million payment made to the 3-D Joint Venture
on August 9, 1996, Cheniere sold Common Stock pursuant to Regulation D and
Regulation S promulgated under the Securities Act ("Regulation S"). In July
1996, Cheniere sold 50,000 shares of the Common Stock to an "accredited
investor" pursuant to Rule 506 of Regulation D and Cheniere received proceeds
of $100,000 from such sale. In July and August 1996, Cheniere conducted an
offering of Common Stock pursuant to Regulation S. Cheniere sold 508,400
shares of the Common Stock and received proceeds of $915,000, net of placement
fees, from such sale.
In late August 1996, Cheniere raised $1,000,000 from the sale of
100,000 units, each consisting of five shares of the Common Stock and a warrant
to purchase one share of the Common Stock, pursuant to Regulation S. The
proceeds were used to fund a $1 million payment to the 3-D Joint Venture made on
September 4, 1996.
Between fiscal year end at August 31, 1996 and February 28, 1997,
Cheniere raised net proceeds of $5,145,838 from the sale of equity to accredited
investors pursuant to Regulation D and other investors pursuant to Regulation S.
Some of the proceeds were used to fund payments in the aggregate of
approximately $3.1 million to the 3-D Joint Venture.
On March 4, 1997, the Company funded an additional $858,255 investment
in the 3-D Joint Venture, bringing its total investment to date to $8,000,000,
and $1,500,025 of Advances for Issuance of Common Stock were transferred to
capital, as the Company issued 352,947 shares of Common Stock, at a price of
$4.25 per share, for net proceeds of $1,500,025. With respect to these shares
of Common Stock, as well as 352,947 shares of Common Stock issued in February
1997 at a price of $4.25 per share, the Company has agreed that if, during the
270 day period following the date of purchase of these shares, the Company
offers and sells any shares of Common Stock for a per share gross sales price
lower than the per share price paid for these shares, the Company will issue
additional shares of Common Stock to reflect the lowest per share gross sales
price at which shares were offered and sold during the period. The pro forma
financial information contained in "Selected Financial Data", above, reflects
the stated financial information as if the two events described above had
occurred as of February 28, 1997.
In June 1996, Cheniere Operating borrowed $425,000 (the "Bridge Loan")
through a private placement of short term promissory notes (the "Notes"). In
connection with the placement of the Notes, Cheniere Operating issued warrants,
which following the Reorganization, were exchanged for an aggregate of 141,666
and 2/3 warrants to purchase shares of the Common Stock, to the holders of the
Notes (the "Noteholders"), each of which warrants entitles the holder to
purchase one share of the Common Stock at an exercise price of $3.00 per share
at any time on or before June 14, 1999. The Company satisfied all of its
obligations under Notes in the aggregate principal amount of $210,000 by paying
the accrued interest on such Notes and by agreeing to issue 105,000 shares of
the Common Stock at a price of $2.00 per share to the holders of such Notes
pursuant to Regulation D. In addition, an individual Noteholder (the "Remaining
Noteholder") purchased several outstanding Notes following which such Noteholder
held Notes in the aggregate principal amount of $215,000. In exchange for such
notes, Cheniere Operating issued a new promissory note in the amount of $215,000
to the Remaining Noteholder, which Cheniere Operating paid on December 13, 1996.
The Remaining Noteholder also received 64,500 additional warrants to purchase
shares of the Common Stock. Such additional warrants have an exercise price of
$3.00 per share and will be exercisable until June 14, 1999.
On November 27, 1996, Cheniere Operating and Zydeco Exploration
amended the Exploration Agreement between the two entities relating to the 3-D
Joint Venture whereby the schedule for payment of Seismic Funds defined by the
Exploration Agreement and its amendments from Cheniere Operating to Zydeco is
suspended. The new amendment calls for Cheniere Operating to furnish funds to
maintain a $1,000,000 balance in the Seismic Fund account and for Cheniere
Operating to resume the payment schedule within thirty days of Zedeco's
notification. The suspension of payment of Seismic Funds is intended to better
align the payment schedule with Zedeco's need for such funds. Under the revised
agreement, Cheniere Operating expects to fund an additional $5.5 million (plus
50% of certain costs in excess of $13.5 million) of Seismic Fund payments during
the final two quarters of its fiscal year ending August 31, 1997, which is due
in three payments; $2 million each on April 22 and May 22 of 1997, and $1.5
million on June 21, 1997, each of which has a 30-day grace period.
BUSINESS AND PROPERTIES
GENERAL
The Company is currently involved in a joint exploration program which
is engaged in the exploration for oil and natural gas along the Gulf Coast of
Louisiana, onshore and in the shallow waters of the Gulf of Mexico. The Company
commenced its oil and gas activities in April 1996 through such joint
exploration program, and since July 3, 1996 has been publicly traded under the
name Cheniere Energy, Inc. Cheniere California has signed a Purchase and Sale
Agreement with respect to certain undeveloped leases offshore Santa Barbara
County, California.
Cheniere Operating is involved with one major project in the pre-
drilling stage. Cheniere Operating has entered into a joint exploration program
pursuant to an Exploration Agreement between Cheniere Operating and Zydeco
Exploration, Inc. ("Zydeco"), an operating subsidiary of Zydeco Energy, Inc.
(the "Exploration Agreement"), with regard to a new proprietary 3-D seismic
exploration project in southern Louisiana (the "3-D Joint Venture"). Cheniere
Operating has the right
13
<PAGE>
to earn up to a 50% participation in the 3-D Joint Venture. Cheniere Operating
believes that the 3-D seismic survey (the "Survey") is the first of its size to
cross the shoreline within the Transition Zone of Louisiana, an area extending a
few miles on either side of the Louisiana State coastline. The Survey is to be
conducted over certain areas located within a total area of approximately 255
square miles running 5 miles south and generally 3 to 5 miles north of the
coastline in the most westerly 28 miles of Cameron Parish, Louisiana (the
"Survey AMI"). The 3-D Joint Venture does not currently have rights to survey
the entire Survey AMI and the extent of the Survey AMI which the 3-D Joint
Venture will be entitled to survey is dependent upon its ability to obtain
survey permits and similar rights. Currently, the 3-D Joint Venture has permits
and similar rights to survey approximately 80% (203 square miles) of the Survey
AMI and is attempting to acquire rights to survey additional portions of the
Survey AMI. There is no assurance that the 3-D Joint Venture will successfully
obtain rights to survey additional portions of the Survey AMI. The 3-D Joint
Venture will survey specific sections selected by it within the areas covered by
such permits and rights. A seismic data acquisition contract was signed and
acquisition of data commenced in September, 1996. Prior to discontinuing
operations in late November due to weather conditions, 28 square miles of data
had been acquired. Zydeco, the program operator, anticipates that work on the
project will resume in April 1997 under the terms of an amended contract now
being negotiated by Zydeco.
Cheniere California has signed a Purchase and Sale Agreement with
Poseidon Petroleum, LLC ("Poseidon") to acquire Poseidon's 60% working interest
in six undeveloped leases in the Bonito Unit (the "Bonito Unit") of the Pacific
Outer Continental Shelf (OCS) offshore Santa Barbara County, California. A
significant interest in the Bonito Unit is owned by Nuevo Energy Company. Torch
Operating Co. is the operator of the Bonito Unit, pursuant to an agreement with
Nuevo. Poseidon estimates that the net proved undeveloped reserves attributable
to its interests are approximately 47 million barrels of oil equivalent. As
payment for this interest, Cheniere California will pay Poseidon production
payments equal to three percent of the production revenue from the leases being
assigned up to an aggregate amount of $18,000,000. Minimum prepayments of the
production payment shall be made at the rate of $540,000 per year, payable in
advance, and shall be retained by Poseidon even if there is no production.
Poseidon will have a reserve report prepared with respect to the leases which is
subject to Cheniere California's acceptance. The principal amount of the
production payment and the required minimum yearly payments are subject to
adjustment based on the results of the reserve report. Subject to the
satisfaction of certain conditions by Poseidon and Cheniere California, it is
anticipated that the closing of the purchase will occur during the second
calendar quarter of 1997. There can be no assurance that Cheniere California
will successfully consummate the transaction. Moreover, if the transaction is
consummated, Cheniere California expects that development of the reserves will
not occur for at least four years. There can be no assurance that the reserves
will be successfully developed or will yield sufficient quantities of oil and
gas to be economically viable.
The Company has not yet established oil and gas production, nor has it
booked proven oil and gas reserves.
BUSINESS STRATEGY
The Company's objective is to expand the net value of its assets by
growing its oil and gas reserves in a cost efficient manner. The Company intends
to pursue this objective by following an integrated strategy that includes the
following elements:
. FOCUS ON FEW PROJECTS WITH LARGE RESERVE POTENTIAL.
Louisiana Gulf Coast Transition Zone. Cheniere Operating's current activities
are focused within one area, the Transition Zone of Louisiana. The Company
believes that the Transition Zone, including the westernmost 28 miles of
Louisiana coastline that are within the Survey AMI, has significant remaining
undiscovered reserves. The 3-D Joint Venture therefore plans to focus its
efforts on certain areas, all located within the Survey AMI. In addition, the
substantial infrastructure along the Gulf Coast and in the shallow Gulf of
Mexico permits Cheniere Operating to lower its operating costs compared to
those in other geographic regions and facilitates the timely development of
oil and gas discoveries. The Company's officers and Zydeco have extensive
experience both onshore and offshore in the Gulf Coast and believe the 3-D
Joint Venture is well positioned to evaluate, explore and develop properties
in the area.
Offshore California. Cheniere California has signed a Purchase and Sale
Agreement with Poseidon to acquire Poseidon's 60% working interest in six
undeveloped leases in the Bonito Unit of the Pacific Outer Continental Shelf
(OCS) Offshore Santa Barbara County, California. Poseidon estimates that the
net provided undeveloped reserves attributable to its interests are
approximately 47 million barrels of oil equivalent. Subject to the
satisfaction of certain conditions by Poseidon and Cheniere California, it is
anticipated that the closing of the purchase will occur during the second
calendar quarter of 1997. Moreover, if the transaction is consummated,
Cheniere California expects that development of the reserves will not occur
for at least four years.
14
<PAGE>
. MAINTAIN A SIGNIFICANT WORKING INTEREST IN EACH PROJECT. Cheniere Operating
has the right to earn up to a 50% participation in the 3-D Joint Venture.
Under the terms of the Exploration Agreement, Cheniere Operating must timely
meet its payment obligations to the 3-D Joint Venture in order to reach a 50%
participation. Cheniere Operating does not intend to be an operator in the
area, but intends to maintain a significant working interest to better
leverage its administrative and technical resources and to better influence
operator decisions.
. UTILIZE THE LATEST EXPLORATION, DEVELOPMENT AND PRODUCTION TECHNOLOGY. The
Company intends to use the latest technology to enhance the efficiency and
economy of its exploration, development and production efforts. These include
the use of advanced 3-D seismic acquisition and processing techniques in the
Survey AMI.
. CONTROL OVERHEAD COSTS. The Company plans to maintain a small, but
experienced working staff, and to leverage their talents by focusing on a
relatively few projects which have high reserve potential in which it can
obtain a high working interest, and to employ outside consultants and seek
industry partners with the appropriate geographic and technical experience.
Currently, the Company has no employees other than its executive officers and
one administrative assistant.
THE 3-D JOINT VENTURE EXPLORATION PROJECT
IN CAMERON PARISH, LOUISIANA TRANSITION ZONE
The Company's first exploration project is the 3-D Joint Venture, in
which Cheniere Operating has the right to earn up to a 50% participation, in a
new proprietary 3-D seismic exploration project that Cheniere Operating believes
will be the largest of its kind crossing the shoreline within the Louisiana
Transition Zone. The Survey AMI covers approximately 255 square miles situated
onshore and offshore over the most westerly 28 miles of the shoreline in Cameron
Parish, Louisiana.
The 3-D Joint Venture must obtain permits or similar rights to survey
the areas located within the Survey AMI. Currently, the 3-D Joint Venture has
rights to Survey 51,360 net acres of Louisiana State Waters, pursuant to an
exclusive permit, and certain privately held areas and Federal OCS acreage which
together constitute approximately 80% of the Survey AMI and is attempting to
acquire rights from additional private owners. There can be no assurance that
the 3-D Joint Venture will successfully obtain rights to survey additional
portions of the Survey AMI. The 3-D Joint Venture intends to survey specific
sections selected by it within the areas covered by its permits and similar
rights. See "- Permit and Lease Status Within the Survey AMI." Cheniere
Operating believes that survey sites located within the Survey AMI have the
potential for containing substantial undiscovered oil and gas reserves, based on
the number and size of existing fields in and around the Survey AMI, the low
level of historical exploration in the Survey AMI and the exploration success
resulting from a speculative 3-D seismic survey shot by an independent
geophysical services company in the adjacent Federal offshore area. A seismic
data acquisition contract was signed and acquisition of data commenced in
September, 1996. Prior to discontinuing operations in late November due to
weather conditions, 28 square miles of data had been acquired. Zydeco, the
program operator, anticipates that work on the project will resume in
April 1997 under the terms of an amended contract now being negotiated
by Zydeco.
3-D Joint Venture Exploration Agreement
Under the terms of the Exploration Agreement, Cheniere Operating is
obligated to pay 100% of the Seismic Costs (as defined below) up to $13.5
million (subject to adjustment as described in the following sentence) in
accordance with a fixed schedule of monthly payments, and 50% of the excess of
any such costs, to acquire a 50% working interest participation in the leasing
and drilling of all Prospects (as defined below) generated by Zydeco within the
Survey AMI. If premiums required for turnkey contracts cause total Seismic Costs
to exceed $13.5 million, Cheniere Operating will bear 100% of Seismic Costs only
up to $13.5 million, and Seismic Costs greater than $13.5 million will be borne
equally by Cheniere Operating and Zydeco. "Seismic Costs" are defined in the
Exploration Agreement to include the following, inter alia: acquiring and
processing seismic data; turnkey contracts; legal costs; options to lease land
and leases of land;
15
<PAGE>
and the cost of seismic permits including the seismic permit granted by the
State of Louisiana discussed below. See "-Permit and Lease Status Within the
Survey AMI-Offshore Area."
Under the terms of the Exploration Agreement, Zydeco will perform, or
cause to be performed, all of the planning, land, geologic and interpretative
functions necessary to the project and will design and oversee the acquisition
and processing of seismic data, interpret results, acquire leases and generate
Prospects. The term "Prospect" is defined in the Exploration Agreement as a
block of acreage suitable for exploration including the leasehold, operating,
nonoperating, mineral and royalty interests, licenses, permits and contract
rights relating thereto. Cheniere Operating has the right to review all data and
may elect to generate its own Prospects. Neither party to the 3-D Joint Venture
is permitted to sell or license the data without the other party's
approval.
As described above, under the terms of the Exploration Agreement,
Cheniere Operating is obligated to make payments for the Seismic Costs into a
joint venture account (the "Joint Venture Account"). The Exploration Agreement
originally provided for an initial installment of $3 million to be paid by May
15, 1996, which was extended to June 14 1996 by agreement of the parties.
Subsequent payments were due on the last day of each of the months of June 1996
through February 1997. Each of the payments was required to be in the amount of
$1 million with the exception of the payments at the end of September 1996 and
February 1997 which were required to be for $2 million and $1.5 million,
respectively (although the February 1997 payment might have been reduced to $1.0
million under certain circumstances described above).
On November 27, 1996, Cheniere Operating and Zydeco amended the
Exploration Agreement between the two entities relating to the 3-D Joint Venture
whereby the schedule for payment of Seismic Funds defined by the Exploration
Agreement and its amendments from Cheniere Operating to Zydeco is suspended. The
new amendment calls for Cheniere Operating to furnish funds to maintain a
$1,000,000 balance in the Seismic Fund account and for Cheniere Operating to
resume the payment schedule within thirty days of Zydeco's notification, and is
intended to better align the payment schedule with Zydeco's need for such funds.
On February 22, 1997, Cheniere Operating received notice from Zydeco that
suspension of payments had ceased and that payments under the November 27, 1996
amendment should be resumed. Under the revised agreement, Cheniere Operating
expects to fund an additional $5.5 million (plus 50% of certain costs in excess
of $13.5 million) of Seismic Fund payments during the final two quarters of its
fiscal year ending August 31, 1997, which is due in three payments; $2 million
each on April 22 and May 22, 1997, and $1.5 million on June 21, 1997, each of
which has a 30-day grace period. At March 4, 1997, Cheniere Operating had paid
$8 million to the Joint Venture Account. Cheniere Operating intends to make its
future payments under the amended Exploration Agreement as and when they are
due, however, neither Cheniere Operating nor Cheniere currently has sufficient
capital to cover such payments and there can be no assurance that Cheniere
Operating or Cheniere will successfully secure the necessary funds.
In the event Cheniere Operating fails to make a scheduled payment into
the Joint Venture Account within 30 days after the date such payment is due (a
"Discontinuance"):
(i) The obligation and right of Cheniere Operating to make such
payments will terminate. Zydeco would have the right to complete the
acquisition and processing of seismic data with the cooperation or
assistance of other companies. In addition, Cheniere Operating's Prospect
ownership interest would be limited to the total amount of its contribution
to the Joint Venture Account, divided by twice the amount of funds expended
for Seismic Costs, expressed as a percentage. For example, if Cheniere
Operating made a total contribution of $8 million to the Joint Venture
Account, prior to a Discontinuance, and total Seismic Costs were $13.5
million, Cheniere Operating's Prospect ownership interest would be limited
to 29.6%;
(ii) If following a Discontinuance, Zydeco contributes funds that
otherwise were required to have been provided by Cheniere Operating under
the terms of the Exploration Agreement, Zydeco shall be entitled to receive
back such funds, together with interest thereon at the prime interest rate,
from revenues attributable to Cheniere Operating's interest in any Prospect
(including, without limitation, any working interest or overriding royalty
interest revenues from production or front end proceeds attributable to such
interest when owned by Cheniere Operating under the applicable operating
agreement or proceeds from the sale or license of seismic data);
(iii) Subject to (iv) immediately below, if a Discontinuance occurs,
and Zydeco does not itself fund the deficient Seismic Costs, Zydeco may
sell, trade, farm-out, lease, sublease or otherwise trade (collectively, a
"Trade") the aggregate (i.e., both that of Zydeco and Cheniere Operating)
Prospect
16
<PAGE>
interests to any party on arms' length terms. For this purpose the aggregate
Prospect interests includes all seismic data acquired, and revenues from a
Trade include seismic data sale or license proceeds. Any revenues accruing
from a Trade shall be applied toward the cost of completing the project
contemplated under the Exploration Agreement; and
(iv) Should Cheniere Operating have funded $8,000,000, which amount
has been paid to the Joint Venture, or more prior to the Discontinuance, then
the parties will treat Cheniere Operating as having earned a vested Prospect
ownership interest of 25%, regardless of the existence of certain costs to the
Joint Venture in excess of $13.5 million, which shall not be subject to any
Trade, and any revenues from a Trade, which would in this instance cover a 75%
Prospect ownership interest, shall be shared 33-1/3% by Cheniere Operating and
66-2/3% by Zydeco.
Prospect Expenses (as defined below) are to be borne equally by Zydeco
and Cheniere Operating; provided, however, that in the event of a
Discontinuance, Cheniere Operating shall bear a percentage of the Prospect
Expenses equal to its Prospect ownership interest. "Prospect Expenses" are
defined in the Exploration Agreement as: lease bonuses and brokerage for leases;
delay or shut in rental payments on leases or interest acquired under the
Exploration Agreement; engineering costs; and certain other costs related to
Prospects. If Cheniere Operating fails to pay its share of Prospect Expenses
within 30 days of receipt of a bill therefor, it will be deemed to have declined
to participate in the Prospect and will have no interest or liability related to
the Prospect in question.
In the event that Zydeco incurs a contractual liability to a third
party in performing its undertakings under the Exploration Agreement, such
contractual liability shall be treated as a Prospect Expense. In the event that
Zydeco incurs a tort liability to a third party in performing its undertakings
under the Exploration Agreement, and such liability is a result of gross
negligence or willful malfeasance, such liability, and all attorneys fees and
expenses relating thereto, shall be solely Zydeco's responsibility. In the event
that Zydeco incurs a tort liability to a third party in performing its
undertakings under the Exploration Agreement, and such liability is not a result
of gross negligence or willful malfeasance, such liability, and all attorneys'
fees and expenses relating thereto, shall be borne equally by Cheniere Operating
and Zydeco.
Location and Hydrocarbon Potential of the Survey Area
The Survey AMI, which contains the specific areas to be covered by the
Survey, lies within a highly prolific natural gas region. Nevertheless, the
Transition Zone has been relatively less explored to date as compared to
exclusively onshore or offshore regions because of the relatively high cost and
logistical and technical difficulties associated with conducting modern seismic
surveys over the diverse environments encountered along the coast. An additional
impediment has been the difficulty of negotiating with sophisticated landowners
who control most of the area close to the Louisiana coastline. The paucity of
modern seismic data has limited the drilling density: the spacing of exploration
wells testing the primary objective section, outside of the known fields, is
less than one well per five square miles. However, recent declines in the cost
of supercomputing workstations which can be employed in processing and
interpreting seismic data have made projects such as this Transition Zone
venture technically and economically feasible.
The Louisiana Transition Zone contains the Miocene Trend which has
produced many of the largest oil and gas fields in the continental United States
and its territorial waters. Objectives within the Miocene Trend have excellent
reservoir characteristics and have historically exhibited multiple pay zones,
which can allow a single strategically placed well bore to drain multiple
reservoirs. Given the relatively low level of historical exploration and the
high recovery factors characterizing the Louisiana Transition Zone, Cheniere
Operating believes that this zone has the potential for containing substantial
undeveloped oil and gas reserves. Miocene age reservoirs in fields overlapping
the Survey AMI have produced in excess of 3 trillion cubic feet (tcf) of natural
gas. Along the northeast quadrant of the Survey AMI the Mud Lake and Second
Bayou Fields have cumulatively produced more than 1.3 tcf of natural gas to
date, with more than 250 billion cubic feet (bcf) having been produced from one
well. In the southwestern quadrant of the Survey AMI, the West Cameron Block 17
Field in the State and Federal waters has cumulatively produced more than 980
bcf to date. Numerous other smaller, but still significant, oil and gas fields
surround and overlay the area.
17
<PAGE>
Immediately to the south of the Survey AMI, a successful industry
drilling program based partly on a speculative 3-D survey provides an analogy
that illustrates the remaining potential for new discoveries in an area already
shot with 2-D seismic, and the contribution which new 3-D seismic can make. In
1989, a 3-D seismic survey shot by an independent geophysical services
company along the shallow Federal waters in the western part of the Western
Cameron area led to 3 new field discoveries. Together with another discovery
made coincident with the 3-D survey, these four fields have produced
approximately 320 bcfe of natural gas to date from 15 boreholes. The middle to
lower Miocene reservoir section has excellent flow characteristics, as can be
seen by the per well recoveries, 21 bcfe of natural gas to date, in the area of
the adjacent shoot. In addition to the volumes produced from these discoveries,
additional reserves have been brought on through exploitation wells drilled into
existing fields.
The entire Survey AMI is located within an existing pipeline
infrastructure. As a result, it will generally be quicker and less costly to
develop and connect reserves found onshore and in the shallow offshore areas to
markets than would be the case for reserves found in deeper water areas. The
Louisiana Gulf Coast/Gulf of Mexico region enjoys easy access to the premium-
priced markets of the East Coast.
Permit and Lease Status Within the Survey AMI
The 3-D Joint Venture will Survey only certain sections lying within
the Survey AMI. The area to be covered by the Survey is dependent upon the
status of permits granting the 3-D Joint Venture the right to Survey certain
areas and its ability to obtain such permits or similar rights in the future.
Offshore Area -- State Waters Exclusive Permit and Federal Offshore
Permits. On February 14, 1996, the State of Louisiana awarded Zydeco the
exclusive right (the "Louisiana Seismic Permit") to shoot and gather seismic
data over the 51,360 net unleased acres of Louisiana State waters (running out
to a 3 1/2 mile limit located within the Survey AMI) in the western half of
Cameron Parish. The term of the Louisiana Seismic Permit is for 18 months and
may be extended at Zydeco's option for an additional 6 months by payment of an
additional fee of $391,876.80. During this term Zydeco has the exclusive right
to nominate blocks of acreage for leasing in the covered State waters.
The Survey AMI includes an area running southward up to 2
miles into Federal waters. Zydeco's seismic contractor, Grant Geophysical, Inc.,
has received approval from the U.S. Government to survey over 23,000 acres of
Federal offshore leases located within the Survey AMI. Although Zydeco has no
exclusive rights regarding leases in the Federal waters, several offshore lease
blocks held by industry and covered by the Survey are scheduled to expire within
the next year and may then be available for leasing.
Onshore Area -- Prospective Permits, Lease Options, and Farmouts.
Zydeco is in negotiations to obtain variously, farmouts, seismic permits or
lease options, with owners of the mineral interests covering approximately
27,000 additional acres of privately owned lands lying under the onshore portion
of the Survey AMI ("Onshore Area"). The outcome of these discussions will affect
the exact delineation of the areas which will be subject to the Survey within
the Survey AMI. As of this date, seismic permits or options covering portions of
the Onshore Area have already been obtained.
Technological Aspects of 3-D Seismic Shoot and Prospect Generation
Cheniere Operating believes that recently developed seismic processing
and interpretation technology, including some key technology which Zydeco has
licensed for use in Southern Louisiana on an exclusive basis, has now evolved to
a point where quality control for a Transition Zone survey will be improved
significantly. The Survey will incorporate certain of these new techniques for
the first time in a major seismic survey. Moreover, Cheniere Operating believes
that the areal extent of the Survey, which is unusually large for a shallow
water/onshore seismic survey should permit better imaging of the subsurface,
particularly of the deeper zones.
The design of the Survey has been led by Rudy Prince, Zydeco's Vice-
Chairman, who was formerly CEO and a founder of Digicon Geophysical Corp., a
seismic services company. A primary objective of the Survey is to provide for
accurate and consistent data sufficient for analysis of hydrocarbon indicators
in a depth range of 8,000 - 20,000 feet at an attractive price. The design will
employ technology referred to as "wavefield imaging", for which Zydeco has
obtained an exclusive license for use in the Louisiana Transition
18
<PAGE>
Zone (from Wavefield Imaging, Inc.). The approach combines a relatively lower
density array of shots and receivers with 3-D prestack migration. Moreover,
Cheniere Operating believes that the use of a single type of shot, dynamite, and
a single type of receiver, hydrophone, across the coastline, will simplify and
improve seismic processing across the different Transition Zone
environments.
Data Acquisition. Cheniere Operating believes that use of similar
source (dynamite) and receiver (hydrophone) components laid out in a symmetrical
array across the shoreline will eliminate the problems of integrating two
different types of data sets (land and marine) and improve data consistency. A
limited amount of airgun source data will be acquired in the Federal waters and
around the few producing fields. A primary consideration in the design, the
relatively deep zones of interest (8,000-20,000 feet), calls for long north-
south transects (up to 10 miles) to improve the quality of deep data.
Data Transmission, Processing and Interpretation. Data will be
transferred daily from the field crew to Zydeco's headquarters in Houston, where
it will undergo nearly real-time processing. This procedure will allow Zydeco to
closely monitor 3-D data quality and make adjustments to the acquisition
parameters if necessary. This new technology also significantly reduces the
delay time between the Survey itself and ultimate drilling decisions. In
combination with a reduced cost design for field data acquisition, Zydeco will
employ a proven technology, 3-D prestack migration, seeking to obtain superior
quality subsurface images. To maximize quality control and minimize delays
Zydeco will process the data in-house. Having completed seismic processing,
Zydeco will also employ state of the art Computer Aided Exploration (CAEX)
interpretation techniques to locate and define drilling prospects.
Schedule for the 3-D Joint Venture
The Louisiana Seismic Permit, whose primary 18 month term expires in
August 1997, may be extended at Zydeco's option until February 1998 by payment
of an additional fee of $391,876.80. If this fee is required to be paid, it will
be included as a Seismic Cost under the Exploration Agreement. Zydeco presently
plans to adhere to the schedule summarized below:
<TABLE>
<CAPTION>
<S> <C>
2nd Quarter 1996 - 1st Quarter 1997 Onshore Permitting and Lease Optioning
3rd Quarter 1996 - 2nd Quarter 1997 Conduct Seismic Survey and Simultaneously Begin Processing &
Interpretation of Data Received
2nd Quarter 1997 - 4th Quarter 1997 Continue Survey, Processing and Interpretation and Identify Prospects
4th Quarter 1997 - 1st Quarter 1998 Nominate and Bid State Leases, Exercise
Lease Options Onshore; Propose, Contract for Drilling, and Commence
Drilling of First Group of Prospects
</TABLE>
Under the terms of the Louisiana Seismic Permit, the 3-D Joint Venture
will be liable to pay penalties of $783,753.60 in the event it fails to (i)
complete the acquisition of the seismic data covering the entire area subject to
such Permit or (ii) provide access to such data to the State of Louisiana in a
timely manner. Under the terms of the Exploration Agreement, any such penalties
payable under the Louisiana Seismic Permit shall be borne equally by Zydeco and
Cheniere Operating. There can be no assurance that the 3-D Joint Venture will
complete its scheduled activities within the time period of the Louisiana
Seismic Permit. Failure of the 3-D Joint Venture to complete its scheduled
activities within the term of the Louisiana Seismic Permit would materially and
adversely affect the value of Cheniere Operating's interest in the Joint
Venture.
Zydeco and Cheniere Operating have designated the entire Survey AMI
(onshore and offshore) as an area of mutual interest for five years ending May
15, 2001, during which period the two companies may continue to drill, test, and
develop prospects within the Survey AMI. Any interest taken by either Zydeco or
Cheniere Operating, during such period, in any agreement or arrangement which
creates or effects an interest in hydrocarbons in lands within the Survey AMI,
or an acquisition of a contractual right to acquire such an interest shall be
deemed taken for development under the Exploration Agreement. The party
acquiring such an interest must offer to the other party the right, which may be
waived by such other party, to participate in the rights and obligations
associated with such interest in proportion to their respective Prospect
ownership interests.
19
<PAGE>
COMPETITION AND MARKETS
Competition in the industry is intense, particularly with respect to
the acquisition of producing properties and proved undeveloped acreage. The
Company competes with the major oil companies and other independent producers of
varying sizes, all of which are engaged in the exploration, development and
acquisition of producing and non-producing properties. Many of the Company's
competitors have financial resources and exploration and development budgets
that are substantially greater than those of the Company, which may adversely
affect the Company's ability to compete.
The availability of a ready market for and the price of any
hydrocarbons produced by the Company will depend on many factors beyond the
control of the Company, including the extent of domestic production and imports
of foreign oil, the marketing of competitive fuels, the proximity and capacity
of natural gas pipelines, the availability of transportation and other market
facilities, the demand for hydrocarbons, the political conditions in
international oil producing regions, the effect of federal and state regulation
of allowable rates of production, taxation and the conduct of drilling
operations and federal regulation of natural gas. In the past, as a result of
excess deliverability of natural gas, many pipeline companies have curtailed the
amount of natural gas taken from producing wells, shut-in some producing wells,
significantly reduced gas taken under existing contracts, refused to make
payments under applicable "take-or-pay" provisions and have not contracted for
gas available from some newly completed wells. The Company can give no assurance
that such problems will not arise again. In addition, the restructuring of the
natural gas pipeline industry has eliminated the gas purchasing activity of
traditional interstate gas transmission pipeline buyers.
Producers of natural gas, therefore, have been required to develop new
markets among gas marketing companies, end users of natural gas and local
distribution companies. All of these factors, together with economic factors in
the marketing area, generally may affect the supply and/or demand for oil and
gas and thus the prices available for sales of oil and gas.
GOVERNMENTAL REGULATION
The Company's oil and gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by Federal
and state agencies. Failure to comply with such rules and regulations can result
in substantial penalties. The regulatory burden on the oil and gas industry
increases the Company's cost of doing business and affects its profitability.
Because such rules and regulations are frequently amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
laws.
Production. In most, if not all, areas where the Company may conduct
activities, there may be statutory provisions regulating the production of oil
and natural gas under which administrative agencies may promulgate rules in
connection with the operation and production of both oil and gas wells,
determine the reasonable market demand for oil and gas, and establish allowable
rates of production. Such regulation may restrict the rate at which the
Company's wells produce oil or gas below the rate at which such wells would be
produced in the absence of such regulation, with the result that the amount or
timing of the Company's revenues could be adversely affected.
Regulation of Operations on Outer Continental Shelf. The Company plans
to acquire oil and gas leases in the Gulf of Mexico. The Outer Continental Shelf
Lands Act ("OCSLA") requires that all pipelines operating on or across the Outer
Continental Shelf (the "OCS") provide open-access, non-discriminatory service.
Although the Federal Energy Regulatory Commission ("FERC") has opted not to
impose the regulations of Order No. 509, in which the FERC implemented the
OCSLA, on gatherers and other non-jurisdictional entities, the FERC has retained
the authority to exercise jurisdiction over those entities if necessary to
permit non-discriminatory access to service on the OCS. In this regard, the FERC
recently issued a Statement of Policy ("Policy Statement") regarding the
application of its jurisdiction under the Natural Gas Act of 1938 ("NGA") and
the OCSLA over natural gas facilities and service on the OCS. In the Policy
Statement the FERC concluded that facilities located in water depths of 200
meters or more shall be presumed to have a primary purpose of gathering up to
the point of interconnection with the interstate pipeline grid. FERC has
determined that gathering facilities are outside of its jurisdiction. While it
is not possible to determine what the actual impact
20
<PAGE>
of this new policy will be, since FERC has determined that it will no longer
regulate the rates and services of OCS transmission facilities under the NGA, it
is possible that the Company could experience an increase in transportation
costs associated with its OCS natural gas production and, possibly, reduced
access to OCS transmission capacity.
Certain operations the Company conducts are on federal oil and gas
leases, which the Minerals Management Service (the "MMS") administers. The MMS
issues such leases through competitive bidding. These leases contain relatively
standardized terms and require compliance with detailed MMS regulations and
orders pursuant to the OCSLA (which are subject to change by the MMS). For
offshore operations, lessees must obtain MMS approval for exploration plans and
development and production plans prior to the commencement of such operations.
In addition to permits required from other agencies (such as the Coast Guard,
the Army Corps of Engineers and the Environmental Protection Agency), lessees
must obtain a permit from the MMS prior to the commencement of drilling. The MMS
has promulgated regulations requiring offshore production facilities located on
the OCS to meet stringent engineering and construction specifications. It has
proposed regulations to update production measurement and surface commingling
requirements for gas produced in the OCS. In addition, the MMS has proposed
additional safety-related regulations concerning the design and operating
procedures for OCS production platforms and pipelines. The MMS has postponed its
decision regarding the adoption of these regulations in order to gather more
information on the subject. The MMS also has regulations restricting the flaring
or venting of natural gas, and has recently amended such regulations to prohibit
the flaring of liquid hydrocarbons and oil without prior authorization except
under certain limited circumstances. Similarly, the MMS has promulgated other
regulations governing the plugging and abandonment of wells located offshore and
the removal of all production facilities. To cover the various obligations of
lessees on the OCS, the MMS generally requires that lessees post substantial
bonds or other acceptable assurances that such obligations will be met. The cost
of such bonds or other surety can be substantial and there is no assurance that
the Company can continue to obtain bonds or other surety in all cases.
In addition, the MMS has conducted an inquiry into certain contract
agreements for which producers on MMS leases have received settlement proceeds
that are royalty bearing and the extent to which producers have paid the
appropriate royalties on those proceeds. The Company believes that this inquiry
will not have a material impact on its financial condition, liquidity or results
of operations.
The MMS has recently issued a notice of proposed rulemaking in which
it proposes to amend its regulations governing the calculation of royalties and
the valuation of natural gas produced from federal leases. The principal feature
in the amendments, as proposed, would establish an alternative market-index
based method to calculate royalties on certain natural gas production sold to
affiliates or pursuant to non-arm's-length sales contracts. The MMS has proposed
this rulemaking to facilitate royalty valuation in light of changes in the gas
marketing environment. Recently, the MMS announced its intention to reconsider
the proposal and reopen the comment period. The Company cannot predict what
action the MMS will take on these matters, nor can it predict at this stage of
the rulemaking proceeding how the Company might be affected by amendments to the
regulations.
The MMS recently issued a notice of proposed rulemaking to modify the
valuation procedures for crude oil transactions and to amend the valuation
procedure for the sale of Federal royalty oil. The Company cannot predict what
action the MMS will ultimately take on these matters, nor can it predict at this
stage of the rulemaking proceeding how the Company might be affected by
amendments to the regulations.
Additional proposals and proceedings that might affect the oil and gas
industry are pending before the FERC and the courts. The Company cannot predict
when or whether any such proposals may become effective. In the past, the
natural gas industry has been heavily regulated. There is no assurance that the
regulatory approach currently pursued by the FERC will continue indefinitely.
Bonding and Financial Responsibility Requirements. The Company is
required to obtain bonding, or otherwise demonstrate financial responsibility,
at varying levels by governmental agencies in connection with obtaining state or
federal leases or acting as an owner or operator on such leases or of oil
exploration and production related facilities. These bonds may cover such
obligations as plugging and abandonment of unproductive wells, removal and
closure of related exploration and production facilities and pollution
liabilities. The costs of such bonding and financial responsibility requirements
can be substantial and there can be no assurance that the Company will be able
to obtain such bonds and/or otherwise demonstrate financial responsibility in
all cases.
21
<PAGE>
Natural Gas Marketing and Transportation. The FERC regulates the
transportation and sale for resale of natural gas in interstate commerce
pursuant to the NGA and the Natural Gas Policy Act of 1978 ("NGPA"). In the
past, the Federal government has regulated the prices at which oil and gas could
be sold. Deregulation of wellhead sales in the natural gas industry began with
the enactment of the NGPA in 1978. In 1989, Congress enacted the Natural Gas
Wellhead Decontrol Act (the "Decontrol Act"). The Decontrol Act removed all NGA
and NGPA price and nonprice controls affecting wellhead sales of natural gas
effective January 1, 1993. While sales by producers of natural gas can currently
be made at uncontrolled market prices, Congress could reenact price controls in
the future.
On April 8, 1992, the FERC issued Order No. 636, as amended by Order
No. 636-A (issued in August 1992) and Order No. 636-B (issued in November 1992)
as a continuation of its efforts to improve the competitive structure of the
interstate natural gas pipeline industry and maximize the consumer benefits of a
competitive wellhead gas market. Interstate pipelines were required by FERC to
"unbundle," or separate, their traditional merchant sales services from their
transportation and storage services and to provide comparable transportation and
storage services with respect to all gas supplies whether purchased from the
pipeline or from other merchants such as marketers or producers. The pipelines
must now separately state the applicable rates for each unbundled service (e.g.,
for natural gas transportation and for storage). This unbundling process has
been implemented through negotiated settlement in individual pipeline services
restructuring proceedings. Ultimately, Order Nos. 636, et al., may enhance the
competitiveness of the natural gas market. Order Nos. 636, et al. have been
substantially affirmed and remanded by the U.S. Court of Appeals for the D.C.
Circuit. FERC's order 636-C was issued as a result of that remand.
It is unclear what impact, if any, increased competition within the
natural gas industry under Order No. 636 will have on the Company's activities.
Although Order Nos. 636, et. al., could provide the Company with additional
market access and more fairly applied transportation service rates, Order No.
636 could also subject the Company to more restrictive pipeline imbalance
tolerances and greater penalties for violations of these tolerances.
The FERC has announced its intention to re-examine certain of its
transportation-related policies, including the appropriate manner in which
interstate pipelines release transportation capacity under Order No. 636, and
the use of the market-based rates for interstate gas transmission. While any
resulting FERC action would affect the Company only indirectly, the FERC's
current rules and policy statements may have the effect of enhancing competition
in natural gas markets by, among other things, encouraging non-producer natural
gas marketers to engage in certain purchase and sale transactions. The Company
cannot predict what action the FERC will take on these matters, nor can it
accurately predict whether the FERC's actions will achieve the goal of
increasing competition in markets in which the Company's natural gas is sold.
However, the Company does not believe that it will be treated materially
differently than other natural gas producers and marketers with which it
competes.
Oil Sales and Transportation Rates. The FERC regulates the
transportation of oil in interstate commerce pursuant to the Interstate Commerce
Act. Sales of crude oil, condensate and gas liquids by the Company are not
regulated and are made at market prices. However, the price a company receives
from the sale of these products is affected by the cost of transporting the
products to market. Effective as of January 1, 1995, the FERC implemented
regulations establishing an indexing system for transportation rates for oil
pipelines, which would generally index such rates to inflation, subject to
certain conditions and limitations. These regulations could increase the cost of
transporting crude oil, liquids and condensate by pipeline. The Company is not
able to predict with certainty what effect, if any, these regulations will have
on it, but other factors being equal, the regulations may tend to increase
transportation costs or reduce wellhead prices for such commodities.
22
<PAGE>
Environmental. The Company's operations are subject to numerous laws
and regulations governing the discharge of oil and hazardous materials into the
environment or otherwise relating to environmental protection. These laws and
regulations may require the acquisition of various permits before drilling
commences, restrict the types, quantities and concentration of various
substances that can be released into the environment in connection with drilling
and production activities, limit or prohibit drilling activities on certain
lands lying within wilderness, wetlands and other protected areas, and impose
substantial liabilities for pollution resulting from the Company's operations.
In particular, under the Federal Oil Pollution Act of 1990 ("OPA 90"), certain
persons (including owners, operators, and demise charterers of vessels, owners
and operators of onshore facilities, and lessees, permittees and holders of
rights of use and easements in areas in which offshore facilities are located
("responsible parties")) may be held liable for various costs and damages. These
include removal costs and damages, damages to natural resources and damages for
lost profits, impairment to earning capacity, and destruction of or injury to
real or personal property. Liability can arise when oil is discharged or poses a
substantial threat of discharge into United States waters. Liability under OPA
90 is strict, joint and several, unless one of the specific defenses to
liability applies, including an act of God, an act of war or an act or omission
of a third party. OPA 90 also requires certain responsible parties to establish
and maintain evidence of financial responsibility sufficient to meet the maximum
amount of liability to which the responsible party could be subject under the
liability limitation provisions. Moreover, the recent trend toward stricter
standards in environmental legislation and regulation is likely to continue. In
addition, legislation has been proposed in Congress from time to time that would
reclassify certain oil and gas exploration and production wastes as "hazardous
wastes" which would make the reclassified wastes subject to much more stringent
handling, disposal and clean-up requirements. If such legislation were to be
enacted, it could have a significant impact on the operating costs of the
Company, as well as the oil and gas industry in general. State initiatives to
further regulate the disposal of oil and gas wastes are also pending in certain
states, and these various initiatives could have a similar impact on the
Company. See "Risk Factors -- United States Governmental Regulation, Taxation
and Price Control."
The Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources, and it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage.
OPERATIONAL RISKS AND INSURANCE
The Company anticipates that any wells established by it will be
drilled by proven industry contractors under turnkey contracts that limit the
Company's financial and legal exposure. However, circumstances may arise where
the Company is unable to secure a turnkey contract on satisfactory terms. In
this case, the Company may decide to drill, or cause to be drilled, the
applicable test well(s) on either a footage or day rate basis and the drilling
thereof will be subject to the usual drilling hazards such as cratering,
explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution
and other environmental risks. The Company's activities are also subject to
perils specific to marine operations, such as capsizing, collision, and damage
or loss from severe weather. These hazards can cause personal injury and loss of
life, severe damage to and destruction of property and equipment, pollution or
environmental damage and suspension of operations. In accordance with customary
industry practices, the Company intends to maintain insurance against some, but
not all, of such risks and some, but not all, of such losses. The occurrence of
a significant event not fully insured or indemnified against could materially
and adversely affect the Company's financial condition and operations. Moreover,
no assurance can be given that the Company will be able to maintain adequate
insurance in the future at rates it considers reasonable.
23
<PAGE>
MAR VENTURES INC.
Prior to the Reorganization, the existing assets and liabilities of
Bexy were transferred to its wholly-owned subsidiary, Mar Ventures, Inc. ("Mar
Ventures"). As part of such Reorganization, the stock of Mar Ventures has been
distributed to the original Bexy stockholders. Buddy Young, the former President
and chief executive officer of Bexy, has agreed to indemnify the Company, the
former shareholders of Cheniere Operating and their respective officers,
directors, attorneys and other agents from and against all claims which they may
suffer, incur, or pay arising under or incurred in connection with: (i) the
operation of the business of Bexy prior to the closing of the Reorganization;
(ii) any error or omission with respect to a material fact stated or required to
be stated in the proxy materials filed by Bexy in connection with the
Reorganization or the registration statement filed by Mar Ventures in connection
with the distribution of its common stock to the original Bexy stockholders; and
(iii) certain taxes.
YOUNG CONSULTING AGREEMENT
Pursuant to a Consulting Agreement dated as of July 3, 1996 between
Cheniere and Buddy Young, the former President and chief executive officer of
Bexy, the Company engaged Mr. Young as a consultant to provide management of the
Company with advice regarding the management and business of the Company. Mr.
Young agreed to provide such consulting services to the Company for 2 years
ending on July 3, 1998 at a rate of $75,000 per year. Mr. Young is no longer an
employee of the Company and serves only in the capacity of a consultant.
EMPLOYEES
The Company has one full-time employee, an administrative assistant,
other than its executive officers.
PROPERTIES
Cheniere subleases its Houston, Texas headquarters from Zydeco under a
month-to-month sublease covering approximately 1,395 square feet at a monthly
rental of $1,100. The Company believes that this arrangement gives it the
necessary flexibility to adapt to the changing space requirements of its
business.
LEGAL PROCEEDINGS
The Company is not involved in any litigation.
24
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The executive officers and directors of Cheniere are as follows:
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
William D. Forster... 50 President, Chief Executive Officer
and Director
Walter L. Williams... 69 Vice Chairman and Director
Keith F. Carney...... 40 Chief Financial Officer and Treasurer
Charif Souki......... 44 Secretary and Chairman of the Board of Directors
Efrem Zimbalist III.. 49 Director
</TABLE>
William D. Forster, 50, is currently President and Chief Executive
Officer of Cheniere. Mr. Forster was an investment banker with Lehman Brothers
from 1975 to 1990 (11 years as a Managing Director), initially in the oil and
gas department for seven years, and then in various other areas. In 1990, he
founded his own private investment bank, W. Forster & Co. Inc. In 1994, he
became active again in the oil and gas business when he began to work together
with BSR Investments, Ltd., a Paris-based private investment company, to provide
financing for small energy companies. Mr. Forster is a director of Equity Oil
Company, a Nasdaq National Market company, and he serves on the Board of
Trustees of Mystic Seaport Museum. He holds a Bachelor of Arts degree in
economics from Harvard College and a Master of Business Administration degree
from Harvard Business School.
Walter L. Williams, 69, is currently Vice-Chairman of Cheniere. Prior
to joining Cheniere, Mr. Williams spent 32 years as a founder and later Chairman
and Chief Executive Officer of Texoil, Inc., a publicly held Gulf Coast
exploration and production company. Prior to that time he was an independent
petroleum consultant. He received a Bachelor of Science degree in petroleum
engineering from Texas A&M University in 1949 and is a Registered Engineer in
both the states of Louisiana and Texas. He serves on the board of directors of
Texoil, Inc. and has served as a Director and Member of the Executive Committee
of the Board of the Houston Museum of Natural Science.
Keith F. Carney, 40, is currently Chief Financial Officer and
Treasurer of Cheniere. Prior to joining Cheniere, Mr. Carney was a securities
analyst in the oil & gas exploration/production sector with Smith Barney, Inc.
from 1992-1996. From 1982-1990 he was employed by Shell Oil as an exploration
geologist, with assignments in the Gulf of Mexico, the Middle East and other
areas. He received a Master of Science degree in geology from Lehigh University
in 1982 and a Master of Business Administration/Finance degree from the
University of Denver in 1992.
Charif Souki, 44, is currently the Chairman of the Board of Directors
and Secretary of Cheniere. Mr. Souki is an independent investment banker with
twenty years of experience in the industry. In the past few years he has
specialized in providing financing for promising microcap and small
capitalization companies with an emphasis on the oil and gas industry. He holds
a Bachelor of Arts degree from Colgate University and a Master of Business
Administration from Columbia University.
Efrem Zimbalist III, 49, a director of Cheniere, is President and
Chief Executive Officer of Times Mirror Magazines, a division of Times Mirror
Co., and a Vice President of Times Mirror Co. He formerly served as vice
president, strategic development for Times Mirror Co. from 1993 to 1995.
Previously he served as Chairman and Chief Executive Officer of Correia Art
Glass, Inc., a family owned business. He also served five years as a senior
engagement manager at the management consulting firm of McKinsey and Co., Inc.
in Los Angeles. Mr. Zimbalist received a Bachelor of Arts degree in economics
from Harvard College and a Master's degree in business administration from
Harvard Business School.
25
<PAGE>
DIRECTOR COMPENSATION
Directors receive no remuneration for serving on the board of
directors of Cheniere.
EXECUTIVE COMPENSATION
Simultaneously with the reorganization of Bexy with Cheniere Operating
(the "Reorganization"), all of the officers of Bexy resigned from their
respective offices and were replaced by the current officers of Cheniere. As
the Company has divested itself of the assets relating to the business of Bexy
prior to the Reorganization and has shifted to a new business, this section
describes the compensation to be received by the executive officers of Cheniere
following the Reorganization on July 3, 1996. The Company presently has no
employment agreement with any of the Executive Officers.
William D. Forster, President and Chief Executive Officer of Cheniere,
and Charif Souki, Chairman of the Board of Directors and Secretary of Cheniere,
have not received any compensation in the form of salary or options and Cheniere
does not currently intend to pay any such compensation to such officers until
the Company has raised significant additional capital. Cheniere provides an
apartment for the use of Mr. Forster and Mr. Souki during times they are in
Houston at a total cost of $4,800 per month.
Walter L. Williams, Vice Chairman of Cheniere, began receiving a
salary of $120,000 per year on September 1, 1996. By resolution of the Board of
Directors of Cheniere dated July 3, 1996, Cheniere granted to Mr. Williams
certain options to purchase shares of the Common Stock as described below. In
addition, Cheniere granted 30,000 shares of the Common Stock to Mr. Williams on
July 3, 1996. Keith F. Carney, Chief Financial Officer and Treasurer of
Cheniere, began receiving a salary of $90,000 per year on July 16, 1996, the
date of his appointment as an officer of Cheniere. By resolution of the Board of
Directors of Cheniere dated July 23, 1996, Cheniere granted to Mr. Carney
certain options to purchase shares of Common Stock as described below.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to
individual grants of options to purchase Common Stock made during the fiscal
year ended August 31, 1996 to each of the named executive officers.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Terms($)/(1)/
----------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number of
Securities % of Total Exercise
Underlying Options or Base
Options Granted to Price Expiration 5% 10%
Granted(#) Employees ($/sh) Date Appreciation($) Appreciation($)
----------- ---------- -------- ----------
Name
- --------------------
William D. Forster.. - - - - - -
Walter L. Williams.. 75,000/(2)/ 25.0 3.00 6/1/01 76,522 173,601
75,000/(3)/ 25.0 3.00 6/1/01 91,598 213,461
Keith F. Carney..... 37,500/(4)/ 12.5 3.00 7/16/01 38,261 86,801
37,500/(4)/ 12.5 3.00 7/16/01 45,799 106,731
37,500/(4)/ 12.5 3.00 7/16/01 53,714 128,654
37,500/(4)/ 12.5 3.00 7/16/01 62,024 152,769
</TABLE>
26
<PAGE>
____________________
/(1)/ The indicated dollar amounts are the result of calculations based on the
exercise price of each option and assume five and ten percent annual
appreciation rates set by the Securities and Exchange Commission over
the term of the option and, therefore, are not intended to forecast
possible future appreciation, if any, of Cheniere's stock price.
/(2)/ Each of these stock options vest and become exercisable on June 1, 1997
and expire five years from the date of grant.
/(3)/ Each of these stock options vest and become exercisable on June 1, 1998
and expire five years from the date of grant.
/(4)/ Cheniere granted Mr. Carney 150,000 stock options on July 23, 1996.
The options vest and become exercisable in equal annual installments of
25% each on the first through fourth anniversaries of July 16, 1996, and
expire on the fifth anniversary of the date of grant.
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
The following table sets forth certain information with respect to the
outstanding options to purchase Common Stock as of August 31, 1996 for each of
the named executive officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 8/31/96 (#) at 8/31/96 ($)
-------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Name
- ----
William D. Forster.. - - - -
Walter L. Williams.. - 150,000 - 37,500/(1)/
Keith F. Carney..... - 150,000 - 37,500/(1)/
----------- ------- ----------- -----------
</TABLE>
/(1)/ Market value of underlying securities at fiscal year-end 8/31/96
($3.25), minus the exercise price.
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT
BSR Investments, Ltd. ("BSR"), an entity holding approximately 20.6%
of the outstanding shares of the Common Stock, is under the control of a member
of the immediate family of Charif Souki, Chairman of the Board of Directors and
Secretary of Cheniere. Mr. Souki has been engaged, from time to time, as a
consultant to BSR. In addition, BSR has in the past provided certain financial
advisory and other services to the Company on an arm's length basis. Mr. Souki
disclaims beneficial ownership of all shares held by BSR.
DIRECTOR LIABILITY
The Amended and Restated Certificate of Incorporation of Cheniere
eliminates the liability of directors of Cheniere to Cheniere or its
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by Section 102 of the Delaware General
Corporation Law, as the same may be amended from time to time (the "DGCL").
Specifically, under Section 102 of the DGCL, directors of Cheniere will not
be personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to Cheniere or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) for unlawful payments or dividends or unlawful stock repurchases
or redemption as provided in Section 174 of the DGCL or (iv) for any transaction
from which the director derived an improper personal benefit.
DESCRIPTION OF CAPITAL STOCK
Cheniere has 21,000,000 authorized shares of stock, consisting of
(a) 20,000,000 shares of the Common Stock, having a par value of $.003 per
share, and (b) 1,000,000 shares of preferred stock, having a par value of $.0001
per share (the "Preferred Stock").
The shares of the Common Stock being registered pursuant to the
registration statement of which this prospectus is a part include (i) 794,211
shares issued in connection with the Reorganization to the initial subscribers
for common stock of Cheniere Operating and their transferees, other than shares
held by BSR Investments, Ltd. and William D. Forster, (ii) 2,000,000 shares
issued in connection with the Reorganization to holders of common stock of
Cheniere Operating issued in May and June 1996 pursuant to Regulation D, (iii)
689,639 shares issued during the period from July 1996 to December 1996 pursuant
to Regulation D and (iv) 200,000 shares issued in December 1996 pursuant to
Regulation S.
COMMON STOCK
As of March 12, 1997, there were 12,648,409 shares of the Common
Stock outstanding. All of such outstanding shares of Common Stock are fully paid
and nonassessable. Each share of the Common Stock has an equal and
27
<PAGE>
ratable right to receive dividends when, as and if declared by the Board of
Directors of Cheniere out of assets legally available therefor and subject to
the dividend obligations of Cheniere to the holders of any Preferred Stock
then outstanding.
In the event of a liquidation, dissolution or winding up of Cheniere,
the holders of Common Stock are entitled to share equally and ratably in the
assets available for distribution after payment of all liabilities, and subject
to any prior rights of any holders of Preferred Stock that at the time may be
outstanding.
The holders of Common Stock have no preemptive, subscription, conversion
or redemption rights, and are not subject to further calls or assessments of
Cheniere. There are no sinking fund provisions applicable to the Common Stock.
Each share of Common Stock is entitled to one vote in the election of directors
and on all other matters, submitted to a vote of stockholders. Holders of Common
Stock have no right to cumulate their votes in the election of directors.
In accordance with the Reorganization Agreement and a letter agreement
dated July 3, 1996 between Buddy Young and Cheniere, Cheniere agreed not to
engage in any reverse split or any transaction that has the effect of a reverse
split, resulting in the combination of shares of the Common Stock without the
prior written consent of Mr. Young for a period of 18 months, ending on January
3, 1998.
PREFERRED STOCK
As of the date of this Prospectus, there were no shares of Preferred
Stock outstanding. Preferred Stock may be issued from time to time in one or
more series, and the Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rates and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences and
any other rights, preferences, privileges and restrictions applicable to each
series of Preferred Stock. The purpose of authorizing the Board of Directors to
determine such rights, preferences, privileges and restrictions is to eliminate
delays associated with a stockholder vote on specific issuances. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to gain control of
Cheniere.
WARRANTS
Cheniere has issued and outstanding certain warrants described herein
(collectively, the "Warrants"). Cheniere is not registering such Warrants or
the Common Stock underlying such Warrants pursuant to the registration statement
of which this prospectus is a part.
Cheniere has issued and outstanding 141,666 and 2/3 warrants
(collectively, the "June Warrants"), each of which entitles the registered
holder thereof to purchase one share of Common Stock. The June Warrants are
exercisable at any time on or before June 14, 1999, at an exercise price of
$3.00 per share (subject to customary anti-dilution adjustments). The June
Warrants were originally issued by Cheniere Operating and were converted to
warrants of Cheniere following the Reorganization. The June Warrants were issued
to a group of 11 investors in connection with a private placement of unsecured
promissory notes of Cheniere Operating in the aggregate principal amount of
$425,000. In connection with the payment of an additional promissory note to one
such investor, Cheniere has issued to such investor an additional warrant to
purchase 64,500 shares of the Common Stock (on terms similar to the June
Warrants) which expires on June 14, 1999. (See "Management Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.")
In consideration of certain investment advisory and other services to
the Company, pursuant to warrant agreements each dated as of August 21, 1996,
Cheniere issued to C.M. Blair, W.M. Foster & Co., Inc. and Redliw Corp.
warrants to purchase 13,600 and 54,400 shares of Common Stock, respectively
(collectively the "Adviser Warrants"). The Adviser Warrants are exercisable at
any time on or before May 15, 1999 at an exercise price of $3.00 per share
(subject to customary anti-dilution adjustments).
In connection with the July and August 1996 placement of 508,400 shares
of the Common Stock pursuant to Regulation S promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), Cheniere issued warrants to
purchase 12,500 shares of Common Stock to one of two distributors who placed the
shares. Such warrants are exercisable on
28
<PAGE>
or before the second anniversary of the sale of the shares of Common Stock at an
exercise price of $3.125 per share (subject to customary anti-dilution
adjustments).
In late August 1996, Cheniere sold 100,000 units pursuant to
Regulation S, each such unit consisting of 5 shares of the Common Stock and a
warrant to purchase one share of the Common Stock. Each such warrant is
exercisable on or before September 1, 1999 at an exercise price of $3.125 per
share (subject to customary anti-dilution adjustments).
The Warrants do not confer upon the holders thereof any voting or other
rights of a stockholder of Cheniere.
POSSIBLE ANTI-TAKEOVER PROVISIONS
The Amended and Restated Certificate of Incorporation of Cheniere
(the "Charter") contains certain provisions that might be
characterized as anti-takeover provisions. Such provisions may render more
difficult certain possible takeover proposals to acquire control of Cheniere
and make removal of management of Cheniere more difficult.
As described above, the Charter authorizes a class of
undesignated Preferred Stock consisting of 1,000,000 shares. Preferred Stock may
be issued from time to time in one or more series, and the Board of Directors,
without further approval of the stockholders, is authorized to fix the rights,
preferences, privileges and restrictions applicable to each series of Preferred
Stock. The purpose of authorizing the Board of Directors to determine such
rights, preferences, privileges and restrictions is to eliminate delays
associated with a stockholder vote on specific issuances. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to gain control of
Cheniere.
Cheniere is incorporated under the laws of the State of Delaware.
Section 203 of the Delaware General Corporation Law prevents an "interested
stockholder" (defined as a stockholder owning 15 percent or more of a
corporation's voting stock) from engaging in a business combination with such
corporation for a period of three years from the time such stockholder became an
interested stockholder unless (a) the corporation's board of directors had
earlier approved either the business combination or the transaction by which the
stockholder became an interested stockholder, or (b) upon attaining that status,
the interested stockholder had acquired at least 85 percent of the corporation's
voting stock (not counting shares owned by persons who are directors and also
officers), or (c) the business combination is later approved by the board of
directors and authorized by a vote of two-thirds of the stockholders (not
including the shares held by the interested stockholder). Although Cheniere is
not currently subject to Section 203, Cheniere has applied for listing on the
Nasdaq SmallCap Market. See "The Company". If and when Cheniere becomes so
listed, and if Cheniere does not amend its Certificate of Incorporation or By-
laws to exclude the application of Section 203, such section will apply to
Cheniere and thus may inhibit an interested stockholder's ability to acquire
additional shares of Common Stock or otherwise engage in a business combination
with Cheniere.
In addition, William D. Forster, President and Chief Executive Officer
of Cheniere, and BSR Investments, Ltd. ("BSR"), an entity under the control of a
member of the immediate family of Charif Souki, Chairman of the Board of
Directors and Secretary of Cheniere, own in the aggregate approximately 43.1% of
the outstanding shares of the Common Stock. Accordingly, it is likely that Mr.
Forster and BSR will have the ability to effectively prevent or cause a change
in control of Cheniere.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and registrar for the Common Stock is U.S. Stock
Transfer Corporation.
29
<PAGE>
SELLING STOCKHOLDERS
The Registration Statement has been filed under the Securities Act of
1933, as amended (the "Securities Act") to afford the holders of the Common
Stock listed in the table below (in such capacity, the "Selling Stockholders")
the opportunity to sell such Common Stock in a public transaction. Cheniere
will from time to time supplement or amend this Prospectus to (i) add any holder
of the Common Stock or (ii) reflect any additional required information
concerning any Selling Stockholders or concerning any transfers other than an
open market transfer effected through a broker.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
on the Date Hereof After Sale*
-------------------- --------------------
<S> <C> <C> <C> <C> <C>
Number of Percent of Number of Shares Number of Percent of
Name Shares Class to be Offered Shares Class
- ---- --------- ---------- ---------------- --------- ----------
Dennis L. Adams 50,000 ** 50,000 0 0
Bemel & Ross Profit Sharing 10,000 ** 10,000 0 0
Robert Bowden 10,000 ** 10,000 0 0
Martin Brander 15,000 ** 15,000 0 0
Jacqueline B. Brandwynne 100,000 ** 100,000 0 0
Cinco de Mayo, Ltd. 30,000 ** 30,000 0 0
Ronald W. Cochran 20,000 ** 20,000 0 0
Joseph F. Cullman III 200,000 1.7 200,000 0 0
Murray A. Decoteau, DDS 100,000 ** 100,000 0 0
Peter T. Dixon, Trustee for U/Art 35,000 ** 35,000 0 0
16 u/w for W. Palmer Dixon FBO
Peter Dixon
Peter T. Dixon, Trustee for U/Art 35,000 ** 35,000 0 0
16 u/w for W. Palmer Dixon FBO
Palmer Dixon
East End Associates, Inc. 66,666 ** 66,666 0 0
Bryan Ezralow TTEE of the Bryan 30,000 ** 30,000 0 0
Ezralow 1994 Trust
Marc Ezralow 30,000 ** 30,000 0 0
Marshall Ezralow TTEE of the 40,000 ** 40,000 0 0
Ezralow Family Trust
Allen Finkelstein 30,000 ** 30,000 0 0
Gail Daly Forster/1/ 120,000 1.0 120,000 0 0
Gail Daly Forster and John 100,000 ** 100,000 0 0
Marshall Forster TTEEs u/a 8/22/78
by William H. Forster/2/
William Forster Family Trust/3/ 120,000 1.0 120,000 0 0
Giorgio Tiberio Gallizio
Revocable Trust dated
June 21, 1991 13,500 ** 13,500 0 0
Giovanni Enos Gallizio 12,000 ** 12,000 0 0
Giovanni R. Galizio
Revocable Trust dated
June 14, 1991 20,000 ** 20,000 0 0
Stephen B. Goot 13,000 ** 13,000 0 0
Ralph O. Hellmold 20,000 ** 20,000 0 0
Beth Hoemke 20,000 ** 20,000 0 0
Brendan Hughes 25,000 ** 25,000 0 0
Kim W. Johnston, M.D. 22,222.22 ** 22,222.22 0 0
Sandra J. Kessler 66,000 ** 66,000 0 0
Sole and Separate Property
Ted Koutsoubos 50,000 ** 50,000 0 0
Carolyn Leemon 12,750 ** 12,750 0 0
Howard Leemon, DDS, PC
Defined Benefits
Pension Plan 32,500 ** 32,500 0 0
Andrew Lessman 50,000 ** 50,000 0 0
Richard B. Liipfert 11,111.11 ** 11,111.11 0 0
Michael Marcus 40,000 ** 40,000 0 0
Alan, Mark & Charlen J. Mark 3,000 ** 3,000 0 0
Arden Merback 9,000 ** 9,000 0 0
Eli Moshen 11,000 ** 11,000 0 0
John S. Neel, Jr. 11,111.11 ** 11,111.11 0 0
Ostis Ventures, Ltd. 144,211 1.2 144,211 0 0
Brooke A. Peterson 20,000 ** 20,000 0 0
Pierre Phillippine 21,000 ** 21,000 0 0
Joe Rivera 12,500 ** 12,500 0 0
Joe Sam Robinson, Jr., M.D. 111,111 ** 111,111 0 0
Bert Rogel, Esq. in trust for 90,000 ** 90,000 0 0
Estate of Sharon Heinz Tingle
Ofer Shabtai 24,000 ** 24,000 0 0
Hugh F. Smisson, III, M.D. 55,555.56 ** 55,555.56 0 0
Lawanna R. Smisson 11,111.11 ** 11,111.11 0 0
Alan Sturm 180,000 1.5 180,000 0 0
Fred Sturm 10,500 ** 10,500 0 0
Gisela Sturm 25,000 ** 25,000 0 0
Diana Venegas 20,000 ** 20,000 0 0
Vivaldi, Ltd. 120,000 1.0 120,000 0 0
Michael J. Wagstaff 2,500 ** 2,500 0 0
Wallington Investments, Ltd. 200,000 1.7 200,000 0 0
Whittier Energy Company 20,000 ** 20,000 0 0
Stephen S. Wien 50,000 ** 50,000 0 0
</TABLE>
___________________________
* Assumes the sale of all shares of the Common Stock being offered by
the registration statement of which this Prospectus is a part.
** Less than 1%
(1) Gail Daly Forster is the mother of William D. Forster, President, Chief
Executive Officer and a director of Cheniere.
(2) Gail Daly Forster and John Marshall Forster TTEEs u/a 8/22/78 by William
H. Forster is a trust for the benefit of Mr. Forster's mother of which
trust Mr. Foster ia a 20% remainderman. Mr. Foster disclaims beneficial
ownership of the shares of the Common Stock held by such trust.
(3) The William Forster Family Trust is a trust for the benefit of the
descendants of Mr. Forster's father. Mr. Forster disclaims beneficial
ownership of the shares of Common Stock held by such trust.
Cheniere has agreed, among other things, to bear all expenses (other
than underwriting discounts and commissions, fees and expenses of investment
bankers and brokerage commissions) incurred in connection with the registration
and sale of the Common Stock covered by this Prospectus, including, without
limitation, all registration, listing and qualification fees, printers and
accounting fees and fees and disbursements of counsel to Cheniere.
30
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
ownership of the Common Stock, of: (i) each person known by Cheniere to own
beneficially five percent or more of the outstanding Common Stock immediately
prior to the offering; (ii) each of Cheniere's directors; (iii) each of the
executive officers of Cheniere; and (iv) all directors and executive officers
of Cheniere as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO
THE OFFERING
----------------------------------
NAME OF BENEFICIAL OWNER PERCENTAGE
------------------------ OF SHARES
NUMBER OUTSTANDING
------ -----------
<S> <C> <C>
William D. Forster 2,846,211/(1)/ 22.5%
BSR Investments, Ltd. 2,602,000 20.6%
Charif Souki 0/(2)/
Walter L. Williams 30,000/(3)/ .2%
Keith F. Carney 0/(3)/ -
Efrem Zimbalist III 20,000 .2%
All directors and executive officers as a group (5 persons).. 2,896,211/(1)/(2)/ 22.9%
</TABLE>
(1) Does not include 100,000 shares held by a trust for the benefit of
Mr. Forster's mother of which trust Mr. Forster is a 20%
remainderman and of which shares he disclaims beneficial ownership.
(2) Does not include 2,602,000 shares held by BSR Investments, Ltd., an
entity under the control of a member of Mr. Souki's immediate
family, of which shares Mr. Souki disclaims beneficial ownership.
(3) Does not include 150,000 shares of the Common Stock issuable upon
the exercise of options, not exercisable within 60 days of the date
of this Prospectus, held by each of Mr. Williams and Mr. Carney.
PLAN OF DISTRIBUTION
The shares of the Common Stock offered hereby are being offered directly
by the Selling Stockholders. The sale of the Common Stock may be effected by the
Selling Stockholders from time to time in transactions in the over-the-counter
market, in negotiated transactions or a combination of such methods of sale, in
each such case, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices,
or at negotiated prices. The Selling Stockholders may effect such transactions
by selling Common Stock to or through broker-dealers, and such broker-dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from Selling Stockholders and/or purchasers of Common Stock for whom
such broker-dealers may act as agents or to whom they sell as principals, or
both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). Cheniere will keep this Registration Statement or a
similar registration statement effective until the earliest to occur of (i) the
date that all securities registered pursuant to the Registration Statement of
which this Prospectus is a part have been disposed of in accordance with the
plan of disposition indicated herein, (ii) the date that all securities
registered pursuant to the Registration Statement of which this Prospectus is a
part have become eligible for sale pursuant to Rule 144(k) under the Securities
Act, or (iii) with respect to 2,844,211 of the shares of the Common Stock being
offered pursuant to this Prospectus, September 17, 1998, and with respect to an
additional 839,639 shares of the Common Stock being offered pursuant to this
Prospectus, March 13, 1999.
At the time a particular offer of the Common Stock is made, to the
extent required, a supplemental Prospectus will be distributed which will set
forth the number of shares of the Common Stock being offered and the terms of
the offering including the name or names of any underwriters, dealers or agents,
the purchase price paid by any underwriter for the Common Stock purchased from
the Selling Stockholders,
31
<PAGE>
any discounts, commissions and other items constituting compensation from the
Selling Stockholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
In order to comply with certain state securities laws, if applicable,
the Common Stock will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the Common Stock may
not be sold unless the Common Stock has been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with by Cheniere and the Selling
Stockholder.
The Selling Stockholders and any brokers-dealers, agents or underwriters
that participate with Selling Stockholders in the distribution of Common Stock
may be deemed to be "underwriters" as defined in the Securities Act in which
event all brokerage commissions or discounts and other compensation received by
such Selling Stockholders, broker-dealers, agents or underwriters may be deemed
underwriting compensation under the Securities Act. In addition, any of the
shares of Common Stock that qualify for sale pursuant to Rule 144 may be sold
under Rule 144 rather than pursuant to this Prospectus.
Under applicable rules and regulations under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), any person engaged in the distribution
of the Common Stock may not simultaneously engage in market making activities
with respect to Cheniere for a period of nine business days prior to the
commencement of such distribution. In addition and without limiting the
foregoing, the Selling Stockholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of shares of Common Stock by the Selling Stockholders.
Cheniere agreed to register the Common Stock under the Securities Act
and to indemnify and hold the Selling Stockholders harmless against certain
liabilities under the Securities Act that could arise in connection with the
sale by the Selling Stockholders of the Common Stock.
See "Selling Stockholders".
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for Cheniere by Dewey Ballantine, New York, New
York.
EXPERTS
The audited financial statements of Cheniere included in this
prospectus and elsewhere in the registration statement, to the extent and for
the periods indicated in their reports, have been audited by Merdinger,
Fruchter, Rosen & Corso, P.C., independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The audited financial statements of Bexy Communications, Inc. included
in this Prospectus and elsewhere in the registration statement, to the extent
and for the periods indicated in their reports, have been audited by Farber &
Hass, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
32
<PAGE>
AVAILABLE INFORMATION
Cheniere is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information filed by Cheniere with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, New York, New York 10048 and the
Northwestern Atrium Center, 500 West Madison Street, Room 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
CHENIERE ENERGY, INC. AND SUBSIDIARY
- ------------------------------------
For the Fiscal Year Ended August 31, 1996
- -----------------------------------------
Independent Auditors' Report F-1
Consolidated Balance Sheet F-2
Consolidated Statement of Operations F-3
Consolidated Statement of Stockholders' Equity F-4
Consolidated Statement of Cash Flows F-5
Notes to Consolidated Financial Statements F-7
For the Three Months Ended November 30, 1996
- --------------------------------------------
Consolidated Balance Sheet (Unaudited) F-14
Consolidated Statement of Operations (Unaudited) F-15
Consolidated Statement of Stockholders'
Equity (Unaudited) F-16
Consolidated Statement of Cash Flows (Unaudited) F-17
Notes to Consolidated Financial Statements
(Unaudited) F-18
For the Six Months Ended February 28, 1997
- -------------------------------------------
Consolidated Balance Sheet (Unaudited) F-21
Consolidated Statement of Operations (Unaudited) F-22
Consolidated Statement of Cash Flows (Unaudited) F-23
Consolidated Statement of Stockholder's
Equity (Unaudited) F-24
Notes to Consolidated Financial Statements F-25
BEXY COMMUNICATIONS, INC.
- -------------------------
Unaudited Balance Sheet - May 31, 1996 F-29
Statement of Operations F-30
Statement of Cash Flows F-31
Notes to Financial Statements F-32
Independent Auditors' Report - August 31, 1994 F-33
Balance Sheet F-34
Statement of Operations F-35
Statement of Shareholders' Equity F-36
Statement of Cash Flows F-38
Notes to Financial Statements F-40
Independent Auditors' Report - October 24, 1994 F-43
Balance Sheet F-44
Statements of Operations F-45
Statements of Shareholders' Equity F-46
Statements of Cash Flows F-47
Notes to Financial Statements F-49
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CHENIERE ENERGY, INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheet of CHENIERE ENERGY,
INC. AND SUBSIDIARY as of August 31, 1996 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CHENIERE ENERGY,
INC. AND SUBSIDIARY as of August 31, 1996 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C
Certified Public Accountants
New York, New York
September 16, 1996
F-1
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,093,180
Prepaid Expenses 4,800
-----------
TOTAL CURRENT ASSETS 1,097,980
-----------
PROPERTY AND EQUIPMENT, NET 46,830
-----------
OTHER ASSETS
Investment 4,000,000
Security Deposit 500
-----------
TOTAL OTHER ASSETS 4,000,500
-----------
TOTAL ASSETS $ 5,145,310
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 275,975
Accrued Expenses and Taxes Payable 16,929
Loans Payable 425,000
Advance from Officers 961
-----------
TOTAL LIABILITIES 718,855
-----------
STOCKHOLDERS' EQUITY
Common Stock--$.003 Par Value
Authorized 20,000,000 shares;
9,931,767 Issued and Outstanding 29,795
Preferred Stock - Authorized
1,000,000 shares; None Issued
and Outstanding. --
Additional Paid-in-Capital 5,626,840
Retained Deficit (1,230,180)
-----------
TOTAL STOCKHOLDERS' EQUITY 4,426,455
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,145,310
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Revenue $ --
General and Administrative Expenses 73,814
Interest Expense 7,083
----------
Loss from Operations Before Other Income (80,897)
Interest Income 1,800
----------
Loss From Continuing Operations Before Income Taxes (79,097)
Provision for Income Taxes --
----------
Loss From Continuing Operations (79,097)
----------
Discontinued Operations
Loss From operations of discontinued
business (less applicable income taxes
of $0) (149,080)
Loss on disposal of business (less
applicable income taxes of $0) (58,642)
----------
Loss From Discontinued Operations (207,722)
---------
Net Loss $ (286,819)
==========
Loss Per Share $ (.03)
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
Common Stock Additional Notes Total
------------------------- Paid-In Retained Receivable Stockholders'
Shares Amount Capital Deficit Stockholders Equity
------------- ---------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - September 1, 1995 1,558,947 $ 133,654 $ 992,831 $( 943,361) $(46,674) $ 136,450
Sales of Shares - Prior to
Reorganization 244,512 13,750 123,750 - - 137,500
Exchange of Shares - Due to
Reverse Split (1,202,514) (145,601) 145,601 - - -
Sale of Shares - At Time of
and Subsequent to the
Reorganization 9,330,822 27,992 5,087,011 - - 5,115,003
Expenses Related
to Offering - - ( 609,451) - - ( 609,451)
Repayment of Receivable - - - - 16,439 16,439
Distribution of Net Assets - - ( 112,902) - 30,235 ( 82,667)
Net Loss - - - ( 286,819) - ( 286,819)
------------ --------- ---------- ----------- ------------- ----------
Balance - August 31, 1996 9,931,767 $ 29,795 $5,626,840 $(1,230,180) $ - $4,426,455
============ ========= ========== =========== ============= ==========
</TABLE>
The accompanying notes are an integral part of this report.
F-4
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (286,819)
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operating Activities:
Depreciation 4,503
(Increase) in Accounts Receivable (5,600)
(Increase) in Prepaid Expenses (4,800)
Decrease in Inventory 2,700
(Increase) in Security Deposit (500)
Decrease in Other Assets 2,122
Increase in Accounts Payable 279,514
(Decrease) in Accrued Expenses and Taxes Payable 11,949
Increase in Advance from Officers 961
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,030
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture, Fixtures and Equipment (50,999)
Investment (4,000,000)
-----------
NET CASH USED BY INVESTING ACTIVITIES (4,050,999)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock 5,252,503
Offering Costs (609,451)
Proceeds of Loan 425,000
Notes Receivable 16,439
Notes Payable (7,519)
Distribution (50,957)
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,026,015
-----------
NET INCREASE IN CASH 979,046
CASH - BEGINNING OF PERIOD 114,134
-----------
CASH - AUGUST 31, 1996 $ 1,093,180
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1996
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -
Cash paid for income taxes $ -
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
During the year, the Company distributed the assets and liabilities of its
discontinued operations. The net noncash distribution was $61,945.
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1 - NATURE OF OPERATIONS
Cheniere Energy, Inc., a holding company ("Cheniere," together with Cheniere
Operating (as defined below), the "Company"), is the owner of 100% of the
outstanding common stock of Cheniere Energy Operating Co., Inc. ("Cheniere
Operating"). Cheniere Operating is a Houston-based company formed for the
purpose of oil and gas exploration and exploitation. The Company is currently
involved in a joint exploration program which is engaged in the exploration for
oil and natural gas along the Gulf Coast of Louisiana, onshore and in the
shallow waters of the Gulf of Mexico. The Company commenced its oil and gas
activities through such joint program in April 1996.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of Cheniere Energy,
Inc. and its 100% owned subsidiary, Cheniere Energy Operating Co., Inc.
Accordingly, all references herein to Cheniere Energy, Inc. or the "Company"
include the consolidated results of its subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Repairs and maintenance costs are
charged to operations as incurred. Depreciation is computed using the straight
line method calculated to amortize the cost of assets over their estimated
useful lives, generally seven years. Upon retirement or other disposition of
property and equipment the cost and related depreciation will be removed from
the accounts and the resulting gains or losses recorded.
Concentration of Credit Risk
----------------------------
The Company places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances exceed FDIC insured levels at various
times during the year.
Cash Equivalents
----------------
The Company classifies all investments with original maturities of three months
or less as cash equivalents.
Income Taxes
------------
Income taxes are provided for based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". Deferred income taxes are recorded to reflect
the tax consequences on future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-end.
F-7
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 3- PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1996 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Furniture and Fixtures $26,006
Office Equipment 24,427
-------
50,433
Less Accumulated Depreciation 3,603
-------
Property and Equipment - Net $46,830
=======
</TABLE>
NOTE 4 - REORGANIZATION
--------------
On July 3, 1996 Cheniere Operating consummated the transactions (the
"Reorganization") contemplated in the Agreement and Plan or Reorganization (the
"Reorganization Agreement") dated April 16, 1996 between Cheniere Operating and
Bexy Communications, Inc., a publicly held Delaware corporation ("Bexy").
Under the terms of the Reorganization Agreement, Bexy transferred its existing
assets and liabilities to Mar Ventures, Inc., its wholly-owned subsidiary ("Mar
Ventures"), Bexy received 100% of the outstanding shares of Cheniere Operating
and the former shareholders of Cheniere Operating received approximately 8.3
million newly issued shares of Bexy common stock, representing 93% of the then
issued and outstanding Bexy shares. Immediately following the Reorganization,
the Original Bexy Stockholders held the remaining 7% of the outstanding Bexy
stock. In accordance with the terms of the Reorganization Agreement, Bexy
changed its name to Cheniere Energy, Inc. Subsequently, the Company
distributed the outstanding capital stock of Mar Ventures to the original
holders of Bexy common stock.
NOTE 5 - INVESTMENT IN JOINT VENTURE
---------------------------
The Company has entered into a joint exploration program pursuant to an
Exploration Agreement between the Company and Zydeco Exploration, Inc.
("Zydeco"), an operating subsidiary of Zydeco Energy, Inc. (the "Exploration
Agreement"), with regard to a new proprietary 3-D seismic exploration project
in southern Louisiana (the "3-D Joint Venture"). The Company has the right to
earn up to a 50% participation in the 3-D Joint Venture. The Company believes
that the 3-D seismic survey (the "Survey") is the first of its size within the
Transition Zone of Louisiana, an area extending a few miles on either side of
the Louisiana State coastline.
F-8
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 5 - INVESTMENT IN JOINT VENTURE (CONTINUED)
---------------------------------------
The Survey is to be conducted over certain areas located within a total area of
approximately 255 square miles running 5 miles south and generally 3 to 5 miles
north of the coastline in the most westerly 28 miles of West Cameron Parish,
Louisiana (the "Survey AMI"). The 3-D Joint Venture does not currently have
rights to survey the entire Survey AMI and the extent of the Survey AMI which
the 3-D Joint Venture will be entitled to survey is dependent upon its ability
to obtain survey permits and similar rights. Currently, the 3-D Joint Venture
has permits and similar rights to survey approximately 67% of the Survey AMI
and is attempting to acquire rights to Survey additional portions of the Survey
AMI. There is no assurance that the 3-D Joint Venture will successfully obtain
rights to survey additional portions of the Survey AMI, nor that it will be
successful in acquiring farmouts, lease options (other than those already
obtained), leases, or other rights to explore or recover oil and gas.
Under the terms of the Exploration Agreement, the Company is required to make
monthly payments to the 3-D Joint Venture aggregating, at least, $13 million.
The Company's potential participation in the 3-D Joint Venture could be
significantly reduced in the event of a failure by the Company to make such
required monthly payments when due.
NOTE 6 - NOTES PAYABLE
-------------
In June 1996, Cheniere Operating borrowed $425,000 through a private placement
of short term promissory notes with an initial interest rate of 8% (the
"Notes"). The Notes are due on September 14, 1996 (the "Maturity Date"). In
connection with the placement of the Notes, Cheniere Operating issued warrants,
which, following the Reorganization, were exchanged for an aggregate of 141,666
and 2/3 warrants to purchase shares of the Common Stock, to the holders of the
Notes (the "Noteholders"), each of which warrants entitles the holder to
purchase one share of the Common Stock at an exercise price of $3.00 per share
at any time on or before June 14, 1999. A failure by the Company to pay all
amounts due and payable under the Notes by the Maturity date constitutes an
event of default thereunder. In such an event of default, the interest rate
applicable to any outstanding Notes would increase to 13%. In addition, the
holders of such outstanding Notes would be entitled to receive up to an
aggregate of 42,500 additional warrants (on similar terms) for each month, or
partial month, any amounts remain due and payable following the Maturity date,
up to a maximum aggregate number of 170,000 such additional warrants. The
proceeds from the placement of the Notes were applied toward professional
expenses and used for working capital.
NOTE 7- INCOME TAXES
------------
At August 31, 1996, the Company had net carryforward losses of approximately
$1,020,000. A valuation allowance equal to the tax benefit for deferred taxes
has been established due to the uncertainty of realizing the benefit of the tax
carryforward.
F-9
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 7- INCOME TAXES (CONTINUED)
-----------------------
Deferred tax assets and liabilities reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities at August 31,
1996 are as follows:
Deferred Tax Assets
Loss Carryforwards $ 347,000
Less: Valuation Allowance (347,000)
----------
Net Deferred Tax Assets $ -
==========
Net operating loss carryforwards expire starting in 2006 through 2011. Per
year availability is subject to change of ownership limitations under Internal
Revenue Code Section 382.
NOTE 8 - WARRANTS
--------
The Company has issued and outstanding certain warrants described herein.
The Company has issued and outstanding 141,666 and 2/3 warrants (collectively,
the "June Warrants"), each of which entitles the registered holder thereof to
purchase one share of Common Stock. The June Warrants are exercisable at any
time on or before June 14, 1999, at an exercise price of $3.00 per share
(subject to customary anti-dilution adjustments). The June Warrants were
originally issued by Cheniere Operating and were converted to warrants of
Cheniere following the Reorganization. The June Warrants were issued to a
group of 11 investors in connection with a private placement of unsecured
promissory notes of Cheniere Operating in the aggregate principal amount of
$425,000. The notes mature on September 14, 1996 (the "Maturity Date"). In
the event that the Company fails to pay all amounts due and payable under the
Notes by the Maturity Date, in addition to an increase in the applicable
interest rate, the holders of any outstanding Notes would be entitled to
receive up to an aggregate of 42,500 additional warrants (on similar terms) for
each month, or partial month, any amounts remain due and payable following the
Maturity Date, up to a maximum aggregate number of 170,000 such additional
warrants.
In consideration of certain investment advisory and other services to the
Company, pursuant to warrant agreements each dated as of August 21, 1996, the
Company issued warrants to purchase 13,600 and 54,400 shares of Common Stock,
(collectively the "Adviser Warrants"). The Adviser Warrants are exercisable at
any time on or before May 15, 1999 at an exercise price of $3.00 per share
(subject to customary anti-dilution adjustments).
F-10
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 8- WARRANTS (CONTINUED)
--------------------
In connection with the July and August 1996 placement of 508,400 shares of
Common Stock, the Company agreed to issue warrants to purchase 12,500 shares of
Common Stock to one of two distributors who placed the shares. Such warrants
are exercisable on or before the second anniversary of the sale of the shares
of Common Stock at an exercise price of $3.125 per share (subject to customary
anti-dilution adjustments).
In late August 1996, the Company sold 100,000 units, each such unit consisting
of 5 shares of Common Stock and a warrant to purchase one share of Common
Stock. Each such warrant is exercisable on or before September 1, 1999 at an
exercise price of $3.125 per share (subject to customary anti-dilution
adjustments).
The Warrants do not confer upon the holders thereof any voting or other rights
of a stockholder of the Company.
NOTE 9- STOCK OPTIONS
-------------
The Company has granted certain options to purchase shares of Common Stock to 2
executives. Such options aggregate 300,000 shares at an exercise price of
$3.00 per share. The options vest and are exercisable as follows:
1) 75,000 options vest and become exercisable on June 1, 1997 and expire
June 1, 2001.
2) 75,000 options vest and become exercisable on June 1, 1998 and expire June
1, 2001.
3) 150,000 options vest and become exercisable in equal annual installments of
25% each on the first through fourth anniversary of July 16, 1996 and
expire July 16, 2001.
In addition, the Company has granted options to the former President of the
Company. The holder has the option to acquire 19,444 and 2/3 shares of
Common Stock at an exercise price of $1.80 per share. The options expire
November 11, 2003.
NOTE 10- COMMON STOCK RESERVED
---------------------
The Company has reserved 322,166 and 2/3 share of Common Stock for insurance
upon the exercise of outstanding warrants (See Note 8).
The Company has reserved 319,444 and 2/3 shares of Common Shares for insurance
upon the exercise of outstanding options (See Note 9).
F-11
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 11- DISCONTINUED OPERATIONS
-----------------------
As of March 1, 1996, the Company decided to discontinue its then present
operations in the television productions and health information business. The
assets and liabilities relating to the discontinued operations were distributed
on July 3, 1996. No assets or liabilities from the discontinued operations are
included in the consolidated balance sheet as of August 31, 1996.
Revenues, related losses and income tax benefit associated with the
discontinued business are as follows:
For the period September 1, 1995 to February 29, 1996:
Revenue $ 42,258
=========
Loss From Operations (Net of Income
Tax Benefit of $0) $(149,080)
=========
For the period March 1, 1996 to July 3, 1996:
Revenue $ 7,500
=========
Loss on Disposal (Net of Income tax
Benefit of $0) $ (58,642)
=========
The Loss on Disposal consists of the loss from operations during the period of
disposal.
NOTE 12- COMMITMENTS AND CONTINGENCIES
-----------------------------
1) The Company subleases its Houston, Texas headquarters from Zydeco under a
month-to-month sublease.
2) On July 26, 1996, the Company signed a Letter of Intent with Poseidon
Petroleum, LLC ("Poseidon") to purchase Poseidon's 47% working interest in
undeveloped reserves in the Bonito unit of the Pacific Outer Continental
Shelf, offshore Santa Barbara County, California. The parties are
conducting due diligence and are negotiating a definitive purchase and sale
agreement and related documentation. The transactions contemplated in the
Letter of Intent may be terminated by either party upon the occurrence of
certain events and there can be no assurance that the Company will
successfully consummate such transactions. Moreover, if such transactions
are consummated, the Company expects that development of the reserves will
not occur for at least five years. There can be no assurance that the
Company will successfully develop the reserves or that the reserves will
yield sufficient quantities of oil and gas to be economically viable.
F-12
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 13 - SUBSEQUENT EVENTS
-----------------
Effective as of September 14, 1996, certain of the note holders described in
Note 6 converted their notes into common stock at a price of $2 per share. As
a result, 105,000 shares were issued to retire $210,000 of notes.
In addition, an individual note holder has purchased the promissory notes of
the remaining note holders. The holder thus holds notes totaling $215,000. As
per the terms of the notes, the interest rate on these outstanding notes has
increased to 13% per annum, effective September 14, 1996. The holder of the
notes is also entitled to receive up to an aggregate of 21,500 additional
warrants (as described in Note 6) for each month, or partial month, any amounts
remain due and payable after September 14, 1996, up to a maximum aggregate
number of 86,000 such additional warrants.
F-13
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
ASSETS 1996 1996
------------ ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 324,550 $ 1,093,180
Prepaid Expenses and Other Current Assets 6,622 4,800
----------- -----------
TOTAL CURRENT ASSETS 331,172 1,097,980
----------- -----------
PROPERTY AND EQUIPMENT, NET 50,988 46,830
----------- -----------
OTHER ASSETS
Investment 6,000,000 4,000,000
Security Deposit 500 500
----------- -----------
TOTAL OTHER ASSETS 6,000,500 4,000,500
----------- -----------
TOTAL ASSETS $ 6,382,660 $ 5,145,310
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 374,184 $ 292,894
Loans Payable 215,000 425,000
Advances for Issuance of Common Stock 384,985 --
Advance from Officers 961 961
----------- -----------
TOTAL LIABILITIES 975,130 718,855
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock - $.003 Par Value
Authorized 20,000,000 shares; 10,624,794 and 9,931,767
Issued and Outstanding at November 30, 1996 and
August 31, 1996, respectively 31,875 29,795
Preferred Stock - Authorized 1,000,000 shares;
None Issued and Outstanding -- --
Additional Paid-in-Capital 6,757,501 5,626,840
Retained Deficit (1,381,846) (1,230,180)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,407,530 4,426,455
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,382,660 $ 5,145,310
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-14
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
November 30,
1996 1995
------------- -------------
<S> <C> <C>
Revenue $ - $ 2,522
----------- ----------
General and Administrative Expenses 145,928 82,614
Interest Expense 7,239 -
----------- ----------
153,167 82,614
----------- ----------
Loss from Operations Before Other Income (153,167) (80,092)
Interest Income 1,501 606
----------- ----------
Loss From Continuing Operations Before
Income Taxes (151,666) (79,486)
Provisions for Income Taxes - -
----------- ----------
Net Loss $ (151,666) $ (79,486)
=========== ==========
Loss Per Share $ (.01) $ (.03)
=========== ==========
Weighted Average Number of Shares
Outstanding 10,310,670 1,659,203
=========== ==========
</TABLE>
See Accompanying Notes to Financial Statements.
F-15
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
<TABLE>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance - September 1, 1996 9,931,767 $29,795 $5,626,840 $(1,230,180) $4,426,455
Sales of Shares 588,027 1,765 1,288,736 - 1,290,501
Conversion of Debt 105,000 315 209,685 - 210,000
Expenses Related to Offering - - (367,760) - (367,760)
Net Loss - - - (151,666) (151,666)
---------- ------- ---------- ----------- ----------
Balance - November 30, 1996 10,624,794 $31,875 $6,757,501 $(1,381,846) $5,407,530
========== ======= ========== =========== ==========
</TABLE>
See Accompanying Notes to Financial Statements.
F-16
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (151,166)
Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Depreciation 2,023
(Increase) in Prepaid Expenses and Other
Current Assets (1,822)
Increase in Accounts Payable and Accrued Expenses 81,290
-----------
NET CASH USED BY OPERATING ACTIVITIES (70,175)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture, Fixtures and Equipment (6,180)
Investment (2,000,000)
-----------
NET CASH USED BY INVESTING ACTIVITIES (2,006,180)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock 1,290,500
Offering Costs (367,760)
Advances for Issuance of Common Stock 384,985
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,307,725
-----------
NET DECREASE IN CASH (768,630)
CASH - BEGINNING OF YEAR 1,093,180
-----------
CASH - NOVEMBER 30, 1996 $ 324,550
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 8,570
===========
Cash Paid for Income Taxes $ -
===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL
ACTIVITIES:
Common stock totalling 105,000 shares was
issued upon the conversion of $210,000 of
debt.
</TABLE>
See Accompanying Notes to Financial Statements.
F-17
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
---------------------------------
a) Basis of Presentation
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-Q. 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 recurrring 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-K
for the year ended August 31, 1996.
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, 1997.
The accompanying consolidated financial statements include the
accounts of Cheniere Energy, Inc. ("The Company") and its 100%
owned subsidiary, Cheniere Energy Operating Co., Inc. ("Cheniere
Operating"). Accordingly, all references herein to Cheniere Energy,
Inc. or the "Company" include the consolidated results of its
subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation.
b) Loss Per Share
Loss per share is based on the weighted average number of shares of
common stock outstanding during the period.
NOTE 2 - WARRANTS
--------
The Company has issued and outstanding certain warrants described
herein.
The Company has issued and outstanding 141,666 and 2/3 warrants
(collectively, the "June Warrants"), each of which entitles the
registered holder thereof to purchase one share of Common Stock. The
June Warrants are exercisable at any time on or before June 14, 1999,
at an exercise price of $3.00 per share (subject to customary anti-
dilution adjustments). The June Warrants were originally issued by
Cheniere Operating and were converted to warrants of Cheniere following
the Reorganization. The June Warrants were issued to a group of 11
investors in connection with a private placement of unsecured
promissory notes.
Effective September 14, 1996, the Company failed to pay all amounts
due and payable under the Notes by the Maturity Date. Certain of the
noteholders converted their notes into 105,000 shares of common stock.
An individual note holder has purchased the promissory notes of the
remaining note holders. As per the terms of the notes, the holder is
also entitled to receive up to an aggregate of 21,500 additional
warrants for each month, or partial month, any amounts remain due and
payable after September 14, 1996, up to a maximum aggregate number of
86,000 such additional warrants. (See Note 6 - Subsequent Events).
In consideration of certain investment advisory and other services to
the Company, pursuant to warrant agreements each dated as of August 21,
1996, the Company issued warrants to purchase 13,600 and 54,400
F-18
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
shares of Common Stock, (collectively the "Adviser Warrants"). The Adviser
Warrants are exercisable at any time on or before May 15, 1999 at an exercise
price of $3.00 per share (subject to customary anti-dilution adjustments).
NOTE 2-WARRANTS (CONTINUED)
--------
In connection with the July and August 1996 placement of 508,400 shares of
Common Stock, the Company issued warrants to purchase 12,500 shares of Common
Stock to one of two distributors who placed the shares. Such warrants are
exercisable on or before the second anniversary of the sale of the shares of
Common Stock at an exercise price of $3.125 per share (subject to customary
anti-dilution adjustments).
In late August 1996, the Company sold 100,000 units, each such unit
consisting of 5 shares of Common Stock and a warrant to purchase one share of
Common Stock. Each such warrant is exercisable on or before September 1, 1999
at an exercise price of $3.125 per share (subject to customary anti-dilution
adjustments).
The Warrants do not confer upon the holders thereof any voting or other
rights of a stockholder of the Company.
NOTE 3-STOCK OPTIONS
-------------
The Company has granted certain options to purchase shares of Common Stock to
2 executives. Such options aggregate 300,000 shares at an exercise price of
$3.00 per share. The options vest and are exercisable as follows:
1) 75,000 options vest and become exercisable on June 1, 1997 and expire
June 1, 2001.
2) 75,000 options vest and become exercisable on June 1, 1998 and expire
June 1, 2001.
3) 150,000 options vest and become exercisable in equal annual installments
of 25% each on the first through fourth anniversary of July 16, 1996 and
expire July 16, 2001.
In addition, the Company has granted options to the former President of
the Company. The holder has the option to acquire 19,444 and 2/3 shares
of Common Stock at an exercise price of $1.80 per share. The options
expire November 11, 2003.
NOTE 4-COMMON STOCK RESERVED
---------------------
The Company has reserved 322,166 and 2/3 share of Common Stock for insurance
upon the exercise of outstanding warrants.
The Company has reserved 319,444 and 2/3 shares of Common Stock for insurance
upon the exercise of outstanding options.
NOTE 5-COMMITMENTS AND CONTINGENCIES
-----------------------------
1) The Company subleases its Houston, Texas headquarters from Zydeco under
a month-to-month sublease.
F-19
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 5-COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------
2) On July 26, 1996, the Company signed a Letter of Intent with Poseidon
Petroleum, LLC ("Poseidon") to purchase Poseidon's 47% working
interest in undeveloped reserves in the Bonito unit of the Pacific
Outer Continental Shelf, offshore Santa Barbara County, California.
The parties are conducting due diligence and are negotiating a
definitive purchase and sale agreement and related documentation. (See
Note 6-Subsequent Events) The transactions contemplated in the Letter
of Intent may be terminated by either party upon the occurrence of
certain events and there can be no assurance that the Company will
successfully consummate such transactions. Moreover, if such
transactions are consummated, the Company expects that development of
the reserves will not occur for at least five years. There can be no
assurance that the Company will successfully develop the reserves or
that the reserves will yield sufficient quantities of oil and gas to
be economically viable.
3) As of November 30, 1996, the Company has an investment of $6,000,000
in a 3-D seismic exploration project in south Louisiana (the "3-D
Joint Venture ") pursuant to an Exploration Agreement (the
"Exploration Agreement") between the Company and Zydeco Exploration,
Inc. ("Zydeco"). Under the terms of the Exploration Agreement, the
Company is required to make additional monthly payments aggregating,
at least, $7.5 million. The Company's potential participation in the
3-D Joint Venture could be significantly reduced in the event of a
failure by the Company to make such required monthly payments when
due.
NOTE 6-SUBSEQUENT EVENTS
-----------------
During the month of December 1996, the Company issued 1,317,721 shares of
common stock for gross proceeds of $3,169,875. Proceeds received are
intended to fund future commitments to the 3-D Joint Venture.
Certain of these proceeds aggregating $384,895 were received during the
quarter ended November 30, 1996, and were classified as Advances for
Issuance of Common Stock.
Also, on December 14, 1996, the Company repaid the $215,000 loan payable
and related accrued interest. Upon repaying the loan, the Company issued
64,500 warrants in accordance with the loan agreement.
On December 19, 1996, Cheniere Energy California, Inc. ("Cheniere
California"), a wholly-owned subsidiary of the Company, signed a Purchase
and Sale Agreement with Poseidon Petroleum, LLC ("Poseidon") to acquire
Poseidon's 60% working interest in six undeveloped leases in the Bonito
Unit of the Pacific Outer Continental Shelf (OCS) off Santa Barbara County,
California (which is equal to a 47% working interest in the Bonito Unit).
Poseidon estimates that the net proved undeveloped reserves attributable to
its interests are approximately 47 million barrels of oil equivalent. As
payment for this interest, Poseidon will receive production payments
aggregating $18,000,000 to be paid as three percent of the production
revenue from the leases being assigned. Minimum prepayments of the annual
production payment shall be made at the rate of $540,000 per year, payable
in advance. Poseidon will have a reserve report prepared with respect to
the leases which is subject to Cheniere California's acceptance. The
principal amount of the production payment and the required minimum yearly
payments are subject to adjustment based on the results of the reserve
report. Subject to the satisfaction of certain conditions, it is
anticipated that closing of the purchase will occur during the second
calendar quarter of 1997.
F-20
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
February 28, August 31,
1997 1996
------------ -----------
ASSETS
CURRENT ASSETS
Cash $ 3,843,088 $ 1,093,180
Prepaid Expenses And Other Current Assets 153,321 4,800
------------ ------------
TOTAL CURRENT ASSETS $ 3,996,409 1,097,980
------------ ------------
PROPERTY AND EQUIPMENT, NET 48,967 46,830
------------ ------------
OTHER ASSETS
Investment 7,141,745 4,000,000
Security Deposit 500 500
------------ ------------
TOTAL OTHER ASSETS 7,142,245 4,000,500
------------ ------------
TOTAL ASSETS $ 11,187,621 $ 5,145,310
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 196,776 $ 292,894
Loans Payable - 425,000
Advance from Officers - 961
Advances for Issuance of Common Stock 1,500,025 -
------------ ------------
TOTAL LIABILITIES 1,696,801 718,855
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock - $.003 Par Value
Authorized 20,000,000 shares;
12,295,462 and 9,931,767 Issued and
Outstanding at February 28, 1997 and
August 31, 1996, respectively 36,886 29,795
Preferred Stock - Authorized
1,000,000 shares; None Issued
and Outstanding
Additional Paid-in-Capital 10,982,363 5,626,840
Retained Deficit (1,528,429) (1,230,180)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,490,820 4,426,455
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 11,187,621 $ 5,145,310
============ ============
See Accompanying Notes to Financial Statements.
F-21
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
February 28, February 29, February 28, February 29,
1997 1996 1997 1996
------------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $ - $ 39,736 $ - $ 42,258
---------- ---------- ---------- ----------
General and Administrative
Expenses 165,765 110,003 311,693 192,617
Interest Expense 1,313 - 8,552 -
---------- ---------- ---------- ----------
167,078 110,003 320,245 192,617
---------- ---------- ---------- ----------
Loss from Operations Before
Other Income (167,078) (70,267) (320,245) (150,359)
Interest Income 20,495 673 21,996 1,279
---------- ---------- ---------- ----------
Loss From Operations Before
Income Taxes (146,583) (69,594) (298,249) (149,080)
Provision for Income Taxes - - - -
---------- ---------- ---------- ----------
Net Loss $ (146,583) $ (69,594) $ (298,249) $ (149,080)
========== ========== ========== ==========
Loss Per Share (.01) (.04) (.03) (.09)
========== ========== ========== ==========
Weighted Average Number of
Shares Outstanding 11,757,696 1,781,500 11,036,471 1,681,203
========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Financial Statements.
F-22
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (298,249)
Adjustments to Reconcile Net Loss to
Net Cash used by Operating Activities:
Depreciation 4,043
(Increase) in Prepaid Expenses and Other Current Assets (182,521)
Decrease in Accounts Payable and Accrued Expenses (96,118)
(Decrease) in Advance from Officers (961)
-----------
NET CASH USED BY OPERATING ACTIVITIES (539,806)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture, Fixtures and Equipment (6,180)
Investment (3,141,745)
-----------
NET CASH USED BY INVESTING ACTIVITIES (3,147,925)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Loan (215,000)
Sale of Common Stock 5,960,400
Offering Costs (661,560)
Advances for Issuance of Common Stock 1,500,025
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,437,639
-----------
NET DECREASE IN CASH 2,749,908
CASH - BEGINNING OF YEAR 1,093,180
-----------
CASH - FEBRUARY 28, 1997 $ 3,843,088
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 15,635
===========
Cash Paid for Income Taxes $ -
===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES:
Common stock totalling 105,000 shares was issued upon
the conversion of $210,000 of debt.
See Accompanying Notes to Financial Statements.
F-23
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------------------- Paid-in Retained Stockholders'
Shares Amount Capital Deficit Equity
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance - September 1, 1996 9,931,767 $ 29,795 $ 5,626,840 $ (1,230,180) $ 4,426,455
Sales of Shares 2,258,695 6,776 5,953,624 - 5,960,400
Conversion of Debt 105,000 315 209,685 - 210,000
Expenses Related to Offering - - (807,786) - (807,786)
Net Loss - - - (298,249) (298,249)
------------ ------------ ------------- ------------- -------------
Balance - February 28, 1997 12,295,462 $ 36,886 $ 10,982,363 $ (1,528,429) $ 9,490,820
============ ============ ============= ============= =============
</TABLE>
See Accompanying Notes to Financial Statements.
F-24
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
a) Basis of Presentation
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-Q. 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-K
for the year ended August 31, 1996.
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, 1997.
The accompanying consolidated financial statements include the
accounts of Cheniere Energy, Inc. ("The Company") and its 100%
owned subsidiaries, Cheniere Energy Operating Co., Inc. ("Cheniere
Operating") and Cheniere Energy California, Inc. ("Cheniere
California"). Accordingly, all references herein to Cheniere
Energy, Inc. or the "Company" include the consolidated results of
its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Loss Per Share
Loss per share is based on the weighted average number of shares of
common stock outstanding during the period.
NOTE 2 - ACQUISITIONS
On December 19, 1996, Cheniere California was incorporated.
Cheniere California is a 100% owned subsidiary of the Company.
NOTE 3 - WARRANTS
The Company has issued and outstanding certain warrants
described herein.
The Company has issued and outstanding 141,666 and 2/3 warrants
(collectively, the "June Warrants"), each of which entitles the
registered holder thereof to purchase one share of Common Stock.
The June Warrants are exercisable at any time on or before June 14,
1999, at an exercise price of $3.00 per share (subject to customary
anti-dilution adjustments). The June Warrants were originally
issued by Cheniere Operating and were converted to warrants of
Cheniere following the Reorganization. The June Warrants were
issued to a group of 11 investors in connection with a private
placement of unsecured promissory notes.
F-25
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE 3 - WARRANTS (Cont'd)
Effective September 14, 1996, the Company had not paid all amounts
due and payable under the Notes by the Maturity Date. Certain of
the noteholders converted their notes into 105,000 shares of Common
Stock.
An individual note holder purchased the promissory notes of the
remaining note holders. As per the terms of the notes, the holder
was entitled to receive up to an aggregate of 21,500 additional
warrants for each month, or partial month, any amounts that
remained due and payable after September 14, 1996, up to a maximum
aggregate number of 86,000 such additional warrants. These notes
were repaid on December 14, 1996 and, upon repayment, the Company
issued 64,500 warrants in accordance with the loan agreement. The
terms of the warrants were similar to the June Warrants.
In consideration of certain investment advisory and other services
to the Company, pursuant to warrant agreements each dated as of
August 21, 1996, the Company issued warrants to purchase 13,600 and
54,400 shares of Common Stock, (collectively the "Adviser
Warrants"). The Adviser Warrants are exercisable at any time on or
before May 15, 1999 at an exercise price of $3.00 per share
(subject to customary anti-dilution adjustments).
In connection with the July and August 1996 placement of 508,400
shares of Common Stock, the Company issued warrants to purchase
12,500 shares of Common Stock to one of two distributors who placed
the shares. Such warrants are exercisable on or before the second
anniversary of the sale of the shares of Common Stock at an
exercise price of $3.125 per share (subject to customary anti-
dilution adjustments).
In late August 1996, the Company sold 100,000 units, each such unit
consisting of 5 shares of Common Stock and a warrant to purchase
one share of Common Stock. Each such warrant is exercisable on or
before September 1, 1999 at an exercise price of $3.125 per share
(subject to customary anti-dilution adjustments).
The Warrants do not confer upon the holders thereof any voting or
other rights of a stockholder of the Company.
NOTE 4 - STOCK OPTIONS
The Company has granted certain options to purchase shares of
Common Stock to 2 executives. Such options aggregate 300,000 shares
at an exercise price of $3.00 per share. The options vest and are
exercisable as follows:
1) 75,000 qualified options vest and become exercisable on
June 1, 1997 and expire June 1, 2001.
2) 75,000 qualified options vest and become exercisable on
June 1, 1998 and expire June 1, 2001.
F-26
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE 4 - STOCK OPTIONS (Cont'd)
3) 150,000 qualified options vest and become exercisable in equal
annual installments of 25% each on the first through fourth
anniversary of July 16, 1996 and expire July 16, 2001.
In addition, the Company has granted qualified options to the
former President of the Company. The holder has the option to
acquire 19,444 and 2/3 shares of Common Stock at an exercise price
of $1.80 per share. The options expire November 11, 2003.
Also, the Company has granted 12,000 non-qualified options to an
employee at an exercise price of $3.00 per share. These options
vest and become exercisable in equal annual installments of 25%
each on the first through fourth anniversary of January 23, 1997
and expire January 23, 2002.
NOTE 5 - COMMON STOCK RESERVED
The Company has reserved 386,666 and 2/3 share of Common Stock for
insurance upon the exercise of outstanding warrants.
The Company has reserved 331,444 and 2/3 shares of Common Shares
for insurance upon the exercise of outstanding options.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
1) The Company subleases its Houston, Texas headquarters from Zydeco
under a month-to-month sublease.
2) On December 20, 1996, Cheniere California signed a Purchase and
Sale Agreement with Poseidon Petroleum, LLC, ("Poseidon") to
acquire Poseidon's 60% working interest in six undeveloped leases
in the Bonito Unit of the Pacific Outer Continental Shelf (OCS)
off Santa Barbara County, California. Poseidon estimates that the
net proved undeveloped reserves attributable to its interest are
approximately 47 million barrels of oil equivalent. As payment for
this interest, Poseidon will receive production payments
aggregating $18,000,000 to be paid as three percent of the
production revenue from the leases being assigned. Minimum
prepayments from the annual production payment shall be made at the
rate of $540,000 per year, payable in advance. Poseidon will
receive the first minimum prepayment of $540,000 at closing.
Poseidon will have a reserve report prepared with respect to the
leases which is subject to Cheniere California's acceptance. The
principal amount of the production payment and the required minimum
yearly payments are subject to adjustment based on the results of
the revenue report. Subject to the satisfaction of certain
conditions by Poseidon and Cheniere California, it is anticipated
that closing of the purchase will occur during the second calendar
quarter of 1997.
3) As of February 28, 1997, the Company has an investment of
$7,141,745 in a 3-D seismic exploration program in Southern
Louisiana. Under the terms of the Exploration Agreement relating to
the program, the Company is required to make additional monthly
payments aggregating, at least, approximately $6,358 million (See
Note 7). The Company's potential participation in the joint venture
could be significantly reduced in the event of a failure by the
Company to make such required monthly payments when due.
4) On February 28, 1997, the Company issued 352,947 shares of Common
Stock at a price of $4.25 per share. If during the 270 day period
following the date of purchase of these shares the company offers
and sells any shares of its Common Stock for a gross sales price
lower than the price paid for these shares, the Company will issue
additional shares of Common Stock to reflect the lowest per share
gross sales price at which shares were offered and sold during the
period.
F-27
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE 7 - SUBSEQUENT EVENTS
On March 4, 1997, $1,500,025 of Advances for issuance of common
stock were transferred to capital, the Company issued 705,894
shares of common stock for gross proceeds of $3,000,050. Proceeds
received are intended to fund future commitments to the 3-D joint
venture. If during the 270 day period following the date of
purchase of these shares the Company offers and sells any shares of
its Common Stock for a purchase gross sales price lower than the
price paid for these shares, the Company will issue additional
shares of Common Stock to reflect the lowest per share gross sales
price at which shares were offered and sold during the period.
On March 4, 1997, the Company funded an additional $858,255
investment in the 3-D joint venture, bringing its total investment
to date to $8,000,000. The Company has a remaining commitment of at
least $5.5 million, which is due in three payments of $2 million
each on April 22, 1997 and May 22, 1997 and $1.5 million due on
June 21, 1997. A thirty day grace period applies to each of the
payments.
If the two events described above had occurred as of
February 28, 1997, along with applicable costs and expenses, the
balance sheet as of February 28, 1997 would reflect the following.
Cash $ 2,759,882
Prepaid Expenses and Other Current Assets 119,571
Property and Equipment, Net 48,967
Investment 8,000,000
Security Deposit 500
Total Assets $10,928,920
===========
Accounts Payable and Accrued Expenses $ 84,300
-----------
Common Stock 37,946
Additional Paid-in Capital 12,335,103
Retained Deficit (1,528,429)
-----------
10,844,620
-----------
Total Liabilities and Stockholders' Equity $10,928,920
===========
F-28
<PAGE>
BEXY COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MAY 31,
ASSETS 1996 1995
---- ----
Cash $ 63,541 $ 78,397
Accounts Receivable 68,800 63,620
Program Inventory, Net 52,756 511,244
Furniture and Fixtures, (Net of
Accumulated Depreciation of
$3,464 and $2,262) 622 1,258
Other Assets 4,600 12,121
---------- ----------
Total Assets $ 190,319 $ 666,640
========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY LIABILITIES
Accounts Payable and Accrued
Expenses 39,849 $ 64,502
Accrued Interest Expense to
Related Party 37,209 38,924
Note Payable - 180,000
Note Payable to Related Party - 76,219
Deposits 2,000 2,000
Deferred Income 16,000 -
---------- ----------
Total Liabilities 95,058 361,648
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.01,
25,000,000 Shares Authorized,
1,803,459 and 1,490,951 Shares
Issued and Outstanding 147,404 130,289
Contributed Capital 1,116,581 915,828
Accumulated Deficit (1,138,489 (659,910)
Notes Receivable from Stockholders (30,235) (81,212)
---------- ----------
Total Stockholders' Equity 95,261 304,995
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 190,319 $ 666,640
========== ==========
F-29
<PAGE>
BEXY COMMUNICATIONS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
May 31, 1996 May 31, 1995 May 31, 1996 May 31, 1995
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE $ 7,500 $ 45,689 $ 49,758 $ 101,867
Cost of Programs and
Distribution Fees 3,826 40,852 29,071 125,514
--------- --------- ---------- ----------
3,674 4,837 20,687 (23,647)
--------- --------- ---------- ---------
EXPENSES:
Advertising 2,042 - 10,101 225
Salaries - 2,739 - 8,216
Consulting Fees to Majority
Shareholder 21,000 - 59,500 -
General and Administrative 10,116 11,510 100,545 43,574
Depreciation 300 302 900 906
Interest - 1,718 - 6,328
Professional Fees 13,158 1,811 35,144 6,066
Rent 3,645 10,406 11,443 26,381
--------- --------- ---------- ---------
Total Expenses 50,261 28,486 217,633 91,696
--------- --------- ---------- ---------
Other Income 540 - 1,819 4,162
--------- --------- ---------- ---------
Net Loss (46,047) (23,649) (195,127) (111,181)
Net Loss per Share (.02) (.02) (.10) (.08)
========== ========== ========== =========
Weighted Average Number of
Shares Outstanding 1,803,459 1,455,950 1,681,203 1,450,450
</TABLE>
F-30
<PAGE>
BEXY COMMUNICATIONS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED MAY 31,
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $( 195,127) $( 111,181)
Adjustments to Reconcile Net Loss to
Net Cash (Used By) Operating Activities:
Amortization of Film Costs 2,700 58,255
Depreciation 900 906
Changes in Operating Assets and Liabilities:
Accounts Receivable ( 5,600) ( 28,420)
Other Assets 2,122 -
Accounts Payable and Accrued Expenses 3,539 19,962
Accrued Interest Expense ( 4,981) 6,328
---------- -----------
Net Cash (Used By) Operating Activities ( 196,447) ( 54,150)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture and Fixtures ( 566) -
Net Change in Notes Receivable 16,439 51,788
---------- -----------
Net Cash Provided By Investing Activities 15,738 51,788
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock 137,500 130,976
Repayment of Note Payable - ( 5,000)
Net Repayment to Related Party ( 7,519) ( 51,781)
---------- -----------
Net Cash Provided by Financing Activities 129,981 74,186
---------- -----------
Net (Decrease) Increase in Cash ( 50,593) 71,824
CASH - BEGINNING OF YEAR 114,134 6,573
---------- -----------
CASH - END OF YEAR $ 63,541 $ 78,397
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 4,983 $
========== ===========
Cash Paid for Income Taxes $ $ 1,221
========== ===========
</TABLE>
F-31
<PAGE>
BEXY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
NOTE 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.
The financial statements include the Company's wholly owned subsidiary,
MAR Ventures Inc., a Delaware Corporation, which acquired substantially
all of the assets and liabilities of the Company on April 16, 1996.
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, which indicated a going concern report as to the
Company's ability to continue in existence.
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.
NOTE 2 - GENERAL AND ADMINISTRATIVE EXPENSES
The Company has expended approximately $46,000 through May 31, 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 granted the Company an option to purchase the
Company for $50,000, which was terminated on April 16, 1996.
NOTE 3 - SUBSEQUENT EVENTS
On July 3, 1996, a date subsequent to the balance sheet date, the
shareholders approved a plan which transferred the assets and
liabilities to a new subsidiary, MAR Ventures Inc. and which changed
the Company's business from the television production and health
information business to the business of oil and gas exploration.
As part of the reorganization, the Company issued new shares of its
stock in exchange for all of the stock of Cheniere Energy Operating
Co., Inc. resulting in a change in control of the Company and
distribution of the shares of MAR Ventures Inc. to its existing
shareholders. MAR Ventures Inc. assumes the Company's liabilities,
including its obligations under the reorganization agreement.
F-32
<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.
FARBER & HASS
November 9, 1995
F-33
<PAGE>
BEXY COMMUNICATIONS, INC.
BALANCE SHEET
AUGUST 31, 1995
- ---------------
<TABLE>
<CAPTION>
<S> <C>
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 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
=========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE TWO YEARS ENDED AUGUST 31, 1995
- ---------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
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)
========= =========
</TABLE>
NET LOSS PER SHARE $ (.27) $ (.17)
========= =========
See accompanying notes to financial statements.
F-35
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE TWO YEARS ENDED AUGUST 31, 1995
--------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK NOTES TOTAL
------------------------------ RECEIVABLE SHARE-
SHARES CONTRIBUTED ACCUMULATED FROM HOLDER'S
OUTSTANDING AMOUNT CAPITAL DEFICIT SHAREHOLDERS EQUITY
------------- ----------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
SEPTEMBER 1, 1993 7,164,333 $126,970 $502,575 $(335,108) $ 294,437
ONE-FOR-SIX REVERSE
STOCK SPLIT (5,970,277)
SALE OF SHARES 120,833 1,208 181,767 $(153,000) 29,975
ISSUANCE OF SHARES
FOR SERVICES 45,062 451 12,179 12,630
CONSTRUCTIVE ISSUANCE
OF SHARES RELATING
TO THE PURCHASE OF
PROGRAM INVENTORY 50,000 500 89,500 90,000
REPAYMENT ON NOTES
RECEIVABLE 20,000 20,000
NET LOSS (213,620) (213,620)
---------- -------- -------- --------- --------- ---------
BALANCE,
AUGUST 31, 1994 1,409,951 129,129 786,021 (548,728) (133,000) 233,422
</TABLE>
(Continued)
F-36
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY - CONTINUED
FOR THE TWO YEARS ENDED AUGUST 31, 1995
----------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK NOTES TOTAL
------------------------------ RECEIVABLE SHARE-
SHARES CONTRIBUTED ACCUMULATED FROM HOLDER'S
OUTSTANDING AMOUNT CAPITAL DEFICIT SHAREHOLDERS EQUITY
------------- ----------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
AUGUST 31, 1994 1,409,951 129,129 786,021 (548,728) (133,000) 233,422
CANCELLATION OF
CONSTRUCTIVE
ISSUANCE (50,000) (500) (89,500) (90,000)
SALE OF SHARES 151,000 4,573 231,393 235,966
ISSUANCE OF SHARES
FOR SERVICES 45,168 452 64,917 65,369
REPAYMENT ON NOTES
RECEIVABLE 86,326 86,326
ISSUANCE OF SHARES
FOR ROUNDING 2,828
NET LOSS (394,633) (394,633)
--------- -------- -------- --------- ----------- ---------
BALANCE,
AUGUST 31, 1995 1,558,947 $133,654 $992,831 $(943,361) $ (46,674) $ 136,450
========= ======== ======== ========= ============ =========
</TABLE>
See notes to financial statements.
F-37
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED AUGUST 31, 1995
-------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
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
========= =========
</TABLE>
(Continued)
F-38
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE TWO YEARS ENDED AUGUST 31, 1995
--------------------------------------------------
1995 1994
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ -0- $ -0-
Cash paid for income taxes $1,566 $ 800
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-39
<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% of 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.
PROGRAM INVENTORY - Program inventory is stated at the lower of cost
or estimated net realizable value, determined on a film-by-film basis.
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.
The Company continually evaluates the carrying value of its program
inventory. Based on the lower than forecasted revenues of its film
library experienced in 1995 and current projections indicating a
continued decline in film revenues, the Company re-evaluated the
future market value of its program inventory in the fourth quarter and
recorded a write-down to reflect its value at the lower of cost or
market. The adjustment totalled $235,500 and was recorded in
amortization of film costs.
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
F-40
<PAGE>
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.
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 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 shares
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.
<TABLE>
<CAPTION>
<S> <C>
2. PROGRAM INVENTORY
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
=========
</TABLE>
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 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.
F-41
<PAGE>
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-42
<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, 1994. We have also audited the statements
of operations, shareholders' equity and of cash flows for the two years
ended August 31, 1994. 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, 1994, and the
results of its operations and its cash flows for each of the two years
ended August 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, effective September 1,
1993, the Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes".
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 7. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
FARBER & HASS
October 24, 1994
F-43
<PAGE>
BEXY COMMUNICATIONS, INC.
BALANCE SHEET
AUGUST 31, 1994
----------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CASH $ 6,573
ACCOUNTS RECEIVABLE 35,200
PROGRAM INVENTORY, Net 569,500
FURNITURE AND FIXTURES - Net of accumulated
depreciation of $1,356 2,164
OTHER ASSETS 12,121
--------
TOTAL ASSETS $625,558
========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 44,540
Accrued interest expense 32,596
Note payable 185,000
Note payable to related party 128,000
Deposits 2,000
--------
Total liabilities 392,136
--------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock (par value - $.01, 25,000,000 shares
authorized, 1,409,951 issued and outstanding) 129,129
Contributed capital 786,021
Accumulated deficit (548,728)
Notes receivable from shareholders (133,000)
---------
Total shareholders' equity 233,422
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 625,558
=========
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE TWO YEARS ENDED AUGUST 31, 1994
-------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
REVENUES $ 130,228 $ 317,946
--------- ---------
COST OF PROGRAMS AND DISTRIBUTION FEES:
Amortization of film costs 122,630 147,292
Distribution fees 52,036 133,757
--------- ---------
Total cost of programs
and distribution fees 174,666 281,049
--------- ---------
EXPENSES:
Advertising 22,552 27,083
General and administrative 54,227 44,457
Depreciation 850 348
Interest 10,167 18,992
Professional fees 60,105 62,209
Rent 21,281 14,769
Reserve on former employee advances 98,015
--------- ---------
Total expenses 169,182 265,873
--------- ---------
NET LOSS $(213,620) $(228,976)
========= =========
Net loss per share $ (.17) $ (.19)
========= =========
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE TWO YEARS ENDED AUGUST 31, 1994
--------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
SHARES CONTRIBUTED ACCUMULATED
OUTSTANDING AMOUNT CAPITAL DEFICIT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 1, 1992 7,164,333 $126,970 (106,132)
CAPITAL CONTRIBUTIONS $ 160,573
CONVERSION OF RELATED PARTY DEBT
AND ACCRUED INTEREST 342,002
NET LOSS (228,976)
----------- ------------ ----------- -----------
BALANCE, AUGUST 31, 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)
=========== ============ =========== ===========
</TABLE>
See notes to financial statements.
F-46
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED AUGUST 31, 1994
--------------------------------------------
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(213,620) $(228,976)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 850 348
Amortization of film costs 122,630 147,292
Issuance of stock for services 12,630
Reserve for former employee receivables 98,015
Expenses paid by officer 420
Changes in operating assets and
liabilities:
Increase in accounts receivable (22,151) (13,049)
(Increase) decrease in program
inventory 3,083 (488,857)
Increase in other assets (2,121) (6,451)
Increase (decrease) in accounts
payable and accrued expenses (24,149) 91,255
Decrease in cash overdraft (4,565)
Increase (decrease) in accrued
interest expense 10,030 (3,994)
Increase in deposits 2,000
---------
Net cash used by operating activities (110,818) (408,562)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Capital expenditures (2,577)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment on note payable (2,038) (200)
Borrowings from related party 38,000 344,000
Repayments to related party (61,780)
Sale of common stock 49,975
Contributions to capital 160,573
--------- ---------
Net cash provided by financing activities 85,937 442,593
--------- ---------
NET INCREASE (DECREASE) IN CASH (27,458) 34,031
CASH, BEGINNING OF PERIOD 34,031 -0-
--------- ---------
CASH, END OF PERIOD $ 6,573 $ 34,031
========= =========
</TABLE>
(Continued)
F-47
<PAGE>
BEXY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED AUGUST 31, 1994 (CONTINUED)
------------------------------------------------------------------------
1994 1993
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ -0- $ -0-
Cash paid for income taxes $ 800 $ -0-
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
During the year ended August 31, 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" (see Notes 2 and
3).
During the year ended August 31, 1994, the Company issued shares of common
stock in exchange for notes receivable totalling $133,000.
During the year ended August 31, 1993, $342,002 of related party debt and
accrued interest were converted to contributed capital.
During the three years ended August 31, 1993, a former officer/director of
the Company made repayments of principal and interest on the note payable
to the bank and paid certain state income taxes due in the prior years.
The amounts paid (approximately $19,000) have been offset against the
amounts due from former officers.
See accompanying notes to financial statements.
F-48
<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 year ended August 31, 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 7, 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 trade receivables. The Company routinely assesses the
financial strength of its customers. The Company normally does not
require collateral to support customer receivables. At August 31,
1994, the Company had one customer which accounted for approximately
86% of 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.
OTHER ASSETS - Other assets consist primarily of a 50% interest in the
pilot program for the "Victims" television series.
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.
INCOME TAXES - Effective September 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards 109 ("SFAS
109"). The adoption of SFAS 109 changes the Company's method of
accounting for income taxes from the deferred method (APB 11) to an
asset and liability method. The asset and liability method 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 cumulative effect of the initial adoption on prior years' retained
earnings was not significant. Additionally, the effect of the
adoption of SFAS 109 for fiscal 1994 was not significant.
The Company has net operating loss carryforwards of approximately
$339,000 and $177,000 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 shares
outstanding. The number of shares used in the computation was
1,256,444 for the year ended August 31, 1994 and 1,194,055 for the
year ended August 31, 1993.
F-49
<PAGE>
2. PROGRAM INVENTORY
Program inventory is stated at the lower of cost or estimated net
realizable value, determined on a film-by-film basis. 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, 1994, the program inventory consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
"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
"Feelin' Great" - 26 one-half hour
episodes promoting a healthy lifestyle 275,000
---------
Total 839,422
Less: accumulated amortization (269,922)
---------
Program Inventory, Net $ 569,500
=========
</TABLE>
3. NOTE PAYABLE
In connection with the acquisition of a program series entitled
"Feelin' Great", the Company issued a note payable to Hammond
Productions in the amount of $185,000. The note bears no interest, is
secured by the existing 26 episodes of the series and scheduled
maturities of the note are as follows for the years ending August 31:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 85,000
1996 50,000
1997 50,000
-------
$185,000
========
</TABLE>
4. NOTE PAYABLE TO RELATED PARTY
Through August 31, 1994, 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, $128,000, is due June 30, 1995 and is collateralized by
the program inventory.
5. 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 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.
F-50
<PAGE>
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.
6. COMMITMENTS AND CONTINGENCIES
The Company leases its primary office space on a month-to-month basis
at a rate of $500 per month. The Company has also entered into a two
year lease agreement for other office space expiring February 1996.
Monthly rent on such lease is $2,080. As this space is currently not
being utilized, the Company has sublet the space commencing on
September 1, 1994 and terminating August 31, 1995 for a monthly rental
amount of $2,080. Total rent expense for all operating leases for the
years ended August 31, 1994 and 1993 was $22,945 and $14,769,
respectively.
In connection with the acquisition of a television series entitled
"Feelin' Great", the Company will pay to Hammond Productions three
percent of the gross revenues derived from the distribution of the
existing twenty-six episodes.
7. MANAGEMENT PLANS
In fiscal 1994, the Company generated net negative cash flows from
operating and investing activities of $100,765. Management expects
that the forecasted higher sales and cash flow from operations will be
adequate to finance the 1995 cash flow requirements. If the Company
does not achieve the forecasted higher 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.
F-51
<PAGE>
===============================================================================
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFERING AND SALE OF THE COMMON STOCK
OFFERED HEREBY, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND ANY SUCH
INFORMATION OR REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES
IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
__________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................. 2
Risk Factors............................. 5
The Company.............................. 10
Use of Proceeds.......................... 10
Capitalization........................... 11
Market Price and Dividend Information.... 11
Selected Financial Data.................. 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 13
Business and Properties.................. 15
Management............................... 27
Description of Capital Stock............. 30
Selling Stockholders..................... 33
Principal Stockholders................... 35
Plan of Distribution..................... 35
Legal Matters............................ 36
Experts.................................. 36
Available Information.................... 37
</TABLE>
2,844,211 SHARES
CHENIERE ENERGY, INC.
COMMON STOCK
(PAR VALUE $.003 PER SHARE)
<PAGE>
PART II
Information Not Required in Prospectus
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Common Stock to be registered is to be offered for the account of
the Common Stockholders. The estimated expenses of this offering, to be fully
paid by Cheniere unless otherwise noted, in connection with the issuance and
distribution of the securities being registered are as follows:
Accounting Fees and Expenses............................... $ 10,000.00
Legal Fees and Expenses.................................... $ 35,000.00
Securities and Exchange Commission Filing Fee.............. $ 1,150.18
---------
Miscellaneous Expenses..................................... $ 5,000.00
Total.................................................... $ 51,150.18
---------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated Certificate of Incorporation of Cheniere (the
"Charter") eliminates the liability of directors of Cheniere to Cheniere or its
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by Section 102 of the Delaware General
Corporation Law, as the same may be amended from time to time (the "DGCL").
Specifically, under Section 102(b)(7) of the DGCL, directors of Cheniere will
not be personally liable to Cheniere or its stockholders for monetary damages
for breach of fiduciary duty as a director, provided that such provision shall
not eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to Cheniere or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit.
The Charter also provides that Cheniere shall indemnify all persons whom it
may indemnify under Section 145 of the DGCL to the fullest extent permitted by
such Section. Section 145(a) of the DGCL provides that a Delaware corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the
<PAGE>
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to be indemnified for such expenses
which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to in subsections (a) and
(b) of Section 145, or in the defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification and
advancement of expenses provided by, or granted pursuant to Section 145 shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to his official capacity and as to action in another capacity while holding such
office; that indemnification and advancement of expenses provided by, or granted
pursuant to, Section 145 shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person; and that the corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
such Section 145.
Article IX of Cheniere's By-laws contains detailed indemnification rights
for Cheniere's directors, other employees and other agents. The By-laws provide
for indemnification in accordance with the provisions of Section 145 of the
DGCL.
The inclusion of the indemnification provisions in the Charter and
Cheniere's By-laws may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
Cheniere and its stockholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In May and June 1996, Cheniere Operating issued 200 shares of its common
stock (which were exchanged for 2,000,000 shares of the Common Stock following
the Reorganization) to a group of "accredited investors" (as defined in Rule
501(a) promulgated under the Securities Act of 1933, as amended (the "Securities
Act")) pursuant to Rule 506 of Regulation D promulgated under the Securities Act
("Regulation D"). Cheniere Operating received net proceeds of $2,883,000, net
of offering costs, on cash sales of $3,000,000.
In July 1996, Cheniere issued 50,000 shares of Common Stock to an
"accredited investor" (as defined in Rule 501(a) promulgated under the
Securities Act) for $100,000 in cash pursuant to Rule 506 of Regulation D.
In July and August 1996, Cheniere conducted an offering of Common Stock
pursuant to Regulation S. Cheniere sold 508,400 shares of the Common Stock and
received proceeds of $915,000, net of placement fees, from such sale.
In late August 1996, Cheniere raised $1,000,000 from the sale of 100,000
units, each consisting of five shares of the Common Stock and a warrant to
purchase one share of the Common Stock, pursuant to Regulation S. The proceeds
were used to fund a $1 million payment to the 3-D Joint Venture made on
September 4, 1996.
Between fiscal year end at August 31, 1996 and February 28, 1997, Cheniere
raised net proceeds of $5,145,838 from the sale of equity to accredited
investors pursuant to Regulation D and other investors pursuant to Regulation S.
Some of the proceeds were used to fund payments in the aggregate of
approximately $2.1 million to the 3-D Joint Venture.
On March 4, 1997, the Company sold 352,947 shares of Common Stock, at a
price of $4.25 per share, for net proceeds of $1,500,025. With respect to these
shares of Common Stock, as well as 352,947 shares of Common Stock issued in
February 1997 at a price of $4.25 per share, the Company has agreed that if,
during the 270 day period following the date of purchase of these shares, the
Company offers and sells any shares of Common Stock for a per share gross sales
price lower than the per share price paid for these shares, the Company will
issue additional shares of Common Stock to reflect the lowest gross per share
sales price at which shares were offered and sold during the period.
In June 1996, Cheniere Operating borrowed $425,000 (the "Bridge Loan")
through a private placement of short term promissory notes. In connection with
the placement of the Notes, Cheniere Operating issued warrants, which following
the Reorganization, were exchanged for an aggregate of 141,666 and 2/3 warrants
to purchase shares of the Common Stock, to the holders of the Notes (the
"Noteholders"), each of which warrants entitles the holder to purchase one share
of the Common Stock at an exercise price of $3.00 per share at any time on or
before June 14, 1999. The Company satisfied all of its obligations under Notes
in the aggregate principal amount of $210,000 by paying the accrued interest on
such Notes and by agreeing to issue 105,000 shares of the Common Stock at a
price of $2.00 per share to the holders of such Notes pursuant to Regulation D.
In addition, an individual Noteholder (the "Remaining Noteholder") purchased
several outstanding Notes following which such Noteholder held Notes in the
aggregate principal amount of $215,000. In exchange for such notes, Cheniere
Operating issued a new promissory note in the amount of $215,000 to the
Remaining Noteholder, which Cheniere Operating paid on December 13, 1996. The
Remaining Noteholder also received 64,500 additional warrants to purchase shares
of the Common Stock. Such additional warrants have an exercise price of $3.00
per share and will be exercisable until June 14, 1999.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. Exhibits
3.1 Amended and Restated Certificate of Incorporation of Cheniere
Energy, Inc. ("Cheniere")
3.2 By-laws of Cheniere
4.1 Specimen Common Stock Certificate of Cheniere
5.1 Opinion of Dewey Ballantine
10.1 Exploration Agreement between FX Energy, Inc. (now known as
Cheniere Energy Operating Co., Inc. ("Cheniere Operating")) and
Zydeco Exploration, Inc.
10.2 First Amendment to the Exploration Agreement between FX Energy, Inc.
(now known as Cheniere Operating) and Zydeco Exploration, Inc.
10.3 Second Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco Exploration,
Inc.
10.4 Form of Noteholders' Agreement ("Noteholders Agreement") between
Cheniere Operating and the holders of promissory notes in the
aggregate principal amount of $425,000.00
10.5 Form of Warrant Agreement governing warrants of Cheniere issued in
exchange for warrants of Cheniere Operating (which were issued
pursuant to the Noteholders Agreement)
10.6 Asset Transfer, Assignment and Assumption Agreement between Bexy
Communications, Inc. and Mar Ventures Inc.
10.7 Indemnification Agreement among Buddy Young, Cheniere, Cheniere
Energy Operating Co., Inc. and the Stockholders of Cheniere Energy
Operating Co., Inc. named therein
10.8 Form of Warrant Agreement between Cheniere and each of C.M. Blair,
W.M. Foster & Co., Inc. and Redliw Corp.
10.9 Consulting Agreement between Cheniere and Buddy Young
10.10 Letter Agreement between Cheniere and Buddy Young regarding
reverse splits of common stock of Cheniere, par value $.003 per
share (the "Common Stock")
10.11 Form of Subscription Agreement for purchasers of Common Stock
pursuant to pursuant to Rule 506 of Regulation D promulgated under
the Securities Act of 1933
10.12 Fourth Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco Exploration, Inc.
10.13 Form of Letter Agreement between Cheniere and certain purchasers of
Common Stock pursuant to Regulation S.
21.1 Subsidiaries of Cheniere
23.1 Consent of Dewey Ballantine (included in Exhibit 5.1)
23.2 Consent of Merdinger, Fruchter, Rosen & Corso, P.C.
23.3 Consent of Farber & Hass
23.4 Consent of Merdinger, Fruchter, Rosen & Corso, P.C. to inclusion of
financial statements for the fiscal year ended as of
August 31, 1996.
24.1 Powers of Attorney included on signature page.
B. Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
II-3
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of the issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 14th day of March, 1997.
CHENIERE ENERGY, INC.
By: /s/ William D. Forster
----------------------------------------
William D. Forster, President, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement of which this prospectus is a part has been signed below
by the following persons in the capacities indicated and on the 14th day of
March, 1997.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ William D. Forster President, Chief Executive Officer and Director
- --------------------------------------------------------------- (Principal Executive Officer)
William D. Forster
/s/ * Vice-Chairman and Director
- ---------------------------------------------------------------
Walter L. Williams
/s/ * Chief Financial Officer and Treasurer
- ---------------------------------------------------------------
Keith F. Carney
/s/ * Secretary and Director
- ---------------------------------------------------------------
Charif Souki
/s/ * Director
- ---------------------------------------------------------------
Efrem Zimbalist III
*By: /s/ William D. Forster
-----------------------------------------------------------
Willam D. Forster
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation of Cheniere
Energy, Inc. ("Cheniere")
3.2 By-laws of Cheniere
4.1 Specimen Common Stock Certificate of Cheniere
5.1 Opinion of Dewey Ballantine
10.1 Exploration Agreement between FX Energy, Inc. (now known as
Cheniere Energy Operating Co., Inc. ("Cheniere Operating")) and
Zydeco Exploration, Inc.
10.2 First Amendment to the Exploration Agreement between FX Energy, Inc.
(now known as Cheniere Operating) and Zydeco Exploration, Inc.
10.3 Second Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco Exploration,
Inc.
10.4 Form of Noteholders' Agreement ("Noteholders Agreement") between
Cheniere Operating and the holders of promissory notes in the
aggregate principal amount of $425,000.00
10.5 Form of Warrant Agreement governing warrants of Cheniere issued in
exchange for warrants of Cheniere Operating (which were issued
pursuant to the Noteholders Agreement)
10.6 Asset Transfer, Assignment and Assumption Agreement between Bexy
Communications, Inc. and Mar Ventures Inc.
10.7 Indemnification Agreement among Buddy Young, Cheniere, Cheniere
Energy Operating Co., Inc. and the Stockholders of Cheniere Energy
Operating Co., Inc. named therein
10.8 Form of Warrant Agreement between Cheniere and each of C.M. Blair,
W.M. Foster & Co., Inc. and Redliw Corp.
10.9 Consulting Agreement between Cheniere and Buddy Young
10.10 Letter Agreement between Cheniere and Buddy Young regarding
reverse splits of common stock of Cheniere, par value $.003 per
share (the "Common Stock")
10.11 Form of Subscription Agreement for purchasers of Common Stock
pursuant to pursuant to Rule 506 of Regulation D promulgated under
the Securities Act of 1933
10.12 Fourth Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco Exploration,
Inc.
10.13 Form of Letter Agreement between Cheniere and certain purchasers of
Common Stock pursuant to Regulation S.
21.1 Subsidiaries of Cheniere
23.1 Consent of Dewey Ballantine (included in Exhibit 5.1)
23.2 Consent of Merdinger, Fruchter, Rosen & Corso, P.C.
23.3 Consent of Farber & Hass
23.4 Consent of Merdinger, Fruchter, Rosen & Corso, P.C. to inclusion of
financial statements for the fiscal year ended as of
August 31, 1996.
24.1 Powers of Attorney included on signature page.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BEXY COMMUNICATIONS, INC.
UNDER SECTIONS 242 AND 245 OF THE
DELAWARE GENERAL CORPORATION LAW
Originally incorporated under the name
All American Burger, Inc.
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;
(5) To change the par value of the common stock to $.003 per share;
<PAGE>
(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 Delaware
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:
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:
-2-
<PAGE>
(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 with a par value of $.0001 per
share.
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;
(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 of 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
-3-
<PAGE>
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 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.
IN WITNESS WHEREOF, the undersigned being thereunto duly authorized has
executed this Amended and Restated Certificate of Incorporation this 2nd day of
July, 1996.
/s/ WILLIAM D. FORSTER
----------------------
William D. Forster
President
-4-
<PAGE>
EXHIBIT 3.2
_____________________________________
BY-LAWS
OF
CHENIERE ENERGY, INC.
_____________________________________
Adopted by the Board of
Directors by resolutions dated
as of August 20, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- -------- ------
<S> <C> <C>
ARTICLE I OFFICES 1
SECTION 1.01. Registered Office 1
SECTION 1.02. Other Offices 1
ARTICLE II MEETING OF STOCKHOLDERS 1
SECTION 2.01. Annual Meetings 1
SECTION 2.02. Special Meetings 1
SECTION 2.03. Notice of Meetings 1
SECTION 2.04. Waiver of Notice 2
SECTION 2.05. Adjournments 3
SECTION 2.06. Quorum 3
SECTION 2.07. Voting 3
SECTION 2.08. Proxies 3
SECTION 2.09. Stockholders' Consent in Lieu of Meeting 3
ARTICLE III BOARD OF DIRECTORS 4
SECTION 3.01. General Powers 4
SECTION 3.02. Number and Term of Office 4
SECTION 3.03. Resignation 4
SECTION 3.04. Removal 4
SECTION 3.05. Vacancies. 4
SECTION 3.06. Meetings. 5
SECTION 3.07. Committees of the Board 6
SECTION 3.08. Directors' Consent in Lieu of Meeting 7
SECTION 3.09. Action by Means of Telephone or Similar
Communications Equipment 7
SECTION 3.10. Compensation 7
ARTICLE IV OFFICERS 7
SECTION 4.01. Officers 7
SECTION 4.02. Authority and Duties 7
SECTION 4.03. Term of Office, Resignation and Removal 7
SECTION 4.04. Subordinate Officers 8
SECTION 4.05. Vacancies 8
SECTION 4.06. The Chairman 8
SECTION 4.07. The Vice-Chairman 8
SECTION 4.08. The President 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 4.09. Vice Presidents 8
SECTION 4.10. The Secretary 9
SECTION 4.11. Assistant Secretaries 9
SECTION 4.12. The Treasurer 9
SECTION 4.13. Assistant Treasurers 9
SECTION 4.14. Compensation 10
SECTION 4.15. Interested Directors; Quorum 10
ARTICLE V SHARES AND TRANSFERS OF SHARES 10
SECTION 5.01. Certificates Evidencing Shares 10
SECTION 5.02. Stock Ledger 11
SECTION 5.03. Transfers of Shares 11
SECTION 5.04. Addresses of Stockholders 11
SECTION 5.05. Lost, Destroyed and Mutilated Certificates 11
SECTION 5.06. Regulation 11
SECTION 5.07. Fixing Date for Determination of Stockholders of
Record 11
ARTICLE VI SEAL 12
SECTION 6.01. Seal 12
ARTICLE VII FISCAL YEAR 12
SECTION 7.01. Fiscal Year 12
ARTICLE VIII VOTING OF SHARES IN OTHER CORPORATIONS 12
SECTION 8.01. Voting of Shares in Other Corporations 12
ARTICLE IX INDEMNIFICATION AND INSURANCE 12
SECTION 9.01. Indemnification 12
SECTION 9.02. Insurance for Indemnification 15
ARTICLE X AMENDMENTS 15
SECTION 10.01. Amendments 15
</TABLE>
ii
<PAGE>
BY-LAWS
OF
CHENIERE ENERGY, INC.
ARTICLE I
OFFICES
SECTION 1.01. Registered Office. Unless and until otherwise
determined by the Board of Directors of Cheniere Energy, Inc. (the
"Corporation"), the registered office of the Corporation in the State of
Delaware shall be at the office of Corporation Service Company, 1013 Centre
Road, City of Wilmington 19805, County of New Castle and the registered agent in
charge thereof shall be Corporation Service Company.
SECTION 1.02. Other Offices. The Corporation may also have an office
or offices at any other place or places within or without the State of Delaware
as the Board of Directors of the Corporation (the "Board") may from time to time
determine or the business of the Corporation may from time to time require.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 2.01. Annual Meetings. The annual meeting of stockholders of
the Corporation for the election of directors of the Corporation ("Directors")
and for the transaction of such other business as may properly come before such
meeting, shall be held at such place, date and time as shall be fixed by the
Board and designated in the notice or waiver of notice of such annual meeting;
provided, however, that no annual meeting of stockholders need be held if all
actions, including the election of Directors, required by the General
Corporation Law of the State of Delaware (the "General Corporation Law") to be
taken at such annual meeting are taken by written consent in lieu of meeting
pursuant to Section 2.09 hereof.
SECTION 2.02. Special Meetings. Special meetings of stockholders for
any purpose or purposes may be called by the Board or the Chairman of the Board,
the Vice-Chairman, the President or the Secretary of the Corporation or by the
recordholders of at least a majority of the shares of common stock of the
Corporation issued and outstanding ("Shares") and entitled to vote thereat, to
be held at such place, date and time as shall be designated in the notice or
waiver of notice thereof.
SECTION 2.03. Notice of Meetings. (a) Except as otherwise provided
by law, written notice of each annual or special meeting of stockholders stating
the place,
<PAGE>
date and time of such meeting and, in the case of a special meeting, the purpose
or purposes for which such meeting is to be held, shall be given personally or
by first-class mail (airmail in the case of international communications) to
each recordholder of Shares (a "Stockholder") entitled to vote thereat, not less
than 10 nor more than 60 days before the date of such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the Stockholder at such Stockholder's address as it
appears on the records of the Corporation. If, prior to the time of transmittal
of notice, the Secretary of the Corporation (the "Secretary") shall have
received from any Stockholder a written request that notices intended for such
Stockholder are to be transmitted to some address other than the address that
appears on the records of the Corporation, notices intended for such Stockholder
shall be transmitted to the address designated in such request.
(b) Notice of a special meeting of Stockholders may be given by the
person or persons calling the meeting, or, upon the written request of such
person or persons, such notice shall be given by the Secretary on behalf of such
person or persons. If the person or persons calling a special meeting of
Stockholders give notice thereof, such person or persons shall deliver a copy of
such notice to the Secretary. Each request to the Secretary for the giving of
notice of a special meeting of Stockholders shall state the purpose or purposes
of such meeting.
(c) Whenever notice is required to be given under any statute or the
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation") or these Bylaws to any Stockholder to whom (1) notice of two
consecutive annual meetings, and all notice of meetings or of the taking of
action by written consent without a meeting to such person during the period
between such two consecutive annual meetings or (2) all, and at least two,
payments (if sent by first class mail) of dividends or interest on securities
during a twelve month period, have been mailed addressed to such person at his
address as shown on the records of the Corporation and have been returned
because undeliverable, the giving of notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the Corporation a written notice
setting forth his then current address, the requirement that notice to such
person shall have the same force and effect as if such notice be given to such
person shall be reinstated. In the event that the action taken by the
Corporation is such as to require the filing of a certificate under any of the
other sections of the General Corporation Law, the certificate need not state
that notice was not given to persons to whom notice was not required to be given
pursuant to this Section 2.03(c).
SECTION 2.04. Waiver of Notice. Notice of any annual or special
meeting of Stockholders need not be given to any Stockholder who files a written
waiver of notice with the Secretary, signed by the person entitled to notice,
whether before or after such meeting. Neither the business to be transacted at,
nor the purpose of, any meeting of Stockholders need be specified in any written
waiver of notice thereof. Attendance of a Stockholder at a meeting, in person
or by proxy, shall constitute a waiver
2
<PAGE>
of notice of such meeting, except when such Stockholder attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the grounds that the notice of such meeting was
inadequate or improperly given.
SECTION 2.05. Adjournments. Any Stockholders' meeting, annual or
special, whether or not a quorum (as defined in Section 2.06 hereinafter) is
present, may be adjourned by vote of a majority of the shares present, either in
person or by proxy. Whenever a meeting of Stockholders, annual or special, is
adjourned to another date, time or place, notice need not be given of the
adjourned meeting if the date, time and place thereof are announced at the
meeting at which the adjournment is taken. If the adjournment is for more than
30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned meeting, any business
may be transacted which might have been transacted at the original meeting.
SECTION 2.06. Quorum. Except as otherwise provided by law or the
Certificate of Incorporation, the recordholders of a majority of the Shares
entitled to vote thereat, present in person or by proxy, shall constitute a
quorum for the transaction of business at all meetings of Stockholders, whether
annual or special. If, however, such quorum shall not be present in person or
by proxy at any meeting of Stockholders, the meeting may be adjourned from time
to time in accordance with Section 2.05 hereof until a quorum shall be present
in person or by proxy. On all questions, the Stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough Stockholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by a number of shares which would otherwise constitute a majority of a
quorum.
SECTION 2.07. Voting. Each Stockholder shall be entitled to one vote
for each Share held of record by such Stockholder. Except as otherwise provided
by law or the Certificate of Incorporation, when a quorum is present at any
meeting of Stockholders, the vote of the recordholders of a majority of the
Shares constituting such quorum shall decide any question brought before such
meeting.
SECTION 2.08. Proxies. Each Stockholder entitled to vote at a
meeting of Stockholders or to express, in writing, consent to or dissent from
any action of Stockholders without a meeting may authorize another person or
persons to act for such Stockholder by proxy. Such proxy shall be filed with
the Secretary before such meeting of Stockholders or such action of Stockholders
without a meeting, at such time as the Board may require. No proxy shall be
voted or acted upon more than three years from its date, unless the proxy
provides for a longer period.
SECTION 2.09. Stockholders' Consent in Lieu of Meeting. Except as
may otherwise be provided by law or in the Certificate of Incorporation, any
action required by the General Corporation Law to be taken at any annual or
special meeting of Stockholders, and any action which may be taken at any annual
or special meeting of
3
<PAGE>
Stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the recordholders of Shares having not less than the minimum number of
votes necessary to authorize or take such action at a meeting at which the
recordholders of all Shares entitled to vote thereon were present and voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. General Powers. Except as may otherwise be provided by
law or in the Certificate of Incorporation, the business and affairs of the
Corporation shall be managed by the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-laws directed or required to be
exercised or done by Stockholders.
SECTION 3.02. Number and Term of Office. The number of Directors
shall be four or such other number as shall be fixed from time to time by the
Board. Directors need not be Stockholders. Directors shall be elected at the
annual meeting of Stockholders or, if, in accordance with Section 2.01 hereof,
no such annual meeting is held, by written consent in lieu of meeting pursuant
to Section 2.09 hereof, and each Director shall hold office until his successor
is elected and qualified, or until his earlier death or resignation or removal
in the manner hereinafter provided.
SECTION 3.03. Resignation. Any Director may resign at any time by
giving written notice to the Board, the Chairman of the Board of the Corporation
(the "Chairman") or the Secretary. Such resignation shall take effect at the
time specified in such notice or, if the time be not specified, upon receipt
thereof by the Board, the Chairman or the Secretary, as the case may be. Unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.04. Removal. Any or all of the Directors may be removed,
with or without cause, at any time by vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors, or by written
consent of the recordholders of Shares pursuant to Section 2.09 hereof.
SECTION 3.05. Vacancies. Vacancies occurring on the Board as a
result of the removal of Directors without cause may be filled only by vote of
the recordholders of a majority of the Shares then entitled to vote at an
election of Directors, or by written consent of such recordholders pursuant to
Section 2.09 hereof. Vacancies occurring on the Board for any other reason,
including, without limitation, vacancies occurring as a result of the creation
of new directorships that increase the number of Directors, may be filled by
such vote or written consent or by vote of the Board or by written consent of
the Directors pursuant to Section 3.08 hereof. If the number of Directors then
in office
4
<PAGE>
is less than a quorum, such other vacancies may be filled by vote of a majority
of the Directors then in office or by written consent of all such Directors
pursuant to Section 3.08 hereof. Unless earlier removed pursuant to Section
3.04 hereof, each Director chosen in accordance with this Section 3.05 shall
hold office until the next annual election of Directors by the Stockholders and
until his successor shall be elected and qualified.
SECTION 3.06. Meetings. (a) Annual Meetings. As soon as
practicable after each annual election of Directors by the Stockholders, the
Board shall meet for the purpose of organization and the transaction of other
business, unless it shall have transacted all such business by written consent
pursuant to Section 3.08 hereof.
(b) Other Meetings. Other meetings of the Board shall be held at
such times as the Chairman, the Vice-Chairman, the President of the Corporation
(the "President"), the Secretary or a majority of the Board shall from time to
time determine.
(c) Notice of Meetings. The Secretary shall give written notice to
each Director of each meeting of the Board, which notice shall state the place,
date, time and purpose of such meeting. Notice of each such meeting shall be
given to each Director, if by mail, addressed to him at his residence or usual
place of business, at least five days before the day on which such meeting is to
be held, or shall be sent to him at such place by telecopy, telegraph, cable, or
other form of recorded communication, or be delivered personally or by telephone
not later than the day before the day on which such meeting is to be held. A
written waiver of notice, signed by the Director entitled to notice, whether
before or after the time of the meeting referred to in such waiver, shall be
deemed equivalent to notice. Neither the business to be transacted at, nor the
purpose of any meeting of the Board need be specified in any written waiver of
notice thereof. Attendance of a Director at a meeting of the Board shall
constitute a waiver of notice of such meeting, except as provided by law.
(d) Place of Meetings. The Board may hold its meetings at such place
or places within or without the State of Delaware as the Board or the Chairman
may from time to time determine, or as shall be designated in the respective
notices or waivers of notice of such meetings.
(e) Quorum and Manner of Acting. A majority of the total number of
Directors then in office shall be present in person at any meeting of the Board
in order to constitute a quorum for the transaction of business at such meeting,
and the vote of a majority of those Directors present at any such meeting at
which a quorum is present shall be necessary for the passage of any resolution
or act of the Board, except as otherwise expressly required by law, the
Certificate of Incorporation or these By-laws. In the absence of a quorum for
any such meeting, a majority of the Directors present thereat may adjourn such
meeting from time to time until a quorum shall be present.
(f) Organization. At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside, in the following order of
precedence:
5
<PAGE>
(i) the Chairman, if any;
(ii) the Vice Chairman, if any,
(iii) the President;
(iv) any Director chosen by a majority of the Directors present.
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary is present) whom the chairman of
the meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 3.07. Committees of the Board. The Board may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more Directors. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of any such absent or disqualified member. Any committee
of the Board, to the extent provided in the resolution of the Board designating
such committee, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that no such committee shall have such power of
authority in reference to amending the Certificate of Incorporation (except that
such a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board as provided
in Section 151(a) of the General Corporation Law, fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
of stock of the Corporation or fix the number of shares of any series of stock
or authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law, recommending to the Stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets, recommending to
the Stockholders a dissolution of the Corporation or the revocation of a
dissolution, or amending these By-laws; provided further, however, that, unless
expressly so provided in the resolution of the Board designating such committee,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law. Each committee
of the Board shall keep regular minutes of its proceedings and report the same
to the Board when so requested by the Board.
6
<PAGE>
SECTION 3.08. Directors' Consent in Lieu of Meeting. Any action
required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by all the members of the Board or such committee and such
consent is filed with the minutes of the proceedings of the Board or such
committee.
SECTION 3.09. Action by Means of Telephone or Similar Communications
Equipment. Any one or more members of the Board, or of any committee thereof,
may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
SECTION 3.10. Compensation. Directors shall not receive any stated
salary for their services as directors or as members of committees, except as
fixed or determined by resolution of the Board of Directors. No such
compensation or reimbursement shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
OFFICERS
SECTION 4.01. Officers. The officers of the Corporation shall be
the President, the Secretary and a Treasurer and may include a Chairman, a Vice-
Chairman, one or more Vice Presidents (including, one or more Executive and/or
Senior Vice Presidents), one or more Assistant Secretaries, one or more
Assistant Treasurers and such other officers as the Board may determine. Any
two or more offices may be held by the same person.
SECTION 4.02. Authority and Duties. All officers shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these By-laws or, to the extent not so provided, by resolution of
the Board.
SECTION 4.03. Term of Office, Resignation and Removal. (a) Each
officer, except such officers as may be appointed in accordance with the
provision of Section 4.04 or Section 4.05, shall be appointed by the Board and
shall hold office for such term as may be determined by the Board. Each officer
shall hold office until his successor has been appointed and qualified or his
earlier death or resignation or removal in the manner hereinafter provided. The
Board may require any officer to give security for the faithful performance of
his duties.
7
<PAGE>
(b) Any officer may resign at any time by giving written notice to
the Board, the Chairman, the President or the Secretary. Such resignation shall
take effect at the time specified in such notice or, if the time be not
specified, upon receipt thereof by the Board, the Chairman, the President or the
Secretary, as the case may be. Unless otherwise specified therein, acceptance
of such resignation shall not be necessary to make it effective.
(c) All officers and agents appointed by the Board shall be subject
to removal, with or without cause, at any time by the Board or by any officer
upon whom such power of removal may be conferred by the Board.
SECTION 4.04. Subordinate Officers. The Board may empower the
President to appoint such other officers as the business of the Corporation may
require, each of whom shall hold the office for such period, have such authority
and perform such duties as are provided in these Bylaws or as the Board or
President may from time to time determine.
SECTION 4.05. Vacancies. Any vacancy occurring in any office of the
Corporation, for any reason, shall be filled by action of the Board. Unless
earlier removed pursuant to Section 4.03 hereof, any officer appointed by the
Board to fill any such vacancy shall serve only until such time as the unexpired
term of his predecessor expires unless reappointed by the Board.
SECTION 4.06. The Chairman. The Chairman, if one shall be appointed,
shall have the power to call special meetings of Stockholders, to call special
meetings of the Board and, if present, to preside at all meetings of
Stockholders and all meetings of the Board. The Chairman shall perform all
duties incident to the office of Chairman of the Board and all such other duties
as may from time to time be assigned to him by the Board or these By-laws.
SECTION 4.07. The Vice-Chairman. The Vice-Chairman, if one shall be
appointed, shall perform such duties as may from time to time be assigned to him
by the Board or the Chairman, and in the absence or disability of the Chairman,
shall perform the duties and exercise the powers of the Chairman.
SECTION 4.08. The President. The President shall have general and
active management and control of the business and affairs of the Corporation,
subject to the control of the Board, and shall see that all orders and
resolutions of the Board are carried into effect. The President shall perform
all duties incident to the office of President and all such other duties as may
from time to time be assigned to him by the Board or these By-laws.
SECTION 4.09. Vice Presidents. Vice Presidents, if any, in order of
their seniority or in any other order determined by the Board, shall generally
assist the President and perform such other duties as the Board or the President
shall prescribe, and
8
<PAGE>
in the absence or disability of the President, shall perform the duties and
exercise the powers of the President.
SECTION 4.10. The Secretary. The Secretary shall, to the extent
practicable, attend all meetings of the Board and all meetings of Stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee. He shall give or cause to be
given notice of all meetings of Stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board, the Chairman or the
President and shall act under the supervision of the President. He shall keep
in safe custody the seal of the Corporation and affix the same to any instrument
that requires that the seal be affixed to it and which shall have been duly
authorized for signature in the name of the Corporation and, when so affixed,
the seal shall be attested by his signature or by the signature of the Treasurer
of the Corporation (the "Treasurer") or an Assistant Secretary or Assistant
Treasurer of the Corporation. He shall keep in safe custody the certificate
books and stockholder records and such other books and records of the
Corporation as the Board, the Chairman or the President may direct and shall
perform all other duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Board, the Chairman or
the President.
SECTION 4.11. Assistant Secretaries. Assistant Secretaries of the
Corporation ("Assistant Secretaries"), if any, in order of their seniority or in
any other order determined by the Board, shall generally assist the Secretary
and perform such other duties as the Board or the Secretary shall prescribe,
and, in the absence or disability of the Secretary, shall perform the duties and
exercise the powers of the Secretary.
SECTION 4.12. The Treasurer. The Treasurer shall have the care and
custody of all the funds of the Corporation and shall deposit such funds in such
banks or other depositories as the Board, or any officer or officers, or any
officer and agent jointly, duly authorized by the Board, shall, from time to
time, direct or approve. He shall disburse the funds of the Corporation under
the direction of the Board and the President. He shall keep a full and accurate
account of all moneys received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board, the Chairman or the
President shall so request. He shall perform all other necessary actions and
duties in connection with the administration of the financial affairs of the
Corporation and shall generally perform all the duties usually appertaining to
the office of treasurer of a corporation. When required by the Board, he shall
give bonds for the faithful discharge of his duties in such sums and with such
sureties as the Board shall approve.
SECTION 4.13. Assistant Treasurers. Assistant Treasurers of the
Corporation ("Assistant Treasurers"), if any, in order of their seniority or in
any other order determined by the Board, shall generally assist the Treasurer
and perform such other duties as the Board or the Treasurer shall prescribe,
and, in the absence or disability of the Treasurer, shall perform the duties and
exercise the powers of the Treasurer.
9
<PAGE>
SECTION 4.14. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board.
SECTION 4.15. Interested Directors; Quorum. (a) No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board or Committee thereof
which authorizes the contract or transaction, or solely because the votes of one
or more of such directors or officers are counted for such purpose, if:
(1) The material facts as to that person's relationship or
interest and as to the contract or transaction are disclosed or are known
to the Board or the Committee, and the Board or Committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to that person's relationship or
interest and as to the contract or transaction are disclosed or are known
to the Stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
shareholders; or
(3) The contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a Committee thereof, or the shareholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a Committee
which authorizes the contract or transaction.
ARTICLE V
SHARES AND TRANSFERS OF SHARES
SECTION 5.01. Certificates Evidencing Shares. Shares shall be
evidenced by certificates in such form or forms as shall be approved by the
Board. Certificates shall be issued in consecutive order and shall be numbered
in the order of their issue, and shall be signed by the Chairman, the President
or any Vice President and by the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer. Any or all of the signatures on a
Certificate may be a facsimile. In the event any such officer who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to hold such office or to be employed by the Corporation before such certificate
is issued, such certificate may be issued by the Corporation with the same
effect as if such officer had held such office on the date of issue.
10
<PAGE>
SECTION 5.02. Stock Ledger. A stock ledger in one or more
counterparts shall be kept by the Secretary, in which shall be recorded the name
and address of each person, firm or corporation owning the Shares evidenced by
each certificate evidencing Shares issued by the Corporation, the number of
Shares evidenced by each such certificate, the date of issuance thereof and, in
the case of cancellation, the date of cancellation. Except as otherwise
expressly required by law, the person in whose name Shares stand on the stock
ledger of the Corporation shall be deemed the owner and recordholder thereof for
all purposes.
SECTION 5.03. Transfers of Shares. Registration of transfers of
Shares shall be made only in the stock ledger of the Corporation upon request of
the registered holder of such shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and upon the
surrender of the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation may reasonably require.
SECTION 5.04. Addresses of Stockholders. Each Stockholder shall
designate to the Secretary an address at which notices of meetings and all other
corporate notices may be served or mailed to such Stockholder, and, if any
Stockholder shall fail to so designate such an address, corporate notices may be
served upon such Stockholder by mail directed to the mailing address, if any, as
the same appears in the stock ledger of the Corporation or at the last known
mailing address of such Stockholder.
SECTION 5.05. Lost, Destroyed and Mutilated Certificates. Each
recordholder of Shares shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing any
Share or Shares of which he is the recordholder. The Board may, in its
discretion, cause the Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
stolen or destroyed, upon the surrender of the mutilated certificate or, in the
case of loss, theft or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction, and the Board may, in its discretion,
require the recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 5.06. Regulations. The Board may make such other rules and
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates evidencing
Shares.
SECTION 5.07. Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the Stockholders entitled
to notice of or to vote at any meeting of Stockholders or any adjustment
thereof, or to express consent to, or to dissent from, corporate action in
writing without a meeting, or entitled to receive
11
<PAGE>
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board may fix, in
advance, a record date, which shall not be more than 60 nor less than 10 days
before the date of such meeting, nor more than 60 days prior to any other such
action. A determination of the Stockholders entitled to notice of or to vote at
a meeting of Stockholders shall apply to any judgment of such meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VI
SEAL
SECTION 6.01. Seal. The Board may approve and adopt a corporate
seal, which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
ARTICLE VII
FISCAL YEAR
SECTION 7.01. Fiscal Year. The fiscal year of the Corporation shall
end on the thirty-first day of August of each year unless changed by resolution
of the Board.
ARTICLE VIII
VOTING OF SHARES IN OTHER CORPORATIONS
SECTION 8.01. Voting of Shares in Other Corporations. Shares in
other corporations which are held by the Corporation may be represented and
voted by the Chairman, President or a Vice President of the Corporation or by
proxy or proxies appointed by one of them. The Board may however, appoint some
other person to vote the shares.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
SECTION 9.01. Indemnification. (a) The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative
12
<PAGE>
or investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 9.01(a) and (b) of these By-
laws, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Section 9.01(a) and (b) of these By-
laws (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Section 9.01(a) and (b)
of these By-laws. Such determination shall be made (i) by the Board by a
majority vote of a quorum consisting of directors who
13
<PAGE>
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders of the Corporation.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation pursuant to this Article IX. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, other Sections of this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(g) For purposes of this Article IX, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article IX with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(h) For purposes of this Article IX, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves service by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article IX.
14
<PAGE>
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrator of such a person.
SECTION 9.02. Insurance for Indemnification. The Corporation may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of Section 145 of the General Corporation Law.
ARTICLE X
AMENDMENTS
SECTION 10.01. Amendments. Unless otherwise provided in the
Certificate of Incorporation, any By-law (including these By-laws) may be
adopted, amended or repealed by the vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors or by written
consent of Stockholders pursuant to Section 2.09 hereof, or by vote of the Board
or by a written consent of Directors pursuant to Section 3.08 hereof.
15
<PAGE>
EXHIBIT 4.1
CHENIERE ENERGY, INC.
TOTAL AUTHORIZED ISSUE
20,000,000 SHARES WITH PAR VALUE $.003
COMMON STOCK
CUSIP 16411R 109
This is to Certify that (SPECIMEN) is the owner of
fully paid and non-assessable shares of the above Corporation
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
WITNESS, the facsimile seal of the Corporation and the facsimile signatures of
its authorized officers.
DATED
/s/ Charif Souki /s/ William D. Forster
- ---------------------------------- ----------------------------------
Secretary President
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF DEWEY BALLANTINE]
March 14, 1997
Cheniere Energy, Inc.
Two Allen Center
1200 Street, Suite 1710
Houston, Texas 77002-4312
Ladies and Gentlemen:
We have acted as counsel to Cheniere Energy, Inc., a Delaware corporation
(the "Company"), in connection with the Company's preparation and filing of a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), for the registration of the
resale of 839,639 shares of issued and outstanding common stock of the Company,
par value $0.003 per share (the "Common Stock").
In connection with this opinion, we have examined originals or copies
(including facsimile copies) of such agreements, documents, records and
instruments as we have deemed appropriate for the purposes of rendering this
opinion. As to factual matters, we have relied solely upon, and assumed the
accuracy, completeness and genuineness of, certificates of officers of the
Company, certificates of public officials, and oral and written representations
made to us by officers and other representatives of the Company. We have made
no independent investigation of any of the facts stated in any such certificate
or representation. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified,
photostatic or facsimile copies and the authenticity of the originals of such
latter documents.
Based upon the foregoing, and subject to the assumptions, qualifications
and limitations set forth herein, we are of the opinion as of the date hereof
that:
1. The Company is a corporation duly organized and validly existing
under the laws of the State of Delaware.
<PAGE>
2. The shares of the Common Stock to be registered pursuant to the
Registration Statement have been duly authorized by the Company, and are validly
issued, fully paid and nonassessable.
We are members of the bar of the State of New York and we express no
opinion as to matters governed by the laws of any other jurisdiction other than
the federal laws of the United States of America and the Delaware General
Corporation Law.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our name in the prospectus
constituting a part of such Registration Statement under the heading "Legal
Matters." In giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the Act or
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
DEWEY BALLANTINE
<PAGE>
EXHIBIT 10.1
EXPLORATION AGREEMENT
BETWEEN
ZYDECO EXPLORATION, INC.
AND
FX ENERGY, INC.
DATED
APRIL 4, 1996
<PAGE>
EXPLORATION AGREEMENT
INDEX
1. USE OF THE SEISMIC FUNDS.............................................. 2
2. SEISMIC FUNDS......................................................... 3
3. EXCESS SEISMIC COSTS DUE TO TURNKEY CONTRACTS......................... 4
4. DAMAGES TO THE STATE OF LOUISIANA UNDER THE EXCLUSIVE SEISMIC PERMIT.. 4
5. DISCONTINUANCE OF SEISMIC FUND PAYMENTS............................... 4
6. PROSPECTS............................................................. 6
7. PROSPECT DEVELOPMENT.................................................. 6
9. PROSPECT TEST WELL.................................................... 8
10. NON-PROPOSING PARTY'S ELECTION TO PARTICIPATE......................... 8
11. ZEI'S OBLIGATIONS..................................................... 9
12. ACCOUNTING OF SEISMIC FUNDS........................................... 9
13. RECORD TITLE.......................................................... 10
14. AREA OF MUTUAL INTEREST............................................... 10
15. SEISMIC DATA.......................................................... 11
16. GENERAL PROVISIONS.................................................... 12
<PAGE>
EXPLORATION AGREEMENT
This Exploration Agreement is made and entered into this 4th day of April,
1996, by and between Zydeco Exploration, Inc. ("ZEI") and FX Energy, Inc.
("FX").
W I T N E S S E T H :
WHEREAS, ZEI has considerable expertise in exploration and production
activities in the formerly seismically-blind trends of southern Louisiana; and
WHEREAS, ZEI utilizes advanced seismic imaging and comprehensive well log
analysis and integration to identify new drilling opportunities in an attempt to
minimize the risk in each of the prospects so identified; and
WHEREAS, FX desires to acquire and explore for oil and gas reserves in the
on- and off-shore area of coastal Louisiana; and
WHEREAS, FX and ZEI desire to work together to generate, develop, and
exploit oil and gas exploration prospects in the coastal Louisiana area; and
WHEREAS, the parties desire to establish an area of mutual interest within
which to develop exploration and drilling prospects to be shared by them; and
WHEREAS, the parties desire to delegate to ZEI the responsibility of
managing the acquisition of seismic options and/or permits, managing the
acquisition, processing, and reprocessing of seismic data, identifying potential
prospects, acquiring leases and farmouts, interpreting geological and
geophysical data, making drilling recommendations, and managing the exploration
process, including selecting and monitoring a production operator, or
alternately, acting itself as production operator; and
WHEREAS, ZEI will contribute to the exploration program for costs a State
of Louisiana exclusive seismic survey permit obtained at the State of Louisiana
tender on February 14, 1996 (the "Exclusive Seismic Permit"), a copy of which is
attached hereto as Exhibit "A," and all overhead costs associated with the
development and interpretation of drillable prospects except for the costs of
processing and re-processing seismic data and well logs; and
WHEREAS, FX will pay 100% of Seismic Costs, as hereafter defined, up to
$13,500,000 and 50% of Seismic Costs thereafter; and
WHEREAS, the parties memorialize their undertakings pursuant to the terms
hereinafter set forth;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and of the mutual and
dependent covenants hereinafter set forth, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
1. USE OF THE SEISMIC FUNDS
------------------------
ZEI shall obtain seismic data (the "Program Data") covering the lands
depicted on Exhibit "B" and modified by Exhibit "B-1" (the "Initial Prospect
Lands") using funds ("Seismic Funds") contributed by FX, subject to the
understanding that should Seismic Costs, as defined herein, exceed $13,500,000
(the "Target Costs"), ZEI and FX shall jointly bear all Seismic Costs in excess
of Target Costs. The Seismic Funds shall be advanced by FX according to the
schedule described in Section 2.
The Seismic Funds shall be applied by ZEI as follows:
a. To ZEI as reimbursement for the expenses, including bonus,
incurred to date in acquisition of the Exclusive Seismic Permit;
then
b. toward costs incurred by ZEI in acquiring and processing Program
Data, including:
i. acquisition of proprietary seismic data, including, without
limitation, the seismic data required under the Exclusive
Seismic Permit, including quality control expenses and
feasibility tests prior to commencement of acquisition of
seismic data;
ii. obtaining permits to acquire seismic data;
iii. payments for options to obtain seismic data, and out of
pocket costs incident thereto, including the state permit
for 51,350 acres, (to the extent such permit is not
reimbursed under the other provisions hereof);
iv. seismic processing and reprocessing costs;
v. licensing of seismic data owned by third parties;
vi. third party legal and professional expenses relating to the
Exclusive Seismic Permit, or the acquisition or processing
of Program Data;
2
<PAGE>
vii. weather insurance, as applicable for non-turnkey
agreements;
viii. turnkey contracts;
ix. damages paid by ZEI to landowners for damages to lands or
possessions;
x. the cost of legal defense, judgments, and settlements
relating to any claim or cause of action brought by a land
or mineral owner relating to or arising out of the
acquisition of seismic data hereunder;
xi. the cost of transmission or transportation of data from
field to office and insurance costs associated therewith;
xii. any other third party expense reasonably incurred by ZEI in
connection with the items enumerated under this Section.
c. toward costs incurred by ZEI in acquiring permits, options to
lease lands within the AMI, and leases of lands within the AMI
when necessary including:
i. bonus and other payments made to parties for such options;
ii. out-of-pocket costs incurred by ZEI in obtaining such
options, e.g., landman costs, broker expenses, abstract
charges, etc.;
iii. third party legal, accounting, and professional expenses
incurred in obtaining such options, both in examination of
title and in negotiating options;
iv. any other third party expense reasonably incurred by ZEI in
connection with the items enumerated under this Section.
The term "Seismic Costs" shall include all items referred to in this
Section 1.
3
<PAGE>
2. SEISMIC FUNDS
-------------
FX shall pay the Seismic Funds to ZEI for deposit in the segregated account
described in Section 12.a on the following schedule.
DATE AMOUNT
---- ------
1996-05-15 $3,000,000.00
1996-06-30 1,000,000.00
1996-07-30 1,000,000.00
1996-08-30 1,000,000.00
1996-09-30 2,000,000.00
1996-10-30 1,000,000.00
1996-11-30 1,000,000.00
1996-12-30 1,000,000.00
1997-01-30 1,000,000.00
1997-02-28 1,500,000.00
Should FX fail to make the initial advance by May 15, 1996, this
agreement shall terminate and be of no further force or effect.
3. EXCESS SEISMIC COSTS DUE TO TURNKEY CONTRACTS
---------------------------------------------
The parties anticipate that ZEI may enter into one or more turnkey
contracts. The parties estimate that the premium required for turnkey contracts
may bring total Seismic Costs to $15,000,000. Should turnkey costs cause
Seismic Costs to exceed the Target Costs, the parties agree:
(i) In lieu of FX bearing 100% of Seismic Costs up to $13,500,000, FX
shall bear 100% of Seismic Costs up to $13,000,000.
(ii) FX and ZEI shall bear Seismic Costs between $13,000,000 and
$15,000,000 equally; and
4
<PAGE>
(iii) Any Seismic Costs in excess of $15,000,000 shall be borne
equally.
4. DAMAGES TO THE STATE OF LOUISIANA UNDER THE EXCLUSIVE SEISMIC PERMIT
--------------------------------------------------------------------
The Exclusive Seismic Permit requires the payment of liquidated and other
damages in certain situations. Should such be required, the parties agree that
such damages shall be borne equally by FX and ZEI.
5. DISCONTINUANCE OF SEISMIC FUND PAYMENTS
---------------------------------------
a. Should FX fail to make a Seismic Fund payment within thirty days
of the date due (a "Discontinuance"), the parties shall proceed
as follows:
i. The obligation of FX to make additional Seismic Fund
payments shall terminate, as well as the right of FX to make
such payments.
ii. ZEI shall, individually, or with the cooperation or
assistance of one or more companies, complete acquiring or
processing Program Data; provided however, it shall incur no
liability to FX for failing to do so.
iii. At such time as ZEI acquires an interest in a lease
covering a portion of the Initial Prospect Lands (which may
be acquired by direct lease, assignment from an existing
lease, or acquiring a farmout), ZEI shall determine the
aggregate amount of Seismic Costs incurred to that date.
iv. FX shall be entitled to a prospect ownership interest (the
"FX Prospect Interest") which, expressed as a percentage, is
equal to the Seismic Funds FX paid divided by twice the
total Seismic Funds expended. Thus a contribution of $3.0
of Seismic Funds by FX when total Seismic Costs were $12.0
million entitle FX to a FX Prospect Interest equal to 12.5%.
b. Where ZEI itself, following a Discontinuance, contributes funds
that otherwise would be provided by FX under the terms hereof,
ZEI shall be entitled to receive back such funds, together with
interest thereon at the prime interest rate, from revenues
5
<PAGE>
attributable to the FX Prospect Interest (including, without
limitation, any working interest or overriding royalty interest
revenues from production or front end proceeds attributable to
such interest when owned by FX under the applicable operating
agreement or proceeds from the sale or license of seismic data).
c. Subject to the provision immediately below, if a Discontinuance
occurs, and ZEI does not itself fund the deficient Seismic Costs,
ZEI may sell, trade, farm-out, lease, sublease or otherwise trade
(collectively, a "Trade") the aggregate (i.e., both that of ZEI
and FX) prospect interests to any party on arms' length terms.
For this purpose the aggregate prospect interests includes all
seismic data acquired hereunder, and revenues from a Trade
include seismic data sale or license proceeds. Any revenues
accruing from a Trade shall be applied toward the cost of
completing the project contemplated hereunder.
d. Should ZEI do a Trade and FX have funded $8,000,000 or more prior
to the Discontinuance, then the parties shall treat FX as having
earned a vested prospect ownership interest of 25%, which shall
be treated under the applicable operating agreement and not
subject to any Trade, and any revenues from a Trade, which would
in this instance cover a 75% prospect ownership interest, shall
be shared 33-1/3% by FX and 66-2/3% by ZEI.
6. PROSPECTS
---------
As used herein, "prospect" shall mean a block of acreage suitable for
exploration, including leasehold, operating, nonoperating, mineral and royalty
interests, licenses, permits, and contract rights relating thereto.
Upon acquisition of the Program Data, ZEI shall evaluate such data for
prospects. Prospects found during the initial review of such seismic data are
hereinafter referred to as the "Prospects."
7. PROSPECT DEVELOPMENT
--------------------
a. Prospect Preparation
ZEI will prepare the Prospects for evaluation, which shall include,
among other things, the following:
6
<PAGE>
i. examination of land and lease titles to determine lands and
leases available for lease or farmout;
ii. leasing of lands within the Prospect perimeters, and, where
such lands are under lease, acquiring farmouts;
iii. geological and geophysical interpretation;
iv. mapping; and
v. permitting.
b. Operating Agreement for Prospects
Each Prospect will be drilled and operated under an operating
agreement in the form of that attached hereto as Exhibit "C" (the
"Default Operating Agreement"). Each such operating agreement shall
cover the Prospect Lands for the applicable Prospect. The parties
acknowledge that for one or more of the Prospects, third parties may
participate in the drilling of wells. Such parties may request
changes in the applicable operating agreement. ZEI and FX agree to
negotiate changes as may be requested in good faith. On one or more
Prospects, ZEI may itself not wish to act as operator. In such event
ZEI may designate a qualified third party to act as operator of the
Prospect.
In the event of any inconsistency or conflict between the terms and
provisions of this Agreement and of the operating agreement covering
any Prospect or other prospect developed hereunder, the terms and
provisions of this Agreement shall prevail.
c. Notice to FX of Completion of Prospect Assembly and Development
ZEI will notify FX when a Prospect's assembly and development is
complete. Subject to any applicable restrictions imposed in
confidentiality agreements or license agreements, ZEI will make
available to FX in ZEI's office all seismic materials, maps,
geological reports leases, farmout agreements or other materials in
its possession reasonably relevant to a decision to participate in the
drilling of the Prospect test well and prospect. ZEI shall give FX
access to ZEI's 3D work stations during normal business hours as
necessary or appropriate to allow FX to evaluate 3D seismic data
relevant to the prospect.
7
<PAGE>
8. PROSPECT EXPENSES
-----------------
a. Program expenses ("Prospect Expenses") are to be borne equally
by ZEI and FX and include the following costs of preparing the
Prospects for evaluation, development, and drilling:
i. lease bonuses and brokerage for additional leases wholly or
partly within the Prospect Lands;
ii. delay or shut in rental payments on leases or interests
acquired hereunder;
iii. third party legal and professional expenses relating to the
acquisition or maintenance of leases or farmouts;
iv. any other third party expense reasonably incurred by ZEI in
connection with the items enumerated under this Section or
in Section 7;
v. engineering costs
provided, however, if FX fails to pay the full amount of the
Target Costs, FX shall bear a percentage of the Prospect Expenses
equal to its FX Prospect Interest. FX shall have the opportunity
to participate for a working interest in Prospect leases and
farmouts equal to its FX Prospect Interest.
b. Should FX fail to pay Prospect Expenses within thirty days of
receipt of a billing therefor, and ZEI demand payment of such
Prospect Expenses by written demand delivered by certified mail,
return receipt requested, and FX not pay the delinquent Prospect
Expenses within fifteen (15) days of receipt of the certified
mail demand; then
i. FX shall have no liability for such Prospect Expenses;
ii. FX shall be deemed to have declined to participate in the
Prospect in question; and
iii. FX shall promptly, upon request, quitclaim to ZEI any
interest it has or might have in the Prospect in question.
8
<PAGE>
9. PROSPECT TEST WELL
------------------
For a period of ninety days following ZEI's delivery of the notice provided
in Section 7.c advising that a Prospect's assembly and development is complete,
ZEI shall have the exclusive right to propose a well. Thereafter, either party
may propose a well. The proposing party shall include the following information
with its notice:
a. the spud date scheduled for the initial test well on the
Prospect, which shall not be less than 90 days from the date of
notice (subject to rig availability) unless a farmout requirement
or lease termination necessitates a shorter period;
b. the target formation;
c. an AFE for the test well, with dry hole and completion costs
shown;
d. whether the well is recommended to be drilled on a turnkey,
daywork, or footage basis;
e. an estimated economic evaluation of the Prospect; and
f. the Default Operating Agreement for signature, revised to include
the legal description of the Prospect in question.
10. NON-PROPOSING PARTY'S ELECTION TO PARTICIPATE
---------------------------------------------
Within 30 days of its receipt of the notice described in Section 9 above,
the non-proposing party shall advise the proposing party of the working
interest, if any, with which the non-proposing party will either take itself or
sell to a third party. If the aggregate working interest for which the non-
proposing party will either itself participate or sell to a third party is less
than the working interest owned by the non-proposing party, the non-proposing
party shall assign the balance of its working interest to proposing party or its
designee. Such assignment shall be in the form of that attached hereto as
Exhibit "D" (the "Assignment"). As provided in the Assignment, the non-
proposing party will reserve a 2% of 8/8ths overriding royalty until payout, as
therein defined, together with an option to convert said overriding royalty
interest to a 20% of 8/8ths working interest at payout, both the overriding
royalty and working interest to be proportionately reduced to reflect the
working interest assigned.
Any consideration received by a party for the sale or farming out of a
portion of its working interest shall be solely for such party's account.
9
<PAGE>
Should a non-proposing party fail to assign its excess interest under the
Assignment prior to ten days before the scheduled spud date, the excess interest
will be drilled subject to the non-consent provisions of the Default Operating
Agreement, which provides for a forfeiture of interest on Exploratory
Operations, as defined therein.
11. ZEI'S OBLIGATIONS
-----------------
Without further consideration, ZEI shall undertake the following:
a. to provide all management and administration necessary to prepare
the Prospects for drilling, as more fully described under Section
7.a;
b. all bonding requirements necessary to maintain leases acquired
pursuant hereto;
c. geophysical and geological evaluations of the Prospects; and
d. estimated economic evaluations of the Prospects.
Notwithstanding the foregoing, FX shall reimburse ZEI for one-half the cost
of bonding a Lease at the time ZEI delivers an assignment of an interest in the
Lease to FX.
ZEI shall have the sole authority to determine the specifications of
acquiring, processing, and reprocessing seismic data and well logs. Further,
ZEI has the option of performing all or partial sequencing of the seismic data
or well log processing utilizing its own facilities.
12. ACCOUNTING OF SEISMIC FUNDS
---------------------------
a. Segregated Account
For ease of accounting, ZEI shall segregate the Seismic Funds into a
separate account (the "Seismic Fund Account"). Such account shall be
styled to put third parties on notice that the funds are held for the
joint account of FX and ZEI. Except where impractical, all Seismic
Costs shall be withdrawn directly from the Seismic Fund Account.
10
<PAGE>
b. Accounting
Not less than 45 days after the end of each calendar quarter, ZEI
shall give FX a detailed accounting of all funds withdrawn from the
Seismic Fund Account. ZEI shall furnish documentation supporting
Seismic Fund expenditures to FX upon request.
c. Right to Audit
FX shall have such rights of audit as are available to a non-operator
under the Default Operating Agreement.
d. Internally Generated Statements
Prior to the end of each month ZEI shall forward to FX internally
prepared statements for the prior month showing revenues and expenses
charged to the Seismic Fund Account.
e. Joint Signature Account
Should the timing of Seismic Costs and payment of the Seismic Funds be
such that the Seismic Fund Account would have in excess of $2,000,000
at one time, ZEI and FX shall jointly deposit the excess funds (i.e.,
those over $2,000,000) into a joint signature account.
13. RECORD TITLE
------------
a. ZEI shall obtain title to leases acquired pursuant hereto (the
"Leases"). ZEI shall assign to FX its leasehold interest in a
Lease utilizing the form of assignment provided herein. Such
assignment shall be delivered after FX has paid all Prospect
Expenses billed to it hereunder and:
i. a well is ready for drilling; or
ii. front end costs have been paid to ZEI by a third party
working interest owner, or
iii. a farmout of the prospect has been signed.
b. Each of ZEI and FX agree not to pledge, mortgage, or hypothecate
any Lease without the consent of the other prior to the time a
well is spudded on such Lease or a unit containing
11
<PAGE>
such Lease. Each of ZEI and FX further agree not to pledge,
mortgage or hypothecate any seismic data obtained hereunder.
14. AREA OF MUTUAL INTEREST
-----------------------
The parties hereby designate an Area of Mutual Interest ("AMI"). The AMI
shall encompass the Initial Prospect Lands. Should ZEI acquire as a Seismic
Cost data covering lands outside the Initial Prospect Lands, the AMI shall be
deemed enlarged to cover all lands covered by such seismic data. Any interest
taken by either party after May 16, 1996 and prior to May 15, 2001 in an oil and
gas lease, exploration option, operating agreement, farm-in, deed coupled with
mineral interest, or any similar agreement which creates or effects an interest
in hydrocarbons in lands within the AMI (an "Interest"), or acquisition of a
contractual right to acquire an Interest, shall be deemed taken for development
under this agreement. The party acquiring an Interest shall, within thirty (30)
days of the time of such acquisition, notify, in writing, the non-acquiring
party. The notice shall describe the interest and set forth the terms of such
acquisition, the consideration paid, any other acquisition costs, and other
obligations assumed. The non-acquiring party will then have the right, within
thirty (30) days of the receipt of such notice, to elect in writing to receive
an assignment of one half (or, if smaller, its working interest ownership
determined by the FX Prospect Interest, as applicable) of each such acquired
Interest and the obligations connected therewith. If the non-acquiring party
elects to take such an assignment, the non-acquiring party shall tender to the
acquiring party, at the time it gives notice of its election, its share of the
consideration and acquisition costs actually paid by the acquiring party, and in
consideration thereof, shall receive an assignment of its share of the Interest
with covenants of special warranty. The failure to make such election and to
tender its share of the consideration and costs within such thirty (30) day
period shall constitute a waiver of the non-acquiring party's right to receive
such an interest. During such thirty (30) day notice period, the non-acquiring
party shall have the right to inspect all leases, documents, title information,
and contracts reflecting the interest to be acquired.
15. SEISMIC DATA
------------
a. Licensed Data
When licensing data for use in evaluation of the Prospects, ZEI
shall endeavor to secure a joint license which would allow FX and ZEI
to use the licensed data independently. However, if a joint license
can be obtained only by the payment of an additional premium, ZEI
shall license such data with only itself as the licensee.
12
<PAGE>
b. Marketing of Proprietary Data
ZEI will acquire proprietary seismic data in its prospect
development program. Absent the agreement of both parties, such data
shall not be marketed to third parties. FX shall own an interest in
such seismic data equal to the FX Prospect Interest and ZEI the own
the remaining interest in such data.
Notwithstanding the ownership in the seismic data described
above, if FX funds the entire seismic acquisition program contemplated
hereunder, then until such time, if any, as proceeds from the sale or
license of proprietary seismic data equal Seismic Funds advanced by
FX, FX shall receive all proceeds from any license or sale of
proprietary seismic data. After such proceeds equal the Seismic Funds
advanced by FX, any further proceeds shall be shared equally by ZEI
and FX.
16. GENERAL PROVISIONS
------------------
a. Additional Documents
The parties agree to execute such further documents as may be
necessary or appropriate to more fully reflect the agreements and
understandings reflected herein.
b. Amendment.
This Agreement may be amended only by an instrument signed by the
party against whom such amendment is sought to be enforced.
c. Arbitration.
Subject to any restriction imposed by law on agreements for
compulsory arbitration, the parties agree that any controversy or
dispute arising out of, in connection with, or related to this
Agreement, any provision or breach thereof, or any transaction
contemplated hereby shall be submitted to and settled by binding and
conclusive arbitration before a panel of three (3) arbitrators in
Houston, Texas in accordance with the applicable rules of the American
Arbitration Association (or any other form of arbitration agreed to by
the parties) then in effect; provided, however, that only actual
damages and attorney fees of the prevailing party reasonably incurred
in connection with the arbitration proceeding shall be awarded in
connection therewith. Judgment on any award rendered pursuant to any
such arbitration proceeding may be entered in any court, Federal or
state, having jurisdiction thereof, and
13
<PAGE>
the parties shall be deemed to have waived their right to any form of
appeal of such award to the extent permitted by law.
d. Assignment
This agreement may be assigned in whole or part by FX with the
approval of ZEI, which approval shall not be unreasonably denied.
e. Successors and Assigns.
Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the
parties hereto.
f. Consequential Damages.
Neither party hereto shall be liable to the other for special,
indirect, consequential or incidental damages resulting from or
arising out of this Agreement or the obligations contemplated
hereunder, including, but not limited to, loss of production, loss of
anticipated profits or business interruptions, however same may be
caused.
g. Contractual Liabilities
Should ZEI incur a contractual liability to a third party in
performing its undertakings hereunder, such contractual liability
shall be treated as a Prospect Expense. Should ZEI incur a tort
liability to a third party in performing its undertakings hereunder,
and such liability be a result of gross negligence or willful
malfeasance, such liability, and all attorneys fees and expenses
relating thereto, shall be solely for ZEI's account. Should ZEI incur
a tort liability to a third party in performing its undertakings
hereunder, and such liability not be a result of gross negligence or
willful malfeasance, such liability, and all attorneys fees and
expenses relating thereto, shall be borne equally by FX (or its
assigns) and ZEI.
h. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall
constitute one instrument.
14
<PAGE>
i. WAIVER OF CONSUMER RIGHTS
-------------------------
(Texas Deceptive Trade Practices Act)
It is the belief of the parties that this agreement is exempt
from the provisions of the Texas Deceptive Trade Practices-Consumer
Protection Act (the "Act"). Should, however, the Act be construed to
not exempt this transaction, the following waiver shall apply. For
the purpose of the following waiver, ZEI is deemed the Seller and FX
the Purchaser:
PURCHASER REPRESENTS AND STIPULATES TO SELLER THAT:
(I) THE PURCHASER IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION;
(II) THE PURCHASER IS REPRESENTED BY LEGAL COUNSEL IN SEEKING OR
ACQUIRING THE GOODS OR SERVICES WHICH IT ACQUIRES UNDER THIS
AGREEMENT; AND
(III) CONSUMER'S LEGAL COUNSEL WAS NOT DIRECTLY OR INDIRECTLY
IDENTIFIED, SUGGESTED, OR SELECTED BY SELLER OF AN AGENT OF THE
SELLER.
(IV) I (THE PURCHASER) WAIVE MY RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ.,
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL
RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF
MY OWN SELECTION, I VOLUNTARILY CONSENT TO THIS WAIVER."
j. Due Authorization.
Each party hereto represents that the execution, delivery and
performance of this Agreement by such party has been duly authorized
by all necessary corporate action.
k. Entire Agreement.
This Agreement, including the schedules and exhibits hereto
constitutes the entire Agreement, and supersedes all other prior
15
<PAGE>
agreements, understandings, representations and warranties both
written and oral, among the parties, with respect to the subject
matter hereto.
l. Force Majeure
In the event that any party is rendered unable, in whole or in
part, by force majeure to carry out its obligations under this
Agreement (other than the obligation to make payments of money due),
upon such party giving notice and reasonably full particulars of such
force majeure in writing to the other party within a reasonable time
after the occurrence of the cause relied upon, the obligations of the
party giving such notice, so far as they are affected by such force
majeure, shall be suspended during the continuance of any inability so
caused, but for no longer period; and the cause of the force majeure
as far as possible shall be remedied with all reasonable dispatch.
The term "force majeure" as employed herein shall mean an act of God,
strike, lockout or other industrial disturbance, war, blockade, riot,
lightning, fire, storm, flood, explosion, governmental restraint and
any other cause whether of the kind herein enumerated, or otherwise,
not reasonably within the control of the party claiming suspension.
The settlement of strikes, lockouts and other labor difficulties shall
be entirely within the discretion of the party having the difficulty.
The above requirement that any force majeure shall be remedied with
all reasonable dispatch shall not require the settlement of labor
difficulties by acceding to the demands of opponents therein when such
course is inadvisable in the discretion of the party having the
difficulty.
m. Governing Law
Except as otherwise required by mandatory provisions of
applicable law, this Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to
principles of conflicts of law.
n. Headings.
Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
o. Relationship of the parties
The parties to this Agreement are independent contractors. There
is no relationship of agency, partnership, joint venture, employment,
or franchise between the parties in any way. Neither party
16
<PAGE>
nor its employees has the authority to bind or commit the other party
in any way or to incur any obligation on its behalf.
p. Notices
Any notice or report herein required or permitted to be given
shall be addressed to the parties as follows:
If to FX:
FX Energy, Inc.
237 Park Avenue, Suite 2100
New York, NY 10017
Tel: 212 551 3550
Fax: 212 490 0131
If to ZEI:
Zydeco Exploration, Inc.
Suite 1160
333 North Sam Houston Parkway East
Houston, Texas 77060-2403
Tel: 713 820 2481
Fax: 713 820 6054
Any notice required to be given hereunder shall be sufficient if
in writing, and sent by nationally recognized overnight courier
service, hand delivery, telecopy or registered mail (return receipt
requested and first-class postage prepaid), addressed to the address
first set forth above for each party (or to such other address as any
party shall specify by written notice so given), and shall be deemed
to have been delivered as of the date sent.
q. Performance Standards
In performing their duties or exercising their rights hereunder,
one party shall be liable to the other only for gross negligence or
willful malfeasance. It is not the intent that either party have a
fiduciary obligation to the other, any such obligation being expressly
waived and disclaimed.
17
<PAGE>
r. Severability
If any part of this Agreement is found invalid or unenforceable,
that part will be amended to achieve as nearly as possible the same
economic effect as the original provision and the remainder of this
Agreement will remain in full force.
s. Statute of limitations.
No action arising under this Agreement may be brought at any time
more than thirty six (36) months after discovery or acquisition of
knowledge of the facts upon which the cause of action is based
occurred.
t. Tax Matters
As to all operations hereunder, the parties hereto shall be
subject to and shall comply and abide with the tax election provisions
set out in Exhibit "E" attached hereto and made a part hereof for all
purposes.
u. Third Party Beneficiary.
This Agreement is not intended to benefit or to create any
obligations to, or rights in respect of, any persons other than the
parties hereto, and their respective legal representatives, heirs or
estates.
v. Time
Time is of the essence in all matters pertaining to this
Agreement.
w. Titles
The parties acknowledge that the determination of adequate or
marketable title to Louisiana lands and leases is, to a great extent,
subjective. As to any option, permit, or land or lease acquired
hereunder, ZEI shall make all title materials in its possession
available to FX upon request. ZEI makes no warranty or representation
that the title of any party granting any option, permit, land or lease
hereunder is adequate, good, or marketable. Further, ZEI shall have
no liability to FX of any nature upon the total or partial failure of
title to any option, permit, land or lease acquired hereunder.
18
<PAGE>
IN WITNESS WHEREOF, this Exploration Agreement is executed as of the date
first above written.
ZYDECO EXPLORATION, INC.
By: /s/ Sam Myers
----------------------------------
Sam Myers, President
FX ENERGY, INC.
By: /s/ William D. Forster
---------------------------------
Its: President
19
<PAGE>
EXHIBIT "B"
INITIAL PROSPECT LANDS
<PAGE>
EXHIBIT "D"
PARTIAL ASSIGNMENT OF OIL AND GAS LEASE
STATE OF LOUISIANA (S)
PARISH OF _______________ (S)
This Assignment, from _______________, a __________ corporation whose
address is ____________________________ (hereinafter called "Assignor") to
____________________, a _______ corporation whose address is
_______________________ (hereinafter called "Assignee");
Assignor, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, does hereby SELL, TRANSFER,
ASSIGN, SET OVER AND CONVEY unto Assignee, subject to the terms and provisions
set forth herein, an undivided _______________ interest in and to the Oil and
Gas Lease (the "Lease") described below:
[Lease Description]
ASSIGNOR hereby reserves unto itself, its successors and assigns, and
saves and excepts from this assignment an undivided 2% of 8/8ths overriding
royalty interest in all oil, gas or other hydrocarbons or minerals produced,
saved, and sold from the lands subject to the Lease. Such reserved overriding
royalty (the "Overriding Royalty") is subject to the following terms and
conditions:
(a) The Overriding Royalty shall be free and clear of all cost
and expense of production.
(b) The Overriding Royalty shall be paid at the same time as
provided for payment of royalties under the Lease.
(c) The Overriding Royalty may be pooled and unitized with other
lands and leases without the consent or joinder of the owner or
owners of said overriding royalty.
(d) The Overriding Royalty is based on the assumption that the
Lease covers the full and entire mineral interest in the lands
described therein. In the event that it shall be found that the
Lease covers less than the entirety of the minerals in said
lands, the Overriding Royalty shall be reduced proportionately.
1
<PAGE>
(e) To the extent that Assignor is assigning less than 100% of
the working interest in the Lease, the Overriding Royalty shall
be reduced proportionately.
(f) The Overriding Royalty shall not apply to nor be payable upon
oil, gas or other hydrocarbons used for recycling, repressuring
or similar operations benefiting the Lease or any portion thereof
or other lands and leases pooled therewith or unavoidably lost.
If the Lease provides that shut-in gas payments shall be made as
royalty rather than as rental, Assignor shall not be entitled to
any such royalty interest.
(g) "Project Payout" as used herein, is the first day of the next
calendar month at the point when the net value of the total
production from or attributable to the Lease (i.e., the gross
income from such production, less operating expenses, lease
royalties, production and/or other applicable taxes unless
reimbursed to Assignee by the purchaser of such production, and
less the hereinabove reserved overriding royalty to be paid by
Assignee to Assignor) equals the total costs of drilling, testing
and completing all Lease wells for production, including but not
limited to costs associated with each well's separator, line
heater, dehydrator, measuring equipment, flowlines, and
facilities located on the Lands and utilized with such Lease
production, and other equipment individually associated with
Lease wells and not part of a processing plant or an existing
central tank battery. Gross income shall include any prepayment
from a purchaser. Total costs shall not include any costs
associated with any facility which services, or is designed to
service, in whole or part, off lease production.
Upon Project Payout, Assignor shall have the option (the "Option") to
convert all of the Overriding Royalty into an undivided twenty percent (20%)
working interest in the Lease proportionately reduced to reflect that Assignor
is converting less than a 2% of 8/8ths overriding royalty, together with a like
interest in all personal property and equipment on the Lease lands (including
platforms and pipelines to the extent then owned by Assignee) used or obtained
in connection with wells located thereon. At such time as Project Payout
occurs, Assignee shall so notify Assignor. Notification shall be by certified
mail, return receipt requested, as well as by telecopy. Assignor shall have
thirty (30) days in which to exercise the Option. If Assignor exercises the
Option, Assignee shall assign to Assignor the described working interest. Such
assignment shall be effective as of the first day of the month next following
the time in which Project Payout has occurred. The assignment shall be with
warranty of title by, through and under the assignor, but not otherwise.
2
<PAGE>
This Assignment is made by Assignor and accepted by Assignee subject to the
following:
a. the terms, provisions and conditions of the Lease and any
limitation on or contained in the Lease;
b. the terms, conditions and burdens imposed by or contained in
instruments appearing in Assignor's chain of title, or appearing
in instruments referenced in instruments appearing in Assignor's
chain of title, or amendments thereto; and
c. the term, obligations, and burdens contained in that certain
Agreement between Assignor and Assignee dated ____________ (the
"Agreement"). Should the terms of this Assignment conflict with
the terms of the Agreement, the terms of the Agreement shall
control.
TO HAVE AND TO HOLD the Lease unto Assignee, its successors and assigns
forever. This Assignment is given without warranty, express or implied, except
for a limited warranty by Assignor that Assignor has not previously conveyed or
encumbered or agreed to convey or encumber the Lease in favor of any other
party.
With respect to the Overriding Royalty reserved by Assignor, Assignee
shall, upon request, furnish Assignor with monthly reports showing the number of
producing wells and producing days, lease stocks and runs.
The terms and conditions of this Assignment shall extend to and be binding
upon the successors and assigns of the parties.
The covenants, obligations and agreements contained herein shall be
construed as covenants running with the land.
This assignment is made effective ____________.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this instrument on the dates
acknowledged below.
WITNESSES ASSIGNOR:
Name: _______________________
Witness
By:
Its:
Name: _______________________
Witness
WITNESSES ASSIGNEE:
Name: _______________________
Witness By:
Its:
Name: _______________________
Witness
4
<PAGE>
State of (S)
(S)
County of (S)
On this ___ day of ________, 199_, before me appeared ______________, to
me personally known, who, being by me duly sworn, did say that he is the _____
president, of FX Energy, Inc., a Delaware corporation, and that said instrument
was signed and sealed on behalf of said corporation, and said appearer
acknowledged that he executed the same as the free act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on the
date hereinabove written.
___________________________________
Notary Public in and for
[SEAL] the State of
My Commission Expires:_______________
State of Texas (S)
(S)
County of Harris (S)
On this ___ day of ________, 199_, before me appeared Stephen W. Knecht,
to me personally known, who, being by me duly sworn, did say that he is the Vice
President, of ZYDECO EXPLORATION, INC., a Texas corporation, and that said
instrument was signed and sealed on behalf of said corporation by authority of
its Board of Directors, and said appearer acknowledged that he executed the same
as the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on the
date hereinabove written.
___________________________________
Notary Public in and for
[SEAL] the State of Texas
My Commission Expires:_______________
5
<PAGE>
EXHIBIT "D"
TAX PARTNERSHIP PROVISIONS
--------------------------
1. RELATIONSHIP OF THE PARTIES.
This agreement shall not create any mining partnership, commercial
partnership or other partnership relations or joint venture, and the
liabilities of each of the Parties hereto shall be several and not joint.
However, solely for the United States federal income tax purposes, this
Agreement shall be considered as a partnership, but such relationship shall
not be a partnership to any other extent or for any other purposes.
2. ELECTION TO REMAIN WITHIN SUBCHAPTER K.
Notwithstanding anything to the contrary herein or in the Operating
Agreement (the "Operating Agreement") to which this is also to be
considered an Exhibit, the Parties hereto agree with respect to all
operations conducted hereunder:
Each Party, now having or hereinafter acquiring an interest under this
Agreement, agrees not to elect to be excluded from the application of
Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue Code of
1986, as amended (the "Code"), and each party agrees to join in the
execution of such additional documents and elections as may be required by
the Internal Revenue Service in order to effectuate the foregoing. In
addition, if the income tax laws of any state in which the Parties conduct
operations pursuant to the terms of this Exhibit or the Operating
Agreement, contain provisions similar to those contained in Subchapter R of
Chapter 1 of Subtitle A of the Code, the Parties hereby agree not to elect
to be excluded from the application of such provisions.
3. INCOME TAX COMPLIANCE AND CAPITAL ACCOUNTS.
The Operator shall prepare and file all federal and state partnership
income tax returns. In preparing such returns Operator shall use its best
efforts and in doing so shall incur no liability to any other Party with
regard to such returns. Not less than two weeks prior to the due date
(including extensions) Operator shall submit to each Party a copy of the
return as proposed for review.
The Operator shall establish and maintain fair market ("FMV") capital
accounts and tax basis capital accounts for each Party. Operator shall
submit to each Party, along with a copy of any proposed partnership income
tax return, an accounting of its respective capital accounts as of the end
of the tax return period.
1
<PAGE>
Each Party agrees to furnish to Operator not later than 30 days before the
return due date (including extensions) such information relating to the
operations conducted under this Agreement as may be required for the proper
preparation of such returns and capital accounts.
4. TAX MATTERS PARTNER.
4.1 Operator is Tax Matters Partner. Operator is designated tax matters
partner ("TMP") as defined in Internal Revenue Code (Code) Section 6231 (a)
(7). In the event of any change in Operator, the Party serving as TMP for
a given taxable year shall continue as TMP with respect to all matters
concerning such year. The TMP and other Parties shall use their beat
efforts to comply with the responsibilities outlined in this Section and in
Code Sections 6222 through 6233 and 6050(K) (including any Treasury
Regulations promulgated thereunder) and in doing so shall incur no
liability to any other Party. Notwithstanding TMP's obligation to use its
best efforts in the fulfillment of its responsibilities, TMP shall not be
required to incur any expenses for the preparation for, or pursuance of
administrative, or judicial proceedings, unless the Parties agree on a
method for sharing such expenses.
4.2 Information Request by TMP. The Parties shall furnish TMP within two
weeks from the receipt of the request with such information including
information[ specified in Code Sections 6230(e) and 6050(K)] as TMP may
reasonably request to permit it to provide the Internal Revenue Service
with sufficient information for purposes of Code Sections 6230(e) and
6050(K).
4.3 TMP Agreements with IRS. The TMP shall not agree to any extension of
the statue of limitations for making assessments on behalf of any other
Party without first obtaining the written consent of that Party. The TMP
shall not bind any other Party to a settlement agreement in tax audits
without obtaining the concurrence of any such Party.
Any such Party who enters into a settlement agreement with the
Secretary of the Treasury with respect to any partnership items, as defined
by Code Section 6231(a)(3), shall notify the other Parties of such
settlement agreement and its terms within 90 days from the date of
settlement.
4.4 Inconsistent Treatment of Partnership Item. If any party intends to
file a notice of inconsistent treatment under code Section 6222(b), such
Party shall, prior to filing such notice, notify the TMP of such intent and
the manner in which the Party's intended treatment of a partnership item is
(or may be) inconsistent with the treatment of that item by the
partnership. Within one week of receipt, the TMP shall remit copies of
such notification to other Parties to the Partnership. If an inconsistency
notice is filed solely because of the
2
<PAGE>
Party not having received a Schedule K-1 in time for filing of its income
tax return, the TMP need not be notified.
4.5 Request for Administrative Adjustment. No Party shall file a request
pursuant to Code section 6227 for an administrative adjustment of
partnership items for any Partnership taxable year without first notifying
all other Parties. If all other Parties agree with the requested
adjustment, the TMP shall file the request for administrative adjustment on
behalf of the Partnership. If unanimous consent is not obtained within 30
days from such notice, or within the period required to timely file the
request for administrative adjustment, if shorter, any Party, including the
TMP, may file a request for administrative adjustment on its own behalf.
4.6 Judicial Proceedings. Any Party intending to file a petition under
Code Sections 6226, 6228, or any other Code Section with respect to any
partnership item, or other tax matters involving the Partnership, shall
notify the other Parties of such intention and the nature of the
contemplated proceedings. In the case where the TMP is the Party intending
to file such petition, such notice shall be given within a reasonable time
to allow the other Parties to participate in the choosing of the forum,
then the appropriate forum shall be decided by majority vote. Each Party
shall have a vote in accordance with its percentage interest in the
Partnership for the year under audit. If a majority cannot agree, the TMP
shall choose the forum. If a Party intends to seek review of any court
decision rendered as a result of such a proceeding, such Party shall notify
the other Parties.
4.7 Windfall Profit Tax. The parties agree to take appropriate action
under Code Section 6232(c) and any Treasury Regulations thereunder to
assure that items required to compute the Windfall Profit Tax as imposed by
Chapter 45 of the Code not be treated as partnership items.
5. ELECTIONS.
5.1 General Elections. For both income tax return and capital account
purposes, the Partnership shall elect (a) to deduct currently intangible
drilling and development costs ("IDC"), (b) to use maximum allowable
accelerated tax method and the shortest permissible tax life for
depreciation purposes, (c) to use the accrual method of accounting, (d) to
report income on a calendar year basis or other "required" year-end in
accordance with the regulations under Code Section 706(b), and (e)
dispositions of depreciable assets be accounted for under the General Asset
account method to the extent permitted by Code Section 168(i)(4).
3
<PAGE>
5.2 Depletion. Solely for FMV capital account purposes, depletion shall
be calculated by using simulated percentage depletion within the meaning of
the Treasury Regulation Section 1.704-l(b)(2)(iv)(2).
5.3 Other Elections. Any other elections must be approved by the
affirmative vote of two (2) or more Parties owning a majority interest
based on the post payout ownership as shown in Exhibit "A".
6. CAPITAL CONTRIBUTIONS AND FMV CAPITAL ACCOUNTS.
6.1 Capital Contributions. The respective capital contributions of each
party to the Partnership shall be (a) each Party's interest in the oil and
gas leases committed to the Partnership, and all properties associated with
the leases, and (b) all amounts paid by each Party in connection with
acquisition, exploration, development and operation of the leases and all
other costs characterized as contributions or expenses borne by such Party
under this Partnership. The contribution of the leases and other
properties committed to this Partnership shall be made by each Party's
agreement to hold legal title to its interest in such leases or any other
properties as nominee for this Partnership.
6.2 FMV Capital Accounts. The FMV capital accounts shall be increased and
decreased as follows:
(a) The FMV capital accounts shall be increased by: (i) the amount of
money and the fair market value of any property contributed by
each Party, respectively, to the Partnership (net of liabilities
assumed by the partnership or to which the contributed property
is subject); (ii) that Party is Sec. 7.1 allocated share of
Partnership income and gains, or items thereof; (iii) any basis
increases required by Code Sections 48(q) and 1016(a)(22); and
(iv) that Party's share of Code Section 705(a)(1)(8) and (C)
items.
(b) The FMV capital accounts shall be decreased by: (i) the amount of
money and the fair market value of property distributed to each
Party (net of liabilities assumed by such Party which the
property is subject); (ii) that Party is Sec. 7.1 allocated share
of Partnership loss and deductions, or items thereof; (iii) any
basis decreases required by Code Sections 48(q) and 1016(a)(22);
and (iv) that Party is share of Code Section 705 (a)(2)(B) items
and Code Section 709 non-deductible and non-amortizable items.
"Fair Market Value" when it applies to property contributed by a Party to
the Partnership, shall be assumed to equal the adjusted basis, as defined
in Code
4
<PAGE>
Section 1011, of that property unless the Parties agree otherwise in a
separate written agreement.
7. PARTNERSHIP ALLOCATIONS.
7.1 FMV Capital Account Allocations. Each item of income, gain, loss or
deduction shall be allocated to each Party as follows:
(a) Actual or deemed income from the sale, exchange, distribution or
other disposition of production shall be allocated to the Party
entitled to such production or the proceeds from the sale of such
production. In the event that deemed income arising from the
inkind distribution of production equals that fair market value
of the production distributed to a Party, the Parties recognize
that the corresponding adjustments would be a net zero adjustment
and accordingly, may be omitted from the FMV capital accounts;
(b) Exploration cost, IDC, operating and maintenance costs shall be
allocated to each Party in accordance with its respective
contribution to such cost;
(c) Depreciation shall be allocated to each Party in accordance with
its contribution to the FMV capital account adjusted basis of the
underlying asset;
(d) Simulated depletion shall be allocated to each Party in
accordance with its FMV capital account adjusted basis in each
oil and gas property;
(e) Loss (or simulated logs) upon the sale, exchange, distribution,
abandonment or other disposition of depreciable or depletable
property, shall be allocated to the Parties in the ratio of their
respective FMV capital account adjusted basis in the depreciable
or depletable property;
(f) Gain (or simulated gain) upon the sale, exchange, distribution or
other disposition of depreciable or depletable property, shall be
allocated to the Parties so that the FMV capital account balances
of the Parties, with respect to such property, will most closely
reflect their respective percentages or fractional interest under
the Agreement;
(g) Costs or expenses of any kind shall be allocated to and accounted
for by each Party in accordance with its respective contribution
to such costs or expenses; and,
5
<PAGE>
(h) Any other income item shall be allocated to the Parties in
accordance with the allocation of realization.
7.2 Tax Returns and Tax Basis Capital Account Allocations
-----------------------------------------------------
(a) Unless otherwise expressly provided herein the allocations of
Partnership items of income, gain, loss or deduction for tax
return and tax basis capital account purposes shall be the same
as those contained in Section 7.1
(b) If all the Parties consent, any money or an undivided interest in
each and every property shall be distributed to one or more
Parties as necessary for the purpose of balancing the FMV capital
accounts:
(c) Unless (b) above applies, an undivided interest in each and every
property shall be distributed to one or more Parties in
accordance with the ratios of their FMV capital accounts:
(d) If a property is to be valued under (a) above or distributed
pursuant to (b) or (c) above, the fair market value of the
property shall be agreed to by the parties. In the event all of
the parties do not reach agreement as to the fair market value of
property, the Operator shall cause a nationally recognized
independent engineering firm to prepare an evaluation of fair
market value of such property.
8.4 Final Distribution. Third, after the FMV capital accounts of the
Parties have been adjusted, pursuant to Sec. 8.3 above, all other or
remaining property and interest then held by the Partnership shall be
distributed to the Parties in accordance with their FMV capital account
balances.
9. TRANSFERS, SURVIVORSHIP AND CORRESPONDENCE.
9.1 Transfers. These Partnership provisions shall inure to the benefit of
and be binding upon the Parties hereto and their successors and assigns.
The Parties agree that if any one of them makes a sale or assignment of its
interest under this Agreement such sale or assignment will be structured,
if possible, so as not to cause a termination under Code Section
708(b)(1)(B).
9.2 Survivorship. Any Termination of the Agreement shall not affect the
continuing application of the Tax Partnership provisions as necessary for
the termination and liquidation of the Tax Partnership.
6
<PAGE>
9.3 Correspondence. All correspondence relating to the preparation and
filing of the Partnership's income tax return and capital accounts shall be
forwarded to the Tax Manager of the TMP at the address provided in the
Operating Agreement-1.
7
<PAGE>
EXHIBIT 10.2
[LOGO OF ZYDECO
APPEARS HERE]
EXPLORATION, INC.
--------------------
333 N. Sam Houston Pkwy. E.
Suite 1160
Houston, Texas 77060
(713) 820-2481
Fax (713) 820-6054
May 15, 1996
Cheniere Energy Operating Co., Inc.
237 Park Avenue, Suite 2100
New York, NY 10017
Re: First Amendment
Gentlemen:
I am writing with respect to that certain Exploration Agreement dated April 4,
1996 by and between FX Energy, Inc. and Zydeco Exploration, Inc. (the
"Agreement"). For convenience, terms defined therein shall have the same
meaning when used herein.
The Agreement in Section 2 provides that FX shall deposit $3,000,000 to the
segregated account on May 15, 1996. You have represented to us that you had
instructed your bank today to wire $2,250,000 to the segregated account. You
have requested an extension until the end of the business day on Friday, June
14, 1996 to wire the balance of $750,000. Based on your representations, ZEI
agrees to your requested extension.
We both agree that a failure by FX to make the $750,000 contribution by June
14, 1996 shall be treated as a Discontinuance under Section 5. The Seismic
Funds paid, in this instance, would be $2,250.000.
1
<PAGE>
If I have correctly set forth our understandings, kindly so indicate by
executing one counterpart of this letter and returning it to the undersigned.
Yours very truly,
ZYDECO EXPLORATION, INC.
By: /s/ Sam B. Myers
---------------------------------------
Its: President and Chief Executive Officer
ACCEPTED AND AGREED TO THIS
15th DAY OF MAY, 1996.
Cheniere Energy Operating Co., Inc., formerly FX Energy, Inc.
By: /s/ William D. Foster
----------------------------------------
Its: President
2
<PAGE>
EXHIBIT 10.3
[LOGO OF ZYDECO
APPEARS HERE]
EXPLORATION, INC.
--------------------
333 N. Sam Houston Pkwy. E.
Suite 1160
Houston, Texas 77060
(713) 820-2481
Fax (713) 820-6054
August 5, 1996
Cheniere Energy Operating Co., Inc.
237 Park Avenue, Suite 2100
New York, NY 10017
Re: Second Amendment
Gentlemen:
I am writing with respect to that certain Exploration Agreement dated April
4, 1996, by and between FX Energy, Inc. and Zydeco Exploration, Inc., as amended
by that certain First Amendment dated May 15, 1996 (the "Agreement"). For
convenience, terms defined therein shall have the same meaning when used herein.
FX Energy, Inc. has changed its name to Cheniere Energy Operating Co., Inc.
("FX"). We desire to amend the Agreement as follows:
1. FX did not make the payment of $1,000,000 to the segregated
account which was due on June 30, 1996 under Section 2 of the
Agreement. FX shall make the $1,000,000 payment originally due
June 30, 1996 to the segregated account on or before August 9,
1996. A failure to make such a payment by such date shall,
notwithstanding anything in the Agreement to the contrary, be
treated as a Discontinuance under Section 5.
2. FX did not make the payment of $1,000,000 to the segregated
account which was due on July 30, 1996. FX shall make the
$1,000,000 payment originally due July 30, 1996 to the segregated
account on or before October 31,1996. A failure to make such a
payment by such date shall, notwithstanding anything in the
Agreement to the contrary, be treated as a Discontinuance under
Section 5.
<PAGE>
Cheniere Energy Operting Co., Inc.
August 5, 1996
Page 2
3. It is the intent of the parties that no grace period apply to the
payments required under this letter to be paid on August 9, 1996
and October 31, 1996.
4. The parties agree that the agreements by Zydeco to defer payments
under Section 2 do not obligate Zydeco to grant further waivers
nor waive the rights of Zydeco to have payments made at the times
provided in the Agreement, as modified hereby.
If I have correctly set forth our agreements, kindly so indicate by
executing one counterpart of this letter and returning it to the undersigned.
Yours very truly,
ZYDECO EXPLORATION, INC.
By: /s/ Sam B. Myers, Jr.
--------------------------------
Its: Sam B. Myers, Jr., President
ACCEPTED AND AGREED TO THIS
8th DAY OF AUGUST, 1996.
Cheniere Energy Operating Co., Inc., formerly FX Energy, Inc.
By: /s/ William D. Foster
-----------------------------------
Its: President
2
<PAGE>
EXHIBIT 10.4
CHENIERE ENERGY OPERATING CO., INC.
Two Allen Center
1200 Smith Street, 17th Floor
Houston, Texas 77002
As of June 14, 1996
To Each of the Purchasers Named on
Schedule A Hereto:
Ladies and Gentlemen:
Cheniere Energy Operating Co., Inc., a Delaware corporation (the
"Company"), hereby agrees with you as follows:
SECTION 1. PURCHASE AND SALE OF SECURITIES
1.1 Description of Securities. The undersigned Purchasers hereby severally
agree to purchase from the Company, and the Company agrees to sell to the
Purchasers for a purchase price set forth on Schedule A hereto, totalling an
aggregate purchase price of Four Hundred Twenty-Five Thousand Dollars
($425,000), such amount of the following securities (collectively, the
"Securities") as set forth on Schedule A:
(a) $425,000 aggregate principal amount of promissory notes of the Company
(individually, a "Note" and collectively, the "Notes"); and
(b) common stock purchase warrants (individually, a "Warrant" and
collectively, the "Warrants") exercisable for an aggregate of 14.166667
shares of common stock, no par value, of the Company (the "Common Stock")
and exchangeable for common stock purchase warrants exercisable for an
aggregate of 141,666.67 shares of common stock, $.003 par value per share,
of BEXY Communications, Inc. ("BEXY"), assuming consummation of the
transactions contemplated by that certain Agreement and Plan of
Reorganization dated as of April 16, 1996 by and among the Company and the
stockholders of the Company, on the one hand, and BEXY and Buddy Young, on
the other hand.
1.2 Terms of the Notes. The Company shall pay the principal amount of each
Note plus interest on the unpaid principal balance in accordance with the terms
and conditions of the Note, a form of which is attached as Exhibit A hereto.
1.3 Terms of the Warrants. Each Warrant shall be governed by a Warrant
Agreement, a form of which is attached as Exhibit B hereto (the "Warrant
Agreement").
<PAGE>
SECTION 2. REPRESENTATIONS
2.1 Purchaser's Representations. Each Purchaser represents to the Company that
you are authorized to enter into this Agreement and the Warrant Agreement, to
perform your obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. You further represent that you
are purchasing the Securities to be purchased by you for your own account and
with no intention of distributing or reselling such Securities or any part
thereof, or any interest therein, in any transaction that would be in violation
of the securities laws of the United States of America, or the securities laws
of any applicable state thereof, without prejudice, however, to your right at
all times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act of 1933
(the "Securities Act") and applicable state securities laws, or under an
exemption from such registration available under the Securities Act and
applicable state securities laws, and subject, nevertheless, to the disposition
of your property being at all times within your control.
You further represent that either (i) you are an "accredited investor"
within the meaning of Rule 501 under the Securities Act or (ii) by reason of
your business and financial experience and the business and financial experience
of those retained by you to advise you with respect to your investment in the
Securities, you, together with such advisors, have such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment, and
are able to bear the economic risk of such investment and, at the present time
are able to afford a complete loss of such investment.
2.2 Company's Representations. The Company represents and warrants to you as
follows:
(a) The Company is a corporation, duly organized and existing and in
good standing under the laws of the State of Delaware and has full power and
authority to enter into and to perform its obligations under this Agreement, the
Warrant Agreements, the Warrants and the Notes and to issue the Securities (and
any shares of Common Stock issuable upon exercise of the Warrants).
(b) The Company has taken all actions necessary to authorize it to
enter into and perform its obligations under this Agreement, the Warrant
Agreement, the Warrant and the Note and to consummate the transactions
contemplated hereby and thereby. This Agreement, the Warrant Agreement, the
Warrant and the Note are legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
subject, as to enforcement only, to bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect affecting the enforceability of
the rights of creditors generally.
(c) The authorized capital stock of the Company is 2,000 shares of
Common Stock of which 825 shares of Common Stock is issued and outstanding. The
Company has reserved twenty one (21) shares of Common Stock for issuance upon
exercise of the Warrants. The shares of Common Stock issuable upon exercise of
the Warrants have been duly authorized for issuance by the Company and, when
issued and delivered against payment therefor as
2
<PAGE>
contemplated by the Warrant Agreement to be executed by each Purchaser, will be
validly issued, fully paid and non-assessable, free and clear of all liens,
claims and other encumbrances.
(d) The offer and sale of the Securities hereunder is exempt from the
registration requirements of the Securities Act either pursuant to Section 4(2)
thereof or Regulation D promulgated thereunder.
SECTION 3. EVENTS OF DEFAULT
3.1 The term "Event of Default" shall mean any of the following events:
(a) The Company shall default in the payment when due of any principal
of or interest on any Note; or
(b) The Company shall (x) become insolvent or generally fail to pay,
or admit in writing its inability to pay, its debts as they become due, (y)
apply for, consent to or acquiesce in, the appointment of a trustee, receiver,
sequestrator or other custodian for the Company or for a substantial part of the
property of the Company and such trustee, receiver, sequestrator or other
custodian shall not be discharged within 60 days or (z) permit or suffer to
exist the commencement of any bankruptcy, reorganization, debt arrangement or
other case or proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, in respect of the Company,
and if such case or proceeding is not commenced by the Company or shall result
in the entry of an order for relief or shall remain for 60 days undismissed.
3.2 If any Event of Default described in clause (a) shall occur and be
continuing, the holders of the Notes may, upon notice or demand, declare all or
any portion of the outstanding principal amount of the Notes to be due and
payable and if any Event of Default described in clause (b) shall occur, the
outstanding principal amount of all outstanding Notes shall automatically be and
become immediately due and payable, without notice or demand.
SECTION 4. PENALTIES FOR NON-PAYMENT
If the Company shall not have paid all principal and accrued and
unpaid interest on the Notes on the date on which such is due, the holders of
Notes shall be entitled to receive, in addition to all amounts otherwise payable
with respect to the Notes, a late charge equal to five percent (5%) per annum of
the total amount due and shall be entitled to receive additional Warrants to
purchase three (3) additional shares of Common Stock for each month or partial
month in which payment in full is not made up to a total additional amount of
twelve (12) shares of Common Stock, having the same exercise period measured
from the date of issuance of each Warrant and the same exercise price as set
forth in the Warrant Agreement. The additional Warrants shall be allocated pro
rata to the holders of Notes in accordance with the percentage (rounded to the
nearest ten thousandth) that the principal amount of the Note(s) held by each
holder bears to the total principal amount of all outstanding Notes.
3
<PAGE>
SECTION 5. MISCELLANEOUS
5.1 All notices and other communications provided for or permitted hereunder
shall be made by hand delivery, first class mail postage prepaid or telecopier:
(a) if to a Purchaser at the address set forth on Schedule A hereto;
(b) if to the Company at its address set forth on the first page of
this Agreement with a copy to Whitman Breed Abbott & Morgan, 200 Park
Avenue, New York, New York, Attention: Robert C. Brighton, Jr., Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered, if personal delivered; two business days after being
deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if
telecopied.
5.2 This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
5.3 This Agreement and the Warrant Agreements, Warrants and Notes may be
amended, modified or supplemented with the consent of each of the parities to
the respective agreements, instruments or other documents.
5.4 This Agreement may be signed in counterparts, each of which shall be deemed
and original and all of which taken together shall be deemed one and the same
agreement.
5.5 This Agreement shall be governed by and construed in accordance with the
laws of the State of New York (without giving effect to the conflict of law
provisions thereof).
5.6 This Agreement, together with the Warrant Agreements, Warrants and Notes,
are intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
5.7 If any one or more of the provisions contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof shall
not be in any way impaired or affect, it being intended by the parties that the
rights and privileges of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
4
<PAGE>
If this Agreement is satisfactory to you, please complete and sign
Schedule A to indicate your acceptance, which Schedule A shall constitute a
counterpart of this Agreement, and returning such counterpart to the Company
whereupon this Agreement will become binding between us in accordance with its
terms.
Very truly yours,
CHENIERE ENERGY OPERATING CO., INC.
By: ______________________________________
Name: William D. Forster
Title: President
5
<PAGE>
SCHEDULE A
NAME AND ADDRESS OF PRINCIPAL NO. OF PURCHASE
PURCHASERS AMOUNT OF NOTE WARRANTS PRICE
Name:
Address:
Fax No.:
Tel. No.:
Signature
- --------------------------------------------
Name:
Date: June 14, 1996
6
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$______________
FOR VALUE RECEIVED, the undersigned, CHENIERE ENERGY OPERATING CO.,
INC., a corporation, organized under the laws of Delaware (hereinafter called
the "Maker"), promises to pay to the order of _________________ (the "Lender"),
or its successors or assigns, by payment to Lender, at ________________________
____________________________________________________________ or at such other
place as the holder hereof may from time to time designate in writing, the
principal sum of ______________________________________ ($______________), plus
interest on the principal balance thereof from time to time outstanding at a
rate which is at all times eight percent (8%) per annum, on that date which is
ninety (90) days from the date hereof, when the entire principal balance hereof,
all accrued and unpaid interest thereon and all other applicable fees, costs and
charges, if any, shall be due and payable in full. Interest hereon shall be
calculated on the basis of the actual number of days elapsed in a 360-day year.
All payments of principal and/or interest hereon shall be payable in lawful
money of the United States and in immediately available funds.
In the event that any payment of principal and/or interest is not
actually received by the holder hereof within ten (10) days of the date such
payment is due, the Maker agrees to pay a late charge of an amount equal to five
percent (5%) per annum of the outstanding principal amount, calculated on the
basis of the actual number of days elapsed in a 360-day year, in addition to
interest as set forth above.
All payments received hereon shall be applied first to late charges,
if any, then to interest and then to principal.
This Note may be prepaid, in whole or in part, at any time without
penalty. Any partial prepayments shall not, however, relieve the Maker of the
obligation to pay principal and/or interest hereunder as and when the same would
otherwise fall due.
Maker hereby (i) waives presentment, demand, protest and notice of
presentment, notice of protest and notice of dishonor of this debt and each and
every other notice of any kind respecting this Note, (ii) agrees that the holder
hereof, at any time or times, with notice to it and its consent, may grant
extensions of time, without limit as to the number or the aggregate period of
such extensions, for the payment of any principal and/or interest due hereon,
and (iii) to the extent not prohibited by law, waives the benefit of any law or
rule of law intended for its advantage or protection as an obligor hereunder or
providing for its release or discharge from
7
<PAGE>
liability hereon, in whole or in part, on account of any facts or circumstances
other than full and complete payment of all amounts due hereunder.
The Maker promises to pay all costs of collection, including
reasonable attorneys' fees, upon default in the payment of the principal of this
Note or interest hereon when due, whether at maturity, as herein provided, or by
reason of acceleration of maturity under the terms hereof, whether suit be
brought or not.
This Note is one of the Notes contemplated by that certain agreement
dated as of June 14, 1996 (the "Agreement") between the Maker and the holder.
This Note incorporates by reference the terms of the Agreement, including, but
not limited to, the terms thereof relating to Events of Default.
In the event any one or more of the provisions contained in this Note
or the Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
This Note may not be changed orally, but only by an agreement in
writing signed by the parties against whom enforcement of any waiver, change,
modification or discharge is sought.
The Maker warrants and represents that the loan evidenced hereby is
being made for business or investment purposes.
This Note shall be governed in all respects by the laws of the State
of New York and shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns (without giving
effect to the conflict of law provisions thereof).
Any judicial proceeding brought against Maker on any dispute arising
out of this Note or any matter related hereto may be brought in the courts of
the State of New York in New York City, or in the United States District Court
of the Southern District of New York, and, by execution and delivery of this
Note, Maker accepts for itself the exclusive jurisdiction of the aforesaid
courts, waives any objections to such jurisdiction on the grounds of venue of
forum non conveniens and any similar grounds, consents to service of process by
mail or in any other manner permitted by law, and irrevocably agrees to be bound
by any judgment rendered thereby in connection with this Note.
8
<PAGE>
Maker waives all right to trial by jury in any action, suit or
proceeding brought to enforce or defend any right or remedies under this Note,
whether sounding in contract or tort or otherwise.
CHENIERE ENERGY
OPERATING CO., INC.
[Corporate Seal]
ATTEST: By:___________________________
Name: William D. Forster
Title: President
By:________________________________
9
<PAGE>
EXHIBIT B
WARRANT AGREEMENT
WARRANT AGREEMENT (this "Agreement") is made as of June 14, 1996 by
and between CHENIERE ENERGY OPERATING CO., INC., a Delaware corporation ("the
Company"), and _____________________ (the "Holder").
PRELIMINARY RECITALS
A. The Company desires to issue to Holder a right to purchase shares
of common stock, no par value per share (the "Common Stock"), of the Company in
consideration of value received by the Company from Holder, as set forth in that
certain agreement dated as of June 14, 1996 (the "Purchase Agreement") between
the Company and the Holder with respect to the purchase by Holder of a
promissory note and common stock purchase warrant of the Company.
B. Holder desires to participate in the future growth prospects of
the Company and is willing to accept and receive a right to purchase shares of
Common Stock of the Company, on the terms and subject to the conditions set
forth below.
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Holder agree as follows:
1. GRANT OF WARRANT. The Company hereby grants to Holder a warrant
to purchase up to ____________ shares of Common Stock at the purchase price of
________ per share (the "Warrant"), such Warrant to be exercisable as
hereinafter provided, evidenced by a warrant certificate in the form attached as
Exhibit A hereto (the "Warrant Certificate").
2. EXERCISE PERIOD. Subject to the other terms of this Agreement
regarding the exercisability of the Warrant, the Warrant shall be exercisable
during the period (the "Exercise Period") commencing on the date hereof and
expiring on June 14, 1999.
3. EXERCISE OF WARRANT
(a) This Warrant may be exercised, from time to time, in whole or in
part, at any time prior to the expiration thereof. Any exercise shall be
accompanied by written notice to the Company specifying the number of shares as
to which this Warrant is being exercised, in the form attached to the Warrant
Certificate. Notations of any partial exercise or instalment exercise, shall be
made by the Company and attached as a schedule hereto.
(b) The Company shall issue the Warrant Certificate or certificates
evidencing the Warrant Shares within fifteen (15) days after receipt of such
notice and payment as hereinafter provided.
10
<PAGE>
4. PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise of the Warrant the purchase price for the Warrant Shares shall be paid
in full to the Company by check or other immediately available funds.
5. PURCHASE FOR INVESTMENT; RESALE RESTRICTIONS. The Holder hereby
represents, and each assignee of Holder as a condition to transfer shall
represent, that he is acquiring or will acquire the Warrant and the Warrant
Shares for his own account, for investment only with no present intention of
distributing or reselling such securities or any part thereof. Unless at the
time of the acquisition of the Warrant or the exercise of the Warrant, as the
case may be, there shall be, in the opinion of counsel for the Company, a valid
and effective registration statement under the Securities Act 1933 ("1933 Act")
and appropriate qualification and registration under applicable state securities
laws relating to the Warrant or the Warrant Shares, as the case may be, the
Holder shall, prior to the assignment of the Warrant or upon exercise of the
Warrant or any portion thereof, as the case may be, give a representation that
he is acquiring such Warrant or Warrant Shares, as the case may be, for his own
account, only for investment and not with the view to the resale or distribution
of any of such securities. In the absence of such registration statement, the
Holder shall execute a written affirmation, in form reasonably satisfactory to
the Company, of such investment intent. The Holder further agrees that he will
not sell or transfer the Warrant or any Warrant Shares, as the case may be,
until he requests and receives an opinion from the Company's counsel, or other
counsel reasonably satisfactory to the Company, to the effect that such proposed
sale or transfer will not result in a violation of the 1933 Act or a
registration statement covering the sale or transfer of the Warrant or Warrant
Shares, as the case may be, has been declared effective by the Securities and
Exchange Commission ("SEC"), or he obtains a no action letter from the SEC with
respect to the proposed transfer. There shall be stamped on the certificate(s)
representing the Warrant or Warrant Shares, as the case may be, an appropriate
legend giving notice of the acquisition of such Warrant or Warrant Shares, as
the case may be, for investment and the restriction on their transfer by reason
thereof.
6. EXCHANGE FOR BEXY WARRANTS. Holder agrees to exchange this
Warrant for a warrant to purchase shares of common stock, $.003 par value per
share ("BEXY Stock"), of BEXY Communications, Inc. ("BEXY") at the closing (the
"Closing") of the reorganization of BEXY contemplated by that certain Agreement
and Plan of Reorganization dated as of April 16, 1996 ("Reorganization
Agreement") among the Company, the stockholders of the Company, BEXY and Buddy
Young. At the Closing, Holder shall present and deliver the Warrant, together
with a properly completed assignment, to BEXY and, upon execution and delivery
of a warrant agreement between Holder and BEXY, receive a warrant to purchase
BEXY Stock (the "BEXY Warrant"). The BEXY Warrant received by Holder shall be
exercisable for ten thousand (10,000) shares of BEXY Stock for each share of
Common Stock for which the Warrant may be exercised. The purchase price for each
share of BEXY stock shall be $3 per share and shall have the same Exercise
Period as the Warrant and other terms that are substantially the same as the
Warrant.
7. NO RIGHTS OF STOCKHOLDER. The Holder shall have no rights as a
stockholder with respect to any Warrant Shares prior to the date of purchase
thereof and issuance to him of a certificate or certificates for such shares.
11
<PAGE>
8. COMPLIANCE WITH LAW AND REGULATIONS. This Agreement and the
obligation of the Company to sell and deliver the Warrant and the Warrant Shares
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
If, at any time, the Board of Directors of the Company shall determine that (a)
the listing, registration or qualification of the Warrant Shares upon any
securities exchange or under any state or federal law or (b) the consent or
approval of any government regulatory body, is necessary or desirable as a
condition to, or in connection with, the offer, sale and issuance of the Warrant
Shares, the Warrant shall not be exercised by the Holder in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained, free of any conditions not acceptable to
the Board of Directors of the Company.
9. TAX WITHHOLDING REQUIREMENTS. The Company shall have the right to
require the Holder to remit to the Company an amount sufficient to satisfy any
federal, state or local withholding or other tax requirements applicable to the
sale of the Warrant or the issuance and sale of the Warrant Shares prior to the
delivery of any Warrant Certificate or Certificates for the Warrant Shares.
10. FRACTIONAL SHARES. To the extent required, fractional shares of
stock shall be issued upon the exercise of this Warrant up to but not more than
the nearest one millionth of a share (.000001). The Company shall not be under
any obligation to compensate the Holder in any way for fractional shares in less
than such amounts.
11. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all of such counterparts taken together will constitute one and the
same Agreement.
13. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this Agreement
and shall not be used in the interpretation hereof.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon any
and all successors and assigns of the parties.
15. AMENDMENTS. This Agreement may not be modified, amended,
altered, or supplemented except upon the execution and delivery of a written
agreement executed by Holder and the Company.
16. GOVERNING LAW. This Agreement shall be construed according to the
laws of the State of Delaware without giving effect to the conflict of law
provisions thereof, and all
12
<PAGE>
provisions hereof shall be administered according to and its validity shall be
determined under, the laws of such state, except where preempted by federal
laws.
17. NOTICES. Any notices or other communications required or
permitted hereunder shall be given in the manner set forth in the Purchase
Agreement.
13
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as the
date first written above.
CHENIERE ENERGY OPERATING CO., INC.
By__________________________________
Name: William D. Forster
Title: President
HOLDER
By:_________________________________
Name:
14
<PAGE>
Exhibit A (to
Cheniere Energy
Operating Co., Inc.
Warrant Agreement)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
CHENIERE ENERGY OPERATING CO., INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
The transferability of this Warrant is restricted as set forth in the
related Warrant Agreement, a copy of which may be obtained from the Company
at its principal office.
No.: Up to ___ Share
THIS CERTIFIES THAT for value received _______________ (the "Holder")
or registered assigns is the owner of a Warrant to purchase during the period
expiring no later than 5:00 p.m. New York time on June 14, 1999, the number of
fully paid and non-assessable shares of Common Stock, no par value per share
(the "Common Stock"), of Cheniere Energy Operating Co., Inc., a Delaware
corporation (hereinafter called the "Company"), specified above upon payment of
the Warrant Price (as defined below) set forth in the warrant agreement between
the Company and the Holder (the "Warrant Agreement").
As provided in the Warrant Agreement, certain adjustments may be made
in the sole discretion of the Board of Directors of the Company in the number of
shares of Common Stock issuable upon exercise of this Warrant in the event of
the change in the number of shares of Common Stock of the Company outstanding by
reason a stock split, combination of stock or stock dividend in such manner as
the Board of Directors may deem equitable.
Reference is made to that certain Agreement and Plan of Reorganization
dated as of April 16, 1996 (the "Reorganization Agreement") among the Company,
the Stockholders of the Company listed on Schedule A to the Reorganization
Agreement, BEXY Communications, Inc. ("BEXY") and Buddy Young and the Warrant
Agreement. Capitalized terms used herein without definition shall have the same
meanings as ascribed to them in the Reorganization Agreement. Pursuant to
Section 1.2.2 of the Reorganization Agreement and Section 7 of the Warrant
Agreement, each Cheniere Warrant shall be exchanged at the Closing for a BEXY
Warrant pursuant to a formula whereby the right to purchase one (l) Cheniere
Share at a
15
<PAGE>
purchase price of $30,000 per share shall be exchanged for the right to purchase
ten thousand (10,000) shares of BEXY Stock at a purchase price of $3 per share.
Upon exchange for a BEXY Warrant, the form of assignment attached hereto must be
properly completed and executed and surrendered to BEXY.
The warrant price per share (hereinafter called the "Warrant Price")
shall be $30,000. As provided in the Warrant Agreement, the Warrant Price is
payable upon the exercise of this Warrant, in cash by check or other immediately
available funds.
Upon the exercise of this Warrant, the form of election to purchase
attached hereto must be properly completed and executed and surrendered to the
Company or its transfer agent. In the event that this Warrant is exercised in
respect of fewer than all of such shares, a new Warrant for the remaining number
of such shares, substantially in the form hereof, will be issued on such
surrender.
This Warrant is issued under, and the rights represented hereby are
subject to, the terms and provisions contained in the Warrant Agreement. By
acceptance of an assignment of this Warrant any assignee agrees and assents to
all the terms and provisions of the Warrant Agreement. Reference is hereby made
to terms and conditions of the Warrant Agreement for a more complete statement
of the rights and limitations of rights of the registered holder hereof and the
rights and obligations of the Company thereunder, which terms and conditions are
incorporated herein by reference. Copies of the Warrant Agreement are on file at
the principal office of the Company.
The Company shall be required upon the exercise of this Warrant to
issue fractions of shares only up to the nearest one millionth of a share
(.000001).
This Warrant is transferable at the office of the Company (or of its
transfer agent) by the registered holder hereof in person or by attorney-in-fact
duly authorized in writing, but only in the manner and subject to the
limitations provided in the Warrant Agreement, and upon surrender of this
Warrant, proper completion and delivery of an assignment in the form attached
hereto and the payment of any transfer taxes. Upon any such transfer, a new
Warrant, or new Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock will be issued to the transferee in exchange for this Warrant.
This Warrant when surrendered at the office of the Company (or of its
transfer agent) by the registered holder hereof, in person or by attorney duly
authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement for another Warrant, or other
Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Common Stock.
If this Warrant shall be surrendered for exercise within any period
during which the transfer books for shares of the Common Stock of the Company or
other securities purchasable upon the exercise of this Warrant are closed for
any purpose, the Company shall
16
<PAGE>
not be required to make delivery of certificates for the securities purchasable
upon such exercise until the date of the reopening of said transfer books.
The Holder this Warrant shall not be entitled to any of the rights of
a stockholder of the Company prior to the exercise hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its representative, hereunto duly authorized, as of this 14th day of June,
1996.
CHENIERE ENERGY OPERATING CO., INC.
By:______________________________________
William D. Forster
President
17
<PAGE>
Annex 1
PURCHASE FORM
Dated _____________, 19_____
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing shares of Common Stock and hereby makes
payment in full by check or other immediately available funds totaling
$____________.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name________________________________________________________
(Please typewrite or print in block letters)
Address_____________________________________________________
Signature___________________________________________________
Annex 2
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
Name________________________________________________________
(Please typewrite or print in block letters)
Address_____________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
__________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint __________________________, Attorney, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Date______________, 19__
Signature___________________________________________________
18
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
Name __________________________________________________________
(Please typewrite or print in block letters)
Address _______________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
_________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _________________________, Attorney, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Date June 14, 1996
Signature _____________________________________________________
19
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
Name BEXY Communications, Inc.
---------------------------------------------------
(Please typewrite or print in block letters)
Address 16661 Venture Boulevard, Suite 214, Encino, California
the right to purchase Common Stock represented by this Warrant to the extent of
_________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _________________________, Attorney, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Date July 3, 1996
Signature________________________________________________
20
<PAGE>
EXHIBIT 10.5
WARRANT AGREEMENT
WARRANT AGREEMENT (this "Agreement") is made as of July 3, 1996 by and
between CHENIERE ENERGY, INC. (f/k/a BEXY Communications, Inc.), a Delaware
corporation ("the Company"), and _________________ (the "Holder").
PRELIMINARY RECITALS
--------------------
A. Pursuant to 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 Cheniere Stockholders have
agreed with the Company to exchange all of the issued and outstanding shares of
common stock, no par value, of Cheniere (the "Cheniere Stock") in consideration
for the issuance to the Cheniere Stockholders of shares of the common stock,
$.01 par value per share, of the Company (the "Common Stock") equal to
approximately 93% of the issued and outstanding shares of Common Stock.
B. In addition, it is contemplated by the Reorganization Agreement that the
holders (collectively, the "Cheniere Warrantholders") of all of the issued and
outstanding warrants (collectively, the "Cheniere Warrants") to purchase shares
of Cheniere Stock will exchange their Cheniere Warrants for warrants exercisable
for shares of the common stock $.01 par value, of the Company (collectively, the
"BEXY Warrants").
C. Holder is a holder of a Cheniere Warrant and desires to exchange the
Cheniere Warrant and the Company is willing to accept the Cheniere Warrant as
consideration for the issuance to Holder of a BEXY Warrant, on the terms and
subject to the conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Holder agree as follows:
1. EXCHANGE FOR CHENIERE WARRANTS. Holder agrees to exchange the Cheniere
Warrant owned by him and to accept in consideration therefor the Warrant, which
is one of the BEXY Warrants contemplated by the Reorganization Agreement.
Pursuant to this Agreement and the Warrant, Holder shall be entitled to purchase
one (1) share of Common Stock for each ten thousand (10,000) shares of Cheniere
Stock for which the Cheniere Warrant may be exercised. Other than the Purchase
Price, the terms of the Warrant are substantially the same as the Cheniere
Warrant.
2. GRANT OF WARRANT. The Company hereby grants to Holder a warrant to
purchase up to ____________ shares of Common Stock (the "Warrant Shares") at the
purchase price of $3 per share (the "Warrant"), such Warrant to be exercisable
as hereinafter
<PAGE>
provided, evidenced by a warrant certificate in the form attached as Exhibit A
hereto (the "Warrant Certificate").
3. EXERCISE PERIOD. Subject to the other terms of this Agreement regarding
the exercisability of the Warrant, the Warrant shall be exercisable during the
period (the "Exercise Period") commencing on the date hereof and expiring on
June 14, 1999.
4. EXERCISE OF WARRANT
(a) This Warrant may be exercised, from time to time, in whole or in part, at
any time prior to the expiration thereof. Any exercise shall be accompanied by
written notice to the Company specifying the number of shares as to which this
Warrant is being exercised, in the form attached to the Warrant Certificate.
Notations of any partial exercise or instalment exercise, shall be made by the
Company and attached as a schedule hereto.
(b) The Company shall issue the Warrant Certificate or certificates
evidencing the Warrant Shares within fifteen (15) days after receipt of such
notice and payment as hereinafter provided.
5. PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any exercise of
the Warrant the purchase price for the Warrant Shares shall be paid in full to
the Company by check or other immediately available funds.
6. PURCHASE FOR INVESTMENT; RESALE RESTRICTIONS. The Holder hereby
represents, and each assignee of Holder as a condition to transfer shall
represent, that he is acquiring or will acquire the Warrant and the Warrant
Shares for his own account, for investment only with no present intention of
distributing or reselling such securities or any part thereof. Unless at the
time of the acquisition of the Warrant or the exercise of the Warrant, as the
case may be, there shall be, in the opinion of counsel for the Company, a valid
and effective registration statement under the Securities Act 1933 ("1933 Act")
and appropriate qualification and registration under applicable state securities
laws relating to the Warrant or the Warrant Shares, as the case may be, the
Holder shall, prior to the assignment of the Warrant or upon exercise of the
Warrant or any portion thereof, as the case may be, give a representation that
he is acquiring such Warrant or Warrant Shares, as the case may be, for his own
account, only for investment and not with the view to the resale or distribution
of any of such securities. In the absence of such registration statement, the
Holder shall execute a written affirmation, in form reasonably satisfactory to
the Company, of such investment intent. The Holder further agrees that he will
not sell or transfer the Warrant or any Warrant Shares, as the case may be,
until he requests and receives an opinion from the Company's counsel, or other
counsel reasonably satisfactory to the Company, to the effect that such proposed
sale or transfer will not result in a violation of the 1933 Act or a
registration statement covering the sale or transfer of the Warrant or Warrant
Shares, as the case may be, has been declared effective by the Securities and
Exchange Commission ("SEC"), or he obtains a no action letter from the SEC with
respect to the
-2-
<PAGE>
proposed transfer. There shall be stamped on the certificate(s) representing
the Warrant or Warrant Shares, as the case may be, an appropriate legend giving
notice of the acquisition of such Warrant or Warrant Shares, as the case may be,
for investment and the restriction on their transfer by reason thereof.
7. ADJUSTMENTS. In the event of any change in the outstanding Common Stock
of the Company by reason of any stock recapitalization, merger, consolidation,
combination or exchange of shares, the kind of shares subject to the Warrant and
their purchase price per share (but not the number of shares) shall be
appropriately adjusted consistent with such change in such manner as the Board
of Directors of the Company may deem equitable. In the event of a stock
dividend or stock split, the kind of shares, the purchase price per share and
number of shares shall be appropriately adjusted, consistent with such change in
such manner as the Board of Directors may deem equitable. Any adjustments that
are made by the Board of Directors shall be final and binding on the Holder.
8. NO RIGHTS OF STOCKHOLDER. The Holder shall have no rights as a
stockholder with respect to any Warrant Shares prior to the date of purchase
thereof and issuance to him of a certificate or certificates for such shares.
9. COMPLIANCE WITH LAW AND REGULATIONS. This Agreement and the obligation
of the Company to sell and deliver the Warrant and the Warrant Shares shall be
subject to all applicable federal and state laws, rules and regulations and to
such approvals by any government or regulatory agency as may be required. If,
at any time, the Board of Directors of the Company shall determine that (a) the
listing, registration or qualification of the Warrant Shares upon any securities
exchange or under any state or federal law or (b) the consent or approval of any
government regulatory body, is necessary or desirable as a condition to, or in
connection with, the offer, sale and issuance of the Warrant Shares, the Warrant
shall not be exercised by the Holder in whole or in part unless such listing,
registration, qualification, consent, approval or agreement shall have been
effected or obtained, free of any conditions not acceptable to the Board of
Directors of the Company.
10. TAX WITHHOLDING REQUIREMENTS. The Company shall have the right to
require the Holder to remit to the Company an amount sufficient to satisfy any
federal, state or local withholding or other tax requirements applicable to the
sale of the Warrant or the issuance and sale of the Warrant Shares prior to the
delivery of any Warrant Certificate or Certificates for the Warrant Shares.
11. FRACTIONAL SHARES. To the extent required, fractional shares of stock
shall be issued upon the exercise of this Warrant up to but not more than the
nearest thousandth of a share (.001). The Company shall not be under any
obligation to compensate the Holder in any way for fractional shares in less
than such amounts.
12. SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law,
-3-
<PAGE>
such provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all of such counterparts taken together will constitute one and the
same Agreement.
14. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement and
shall not be used in the interpretation hereof.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon any and
all successors and assigns of the parties.
16. AMENDMENTS. This Agreement may not be modified, amended, altered, or
supplemented except upon the execution and delivery of a written agreement
executed by Holder and the Company.
17. GOVERNING LAW. This Agreement shall be construed according to the laws
of the State of Delaware without giving effect to the conflict of law provisions
thereof, and all provisions hereof shall be administered according to and its
validity shall be determined under, the laws of such state, except where
preempted by federal laws.
18. 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 18:
If to Holder at the address set forth on the signature page of this
Agreement.
If to the Company:
Cheniere Energy, Inc.
(f/k/a BEXY Communications, Inc.)
Two Allen Center
1200 Smith Street, Suite 1710
Houston, Texas 77002
Attn: Mr. William D. Forster
Fax: (713) 659-5459
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
-4-
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as the date first
written above.
CHENIERE ENERGY, INC.
(f/k/a BEXY Communications, Inc.)
By:______________________________________
Name: William D. Forster
Title: President
HOLDER
By:______________________________________
Name:
Address:
tel:
fax:
-5-
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
CHENIERE ENERGY, INC.
(f/k/a BEXY Communications, Inc.)
WARRANT TO PURCHASE SHARES OF COMMON STOCK
The transferability of this Warrant is restricted as set forth in the
related Warrant Agreement, a copy of which may be obtained from the Company
at its principal office.
No. WA-___ Up to ________ Shares
THIS CERTIFIES THAT for value received ________________ (the "Holder")
or registered assigns is the owner of a Warrant to purchase during the period
expiring no later than 5:00 p.m. New York time on June 14, 1999, the number of
fully paid and non-assessable shares of Common Stock, no par value per share
(the "Common Stock"), of Cheniere Energy, Inc. (f/k/a BEXY Communications,
Inc.), a Delaware corporation (hereinafter called the "Company"), specified
above upon payment of the Warrant Price (as defined below) set forth in the
warrant agreement between the Company and the Holder (the "Warrant Agreement").
As provided in the Warrant Agreement, certain adjustments may be made
in the sole discretion of the Board of Directors of the Company in the number of
shares of Common Stock issuable upon exercise of this Warrant in the event of
the change in the number of shares of Common Stock of the Company outstanding by
reason a stock split, combination of stock or stock dividend in such manner as
the Board of Directors may deem equitable.
Reference is made to that 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 listed on
Schedule A to the Reorganization Agreement, the Company and Buddy Young and the
Warrant Agreement. Capitalized terms used herein without definition shall have
the same meanings as ascribed to them in the Reorganization Agreement. Pursuant
to Section 1.2.2 of the Reorganization
-i-
<PAGE>
Agreement and Section 1 of the Warrant Agreement, each Cheniere Warrant shall be
exchanged at the Closing for a BEXY Warrant pursuant to a formula whereby the
right to purchase one (1) Cheniere Share at a purchase price of $30,000 per
share shall be exchanged for the right to purchase ten thousand (10,000) shares
of BEXY Stock at a purchase price of $3 per share.
The warrant price per share (hereinafter called the "Warrant Price")
shall be $3. As provided in the Warrant Agreement, the Warrant Price is payable
upon the exercise of this Warrant, in cash by check or other immediately
available funds.
Upon the exercise of this Warrant, the form of election to purchase
attached hereto must be properly completed and executed and surrendered to the
Company or its transfer agent. In the event that this Warrant is exercised in
respect of fewer than all of such shares, a new Warrant for the remaining number
of such shares, substantially in the form hereof, will be issued on such
surrender.
This Warrant is issued under, and the rights represented hereby are
subject to, the terms and provisions contained in the Warrant Agreement. By
acceptance of an assignment of this Warrant any assignee agrees and assents to
all the terms and provisions of the Warrant Agreement. Reference is hereby made
to terms and conditions of the Warrant Agreement for a more complete statement
of the rights and limitations of rights of the registered holder hereof and the
rights and obligations of the Company thereunder, which terms and conditions are
incorporated herein by reference. Copies of the Warrant Agreement are on file
at the principal office of the Company.
The Company shall be required upon the exercise of this Warrant to
issue fractions of shares only up to the nearest thousandth of a share (.001).
This Warrant is transferable at the office of the Company (or of its
transfer agent) by the registered holder hereof in person or by attorney-in-fact
duly authorized in writing, but only in the manner and subject to the
limitations provided in the Warrant Agreement, and upon surrender of this
Warrant, proper completion and delivery of an assignment in the form attached
hereto and the payment of any transfer taxes. Upon any such transfer, a new
Warrant, or new Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock will be issued to the transferee in exchange for this Warrant.
This Warrant when surrendered at the office of the Company (or of its
transfer agent) by the registered holder hereof, in person or by attorney duly
authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement for another Warrant, or other
Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Common Stock.
-ii-
<PAGE>
If this Warrant shall be surrendered for exercise within any period
during which the transfer books for shares of the Common Stock of the Company or
other securities purchasable upon the exercise of this Warrant are closed for
any purpose, the Company shall not be required to make delivery of certificates
for the securities purchasable upon such exercise until the date of the
reopening of said transfer books.
The Holder of this Warrant shall not be entitled to any of the rights
of a stockholder of the Company prior to the exercise hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its representative, thereunto duly authorized, as of this 3rd day of July,
1996.
CHENIERE ENERGY, INC.
By: ____________________________
William D. Forster
President
-iii-
<PAGE>
Annex 1
-------
PURCHASE FORM
-------------
Dated ________________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ shares of Common Stock and hereby
makes payment in full by check or other immediately available funds totaling
$_______.
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
Signature______________________________________________________________________
- --------------------------------------------------------------------------------
Annex 2
-------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
Name___________________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _______________, Attorney-in-Fact, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Date________________, 19__
Signature___________________________________________________
-iv-
<PAGE>
EXHIBIT 10.6
ASSET TRANSFER, ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSET TRANSFER, ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement")
is made and entered into the 16th day of April, 1996, by and between Bexy
Communications, Inc. a Delaware corporation ("Assignor"), and Mar Ventures Inc.,
a Delaware corporation ("Assignee").
RECITALS
WHEREAS, Assignor is a company engaged in the media business (the
"Business");
WHEREAS, Assignor has entered into a certain Agreement and Plan of
Reorganization dated as of April 16, 1996 (the "Reorganization Agreement") by
and among Assignor, Cheniere Energy Operation Co., Inc. ("Cheniere"), the
stockholders of Cheniere and Buddy Young, pursuant to which Assignor will effect
a reorganization (the "Reorganization") of the management, business, capital
structure and operations of Assignor;
WHEREAS, in connection with the Reorganization, Assignor contemplates
acquiring the business of a company engaged in the oil and gas exploration
business;
WHEREAS, it is contemplated by the Reorganization Agreement, that
Assignor transfer all of its assets to Assignee and that Assignee assume all of
the liabilities of Assignor, including but not limited to, its obligations under
the Reorganization Agreement;
WHEREAS, Assignor has formed Assignee to receive the transfer of and
hold Assignor's assets (the "Assets") and operate the Business; and
WHEREAS, the parties desire to set forth the terms of the transfer and
assumption herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. TRANSFER, ASSIGNMENT AND ASSUMPTION.
-----------------------------------
1.1 Transfer and Assignment of Assets. Assignor hereby grants,
conveys, assigns and transfers to Assignee all of its right, title and interest
in and to all of the Assets, including, but not limited to, the following:
<PAGE>
1.1.1 Intellectual Property. All of those trademarks' trade
names, copyrights, service marks, licenses or patents listed in the Schedule of
Patents, Copyrights and Trademarks attached hereto as Exhibit A and incorporated
herein by referenced (the "Intellectual Property");
1.1.2 Personal Property. All of those items of furniture,
fixtures, all associated production equipment and other equipment, computer
equipment, hardware and other tangible personal property listed on the Schedule
of Personal Property attached hereto as Exhibit B and incorporated herein by
reference (the "Personal Property");
1.1.3 Program Agreements. All of the Assignor's right, title and
interest in and to those certain production and distribution agreements and
contracts (the "Agreements") related to the attached hereto as Exhibit C and
incorporated herein by reference;
1.1.4 Equipment Leases. All of Assignor's right, title and
interest as lessee in and to those certain equipment leases for leased equipment
owned by Assignor listed on the Schedule of Equipment Leases attached hereto as
Exhibit D and incorporated herein by reference (the "Equipment Leases");
1.1.5 Contracts, Accounts Receivable and Inventory. Any
contracts, accounts receivable and inventory of Assignor relating exclusively to
the Business attached hereto as Exhibit E (the "Contracts");
1.1.6 All Other Assets. All of the other assets of Assignor
described in Exhibit F and incorporated herein by reference whether or not
specifically referred to in any of the preceding paragraphs of this Section 1.
1.2 Assumption of Liabilities. Assignee accepts the grant,
conveyance, assignment and transfer of the Assets as provided in Section 1.1 and
in exchange for Assignor's transfer of Assets, the Assignee agrees to
irrevocably and unconditionally assume all of the liabilities (including taxes)
of Assignor with respect to the Business or any of the Assets, including, but
not limited to, each of those liabilities described on the list attached as
Exhibit G and incorporated herein by reference (the "Assumed Liabilities"). The
Assignor does not have in effect:
1.2.1 any collective bargaining agreements; or
2
<PAGE>
1.2.2 any employee benefit plan as defined in ERISA.
2. CONSIDERATION. In consideration for the transfer of the Assets
and the assumption of Assumed Liabilities of the Business, Assignee shall issue
452,000 of its shares of common stock to Assignor.
3. NO FURTHER CONVEYANCE NECESSARY. This Agreement shall
effectively assign, transfer and convey all of the interest in the Assets from
Assignor to Assignee without any further documents of conveyance. Likewise,
this Agreement shall fully evidence the assumption of all of the Assumed
Liabilities by Assignee without any further instrument of conveyance or
assumption.
4. REPRESENTATIONS OF ASSIGNOR. Assignor represents and warrants as
follows as of the date hereof:
4.1 Organization, etc. Assignor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate powers necessary to own its property and to carry
on its business as now conducted and as proposed to be conducted.
4.2 Authorization. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Assignor. This Agreement constitutes the valid and binding obligation of
Assignor, enforceable against it in accordance with its terms.
4.3 No Breach. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not violate,
result in any breach of, or constitute a default under (i) Assignor's
Certificate of Incorporation or Bylaws, (ii) any material agreement to which
Assignor is a party or by which Assignor is bound, (iii) any order, judgment,
injunction or decree of any court, arbitrator or governmental agency binding
upon Assignor or by which any of its material assets are bound or (iv) any law,
rule or regulation applicable to Assignor.
4.4 Tax and Other Returns and Reports. Except as set forth in
Schedule of Assumed Liabilities in Exhibit G, delivered concurrently herewith,
(i) all tax returns and tax reports required to be filed by Assignor have been
filed with the appropriate governmental agencies in all jurisdictions in which
such returns and reports are required to be filed and where failure to file
would materially and adversely effect Assignor, (ii) all
3
<PAGE>
government income, franchise, property and other taxes paid or chargeable to the
operation of Assignor in accordance with its normal initial accounting and
operational procedure (including interest and penalties) (x) have been fully
paid or (y) are being contested in good faith by appropriate proceedings and are
not material to Assignor and (iii) no issues have been raised or are currently
pending by the IRS or any other governmental taxing authority in connection with
any of the returns and reports referred to in the foregoing clause (i) which,
individually or in the aggregate, might have a material adverse effect on
Assignor and (iv) no waivers of the applicable statue of limitations have been
executed.
4.5 Title to Property. Assignor will transfer to Assignee on
the date hereof good and marketable title to the Assets, free and clear of
mortgages, pledges, charges, encumbrances, equities, claims, covenants,
conditions or reclaims, except for matters that, in the aggregate are not
substantial in amount and do not materially detract from or interfere with the
present or intended use of any of the Assets, or materially impair the Business
(other than the Assumed Liabilities).
4.6 Effect of Representations. The representations and
warranties of Assignor set forth in Section 3 are made solely for the purpose of
this Agreement and shall not (i) survive the consummation of the transactions
contemplated by this Agreement, (ii) inure to the benefit of, or be enforceable
by or against, either the successors or permitted assigns of the parties hereto
or any other person, or (iii) give rise to any action or claim against Assignor,
including, without limitation, any action for negligent misrepresentation.
5. INDEMNIFICATION. The Assignor and Assignee agree to
indemnify and hold harmless each other as follows:
5.1 Assignor shall indemnify, defend and hold harmless Assignee
from any and all loss, cost, expense and liability (including attorneys' fees)
incurred in connection with any claim or asserted claim which may be made
against Assignee and which arises directly or indirectly from any breach of this
Agreement by Assignor.
5.2 Assignee shall indemnify, defend and hold harmless Assignor
from any and all loss, cost, expense and liability (including attorneys' fees)
incurred in connection with any claim or asserted claim which may be made
against Assignor and which arises directly or indirectly from any breach of this
Agreement by Assignee.
4
<PAGE>
5.3 Promptly after receipt of notice of the commencement of any
action in respect of which indemnity may be sought against either party
hereunder, the indemnified party will notify the other party in writing of the
commencement thereof and the other party shall, subject to the provisions stated
below, assume the defense of such action (including the employment of counsel,
who shall be counsel reasonably satisfactory to the indemnified party and shall
not be counsel to the other party), and the payment of expenses insofar as such
action shall relate to any alleged liability in respect of which indemnity as
available. The indemnified party shall have the right to employ separate
counsel in any action and to participate in the defense thereof, but the fees
and expenses of its counsel shall not be at the expense of the other party
unless the employment of that counsel has been specifically authorized by the
other party.
6. ACCESS TO INFORMATION. Assignor and Assignee and each of their
counsel, accountants and other representatives shall have full access during
normal business hours to all properties, books, accounts, records, contracts and
documents of or relating to the business of each other, and each of Assignor and
Assignee shall furnish to each other and his representatives all information
concerning the business, finances and properties of the other, that may
reasonably be requested in connection with the transactions contemplated hereby.
Assignor and Assignee will treat all information so obtained as confidential and
preparation to this Agreement.
7. DISTRIBUTION OF ASSIGNEE SHARES. It is contemplated that such
shares shall be distributed by Assignor to its stockholders or record as of May
15, 1996, subject to approval of such distribution by the stockholders of
Assignor at a special meeting of stockholders to be called to approve the
Reorganization and the Closing as described in the Reorganization Agreement.
8. REPRESENTATIONS OF ASSIGNEE. Assignee represents and warrants as
follows:
8.1 Organization, etc. Assignee is a corporation duly
organized and validly existing under the laws of the State of Delaware and has
the corporate powers necessary to own its property and carry on its business as
proposed to be conducted.
8.2 Authorization. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Assignee. This Agreement constitutes the valid and binding
5
<PAGE>
obligation of Assignee, enforceable against it in accordance with its terms.
8.3 No Breach. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not violate
(i) the Certificate of Incorporation or Bylaws of Assignee, (ii) any material
agreement to which Assignee is a party or by which Assignee is bound, (iii) any
order, judgment, injunction or decree of any court, arbitrator or governmental
agency binding upon Assignee or by which any of its material assets are bound or
(iv) any law, rule or regulation applicable to Assignee.
8.4 Effect of Representations. The representations and
warranties of Assignee set forth in paragraphs 8.1, 8.2 and 8.3 are made solely
for the purpose of this Agreement and shall survive the consummation of the
transactions contemplated by this Agreement, and inure to the benefit of, or be
enforceable by, either the successors or permitted assigns of Assignor.
9. MISCELLANEOUS.
9.1 Assignment. No assignment or transfer of any interest,
right or obligation of any party hereunder shall be allowed without the prior
written consent of all parties to this Agreement.
9.2 Amendments. This Agreement may not be amended,
supplemented or otherwise modified except in writing signed by or on behalf of
each party hereto.
9.3 Severability. In the event that any provision of this
Agreement shall be held to be invalid, illegal or unenforceable, in whole or in
part, such invalidity, illegality or unenforceability shall not in any way
whatsoever affect the validity of the other provisions of this Agreement and
such other provisions shall remain in full force and effect.
9.4 Further Assurances. Each of the parties hereto agrees
that, from and after the date hereof upon the reasonable request of the other
party hereto and without further consideration, such party shall execute and
deliver to such other party such documents and shall take such other actions as
such other party may reasonably request in order to carry out the purposes and
intentions of this Agreement, including, without limitation, the vesting in
Assignee of the title to the Assets in accordance with such terms of this
Agreement and the correction of related errors and defects.
6
<PAGE>
9.5 Governing Law. This Agreement shall be governed by the
laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ASSIGNOR:
BEXY COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/Buddy Young
---------------------
Its: President
ASSIGNEE:
MAR VENTURES, INC.,
a Delaware corporation
By: /s/ Buddy Young
---------------------
Its: President
7
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PATENTS, COPYRIGHTS AND TRADEMARKS
A-1
<PAGE>
EXHIBIT C
---------
SCHEDULE OF PROGRAM AGREEMENTS
C-1
<PAGE>
EXHIBIT D
---------
SCHEDULE OF EQUIPMENT LEASES
D-1
<PAGE>
EXHIBIT E
---------
CONTRACTS
E-1
<PAGE>
EXHIBIT F
---------
SCHEDULE OF OTHER ASSETS
F-1
<PAGE>
EXHIBIT G
---------
SCHEDULE OF ASSUMED LIABILITIES
1. ALL LIABILITIES AS SHOWN ON BEXY'S FEBRUARY 29, 1996, FORM 10-QSB.
2. ALL ACCOUNTS PAYABLE, OBLIGATIONS AND ACCRUED COSTS RELATING TO THE
OPERATION OF BEXY'S BUSINESS DURING THE PERIOD OF MARCH 1, 1996, THROUGH
THE CLOSING (AS DEFINED IN THE REORGANIZATION AGREEMENT).
3. ALL OBLIGATIONS OF BEXY UNDER THAT CERTAIN AGREEMENT AND PLAN OF
REORGANIZATION.
G-1
<PAGE>
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
-------------------------
INDEMNIFICATION AGREEMENT (this "Agreement") made as of July 3, 1996, by
BUDDY YOUNG, an individual having an address at 16661 Ventura Boulevard, Suite
214, Encino, California 91436 ("Young"), in favor of Cheniere Energy Operating
Co., Inc. ("Cheniere"), a corporation formed and existing under the laws of the
State of Delaware, having an address at Two Allen Center, 1200 Smith Street,
Suite 1710, Houston, Texas 77002; the Stockholders of Cheniere listed on
Schedule A attached to the Reorganization Agreement (as defined below)
(collectively, the "Cheniere Stockholders"); and Cheniere Energy, Inc. (f/k/a
BEXY Communications, Inc.), a corporation formed and existing under the laws of
the State of Delaware (the "Company"), having an address at Two Allen Center,
1200 Smith Street, Suite 1710, Houston, Texas 77002. Capitalized terms used
herein without definition shall have the same meanings as ascribed to them in
the Reorganization Agreement (as defined below).
W I T N E S S E T H:
-------------------
WHEREAS, the parties have entered into a certain Agreement and Plan of
Reorganization dated April 16, 1996 (the "Reorganization Agreement"), pursuant
to which, prior to or concurrently with the execution and delivery of this
Agreement, among other things, (i) the Company has assigned and transferred
substantially all of the assets and business of the Company, subject to
liabilities, to Mar Ventures, Inc. ("Newco") and distributed the shares of Newco
to its stockholders (the "Divestiture") and (ii) the Cheniere Stockholders have
exchanged their Cheniere Shares for shares of the BEXY Stock; and
WHEREAS, in order to obtain the approval of the stockholders of the Company
to the Reorganization and to register the stock of Newco under the Securities
Exchange Act of 1934 (the "Exchange Act"), the Company has caused to be prepared
and filed with the Securities and Exchange Commission (the "SEC") the Proxy
Materials and the Registration Statement, respectively; and
WHEREAS, in order to induce Cheniere and the Cheniere Stockholders to enter
into the Reorganization Agreement, Young has agreed to indemnify the Company,
Cheniere and the Cheniere Stockholders from and against certain Claims (as
hereinafter defined) described below; and
WHEREAS, it is in the interest and to the direct or indirect benefit of
Young and the stockholders of the Company for Cheniere and the Cheniere
Stockholders to enter into the Reorganization Agreement and consummate the
Acquisition and the other transactions contemplated by the Reorganization
Agreement.
NOW, THEREFORE, in consideration of TEN DOLLARS ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Young agrees as follows:
<PAGE>
1. INDEMNIFICATION. (a) Young unconditionally and irrevocably
indemnifies and agrees to indemnify and hold harmless the Company, Cheniere and
the Cheniere Stockholders and their respective officers, directors, attorneys
and other agents (the "Cheniere Indemnified Parties") from and against all
Claims (as hereinafter defined) which any Cheniere Indemnified Party may suffer,
incur, or pay arising under or incurred in connection with (i) the operation of
the business of the Company prior to the Closing, (ii) any error or omission
with respect to a material fact stated or required to be stated in the Proxy
Materials or the Registration Statement with respect to the Company prior to the
Closing and (iii) any Taxes (as defined below) (individually, a "Claim" and
collectively, the "Claims").
(b) The indemnity given by the Indemnitor is a guaranty to pay fully and
promptly all sums due with respect to any and all Claims and is not a guaranty
of collection only. None of the Company, Cheniere and the Cheniere Stockholders
shall be required to exhaust any right or remedy or take any action against any
other person or any collateral. All suretyship defenses that Young has or may
have under applicable law are hereby expressly waived and relinquished by Young.
Without limiting any of the foregoing, Young hereby waives presentment, notice
of dishonor, nonperformance or nonpayment, protest and notice of protest, any
other notice of every kind or nature and diligence in bringing suit or taking
any other action on account of nonpayment of any Claim, and consents to any
modification, amendment or addition to the Reorganization Agreement and agrees
that notwithstanding any such modification, amendment or addition, this
Agreement shall remain in full force and effect in all respects. Further, and
without limiting any of the foregoing, Young further waives the benefit of any
statute of limitations affecting Young's liability under this Agreement or the
enforcement thereof for so long as the underlying obligation is subject to being
enforced, and Young agrees that any payment of any amounts due with respect to
any Claims or other act which shall toll any statute of limitations applicable
thereto shall similarly operate to toll the statute of limitations applicable to
Young's liability under this Agreement. Young warrants and agrees that each of
the foregoing waivers are made with Young's full knowledge of their significance
and consequences, and that under the circumstances, the waivers are reasonable
and not contrary to public policy or law. If any of said waivers are determined
to be contrary to any applicable law or public policy, such waivers shall be
effective only to the maximum extent permitted by law. Young hereby agrees to
the jurisdiction of any court in which jurisdiction is obtained against Young
with respect to any Claim. Young acknowledges that there are no conditions
precedent to the effectiveness of this Agreement, and this Agreement is in full
force and effect and is binding on Young as of the date hereof.
(c) For purposes of this Agreement, "Tax" or "Taxes" means all United
States federal, state, local or foreign income, profits, franchise, sales,
property, excise, value added, estimated, stamp, alternative or add-on minimum,
environmental, withholding, and other taxes, assessments, duties, fees and
governmental charges or impositions of each and every kind, together with all
interest, penalties, and additions imposed with respect to such amounts, arising
as the result of or incurred in connection with the consummation of the
transactions contemplated by the Divestiture, including, without limitation, the
assignment
2
<PAGE>
and transfer of any asset to, or assumption of any liability by, Newco or the
distribution of any shares of Newco or the business of the Company prior to the
Closing Date or Newco after the Closing Date.
(d) Notwithstanding the foregoing, the estate of Buddy Young shall have
no liability under this Agreement.
2. FURTHER ASSURANCES. Young shall take such actions and sign and
deliver such other instruments and documents as may be reasonable, necessary or
appropriate to effectuate its fulfillment of the obligations described in this
Agreement.
3. AMENDMENT. No modification, waiver or termination of this
Agreement, or any part hereof, shall be effective unless made in writing and
signed by Young, the Company, Cheniere and the Cheniere Stockholders in each
instance. Receipt by any party of any money or other consideration due under
this Agreement, with or without knowledge, shall not constitute a waiver of any
provision of this Agreement.
4. ENTIRE AGREEMENT. This Agreement, together with any Exhibits and
Schedules hereto, constitutes the entire agreement between Young, the Company,
Cheniere and the Cheniere Stockholders with respect to the subject matter hereof
and supersedes all prior agreements or understandings, or communications of
Young, the Company, Cheniere and the Cheniere Stockholders relating thereto.
5. WAIVER; REMEDIES. No delay on the part of the Company, Cheniere,
the Cheniere Stockholders or Young in exercising any right, power, privilege, or
remedy hereunder shall operate as a waiver thereof or as a waiver of any other
right, power, privilege, or remedy hereunder, nor shall any single or partial
exercise of any right, power, privilege or remedy hereunder preclude any other
or future exercise hereunder. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies which Cheniere, the
Cheniere Stockholders, the Company or Young hereto may otherwise have at law or
in equity.
6. 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 paragraph 7:
If to Young:
c/o BEXY Communications, Inc.
16661 Ventura Boulevard, Suite 214
Encino, CA 91436
Attn: Mr. Buddy Young, President & CEO
Fax: (818) 784-8660
3
<PAGE>
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 the Company, Cheniere or the Cheniere
Stockholders:
Cheniere Energy, Inc.
Two Allen Center
1200 Smith Street, Suite 1710
Houston, Texas 77002
Attn: Mr. William D. Forster
Fax: (713) 659-5459
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
7. CAPTIONS. Paragraph titles or captions contained in this Agreement
are listed only as a matter of convenience and for reference, and shall not be
construed in any way to define, limit, extend or describe the scope of this
Agreement or the intention of the provisions thereof.
8. SEVERABILITY. The invalidity of any one or more provisions hereof
or of the Reorganization Agreement shall not affect the remaining portions of
this Agreement or of the Reorganization Agreement, all of which are inserted
conditionally on their being held valid in law; and if one or more of the
provisions contained herein or therein should be valid, or should operate to
render this or the Agreement invalid, this Agreement and Reorganization
Agreement shall be construed as if such invalid provisions had not been
inserted.
4
<PAGE>
9. SURVIVAL. The obligations of Young hereunder shall survive the
consummation of the transactions contemplated by the Reorganization Agreement
for a period of three years.
IN WITNESS WHEREOF, Young has executed this Agreement as of the date set
forth on the first page of this Agreement.
By:/s/ Buddy Young
------------------------------
Buddy Young
ACKNOWLEDGED AND ACCEPTED:
CHENIERE ENERGY OPERATING CO., INC.
By:/s/ William D. Forster
------------------------------
Name: William D. Forster
Title: President
CHENIERE ENERGY, INC.
(F/K/A BEXY COMMUNICATIONS, INC.)
By:/s/ William D. Forster
------------------------------
Name: William D. Forster
Title: President
5
<PAGE>
EXHIBIT 10.8
WARRANT AGREEMENT
WARRANT AGREEMENT (this "Agreement") is made as of August 21, 1996 by
and between CHENIERE ENERGY, INC., a Delaware corporation ("the Company"), and
BLAIR FOSTER & CO., INC. (the "Holder").
PRELIMINARY RECITALS
--------------------
A. In consideration for investment advisory and other services
provided to the Company, the Company has agreed to grant to Holder a common
stock purchase warrant entitling Holder and its permitted assigns to purchase,
on the terms and subject to the conditions set forth below, shares of the common
stock, $.003 par value per share, of the Company (the "Common Stock").
B. Holder is willing to accept the Warrant (as hereinafter defined)
as consideration for its services to the Company, on the terms and subject to
the conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Holder agree as follows:
1. GRANT OF WARRANT. The Company hereby grants to Holder a warrant
to purchase up to 13,600 shares (the "Warrant Shares") of Common Stock at the
purchase price of $3 per share (the "Warrant"), such Warrant to be exercisable
as hereinafter provided, evidenced by a warrant certificate in the form attached
as Exhibit A hereto (the "Warrant Certificate").
2. EXERCISE PERIOD. Subject to the other terms of this Agreement
regarding the exercisability of the Warrant, the Warrant shall be exercisable
during the period (the "Exercise Period") commencing on the date hereof and
expiring on May 15, 1999.
3. EXERCISE OF WARRANT
(a) This Warrant may be exercised, from time to time, in whole or in
part, at any time prior to the expiration thereof. Any exercise shall be
accompanied by written notice to the Company specifying the number of shares as
to which this Warrant is being exercised, in the form attached to the Warrant
Certificate. Notations of any partial exercise or instalment exercise, shall be
made by the Company and attached as a schedule hereto.
(b) The Company shall issue the Warrant Certificate or certificates
evidencing the Warrant Shares within fifteen (15) days after receipt of such
notice and payment as hereinafter provided.
4. PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise of the Warrant the purchase price for the Warrant Shares shall be paid
in full to the Company by check or other immediately available funds.
5. PURCHASE FOR INVESTMENT; RESALE RESTRICTIONS. The Holder hereby
represents, and each assignee of Holder as a condition to transfer shall
represent, that he is acquiring or will acquire the Warrant and the Warrant
Shares for his own account, for investment only with no present intention of
<PAGE>
distributing or reselling such securities or any part thereof. Unless at the
time of the acquisition of the Warrant or the exercise of the Warrant, as the
case may be, there shall be, in the opinion of counsel for the Company, a valid
and effective registration statement under the Securities Act 1933 ("1933 Act")
and appropriate qualification and registration under applicable state securities
laws relating to the Warrant or the Warrant Shares, as the case may be, the
Holder shall, prior to the assignment of the Warrant or upon exercise of the
Warrant or any portion thereof, as the case may be, give a representation that
he is acquiring such Warrant or Warrant Shares, as the case may be, for his own
account, only for investment and not with the view to the resale or distribution
of any of such securities. In the absence of such registration statement, the
Holder shall execute a written affirmation, in form reasonably satisfactory to
the Company, of such investment intent. The Holder further agrees that he will
not sell or transfer the Warrant or any Warrant Shares, as the case may be,
until he requests and receives an opinion from the Company's counsel, or other
counsel reasonably satisfactory to the Company, to the effect that such proposed
sale or transfer will not result in a violation of the 1933 Act or a
registration statement covering the sale or transfer of the Warrant or Warrant
Shares, as the case may be, has been declared effective by the Securities and
Exchange Commission ("SEC"), or he obtains a no action letter from the SEC with
respect to the proposed transfer. There shall be stamped on the certificate(s)
representing the Warrant or Warrant Shares, as the case may be, an appropriate
legend giving notice of the acquisition of such Warrant or Warrant Shares, as
the case may be, for investment and the restriction on their transfer by reason
thereof.
6. ADJUSTMENTS. In the event of any change in the outstanding Common
Stock of the Company by reason of any stock recapitalization, merger,
consolidation, combination or exchange of shares, the kind of shares subject to
the Warrant and their purchase price per share (but not the number of shares)
shall be appropriately adjusted consistent with such change in such manner as
the Board of Directors of the Company may deem equitable. In the event of a
stock dividend or stock split, the kind of shares, the purchase price per share
and number of shares shall be appropriately adjusted, consistent with such
change in such manner as the Board of Directors may deem equitable. Any
adjustments that are made by the Board of Directors shall be final and binding
on the Holder.
7. NO RIGHTS OF STOCKHOLDER. The Holder shall have no rights as a
stockholder with respect to any Warrant Shares prior to the date of purchase
thereof and issuance to him of a certificate or certificates for such shares.
8. COMPLIANCE WITH LAW AND REGULATIONS. This Agreement and the
obligation of the Company to sell and deliver the Warrant and the Warrant Shares
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
If, at any time, the Board of Directors of the Company shall determine that (a)
the listing, registration or qualification of the Warrant Shares upon any
securities exchange or under any state or federal law or (b) the consent or
approval of any government regulatory body, is necessary or desirable as a
condition to, or in connection with, the offer, sale and issuance of the Warrant
Shares, the Warrant shall not be exercised by the Holder in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained, free of any conditions not acceptable to
the Board of Directors of the Company.
9. TAX WITHHOLDING REQUIREMENTS. The Company shall have the right to
require the Holder to remit to the Company an amount sufficient to satisfy any
federal, state or local withholding or other tax requirements applicable to the
sale of the Warrant or the issuance and sale of the Warrant Shares prior to the
delivery of any Warrant Certificate or Certificates for the Warrant Shares.
2
<PAGE>
10. FRACTIONAL SHARES. To the extent required, fractional shares of
stock shall be issued upon the exercise of this Warrant up to but not more than
the nearest thousandth of a share (.001). The Company shall not be under any
obligation to compensate the Holder in any way for fractional shares in less
than such amounts.
11. SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all of such counterparts taken together will constitute one and the
same Agreement.
13. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this Agreement
and shall not be used in the interpretation hereof.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon any
and all successors and assigns of the parties.
15. AMENDMENTS. This Agreement may not be modified, amended,
altered, or supplemented except upon the execution and delivery of a written
agreement executed by Holder and the Company.
16. GOVERNING LAW. This Agreement shall be construed according to
the laws of the State of Delaware without giving effect to the conflict of law
provisions thereof, and all provisions hereof shall be administered according to
and its validity shall be determined under, the laws of such state, except where
preempted by federal laws.
17. 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 17:
If to Holder at the address set forth on the signature page of this
Agreement.
If to the Company:
Cheniere Energy, Inc.
Two Allen Center
1200 Smith Street, Suite 1710
Houston, Texas 77002
Attn: Mr. William D. Forster
Fax: (713) 659-5459
IN WITNESS WHEREOF the parties have executed this Agreement as the date
first written above.
CHENIERE ENERGY, INC.
3
<PAGE>
By:__________________________________
Name: William D. Forster
Title: President
BLAIR FOSTER & CO., INC.
By:__________________________________
Name:
Title:
Address: ____________________________
____________________________
Tel: ________________________________
Fax: ________________________________
4
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
CHENIERE ENERGY, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
The transferability of this Warrant is restricted as set forth in the
related Warrant Agreement, a copy of which may be obtained from the Company
at its principal office.
No. WA-12 Up to 13,600 Shares
THIS CERTIFIES THAT for value received BLAIR FOSTER & CO., INC. (the
"Holder") or registered assigns is the owner of a Warrant to purchase during the
period expiring no later than 5:00 p.m. New York time on May 15, 1999, the
number of fully paid and non-assessable shares of Common Stock, $.003 par value
per share (the "Common Stock"), of Cheniere Energy, Inc., a Delaware corporation
(hereinafter called the "Company"), specified above upon payment of the Warrant
Price (as defined below) set forth in the warrant agreement between the Company
and the Holder (the "Warrant Agreement").
As provided in the Warrant Agreement, certain adjustments may be made
in the sole discretion of the Board of Directors of the Company in the number of
shares of Common Stock issuable upon exercise of this Warrant in the event of
the change in the number of shares of Common Stock of the Company outstanding by
reason a stock split, combination of stock or stock dividend in such manner as
the Board of Directors may deem equitable.
The warrant price per share (hereinafter called the "Warrant Price")
shall be $3. As provided in the Warrant Agreement, the Warrant Price is payable
upon the exercise of this Warrant, in cash by check or other immediately
available funds.
Upon the exercise of this Warrant, the form of election to purchase
attached hereto must be properly completed and executed and surrendered to the
Company or its transfer agent. In the event that this Warrant is exercised in
respect of fewer than all of such shares, a new Warrant for the remaining number
of such shares, substantially in the form hereof, will be issued on such
surrender.
This Warrant is issued under, and the rights represented hereby are
subject to, the terms and provisions contained in the Warrant Agreement. By
acceptance of an assignment of this Warrant any assignee agrees and assents to
all the terms and provisions of the Warrant Agreement. Reference is hereby made
to terms and conditions of the Warrant Agreement for a more complete statement
of the rights and limitations of rights of the registered holder hereof and the
rights and obligations of the
i
<PAGE>
Company thereunder, which terms and conditions are incorporated herein by
reference. Copies of the Warrant Agreement are on file at the principal office
of the Company.
The Company shall be required upon the exercise of this Warrant to
issue fractions of shares only up to the nearest thousandth of a share (.001).
This Warrant is transferable at the office of the Company (or of its
transfer agent) by the registered holder hereof in person or by attorney-in-fact
duly authorized in writing, but only in the manner and subject to the
limitations provided in the Warrant Agreement, and upon surrender of this
Warrant, proper completion and delivery of an assignment in the form attached
hereto and the payment of any transfer taxes. Upon any such transfer, a new
Warrant, or new Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock will be issued to the transferee in exchange for this Warrant.
This Warrant when surrendered at the office of the Company (or of its
transfer agent) by the registered holder hereof, in person or by attorney duly
authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement for another Warrant, or other
Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Common Stock.
If this Warrant shall be surrendered for exercise within any period
during which the transfer books for shares of the Common Stock of the Company or
other securities purchasable upon the exercise of this Warrant are closed for
any purpose, the Company shall not be required to make delivery of certificates
for the securities purchasable upon such exercise until the date of the
reopening of said transfer books.
The Holder of this Warrant shall not be entitled to any of the rights
of a stockholder of the Company prior to the exercise hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its representative, thereunto duly authorized, as of this 21st day of August,
1996.
CHENIERE ENERGY, INC.
By: ______________________________
William D. Forster
President
ii
<PAGE>
Annex 1
-------
PURCHASE FORM
-------------
Dated ________________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ shares of Common Stock and hereby
makes payment in full by check or other immediately available funds totaling
$_______.
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name________________________________________________________
(Please typewrite or print in block letters)
Address_____________________________________________________
Signature___________________________________________________
- ------------------------------------------------------------
Annex 2
-------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
Name________________________________________________________
(Please typewrite or print in block letters)
Address_____________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _______________, Attorney-in-Fact, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Date________________, 19__
Signature___________________________________________________
iii
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT (this "Agreement") is made as of August 21, 1996 by
and between CHENIERE ENERGY, INC., a Delaware corporation ("the Company"), and
REDLIW CORP. (the "Holder").
PRELIMINARY RECITALS
--------------------
C. In consideration for investment advisory and other services
provided to the Company, the Company has agreed to grant to Holder a common
stock purchase warrant entitling Holder and its permitted assigns to purchase,
on the terms and subject to the conditions set forth below, shares of the common
stock, $.003 par value per share, of the Company (the "Common Stock").
D. Holder is willing to accept the Warrant (as hereinafter defined)
as consideration for its services to the Company, on the terms and subject to
the conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Holder agree as follows:
1. GRANT OF WARRANT. The Company hereby grants to Holder a warrant
to purchase up to 54,400 shares (the "Warrant Shares") of Common Stock at the
purchase price of $3 per share (the "Warrant"), such Warrant to be exercisable
as hereinafter provided, evidenced by a warrant certificate in the form attached
as Exhibit A hereto (the "Warrant Certificate").
2. EXERCISE PERIOD. Subject to the other terms of this Agreement
regarding the exercisability of the Warrant, the Warrant shall be exercisable
during the period (the "Exercise Period") commencing on the date hereof and
expiring on May 15, 1999.
3. EXERCISE OF WARRANT
(a) This Warrant may be exercised, from time to time, in whole or in
part, at any time prior to the expiration thereof. Any exercise shall be
accompanied by written notice to the Company specifying the number of shares as
to which this Warrant is being exercised, in the form attached to the Warrant
Certificate. Notations of any partial exercise or instalment exercise, shall be
made by the Company and attached as a schedule hereto.
(b) The Company shall issue the Warrant Certificate or certificates
evidencing the Warrant Shares within fifteen (15) days after receipt of such
notice and payment as hereinafter provided.
4. PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise of the Warrant the purchase price for the Warrant Shares shall be paid
in full to the Company by check or other immediately available funds.
5. PURCHASE FOR INVESTMENT; RESALE RESTRICTIONS. The Holder hereby
represents, and each assignee of Holder as a condition to transfer shall
represent, that he is acquiring or will acquire the Warrant and the Warrant
Shares for his own account, for investment only with no present intention of
1
<PAGE>
distributing or reselling such securities or any part thereof. Unless at the
time of the acquisition of the Warrant or the exercise of the Warrant, as the
case may be, there shall be, in the opinion of counsel for the Company, a valid
and effective registration statement under the Securities Act 1933 ("1933 Act")
and appropriate qualification and registration under applicable state securities
laws relating to the Warrant or the Warrant Shares, as the case may be, the
Holder shall, prior to the assignment of the Warrant or upon exercise of the
Warrant or any portion thereof, as the case may be, give a representation that
he is acquiring such Warrant or Warrant Shares, as the case may be, for his own
account, only for investment and not with the view to the resale or distribution
of any of such securities. In the absence of such registration statement, the
Holder shall execute a written affirmation, in form reasonably satisfactory to
the Company, of such investment intent. The Holder further agrees that he will
not sell or transfer the Warrant or any Warrant Shares, as the case may be,
until he requests and receives an opinion from the Company's counsel, or other
counsel reasonably satisfactory to the Company, to the effect that such proposed
sale or transfer will not result in a violation of the 1933 Act or a
registration statement covering the sale or transfer of the Warrant or Warrant
Shares, as the case may be, has been declared effective by the Securities and
Exchange Commission ("SEC"), or he obtains a no action letter from the SEC with
respect to the proposed transfer. There shall be stamped on the certificate(s)
representing the Warrant or Warrant Shares, as the case may be, an appropriate
legend giving notice of the acquisition of such Warrant or Warrant Shares, as
the case may be, for investment and the restriction on their transfer by reason
thereof.
6. ADJUSTMENTS. In the event of any change in the outstanding Common
Stock of the Company by reason of any stock recapitalization, merger,
consolidation, combination or exchange of shares, the kind of shares subject to
the Warrant and their purchase price per share (but not the number of shares)
shall be appropriately adjusted consistent with such change in such manner as
the Board of Directors of the Company may deem equitable. In the event of a
stock dividend or stock split, the kind of shares, the purchase price per share
and number of shares shall be appropriately adjusted, consistent with such
change in such manner as the Board of Directors may deem equitable. Any
adjustments that are made by the Board of Directors shall be final and binding
on the Holder.
7. NO RIGHTS OF STOCKHOLDER. The Holder shall have no rights as a
stockholder with respect to any Warrant Shares prior to the date of purchase
thereof and issuance to him of a certificate or certificates for such shares.
8. COMPLIANCE WITH LAW AND REGULATIONS. This Agreement and the
obligation of the Company to sell and deliver the Warrant and the Warrant Shares
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
If, at any time, the Board of Directors of the Company shall determine that (a)
the listing, registration or qualification of the Warrant Shares upon any
securities exchange or under any state or federal law or (b) the consent or
approval of any government regulatory body, is necessary or desirable as a
condition to, or in connection with, the offer, sale and issuance of the Warrant
Shares, the Warrant shall not be exercised by the Holder in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained, free of any conditions not acceptable to
the Board of Directors of the Company.
9. TAX WITHHOLDING REQUIREMENTS. The Company shall have the right to
require the Holder to remit to the Company an amount sufficient to satisfy any
federal, state or local withholding or other tax requirements applicable to the
sale of the Warrant or the issuance and sale of the Warrant Shares prior to the
delivery of any Warrant Certificate or Certificates for the Warrant Shares.
2
<PAGE>
10. FRACTIONAL SHARES. To the extent required, fractional shares of
stock shall be issued upon the exercise of this Warrant up to but not more than
the nearest thousandth of a share (.001). The Company shall not be under any
obligation to compensate the Holder in any way for fractional shares in less
than such amounts.
11. SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all of such counterparts taken together will constitute one and the
same Agreement.
13. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this Agreement
and shall not be used in the interpretation hereof.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon any
and all successors and assigns of the parties.
15. AMENDMENTS. This Agreement may not be modified, amended,
altered, or supplemented except upon the execution and delivery of a written
agreement executed by Holder and the Company.
16. GOVERNING LAW. This Agreement shall be construed according to
the laws of the State of Delaware without giving effect to the conflict of law
provisions thereof, and all provisions hereof shall be administered according to
and its validity shall be determined under, the laws of such state, except where
preempted by federal laws.
17. 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 17:
If to Holder at the address set forth on the signature page of this
Agreement.
If to the Company:
Cheniere Energy, Inc.
Two Allen Center
1200 Smith Street, Suite 1710
Houston, Texas 77002
Attn: Mr. William D. Forster
Fax: (713) 659-5459
IN WITNESS WHEREOF the parties have executed this Agreement as the
date first written above.
CHENIERE ENERGY, INC.
3
<PAGE>
By:___________________________________
Name: William D. Forster
Title: President
REDLIW CORP.
By:___________________________________
Name:
Title:
Address:______________________________
______________________________
Tel:__________________________________
Fax:__________________________________
4
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
CHENIERE ENERGY, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
The transferability of this Warrant is restricted as set forth in the
related Warrant Agreement, a copy of which may be obtained from the Company
at its principal office.
No. WA-13 Up to 54,400 Shares
THIS CERTIFIES THAT for value received REDLIW CORP. (the "Holder") or
registered assigns is the owner of a Warrant to purchase during the period
expiring no later than 5:00 p.m. New York time on May 15, 1999, the number of
fully paid and non-assessable shares of Common Stock, $.003 par value per share
(the "Common Stock"), of Cheniere Energy, Inc., a Delaware corporation
(hereinafter called the "Company"), specified above upon payment of the Warrant
Price (as defined below) set forth in the warrant agreement between the Company
and the Holder (the "Warrant Agreement").
As provided in the Warrant Agreement, certain adjustments may be made
in the sole discretion of the Board of Directors of the Company in the number of
shares of Common Stock issuable upon exercise of this Warrant in the event of
the change in the number of shares of Common Stock of the Company outstanding by
reason a stock split, combination of stock or stock dividend in such manner as
the Board of Directors may deem equitable.
The warrant price per share (hereinafter called the "Warrant Price")
shall be $3. As provided in the Warrant Agreement, the Warrant Price is payable
upon the exercise of this Warrant, in cash by check or other immediately
available funds.
Upon the exercise of this Warrant, the form of election to purchase
attached hereto must be properly completed and executed and surrendered to the
Company or its transfer agent. In the event that this Warrant is exercised in
respect of fewer than all of such shares, a new Warrant for the remaining number
of such shares, substantially in the form hereof, will be issued on such
surrender.
This Warrant is issued under, and the rights represented hereby are
subject to, the terms and provisions contained in the Warrant Agreement. By
acceptance of an assignment of this Warrant any assignee agrees and assents to
all the terms and provisions of the Warrant Agreement. Reference is hereby made
to terms and conditions of the Warrant Agreement for a more complete statement
of the rights and limitations of rights of the registered holder hereof and the
rights and obligations of the
5
<PAGE>
Company thereunder, which terms and conditions are incorporated herein by
reference. Copies of the Warrant Agreement are on file at the principal office
of the Company.
The Company shall be required upon the exercise of this Warrant to
issue fractions of shares only up to the nearest thousandth of a share (.001).
This Warrant is transferable at the office of the Company (or of its
transfer agent) by the registered holder hereof in person or by attorney-in-fact
duly authorized in writing, but only in the manner and subject to the
limitations provided in the Warrant Agreement, and upon surrender of this
Warrant, proper completion and delivery of an assignment in the form attached
hereto and the payment of any transfer taxes. Upon any such transfer, a new
Warrant, or new Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock will be issued to the transferee in exchange for this Warrant.
This Warrant when surrendered at the office of the Company (or of its
transfer agent) by the registered holder hereof, in person or by attorney duly
authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement for another Warrant, or other
Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Common Stock.
If this Warrant shall be surrendered for exercise within any period
during which the transfer books for shares of the Common Stock of the Company or
other securities purchasable upon the exercise of this Warrant are closed for
any purpose, the Company shall not be required to make delivery of certificates
for the securities purchasable upon such exercise until the date of the
reopening of said transfer books.
The Holder of this Warrant shall not be entitled to any of the rights
of a stockholder of the Company prior to the exercise hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its representative, thereunto duly authorized, as of this 21st day of August,
1996.
CHENIERE ENERGY, INC.
By:______________________________
William D. Forster
President
ii
<PAGE>
Annex 1
-------
PURCHASE FORM
-------------
Dated ________________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ shares of Common Stock and hereby
makes payment in full by check or other immediately available funds totaling
$_______.
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name________________________________________________________
(Please typewrite or print in block letters)
Address_____________________________________________________
Signature___________________________________________________
- -------------------------------
Annex 2
-------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
Name________________________________________________________
(Please typewrite or print in block letters)
Address_____________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _______________, Attorney-in-Fact, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Date________________, 19__
Signature___________________________________________________
iii
<PAGE>
EXHIBIT 10.9
CONSULTING AGREEMENT
--------------------
CONSULTING AGREEMENT (this "Agreement"), made as of the 3rd day of July,
1996, by and between CHENIERE ENERGY, INC. (f/k/a BEXY Communications, Inc.), a
Delaware corporation (the "Company"), and BUDDY YOUNG, an individual
("Consultant").
W I T N E S S E T H:
-------------------
WHEREAS, Consultant is experienced in the management and operation of a
public companies; and
WHEREAS, the Company desires to engage the Consultant to provide management
of the Company with certain advice regarding the management and business of the
Company, upon the terms and subject to the conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereby agree as follows:
1. TERM
----
The Company hereby agrees to retain Consultant as a consultant to the
management of the Company and Consultant hereby accepts and agrees to serve in
such capacity, for a period of two (2) years commencing as of the date hereof
unless sooner terminated as herein provided (the "Term").
2. DUTIES
------
(a) Consultant shall make himself available for consultation with the
management of the Company concerning the business and operation of the Company
and shall agree to provide consultation and advice with respect to such other
matters as the Company may request. Such services shall be performed by
Consultant only after the Company has made a specific request therefor.
(b) Consultant may perform his duties hereunder by use of telephone,
telefax or other means of telecommunication. Consultant shall not be required
to maintain a physical presence at the Company's offices, but shall be required
to use his reasonable best efforts to attend meetings of the Board of Directors
of the Company in person or by telephone and upon reasonable prior notice.
<PAGE>
3. COMPENSATION
------------
(a) For and in consideration of and in full payment for the services to
be rendered by Consultant to the Company during the Term, the Company agrees to
pay Consultant a consulting fee of $75,000 per annum payable in monthly
installments on the first day of each month during the Term or in such other
installments as the parties may mutually agree upon.
(b) The Company shall reimburse Consultant for its his reasonable
expenses incurred in connection with performance of its duties hereunder,
including, but not limited to, expenses related to travel, lodging and meals
under Section 2(b) above, promptly after receipt of backup invoices and receipts
therefor; provided, however, that Consultant shall not incur any expenses
-------- -------
relating to the performance of its duties hereunder without obtaining the prior
written approval of the Company.
4. INDEPENDENT CONTRACTOR; NON-EXCLUSIVE
-------------------------------------
(a) It is understood and agreed that Consultant is, and shall at all
times during the Term be deemed to be an independent contractor, and nothing in
this Agreement shall in any way be deemed or construed to constitute Consultant
as an agent or employee of the Company nor shall Consultant have the right or
authority to act as, incur, assume or create any obligation, responsibility or
liability, express or implied, in the name of or on behalf of the Company or to
bind the Company in any manner whatsoever or sign any documents on its behalf.
Subject to Sections 2 and 3(b) hereof, Consultant shall determine in its sole
discretion the method, details and means of performing its duties hereunder, and
the Company shall have no right to control or direct the foregoing.
(b) The consulting services to be rendered hereunder will not be
exclusive to either party. Consultant may engage in such other activities,
consulting or otherwise, as consultant in its sole discretion deems appropriate.
Similarly, the Company may retain other consultants in its sole discretion.
5. WITHHOLDING TAX
---------------
The Company shall not be responsible for withholding from any payments
made to Consultant hereunder any contributions levied by any state or federal
statutes relating to social security or similar benefits.
6. TERMINATION
-----------
Consultant's services hereunder may be terminated by the Company only
under the following circumstances:
(a) DEATH. In the event Consultant dies during the Term; the Term shall
terminate upon his death.
2
<PAGE>
(b) CAUSE. The Company may, at any time, terminate this Agreement for
cause upon thirty (30) days' written notice of termination to Consultant.
"Cause" shall mean that their has been a final, non-appealable determination by
a court of competent jurisdiction that Consultant has committed civil or
criminal embezzlement, theft or other dishonest or fraudulent acts, materially
adversely affecting the Company.
If this Agreement shall be terminated for Cause, the Company shall have
no further obligations to Consultant as of the date of termination.
7. ENTIRE AGREEMENT
----------------
This Agreement constitutes the entire agreement between the parties with
respect to Consultant's consultancy with the Company during the Term, including,
but not limited to, any agreement with respect to remuneration, fees, payments
or benefits of any kind payable to Consultant with respect to such consultancy,
and, other than Article XVII of the Purchase Agreement relating to arbitration
of disputes, there is no other agreement between the parties with respect to the
subject matter hereof, written or oral, other than as provided hereby. This
Agreement may not be amended, modified, supplemented or discharged except by a
writing duly executed by the parties hereto.
8. 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 Consultant:
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
3
<PAGE>
If to the Company:
Cheniere Energy, Inc.
Two Allen Center
1200 Smith Street, Suite 1710
Houston, Texas 77002
Attn: Mr. William D. Forster
Fax: (713) 659-5459
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
9. WAIVER
------
The waiver by either party hereto of the breach of any provision of this
Agreement by the other party hereto shall not operate or be construed as a
waiver or any other provision hereof or of any subsequent breach by such other
party.
10. SEVERABILITY
------------
If any provision of this Agreement shall be held to be invalid or
unenforceable, the other provisions of this Agreement shall not be affected
thereby and this Agreement shall be construed as if the provision held to be
invalid or unenforceable had never been contained herein and such provision
shall be reformed and redrawn only to the extent necessary so as to be valid and
enforceable under applicable law.
11. SUCCESSORS
----------
This Agreement shall be binding upon and shall inure to the benefit of
the Company and any successor of the Company, and any such successor shall be
deemed substituted for the Company under the provisions of this Agreement. As
used herein, the term "successor" shall mean any person, firm, corporation or
other business entity which at any time, whether by merger, purchase,
liquidation or otherwise, acquires all or substantially all of the assets or
business at the Company. Consultant may assign its rights and delegate its
obligations hereunder to a consulting corporation wholly-owned by Consultant and
otherwise reasonably acceptable to the Company.
4
<PAGE>
12. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without giving effect to the conflict of law
provisions thereof.
IN WITNESS WHEREOF, the parties hereto have signed and delivered this
Agreement on the date first above written.
THE COMPANY:
CHENIERE ENERGY, INC.
By:/s/ William D. Forster
------------------------------------
William D. Forster, President
CONSULTANT:
/s/ Buddy Young
---------------------------------------
Buddy Young, individually
5
<PAGE>
EXHIBIT 10.10
CHENIERE ENERGY, INC.
Two Allen Center
1200 Smith Street, Suite 1710
Houston, Texas 77002
July 3, 1996
Mr. Buddy Young
16661 Ventura Boulevard, Suite 214
Encino, California 91436
Dear Buddy:
Reference is made to that certain Agreement and Plan of Reorganization
dated as of April 16, 1996 (the "Agreement") among Cheniere Energy, Inc. (f/k/a
BEXY Energy, Inc.) and you, and Cheniere Energy Operating Co., Inc. and the
Stockholders of Cheniere. Capitalized terms used herein without definition
shall have the same meanings as ascribed to them in the Agreement.
Reference is further made to Section 3.6 of the Agreement pursuant to
which we have agreed to enter into this letter agreement confirming our
understanding and agreement with respect to the reverse split of the common
stock of Cheniere Energy, Inc. (f/k/a BEXY Communications, Inc.) (the
"Company").
Accordingly, in consideration of the benefits accruing to us under the
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, for a period of eighteen months
from the date hereof, we agree not to engage in any reverse stock split or any
transaction that has the effect of a reverse stock split, resulting in the
combination of shares of outstanding common stock of the Company, other than the
Reverse Split as described in the Agreement, without your prior written consent.
<PAGE>
Please sign and return the enclosed copy of this letter to indicate
your acknowledgement of and consent to the foregoing. This letter may be signed
in counterparts and facsimile signatures shall be treated as originals.
Very truly yours,
CHENIERE ENERGY, INC.
By: /s/ William D. Forster
---------------------------
William D. Forster
President
ACCEPTED AND ACKNOWLEDGED
this 2nd day of July, 1996
/s/ Buddy Young
- --------------------------
Buddy Young, individually
2
<PAGE>
EXHIBIT 10.11
THE SHARES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE DISPOSED OF FOR VALUE UNLESS A REGISTRATION STATEMENT HAS BECOME
EFFECTIVE WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND SUCH
STATE SECURITIES LAWS OR PURSUANT TO AN OPINION OF COUNSEL REASONABLY ACCEPTABLE
TO THE CORPORATION THAT THERE IS AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of the date of
acceptance set forth below, by and between CHENIERE ENERGY, INC., a Delaware
corporation, with offices located at 1200 Smith Street, Suite 1710, Houston,
Texas 77002 (the "Company"), and the undersigned (the "Buyer").
WITNESSETH:
WHEREAS, the Buyer wishes to subscribe for and purchase shares of Common
Stock of the Company, par value $.003 per share (the "Common Stock"), upon the
terms and subject to the conditions of this Agreement, subject to acceptance of
this Agreement by the Company;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO SUBSCRIBE; SUBSCRIPTION PRICE.
(a) SUBSCRIPTION. The undersigned, intending to be legally bound, hereby
irrevocably agrees to purchase from the Company the number of shares of Common
Stock of the Company (the "Shares") set forth on the signature page of this
Agreement. This Agreement is submitted to you in accordance with and subject to
the terms and conditions described in this Agreement.
(b) ACCEPTANCE OF SUBSCRIPTION; CLOSING DATE. The Company has the right to
accept or reject this Agreement, in whole or in part, in the Company's sole
discretion. The Company shall have 10 days from the date of the execution and
delivery of this Agreement by the undersigned to the Company in which to accept
this Agreement. Payment for the Shares to be issued to the undersigned shall be
made and the Shares shall be delivered in accordance with the provisions of an
Escrow Agreement (the "Escrow Agreement") to be entered into among United
1
<PAGE>
States Trust Company of New York (the "Escrow Agent"), the Company and the
undersigned, the form of which is attached hereto as Exhibit A. The effective
date for the issuance and sale of the Shares (the "Closing Date") shall be the
first business day following the date on which the Escrow Agent distributes the
Escrow Property (as defined in the Escrow Agreement) to the Company and the
Buyer.
(c) SUBSCRIPTION PRICE. The subscription price of the Shares (the
"Subscription Price") to be paid to the Company shall be U.S. $2.00 per Share.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
(a) The Buyer is purchasing the Shares for its own account for investment
only and not with a view towards the public sale or distribution thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"), and
with no present intention of dividing or allowing others to participate in this
investment.
(b) If the Buyer is an individual, the Buyer is an "accredited investor" as
that term is defined in Rule 501(a)(5) or (6) of Regulation D promulgated under
the Securities Act by reason that the Buyer is an individual (i) having an
individual net worth, or a joint net worth with the Buyer's spouse, at the time
of the purchase that exceeds $1,000,000, or (ii) who had an individual income in
excess of $200,000 in each of the two most recent years or joint income with the
Buyer's spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year; or if the
Buyer is a corporation or other entity, the Buyer is an "accredited investor" as
that term is defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D
promulgated under the Securities Act.
(c) If the Buyer is a corporation or other entity, it was not organized for
the specific purpose of acquiring the Shares.
(d) The Buyer has such knowledge, sophistication and experience in
business, tax and financial matters that the Buyer is capable of evaluating, and
is familiar with, the merits and risks of an investment in the Shares and can
bear the substantial economic risk of an investment in the Shares for an
indefinite period of time and can afford a complete loss of such investment.
(e) The Buyer represents that its overall commitment to investments which
are not readily marketable is not disproportionate to the Buyer's net worth, and
the Buyer's investment in the Shares will not cause such overall commitment to
become excessive.
(f) If the Buyer is an individual, the Buyer has adequate means of
providing for his current needs and personal and family contingencies and has no
need for liquidity in his investment in the Shares.
2
<PAGE>
(g) All subsequent offers and sales of the Shares by the Buyer shall be
made pursuant to registration of the Shares under the Securities Act and
applicable state securities laws or pursuant to a valid exemption from such
registration requirements.
(h) The Buyer understands that the Shares are being offered and sold to it
in reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Shares. The Buyer agrees that, if any
of the representations, warranties, agreements, acknowledgements or
understandings deemed to have been made by it in connection with its investment
in the Shares is no longer accurate, it shall promptly notify the Company and
consult with the Company in order to determine an appropriate course of action.
(i) The Buyer has carefully read this Agreement and, to the extent that the
Buyer believed necessary, has discussed the representations, warranties and
agreements which the Buyer makes by signing this Agreement and the applicable
limitations upon the Buyer's resale of the Shares with the Buyer's counsel.
(j) The Buyer and its advisors have been afforded the opportunity to ask
questions of the Company, and have received complete and satisfactory answers to
any and all such inquiries and has had access to such financial and other
information concerning the Company and the Shares as it has deemed necessary in
connection with its decision as to whether to make its investment. Without
limiting the generality of the foregoing, the Buyer has had the opportunity to
obtain and has reviewed (i) the Annual Report on Form 10-KSB for the year ended
August 31, 1995 of Bexy Communications, Inc., the Company's predecessor
("Bexy"), (ii) the Proxy Statement of Bexy dated June 13, 1996 relating to the
special meeting of Bexy's shareholders held on July 2, 1996 and (iii) the
Current Report on Form 8-K of the Company dated July 26, 1996. The Buyer
specifically acknowledges that it does not require and has not requested to see
any information with respect to the Company or this investment other than the
information described in clauses (i), (ii) and (iii) of this Section 2(j). The
Buyer understands that its investment in the Shares involves a high degree of
risk, and the Buyer is relying solely upon its own knowledge and experience in
business, tax and financial matters in making its decision to purchase the
Shares.
(k) The Buyer acknowledges that (i) none of the Company, any affiliate
thereof or any person representing the Company or any affiliate thereof has made
any representation to it with respect to the Company or the offering or sale of
the Shares, other than the information concerning the Company contained the
documents described in clauses (i), (ii) and (iii) of Section 2(j) above, (ii)
in making its investment decision the Buyer is not relying upon any information
given by the Company or any affiliate thereof or any person representing the
Company or any affiliate thereof other than the information concerning the
Company contained in clauses (i), (ii) and (iii) of Section 2(j) above and (iii)
no representation has been made, and no information has
3
<PAGE>
been furnished, to the Buyer in connection with the offering or sale of the
Shares that was in any way inconsistent with any other information with which
the Buyer has been provided.
(l) The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Shares.
(m) The address shown under the Buyer's signature at the end of this
Agreement is the principal residence of the Buyer, if the Buyer is an
individual, or the principal business address of the Buyer, if the Buyer is a
corporation or other entity.
(n) The Buyer has full power and authority to enter into this Agreement and
consummate the transactions contemplated by this Agreement, and the Buyer, if an
individual, is at least 21 years of age. This Agreement has been duly and
validly authorized, executed and delivered by or on behalf of the Buyer and is a
valid and binding agreement of the Buyer enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
(a) ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to do business in the states in which such
qualification is required based on the nature and scope of the Company's
operations.
(b) CONCERNING THE SHARES. The Shares, when issued, delivered and paid for
in accordance with this Agreement and the Escrow Agreement, will be duly and
validly authorized and issued, fully paid and nonassessable. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Shares.
(c) SUBSCRIPTION AGREEMENT. The Company has full power and authority to
enter into this Agreement and consummate the transactions contemplated by this
Agreement. This Agreement, when accepted by the Company, shall have been duly
and validly authorized, executed and delivered on behalf of the Company and
shall be a valid and binding agreement of the Company enforceable in accordance
with its terms, subject as to enforceability to general principles of equity and
to bankruptcy or other laws affecting the enforcement of creditors' rights
generally.
(d) NON-CONTRAVENTION. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the issuance of the Shares and
the other transactions contemplated by this Agreement do not and will not
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the certificate of incorporation
or bylaws of the Company, or any indenture, mortgage, deed of trust
4
<PAGE>
or other material agreement or instrument to which the Company is a party or by
which it or any of its properties or assets are bound, or any existing
applicable law, rule or regulation or any applicable decree, judgment or order
of any court, United States federal or state regulatory body, administrative
agency or other governmental body having jurisdiction over the Company or any of
its properties or assets.
(e) APPROVALS. The Company is not aware of any authorization, approval or
consent of any governmental body which is required to be obtained by the Company
for the issuance and sale of the Shares to the Buyer as contemplated by this
Agreement.
(f) ADVERTISING. The Shares are not being offered or sold by any form of
general solicitation or general advertising.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Buyer acknowledges that (i) the Shares to
be issued to it hereunder have not been and are not being registered under the
provisions of the Securities Act or any applicable state securities laws (except
as provided in the Registration Procedures set forth in Section 5 of this
Agreement), and may not be offered, sold, pledged or otherwise transferred
unless (A) the Shares are subsequently registered under the Securities Act and
all applicable state securities laws or (B) the Buyer shall have delivered to
the Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Shares may be sold or
transferred pursuant to a valid exemption from such registration requirements;
(ii) the Shares are and will be "restricted securities" (as defined in Rule 144
promulgated under the Securities Act); (iii) any sale of the Shares made in
reliance on Rule 144 promulgated under the Securities Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Shares under circumstances in which the seller,
or the person through whom the sale is made, may be deemed to be an underwriter,
as that term is used in the Securities Act, may require compliance with some
other exemption under the Securities Act or the rules and regulations of the
Securities and Exchange Commission (the "SEC") thereunder; and (iv) neither the
Company nor any other person is under any obligation to register the Shares
(other than pursuant to the Registration Procedures set forth in Section 5 of
this Agreement) under the Securities Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
(b) RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that "stop
transfer" instructions shall be placed against the Shares on the transfer books
of the Company and that the certificate(s) evidencing the Shares shall bear the
following legend:
The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"),
or any applicable state securities laws and may not be offered for
sale, sold or otherwise disposed of for value unless a registration
statement has become effective with respect to such securities under
the Securities Act and any applicable state
5
<PAGE>
securities laws or pursuant to an opinion of counsel reasonably
acceptable to the corporation that there is an applicable exemption
from the registration requirements of the Securities Act and
applicable state securities laws.
(c) FORM D. The Company agrees to file a Form D with respect to the Shares
if and as required under Regulation D of the Securities Act.
5. REGISTRATION PROCEDURES.
(a) Within 90 days after the issuance of the Shares, the Company shall
prepare and file or cause to be filed with the SEC a registration statement (the
"Registration Statement") with respect to all of the Shares (such Shares shall
be referred to as "Registrable Shares"). The Company shall thereafter use
diligence in attempting to cause the Registration Statement to be declared
effective by the SEC and shall thereafter use diligence to maintain the
effectiveness of the Registration Statement until the earlier to occur of (i)
the date which is two years from the effective date of the Registration
Statement, or (ii) the date on which all of the Registrable Shares have been
sold by the Buyer.
(b) Following effectiveness of the Registration Statement, the Company
shall furnish to the Buyer a prospectus as well as such other documents as the
Buyer may reasonably request.
(c) The Company shall use diligent efforts to (i) register or otherwise
qualify the Registrable Shares covered by the Registration Statement for sale
under the securities laws of such jurisdictions as the Buyer may reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements as may be required, (iii) take such
other actions as may be necessary to maintain such registrations and/or
qualifications in effect at all times while the Registration Statement is
likewise maintained effective and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Shares for sale in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (I) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 5(c), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal expense
or burden to the Company or (V) make any change in its certificate of
incorporation or bylaws, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders.
(d) The Company shall, following effectiveness of the Registration
Statement, as promptly as practicable after becoming aware of any such event,
notify the Buyer of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the
6
<PAGE>
Registration Statement to correct such untrue statement or omission, and deliver
a number of copies of such supplement or amendment to the Buyer or as the Buyer
may reasonably request.
(e) Following effectiveness of the Registration Statement, the Company, as
promptly as practicable after becoming aware of any such event, will notify the
Buyer of the issuance by the SEC of any stop order or other suspension of
effectiveness of the Registration Statement at the earliest possible time.
(f) Following effectiveness of the Registration Statement, the Company will
use diligence either to (i) cause all the Registrable Shares covered by the
Registration Statement to be listed on a national securities exchange and on
each additional national securities exchange on which similar securities issued
by the Company are then listed, if any, if the listing of such Registrable
Shares is then permitted under the rules of such exchange, or (ii) secure the
quotation of all the Registrable Shares covered by the Registration Statement on
the Nasdaq Market, if the listing of such Registrable Shares is then permitted
under the rules of such Market, or (iii) if, despite the Company's best efforts
to satisfy the preceding clause (i) or (ii), the Company is unsuccessful in
satisfying the preceding clause (i) or (ii) and without limiting the generality
of the foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. as such with respect to such
Registrable Shares.
(g) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Shares not later than the effective date of the Registration
Statement.
(h) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Buyer of the Registrable Shares pursuant to the Registration
Statement.
(i) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 5 that the Buyer shall furnish to the
Company such information regarding itself as the Company may reasonably request
to effect the registration of the Registrable Shares and shall execute such
documents in connection with such registration as the Company may reasonably
request.
(j) The Buyer agrees to cooperate with the Company in any manner reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder.
(k) The Buyer agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 5(d) or 5(e), the
Buyer will immediately discontinue disposition of Registrable Shares pursuant to
the Registration Statement covering such Registrable Shares until the Buyer's
receipt of the copies of the supplemented or amended prospectus and, if so
directed by the Company, shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in the Buyer's possession of the prospectus covering such Registrable
Shares current at the time of receipt of such notice.
7
<PAGE>
(l) All expenses, other than (i) underwriting discounts and commissions,
(ii) other fees and expenses of investment bankers and (iii) brokerage
commissions, incurred in connection with registrations, filings or
qualifications pursuant to this Section 5, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees and
the fees and disbursements of counsel to the Company, shall be borne by the
Company.
(m) To the extent permitted by law, the Company will indemnify and hold
harmless the Buyer, the directors, if any, of the Buyer, the officers, if any,
of the Buyer, each person, if any, who controls the Buyer within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any underwriter (as defined in the Securities Act) for the
Buyer, the directors, if any, of such underwriter and the officers, if any, of
such underwriter, and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act (each, an
"Indemnified Person"), against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively, "Claims") to which any of them may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any post effective
amendment thereof, or any prospectus included therein: (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or any post effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) are
hereinafter collectively referred to as the "Violations"). Subject to the
restrictions set forth in Section 5(o) with respect to the number of legal
counsel, the Company shall reimburse the Buyer and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnity
contained in this Section 5(m) (I) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (II) with respect to any preliminary prospectus shall not
inure to the benefit of any person from whom the person asserting any Claim
purchased the Registrable Shares that are the subject thereof (or to the benefit
of any person controlling such person) if the untrue statement or omission of
material fact contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if such prospectus was timely made
available by the Company; and (III) shall not
8
<PAGE>
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Shares by the Buyer.
(n) The Buyer agrees to indemnify and hold harmless, to the same extent and
in the same manner set forth in Section 5(m), the Company, each of its
directors, each of its officers who signs the Registration Statement, each
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act, any underwriter and any other stockholder selling
securities pursuant to the Registration Statement or any of its directors or
officers or any person who controls such stockholder or underwriter within the
meaning of the Securities Act or the Exchange Act (each such person and each
Indemnified Person, an "Indemnified Party"), against any Claim to which any of
them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by the Buyer expressly for use in connection with such Registration
Statement or such prospectus; and the Buyer will reimburse any reasonable legal
or other expenses reasonably incurred by any Indemnified Party in connection
with investigating or defending any such Claim; provided, however, that the
indemnity contained in this Section 5(n) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Buyer, which consent shall not be unreasonably withheld;
provided, further, that the Buyer shall be liable under this Section 5(n) for
only that amount of a Claim as does not exceed the net proceeds to the Buyer as
a result of the sale of Registrable Shares pursuant to such Registration
Statement or such prospectus. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Shares by the Buyer.
Notwithstanding anything to the contrary contained herein the indemnity
contained in this Section 5(n) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.
(o) Promptly after receipt by an Indemnified Person or Indemnified Party
under Section 5(m) or 5(n) of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is made against any indemnifying
party under this Section 5, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying parties;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing
9
<PAGE>
interests between such Indemnified Person or Indemnified Party and any other
party represented by such counsel in such proceeding. Except as provided in the
preceding sentence, the Company shall pay for only one separate legal counsel
for the Indemnified Persons. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 5, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnity required by this Section 5 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
(p) PIGGYBACK REGISTRATION. After the registration under Section 5(a)
hereof, and for a period ending two years from the date hereof, if the Company
at any time proposes to register any of its securities under the Securities Act
(other than a registration effected solely to implement an employee benefit
plan, a transaction to which Rule 145 of the SEC is applicable or any other form
or type of registration in which the Buyer's Registrable Shares cannot be
included pursuant to SEC rule or practice), it will give written notice to the
Buyer of its intention to do so. If such registration is proposed to be on a
form which permits inclusion of the Buyer's Registrable Shares, upon the written
request (stating the intended method of disposition of such securities) of the
Buyer given within thirty (30) days after transmittal by the Company to the
Buyer of such notice, the Company will, subject to the limits contained in this
Agreement, use its best efforts to cause all such Registrable Shares of the
Buyer to be registered under the Securities Act and qualified for sale under any
state securities law, all to the extent requisite to permit such sale or other
disposition by the Buyer, except that if the Company receives a written opinion
of a managing underwriter that the inclusion of any or all of such Registrable
Shares would adversely affect the marketing of the securities to be sold
pursuant to such registration statement the Company shall not be required to
register any or all of such Registrable Shares. Sections 5(b) through 5(o)
hereof shall apply to any registration in which the Buyer participates, and in
such event, the term "Registration Statement" shall mean the registration
statement filed in connection with such registration.
6. TRANSFER AGENT INSTRUCTIONS.
Promptly following the delivery by the Buyer of the aggregate Subscription
Price for the Shares in accordance with Sections 1(b) and (c) hereof, the
Company's transfer agent will be instructed by the Company to issue one or more
certificates representing in total the Shares, bearing the restrictive legend
specified in Section 4(b) of this Agreement, registered in the name of the Buyer
or its nominee and in such denominations as shall be specified by the Buyer
prior to the Closing Date. The Company warrants that no instruction other than
such instructions referred to in this Section 6 and stop transfer instructions
to give effect to Section 4(a) and (b) hereof will be given by the Company to
the transfer agent and that the Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement to comply with all applicable federal and state
securities laws upon resale of the Shares. If the Buyer provides the Company
with an opinion of counsel reasonably satisfactory in form, scope and substance
to the Company that registration of a resale by the Buyer of any
10
<PAGE>
of the Shares in accordance with Section 4(a) is not required under the
Securities Act or applicable state securities laws, the Company shall permit the
transfer agent to issue one or more share certificates in such name and in such
denominations as specified by the Buyer.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Shares to
the Buyer pursuant to this Agreement is conditioned upon:
(a) The receipt and acceptance by the Company in its sole and absolute
discretion of this Agreement, as evidenced solely by delivery by the Company to
the Buyer of this Agreement duly executed by the Company;
(b) Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the Subscription Price for the Shares in accordance
with Sections l(b) and (c) hereof; and
(c) The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement and the performance by the Buyer on or
before the Closing Date of all covenants and agreements of the Buyer required to
be performed on or before such Closing Date.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the Shares
from the Company is conditioned upon:
(a) Delivery by the Company to the Buyer of this Agreement duly executed by
the Company in acceptance thereof and delivery of the Shares to the Escrow
Agent; and
(b) The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement and the performance by the Company on
or before the Closing Date of all covenants and agreements of the Company
required to be performed on or before such Closing Date.
9. NO OFFER TO SELL.
This Agreement shall not be construed or interpreted as any offer by the
Company to sell the Shares. The Company shall have no obligation to accept this
Agreement if offered by the Buyer and may in the Company's sole discretion elect
to reject this Agreement. The Company shall have no obligation or liability to
the Buyer or to any other party if the Company in its sole and absolute
discretion determines not to accept this Agreement.
11
<PAGE>
10. GOVERNING LAW; JURISDICTION.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York (without giving effect to principles of
conflicts of law). The Buyer hereby consents to and agrees to submit to the
jurisdiction in the United States of America of the Supreme Court of the State
of New York located in New York County or of the United States District Court
for the Southern District of New York for any action or proceeding brought by
the Company arising under or by reason of this Agreement or relating to the sale
of the Shares and to the venue of such action or proceeding in such courts.
11. TRIAL BY JURY.
The Buyer hereby waives trial by jury in any action or proceeding
involving, directly or indirectly, any matter (whether sounding in tort,
contract, fraud or otherwise) in any way arising out of or in connection with
this Agreement or the Shares issued hereunder.
12. MISCELLANEOUS.
A facsimile transmission of this signed agreement shall be legal and
binding on all parties hereto. This Agreement and the rights and obligations
hereunder are not transferable or assignable by the Buyer. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by mail or delivered personally or by
courier and shall be effective five (5) days after being placed in the mail, if
mailed, or upon receipt, if delivered personally or by courier, in each case
addressed to a party at such party's address shown in the introductory paragraph
or on the signature page of this Agreement or such other address as may be
provided by a party in accordance with this Section 12.
13. ENTIRE UNDERSTANDING.
This Agreement (including any attachments hereto) constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements, whether written or oral. This
Agreement may be amended only in a written document duly executed by both
parties hereto.
[Remainder of page intentionally left blank.]
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer or
one of its officers thereunto duly authorized as of ______________________,
1996.
Name of Buyer: _______________________________
Signature (if Buyer
is an individual): _______________________________
Signature (if Buyer
is a corporation or By: ___________________________
other entity): Name:
Title:
Address: _______________________________
_______________________________
_______________________________
Number of Shares: _______________________________
Price per Share: US $ __________________________
Aggregate Subscription
Price: US $ __________________________
IRS Taxpayer No.: _______________________________
This Agreement has been accepted by the Company as of ______________,
1996.
CHENIERE ENERGY, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
13
<PAGE>
EXHIBIT 10.12
[LETTERHEAD OF ZYDECO ENERGY, INC.]
November 29, 1996
Cheniere Energy Operating Co., Inc.
237 Park Avenue, Suite 2100
New York, NY 10017
Re: Fourth Amendment
Gentlemen:
I am writing with respect to that certain Exploration Agreement dated April
4, 1996, by and between FX Energy, Inc. and Zydeco Exploration, Inc., as amended
by that certain First Amendment dated May 15, 1996, and that certain Second
Amendment dated August 5, 1996, and that certain Third Amendment dated October
31, 1996 (as amended, the "Agreement"). For convenience, terms defined therein
shall have the same meaning when used herein. FX Energy, Inc. ("FX") has
changed its name to Cheniere Energy Operating Co., Inc. ("Cheniere").
Section 2 of the Agreement originally provided:
FX shall pay the Seismic Funds to ZEI for deposit in the segregated
account described in Section 12.a on the following schedule.
Date Amount
---- ------
1996-05-15 $3,000,000.00
1996-06-30 1,000,000.00
1996-07-30 1,000,000.00
1996-08-30 1,000,000.00
1996-09-30 2,000,000.00
1996-10-30 1,000,000.00
1996-11-30 1,000,000.00
1996-12-30 1,000,000.00
1997-01-30 1,000,000.00
1997-02-28 1,500,000.00
Through yesterday, November 28, 1996, Cheniere had paid $6,000,00.00.
Under the Third Amendment to the Agreement, we substituted an alternate schedule
for the remaining payments, which provided for payments as follows:
1
<PAGE>
Date Amount
---- ------
1996-11-30 2,000,000.00
1997-01-31 2,000,000.00
1997-02-28 2,000,000.00
1997-03-31 1,500,000.00
Funds in the Seismic Funds Account, an account set up at Bank One Texas,
N.A. styled "Zydeco Exploration Inc. Seismic Joint Venture Account," are
approximately $895,000 at present.
The parties anticipate that field data acquisition will be temporarily
suspended due to weather. Assuming a suspension, a minimum balance of
$1,000,000 in the Seismic Fund Account is adequate.
According, ZEI and Cheniere agree as follows:
1. Payments by Cheniere of additional Seismic Funds shall be suspended;
provided, however, Cheniere shall from time to time furnish additional
Seismic Funds sufficient to maintain the balance of the Seismic Fund
Account at approximately $1,000,000. Such funds shall be forwarded
within 10 days of request by ZEI. Should such funds not be forwarded
within 20 days of a reminder notice, the default shall be treated as a
Discontinuance under Section 5.
2. At any time before December 1, 1997, ZEI may direct Cheniere to resume
payment of the Seismic Funds. Such notice shall stipulate the date
the first resumed installment payment (that due on November 30, 1996
under the Third Amendment) is due. The date so specified shall be at
least 30 days after delivery of notice to Cheniere.
3. The first resumed payment shall be reduced from its $2,000,000 amount
by payments Cheniere has made to replenish the Seismic Fund Account.
4. Unless longer periods between payments are specified by ZEI:
a) the second resumed payment (that of $2,000,000 due January 31,
1996 under the Third Amendment) shall be due 60 days after the
first resumed payment;
b) the third resumed payment (that of $2,000,000 due February 28,
1997 under the Third Amendment) shall be due 90 days after the
first resumed payment; and
c) the fourth resumed payment (that of $1,500,000 due March 31, 1997
under the Third Amendment) shall be due 120 days after the first
resumed payment.
5. The normal grace period shall apply to each resumed payment.
6. Should Zydeco not direct that installment payment of Seismic Funds be
resumed by December 1, 1997, absent an agreement of the parties to the
contrary, no further Seismic Funds shall be required under the
Agreement.
2
<PAGE>
7. The parties agree that the agreements by Zydeco to defer payments
under Section 2 do not obligate Zydeco to grant further waivers nor
waive the rights of Zydeco to have payments made at the times provided
in the Agreement, as modified hereby.
If I have correctly set forth our agreements, kindly so indicate by
executing one counterpart of this letter and returning it to the undersigned.
Yours very truly,
ZYDECO EXPLORATION, INC.
By: /s/ W. Kyle Willis
-------------------------------
Its: Vice President & Treasurer
-------------------------------
ACCEPTED AND AGREED TO THIS
29TH DAY OF NOVEMBER, 1996.
CHENIERE ENERGY OPERATING CO., INC.
By: /s/ William D. Forster
---------------------------
Its: President
--------------------------
3
<PAGE>
EXHIBIT 10.13
CHENIERE ENERGY, INC.
1200 SMITH STREET, SUITE 1710
HOUSTON, TX 77002-4312
(713) 659-1361
FAX: (713) 659-5459
_______________, 1997
[Investor Addressee]
Dear [Investor]:
This letter will confirm the following understanding, with regard to
your purchase of __________ shares of common stock (the "Shares") of Cheniere
Energy, Inc. the ("Company").
In the event that during the 270 day period following the date of your
purchase of the Shares the Company offers and sells any shares of its common
stock for a gross sales price of less than $4.25 per share, then the Company
will issue to you an additional number of shares to reflect the lowest gross
sales price at which the Company's common shares were offered and sold during
the 270 day period (the "Lowest Price per Share"). The additional number of
shares to be issued shall be calculated by first dividing (x) the aggregate
gross purchase price that you have paid for the Shares by (y) the Lowest Price
per Share to indicate (z) the total number of shares that you will have been
issued after receiving the additional shares to be issued pursuant to this
letter. The additional number of shares to be issued shall be equal to the
difference of (z) minus the number of the Shares originally issued to you.
For purposes of determining the Lowest Price per Share, stock issued
pursuant to stock options granted or common stock purchase warrants issued prior
to your purchase of the Shares shall be disregarded.
Sincerely,
William D. Forster
President and CEO
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF CHENIERE ENERGY, INC.
1. Cheniere Energy Operating Co., Inc.
2. Mar Ventures Inc.
3. Cheniere Energy California, Inc.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS
CHENIERE ENERGY, INC.
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in this registration statement.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
March 14, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CHENIERE ENERGY, INC.:
We hereby consent to the use of our reports dated November 9, 1995 and October
24, 1994, on the 1995, 1994 and 1993 financial statements, included in this
Registration Statement on Form S-1 and to the reference to our Firm under the
heading "Experts" in the prospectus.
FARBER & HASS
March 14, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board Of Directors
Cheniere Energy, Inc.
We hereby consent to the use of our financial statements of August 31,
1996 included in this Registration Statement on form S-1 and to the reference to
our firm under the caption "Experts" in the prospectus.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
March 14, 1997
