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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-9092
CHENIERE ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4352386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 SMITH ST. SUITE 1710 77002-4312
HOUSTON, TEXAS (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 659-1361
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $ 0.003 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $ 26,572,965 as of October 1, 1997.
14,357,866 shares of the registrant's Common Stock were outstanding as of
October 1, 1997.
Documents incorporated by reference: The 1997 Proxy Statement of the
registrant is incorporated herein by reference.
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CHENIERE ENERGY, INC.
INDEX TO FORM 10-K
PART I
Items 1. and 2. Business and Properties..................................... 3
Item 3. Legal Proceedings................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders................. 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................. 13
Item 6. Selected Financial Data............................................. 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 14
Item 8. Financial Statements and Supplementary Data......................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................ 33
PART III
Item 10. Directors and Executive Officers of the Registrant................. 34
Item 11. Executive Compensation............................................. 34
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 34
Item 13. Certain Relationships and Related Transactions..................... 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 35
SIGNATURES.................................................................. 38
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PART I
Items 1. AND 2. BUSINESS AND PROPERTIES
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 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 if warranted, development
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 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. Cheniere California was formed in December 1996
for the purposes of acquiring a working interest in undeveloped leases off Santa
Barbara, California from Poseidon Petroleum, LLC ("Poseidon"). The acquisition
did not occur and Cheniere California is currently inactive.
The Company has not yet established oil and gas production, nor has it
booked proven oil and gas reserves. The Company is currently a development stage
enterprise with no operating revenues and no expectation of generating
meaningful operating revenues before calendar year 1998.
Cheniere Operating is involved with one major project, 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 proprietary 3-D seismic
exploration project in southern Louisiana (the "3-D Exploration Program").
Cheniere Operating has the right to earn a 50% participation in the 3-D
Exploration Program. The 3-D seismic survey (the "Survey") covers 228 square
miles within a 295 square-mile area running three to five miles north and
generally five miles south of the coastline in the most westerly 28 miles of
Cameron Parish, Louisiana (the "Survey AMI"). Field acquisition of the seismic
data was completed in July 1997, and the data is currently being processed and
interpreted.
Cheniere has been publicly traded since July 3, 1996 under the name
Cheniere Energy, Inc. The Company's principal executive offices are located at
1200 Smith Street, Suite 1710, Houston, Texas 77002, and its telephone number is
(713) 659-1361.
BUSINESS STRATEGY
The Company's objective is to expand the net value of its assets by
building an oil and gas reserve base 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. The Company plans to focus
its resources on relatively few projects that possess large reserve potential
and favorable risk/reward characteristics. The Company believes that
attractive upstream oil and gas opportunities such as these are difficult to
identify and develop, and that the expertise of management and staff is best
utilized by focusing on like projects that may have a meaningful impact on the
value of its shares. Cheniere Operating's current activities are focused on
its 3-D Exploration Program in South Louisiana, an area which the Company
believes has significant remaining undiscovered oil and gas reserve potential.
The Company continually evaluates new investment opportunities, including
exploration projects similar to the 3-D Exploration Program, as well as
acquisitions of producing and undeveloped properties.
. MAINTAIN A SIGNIFICANT WORKING INTEREST IN EACH PROJECT. Consistent with its
intent to focus on a few meaningful projects, the Company aims to maintain a
significant working interest in each project. As an example, Cheniere
Operating has the right to earn up to a 50% participation in the 3-D
Exploration Program.
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Cheniere does not intend to be an operator in this project, 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. Toward that end, the 3-D Exploration Program is using a Hewlett
Packard XCLASS SPP-2000 parallel processing system to process seismic data
acquired in the Survey.
. CONTROL OVERHEAD COSTS. The Company plans to maintain a small, but experienced
working staff, and to leverage its talents by seeking industry partners and
outside consultants with appropriate geographic and technical experience.
Zydeco, Cheniere's industry partner in the 3-D Exploration Program, has a
technical staff that includes 12 geologists, geophysicists and landmen,
including officers, with many years of experience in the south Louisiana
exploration and production. In addition, INEXS (Interactive Exploration
Solutions, Inc.), a leading seismic consulting firm in Houston, is
complementing Zydeco's in-house interpretation effort.
THE 3-D EXPLORATION PROGRAM IN CAMERON PARISH, LOUISIANA TRANSITION ZONE
The 3-D Exploration Program, in which Cheniere Operating has the right to
earn up to a 50% participation, consists of a 228-square mile proprietary
seismic survey (the "Survey") shot within a 295 square-mile area running three
to five miles north and generally five miles south of the coastline in the most
westerly 28 miles of Cameron Parish, Louisiana (the "Survey AMI"). The Survey
AMI includes areas outside and adjacent to the Survey over which the 3-D
Exploration Program has purchased and plans to purchase non-proprietary seismic
data.
The 3-D Exploration Program is located within an area referred to as the
Transition Zone of Louisiana, which defines an area extending roughly three to
five miles on either side of the coastline. 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 oil and gas
reserve potential. Substantial infrastructure along the Gulf Coast and in the
shallow Gulf of Mexico should permit Cheniere Operating to lower its development
costs compared to those in other geographic regions and facilitates 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 Exploration Program is well positioned to evaluate, explore and develop
properties in the area.
Exploration Agreement
Under the terms of the Exploration Agreement and its Amendments, Cheniere
Operating is obligated to pay 100% of the Seismic Costs (as defined below) up to
$13.5 million, 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 within the Survey AMI. "Seismic Costs" are defined in the
Exploration Agreement to include the following, inter alia: acquiring and
processing seismic data; legal costs; options to lease land and leases of land;
and the cost of seismic permits including the seimic permit granted by the State
of Louisiana discussed below.
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 thereto. Cheniere Operating has the right to review all data and may
elect to generate its own Prospects. Neither party to the 3-D Exploration
program is permitted to sell or license the data without the other party's
approval.
Cheniere Operating has paid 100% of the first $13.5 million of Seismic
Costs. Cheniere Operating's 50% share of excess Seismic Costs through December
31, 1997, is estimated in the Seventh Amendment to the Exploration Agreement to
be approximately $2.9 million. The total of those costs is payable to Zydeco on
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December 31, 1997. In the event Cheniere Operating fails to make the December
31, 1997, payment into the Exploration Program Account on a timely basis (a
"Discontinuance"):
1) The obligation and right of Cheniere Operating to make such payment
will terminate. Zydeco would have the right to complete the 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 Exploration
Program Account, divided by twice the amount of funds expended for
Seismic Costs, expressed as a percentage;
2) If following a Discontinuance, Zydeco contributres 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); and
3) If a Discontinuance occurs, and Zydeco does not itself fund the
deficient Seismic Costs, Zydeco may sell, trade, farm-out, lease,
sublease, or otherwise trade (collectively, a "Trade") the aggregate
(i.e., both that of Zydeco and Cheniere Operating) Prospect interests
to any party on arms'-length terms. For this purpose the aggregate
Prospect interests includes all seismic data acquired, and revenues
from a Trade include seismic data sale or license proceeds. Any
revenues accruing from a Trade shall be applied toward the cost of
completing the project contemplated under the Exploration Agreement.
Zydeco and Cheniere Operating have entered into an Exploration Program
Agreement and a related default joint operating agreement which provide for the
funding of prospect, exploratory and development costs subsequent to completion
of the data acquisition, processing, and interpretation phases of the seismic
work. Each party will pay its proportionate share of these costs and Zydeco, as
operator, will conduct all operations in accordance with the terms of the Joint
Operating Agreement.
Description of the Louisiana Transition Zone Survey AMI
The Survey AMI, which contains the Survey, lies within the Gulf Coast/Gulf
of Mexico basin, a highly prolific hydrocarbon province. Nevertheless, the
Transition Zone represents a relatively less explored area within that region as
compared to exclusively onshore or offshore areas because of the high relative
cost and logistical and technical difficulties associated with conducting modern
seismic surveys over the diverse surface environments encountered along the
coast. Compounding the problem of scarce seismic data is the fact that the State
Waters area commonly fell between the jurisdictional responsibilities of onshore
and offshore divisions of the major oil companies. These conditions have limited
the drilling density of deep exploration wells within the Survey area to roughly
one well per five square miles (outside of known fields). However, innovative
design parameters for the Survey which lowered acquisition and processing costs
below estimates from seismic contractors, thereby reducing the capital
investment and the likelihood of economic development.
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 the Federal Waters of the
Gulf of Mexico. The Louisiana Gulf Coast/Gulf of Mexico region enjoys easy
access to the premium-priced consumption markets of the East Coast.
Permit and Lease Status Within the Survey AMI
The Survey AMI covers onshore lands, State Waters, and Federal OCS (Outer
Continental Shelf) acreage. The permit and lease status of the three areas is
described below.
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Onshore Area. Lease options have been obtained over 28,000 acres, and
farmouts have been obtained over 5,000 acres of land lying onshore in the
central portion of the Survey AMI.
State Waters. 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 was for 18 months and
has been extended for an additional six months. As discussed below in "Seismic
Results to Date," the Company has completed the shooting and gathering of
seismic data. During this term Zydeco has the exclusive right to nominate blocks
of acreage for leasing in the covered State waters. The Company may, at its
option, nominate blocks of acreage for leasing during this period of exclusive
rights or at any time thereafter.
Federal Waters. The Survey AMI includes an area running southward generally
up to 2 miles into Federal waters. Although Zydeco has no exclusive rights
regarding leases in the Federal waters, two offshore lease blocks held by
industry are scheduled to expire during 1997 and may be available for the 1998
Eastern Gulf OCS sale.
Seismic Results to Date
In the fall of 1996 approximately 12% of the Survey was shot prior to a
shutdown for the winter. Shooting resumed in April of 1997 and was completed in
July 1997. During the winter months, Zydeco processed the initial data, thereby
determining the optimal processing sequence for the remainder of the data that
was shot in 1997. At present, seismic interpretation is underway with respect
to a first phase of processed data. A second phase of processed data, created
using pre-stack time migration techniques, will begin to be available in
November 1997. Interpretation of the Survey, including prospect generation, is
being conducted by Zydeco geophysical personnel and by an INEXS (Interactive
Exploration Solutions, Inc.) consulting geophysicist.
Schedule for the 3-D Exploration Program
Processing and interpretation of the Survey data will continue through
year-end 1997 and into 1998. Zydeco and Cheniere expect to nominate and bid on
State leases and exercise lease options onshore that underlie identified
prospects during the first calendar quarter of 1998. First drilling within the
Survey AMI is expected during the second calendar quarter of 1998.
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.
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 Company anticipates selling a portion of its interest in certain of the
prospects within the Survey AMI as a means of funding its participation in the
development of these properties. The Company anticipates that competition will
arise from other companies also seeking drilling funds from potential working
interest partners. There can be no assurance that the Company will be
successful in securing funds in this manner.
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
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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, 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.
GOVERNMENT 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 areas, if not all, 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 may
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 ("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 FERC implemented OCSLA on
gatherers and other non-jurisdictional entities, FERC has retained the authority
to exercise jurisdiction over those entities if necessary to permit non-
discriminatory access to service on OCS. In this regard, FERC recently issued a
Statement of Policy ("Policy Statement") regarding the application of its
jurisdiction under the Natural Gas Act of 1938 ("NGA") and OCSLA over natural
gas facilities and service on OCS. In the Policy Statement FERC concluded that
facilities located in water depths of 200 meters or more shall be presumed to
have a primary purpose of gathering up to the point of interconnection with the
interstate pipeline grid. FERC has determined that gathering facilities are
outside of its jurisdiction. While it is not possible to determine what the
actual impact of this new policy will be since FERC has determined that it will
no longer regulate the rates and services of OCS transmission facilities under
the NGA, it is possible that the Company could experience an increase in
transportation costs associated with its OCS natural gas production and,
possibly, reduced access to OCS transmission capacity.
Certain operations the Company conducts are on federal oil and gas leases,
which the Minerals Management Service (the "MMS") administers. The MMS issues
such leases through competitive bidding. These leases contain relatively
standardized terms and require compliance with detailed MMS regulations and
orders pursuant to 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 regulation requiring offshore production
facilities located
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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 rule-making 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 rule-making 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 rule-making proceeding how the Company might be affected by
amendments to the regulations.
The MMS recently issued a notice of proposed rule-making 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 rule-making proceeding how the Company might be affected by
amendments to the regulations.
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, production facilities, and pollution liabilities. The costs of
such bonding and financial responsibility requirements can be substantial, and
there can be no assurance that the Company will be able to obtain such bonds
and/or otherwise demonstrate financial responsibility in all cases.
Natural Gas Marketing and Transportation. 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 (the "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, 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
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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 No. 636-C was recently issued as a result of that remand.
On February 27, 1997, the Commission issued Order No. 636-C in response to the
Court's remand. On remand, the Commission: (1) reaffirmed its decision to
exempt pipelines from sharing in gas supply realignment ("GSR") costs; (2)
reversed its requirement that pipelines allocate ten percent of GSR costs to
interruptible ("IT") customers and required pipelines to propose the percentage
of the GSR costs that their IT customers must absorb in light of individual
circumstances in existence on each pipeline; (3) modified its non-notice policy,
on a prospective basis, to the extent the prior policy restricts entitlement to
non-notice service to any particular group of customers; (4) reversed its
selection of a 20-year matching term for the right-of-first-refusal and adopted
a five-year matching term; (5) reaffirmed its decision to first require
customer-by-customer mitigation of the effects of SFV rate design; and (6)
reaffirmed its decision to establish the eligibility of customers of downstream
pipelines for the upstream pipeline's one-part, small-customer rate on a case-
by-case basis. In the Order the Commission emphasized that circumstances had
changed since it issued Order No. 636 in 1992, and stated that its determination
in the Order on remand would reflect changes that have taken place in the
industry. Several parties have filed requests for rehearing of the Order.
It is unclear what impact, if any, increased competition within the natural
gas industry under Order Nos. 636, et al. will have on the Company's activities.
Although Order No. 636 could provide the Company with additional market access
and more fairly applied transportation service rates, Order No. 636 could also
subject the Company to more restrictive pipeline imbalance tolerances and
greater penalties for violations of these tolerances.
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, 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 FERC will take on these matters, nor can it
accurately predict whether 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.
On July 14, 1996, FERC issued Order No. 587 (RM96-1) which promulgated 140
business-practice standards developed by the Gas Industry Standards Board for
interstate natural gas pipelines. The standards cover certain business
practices such as nominations, flowing gas, invoicing and capacity release, as
well as adoption of protocols and procedures for exchanging these business
practices over the Internet. FERC denied rehearing in Order No. 587-A issued
October 31, 1996. Order No. 587-B promulgated electronic communications
standards on January 20, 1997. On April 18, 1997, in Order No. 587-B, FERC
denied request for rehearing of the dates for complying with the requirements of
Order No. 587-C, which requires pipelines to make pro forma tariff filings to
implement the standards by May 1, 1997, implementation of the Internet Web Page
Standards by August 1, 1997, and implementation of the Revised and New Business
Practices by November 1, 1997. On May 6, 1997, in Order No. 587-E, FERC denied
a request for rehearing of Order No. 587-B. An appeal of FERC Order Nos. 587
and 587-A is pending in the United States Court of Appeals for the District of
Columbia Circuit. Oral arguments on this appeal are scheduled for April 20,
1998.
On February 28, 1997, FERC issued notice of a public conference to be held
on May 29 and 30, 1997, to conduct a broad inquiry into important issues facing
the natural gas industry and FERC's regulation of the industry. The Company
cannot predict at this time what, if any, new standards or regulations may
ultimately result from this conference or what impact any such changes may have
on the industry.
9
<PAGE>
Oil Sales and Transportation Rates. 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, 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.
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 (the "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, 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 the 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. The 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 may 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. Based on financial considerations, the Company may
choose to utilize turnkey contracts that limit its 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-
work 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
10
<PAGE>
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.
MAR VENTURES INC.
On July 3, 1996, Cheniere Operating underwent a reorganization by
consummating 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"). As part of
such Reorganization, the stock of Mar Ventures was distributed to the original
Bexy shareholders, and since that time Mar Ventures has not been affiliated with
the Company. 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 two years
ending on July 3, 1998, at a rate of $75,000 per year. Mr. Young is not an
employee of the Company and serves only in the capacity of a consultant.
EMPLOYEES
The Company has two full-time employees, both administrative assistants,
other than its executive officers. It also engages certain consultants from
time to time.
PROPERTIES
The Company subleases its Houston, Texas headquarters from Zydeco under a
month-to-month sublease covering approximately 1,498 square feet at a monthly
rental of $1,179. The Company believes that this arrangement gives it the
necessary flexibility to adapt to the changing space requirements of its
business.
FORWARD-LOOKING STATEMENTS
This annual report contains or incorporates by reference certain statements
that may be deemed "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). All statements, other than statements of
historical facts so included in this annual report that address activities,
events, or developments that the Company intends, expects, projects, believes,
or anticipates will or may occur in the future, including, without limitation:
statements regarding the Company's business strategy, plans and objectives;
statements expressing beliefs and expectations regarding the ability of the
Company to successfully raise the additional capital necessary to meet its
obligations under the Exploration Agreement, the ability of the Company to
secure the leases necessary to facilitate anticipated drilling
11
<PAGE>
activities and the ability of the Company to attract additional working interest
owners to participate in the exploration and development within the Survey AMI.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings currently pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock has traded on The Nasdaq SmallCap Market under the symbol
"CHEX" since April 11, 1997. From the time the company first traded publicly,
July 3, 1996, until April 16, 1997, the Company traded on the OTC Bulletin
Board. The table below presents the high and low daily closing sales prices of
the Common Stock during each quarter. The quotes represent "inter-dealer"
prices without retail markups, markdown, or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
High ($) Low ($)
-------- -------
<S> <C> <C>
Period From July 3, 1996 to
August 31, 1996 3 7/8 3
Three Months Ended
November 30, 1996 5 1/2 2 13/32
February 28, 1997 5 5/8 2 3/4
May 31, 1997 5 1/2 3
August 31, 1997 4 1/4 2 31/32
</TABLE>
As of October 1, 1997, there were 14,357,866 shares of the Company's Common
Stock outstanding held by 781 stockholders of record.
The Company has never paid a cash dividend on its Common Stock. The Company
currently intends to retain earnings to finance the growth and development of
its business and does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. Any future change in the Company's dividend
policy will be made at the discretion of the Company's Board of Directors in
light of the financial condition, capital requirements, earnings and prospects
of the Company, and any restrictions under any credit agreements, as well as
other factors the Board of Directors deem relevant.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data set forth below are derived from the Consolidated
Financial Statements of the Company that have been examined by Merdinger,
Fruchter, Rosen and Corso, P.C., independent accountants, for the periods
indicated. The financial data should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this report.
<TABLE>
<CAPTION>
For the Periods Ended From Inception
August 31, August 31, (February 21, 1996)
1997 1996 to August 31, 1997
---- ---- -------------------
<S> <C> <C> <C>
Net operating revenues $ - $ - $ -
(Loss) from operations (1,732,629) (123,647) (1,856,276)
Net (loss) (1,676,468) (121,847) (1,798,315)
Net (loss) per share of
common stock $(0.14) $(0.01) $(0.16)
August 31, August 31,
1997 1996
---- ----
Cash 234,764 1,093,180
Oil & gas properties,
unevaluated 13,500,000 4,000,000
Total assets 13,841,712 5,145,310
Long-term obligations - -
Total liabilities 888,291 718,855
Total shareholders' equity 12,953,421 4,426,455
Cash dividends declared per
share of common stock - -
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Cheniere Operating was incorporated in Delaware in February 1996 for the
purpose of entering the oil and gas exploration business, initially on the
Louisiana Gulf Coast. On July 3, 1996, Cheniere Operating underwent the
Reorganization whereby Bexy Communications, Inc., a publicly held Delaware
corporation ("Bexy"), received 100% of the outstanding shares of Cheniere
Operating, and the former shareholders of Cheniere Operating received
approximately 93% of the issued and outstanding Bexy shares. As a result of the
share exchange, a change in the control of the Company occurred. The
transaction was accounted for as a recapitalization of Cheniere Operating. Bexy
spun off its existing assets and liabilities to its original shareholders and
changed its name to Cheniere Energy, Inc.
14
<PAGE>
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
offshore Santa Barbara County, California. During July 1997 Cheniere
California and Poseidon mutually agreed to terminate the Purchase and Sale
Agreement pursuant to the terms thereof and that upon termination, neither party
thereto shall have liability thereunder.
RESULTS OF OPERATIONS - AUDITED STATEMENTS FROM INCEPTION (FEBRUARY 21, 1996) TO
AUGUST 31, 1997
The Company's operating results reflected a loss of $1,798,315 or $0.16
per share, as the Company has yet to generate revenues from operations. General
& Administrative ("G&A") expense of $1,817,275 included a one-time, non-cash
charge of $624,400, incurred during the three-month period ended August 31,
1997, relating to 200,000 shares of Common Stock issued in exchange for
investment banking services. The balance of the G&A expense comprises primarily
the costs of professional expenses, salary and compensation, insurance,
occupancy and office expense. Interest expense of $39,001 was incurred with
respect to two short-term promissory notes. Interest income of $57,961 was
generated on the Company's cash balances.
RESULTS OF OPERATIONS - AUDITED STATEMENTS FOR THE PERIODS ENDED AUGUST 31, 1997
AND AUGUST 31, 1996
The Company's operating results for the fiscal year ended August 31, 1997,
reflect a loss of $1,676,468 or $0.14 per share as compared to a loss of
$121,847, or $0.01 per share for the roughly six-month period from inception
(February 21, 1996) to August 31, 1996. The Company did not generate revenues
from operations in either of the periods. The increased loss in the most recent
fiscal year is primarily due to higher G&A expenses of $1,713,461, as compared
to $103,814 in the period to August 31, 1996. The higher level of G&A expenses
in the most recent period is the result of: (a) a one-time, non-cash charge of
$624,400 (as discussed above), (b) increased professional fees related to
registrations of the Company's Common Stock, (c) insurance expenses for
coverages not carried in the earlier period, and (d) the inclusion of a full
year of salary and compensation, occupancy and office expenses as compared to a
partial year for the period ended August 31, 1996. The increased loss is
additionally due to professional fees of $164,812 related to an acquisition (the
"Poseidon" transaction) that was not consummated. Interest income of $56,161 in
the latest period exceeded the $1,800 earned in the prior period, based on
larger average cash balances and the comparatively longer period.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended August 31, 1997, the Company raised $9.7
million proceeds net of placement fees from the sale of equity, which combined
with $500,000 proceeds from a short-term promissory note and cash balances, were
used to fund a $9.5 million investment in the Company's 3-D Exploration Program,
to repay a short-term promissory note ($215,000) and to fund operating expenses.
At August 31, 1997, total assets were $13,841,712 compared to $5,145,310 at
August 31, 1996. The increase is primarily from the sale of equity and
investment of the proceeds into the 3-D Exploration Program, as discussed above.
Current assets declined to $291,905 from $1,097,980, due to a reduction in the
cash balance at August 31, 1997, as compared to August 31, 1996. Current
liabilities increased to $888,291 from $718,855, due to a slightly higher level
of accounts payable and accrued expenses, and loans payable, at August 31, 1997,
as compared to August 31, 1996.
The Company anticipates that future liquidity requirements, including its
commitment to the 3-D Exploration Program, will be met by cash balances, the
sale of equity, further borrowings, and/or the sales of portions of its interest
in the 3-D Exploration Program. At this time no assurance can be given that
such sale of equity, future borrowings, or sales of portions of its interest in
the 3-D Exploration Program will be accomplished.
On August 28, 1997, the Company amended the Exploration Agreement to extend
the dates of further payments due to Zydeco relating to the 3-D Exploration
Program to December 31, 1997. The Company has currently funded $13.5 million of
Seismic Cost payments to the Program and is responsible for 50% of the remaining
Seismic Costs ("Excess Costs") incurred through December 31, 1997, to earn a 50%
working interest
15
<PAGE>
participation in the seismic data and leasing and drilling activities of the the
3-D Exploration Program. The Company's share of Excess Costs, by its own and
Zydeco's estimate, is approximately $2.9 million. Failure to pay any of the
Excess Costs by December 31, 1997, would result in a reduction of the Company's
working interest participation. The Company does not presently have sufficient
capital to meet the December 31, 1997, payment, and there can be no assurance
that it will successfully secure the funds.
PRIVATE PLACEMENTS OF EQUITY. Since its inception, Cheniere Operating's
primary source of financing for operating expenses and payments to the 3-D
Exploration Program 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. Through August 31, 1997, $14.6 million of
proceeds, net of placement fees, have been raised through the sale of equity,
and $13.5 million of that amount was invested in the 3-D Exploration Program.
From inception through the Reorganization, Cheniere Operating raised $2.9
million net of placement fees from the sale of common stock (which was exchanged
for 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, together with cash balances,
were used to fund Cheniere Operating's initial $3 million payment to the 3-D
Exploration Program.
Subsequent to the Reorganization and prior to August 31, 1996, the Company
raised $2.0 million net of placement fees from the sale of Common Stock pursuant
to Regulation D and Common Stock and warrants to purchase Common Stock pursuant
to Regulation S promulgated under the Securities Act ("Regulation S"). Proceeds
were used to fund a $1 million payment to the 3-D Exploration Program during
August.
During fiscal year 1997, the Company raised $9.7 million net of placement
fees from the sale of Common Stock to accredited investors pursuant to
Regulation D and to offshore investors pursuant to Regulation S. Of the $9.6
million proceeds, $9.5 million was invested in the 3-D Exploration Program.
SHORT TERM PROMISSORY NOTES. 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 (the "June Warrants"), which following the
Reorganization, were exchanged for an aggregate of 141,666 and 2/3 warrants to
purchase shares of 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 exercise price was determined at a 100% premium to
the sale price of Cheniere Operating stock by private placement during May 1996,
as the Company's stock was not publicly traded at that time. The Company
satisfied all of its obligations under the Notes in the 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 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 warrants to
purchase shares of the Common Stock in accordance with the terms of the original
Note Agreement. Such additional warrants have identical terms as the June
Warrants, in accordance with the terms of the original Note Agreement. The
Remaining Noteholder was not an affiliate of the Company.
On July 31, 1997, Cheniere Operating borrowed $500,000 from a related
party, evidenced by a promissory note bearing interest at 10% per annum and due
on August 29, 1997. On August 28, 1997, the maturity date was extended to
September 29, 1997. The promissory note was secured by an undivided 1.8519%
working interest in seismic data and leases acquired under the Exploration
Agreement relating to the 3-D Exploration Program and an undivided 3.7% interest
in proceeds from the marketing of proprietary seismic data under the Exploration
Agreement. The note was paid by the Company on September 22, 1997, including
all incurred interest. The collateral securing the note has been released; and,
according to the terms of the note, the maker's option to acquire an interest in
the Seismic Data, Lease Interest, and Exploration Agreement has been terminated.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
CHENIERE ENERGY, INC. AND SUBSIDIARIES
Independent Auditors' Report................................................ 18
Consolidated Balance Sheet.................................................. 19
Consolidated Statement of Operations........................................ 20
Consolidated Statement of Stockholders' Equity.............................. 21
Consolidated Statement of Cash Flows........................................ 22
Notes to Consolidated Financial Statements.................................. 23
17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CHENIERE ENERGY, INC. AND
SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of CHENIERE
ENERGY, INC. AND SUBSIDIARIES (a Development Stage Company) as of August 31,
1997 and 1996 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year ended August 31, 1997, and for
the period from inception (February 21, 1996) to August 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CHENIERE ENERGY, INC. AND SUBSIDIARIES as of August 31, 1997 and 1996, and the
consolidated results of its operations and its consolidated cash flows for the
year ended August 31, 1997, and for the period from inception (February 21,
1996) to August 31, 1996, in conformity with generally accepted accounting
principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
September 12, 1997,
except for Note 13, as
to which the date is
September 29, 1997.
18
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
August 31, August 31,
ASSETS 1997 1996
----------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 234,764 $1,093,180
Prepaid Expenses and Other Assets 57,141 4,800
----------- ----------
TOTAL CURRENT ASSETS 291,905 1,097,980
----------- ----------
OIL AND GAS PROPERTIES
Unevaluated 13,500,000 4,000,000
FIXED AND OTHER ASSETS
Property and Equipment, Net 49,807 46,830
Other - 500
----------- ----------
TOTAL ASSETS $13,841,712 $5,145,310
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 388,291 $ 292,894
Notes Payable - 425,000
Note Payable - Related Party 500,000 -
Advance from Officers - 961
----------- ----------
TOTAL LIABILITIES 888,291 718,855
----------- ----------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common Stock- $.003 Par Value
Authorized 20,000,000 shares;
14,160,866 and 9,931,767 Issued and
Outstanding at August 31,1997 and
1996, respectively 42,483 29,795
Preferred Stock- Authorized
1,000,000 Shares; None Issued
and Outstanding - -
Additional Paid-in-Capital 14,709,253 4,518,507
Deficit Accumulated During the Development Stage (1,798,315) (121,847)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 12,953,421 4,426,455
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,841,712 $5,145,310
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended For the Period Ended Cumulative
August 31, August 31, from the Date
1997 1996 of Inception
------------------ -------------------- -------------
<S> <C> <C> <C>
Revenue $ - $ - $ -
------------ ---------- -----------
General and Administrative Expenses 1,713,461 103,814 1,817,275
Interest Expense 19,168 19,833 39,001
------------ ---------- -----------
1,732,629 123,647 1,856,276
------------ ---------- -----------
Loss from Operations Before Other Income (1,856,276)
and Provision for Income Taxes (1,732,629) (123,647)
Interest Income 56,161 1,800 57,961
------------ ---------- -----------
Loss From Operations Before Provision
for Income Taxes (1,676,468) (121,847) (1,798,315)
Provision for Income Taxes - - -
------------ ---------- -----------
Net Loss $ (1,676,468) $ (121,847) $(1,798,315)
============ ========== ===========
Loss Per Share $ (0.14) $ (0.01) $ (0.16)
============ ========== ===========
Weighted Average Number of Shares
Outstanding 12,143,919 8,610,941 11,043,155
============ ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
---------------------- Paid-In Retained Stockholders'
Per Share Shares Amount Capital Deficit Equity
--------- ----------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sale of Shares on April 9, 1996 $0.012 6,242,422 $18,727 $ 56,276 $ - $ 75,003
Sale of Shares on May 5, 1996 1.50 2,000,000 6,000 2,994,000 - 3,000,000
Issuance of Shares to an Employee on July 1,
1996 1.00 30,000 90 29,910 - 30,000
Issuance of Shares in
Reorganization to Former
Bexy Shareholders - 600,945 1,803 (1,803) - -
Sale of Shares on July 30, 1996 2.00 50,000 150 99,850 - 100,000
Sale of Shares on August 1, 1996 2.00 508,400 1,525 1,015,275 - 1,016,800
Sale of Shares on August 30, 1996 2.00 500,000 1,500 998,500 - 1,000,000
Expenses Related to Offering - - - (686,251) - (686,251)
Issuance of Warrants - - - 12,750 - 12,750
Net Loss - - - - (121,847) (121,847)
----------- ------- ----------- ----------- -----------
Balance - August 31, 1996 9,931,767 29,795 4,518,507 (121,847) 4,426,455
Sale of Shares on September 12, 1996 2.00 50,000 150 99,850 - 100,000
Sale of Shares on September 16, 1996 2.00 80,250 241 160,259 - 160,500
Conversion of Debt 2.00 105,000 315 209,685 - 210,000
Sale of Shares on October 30, 1996 2.25 457,777 1,373 1,028,627 - 1,030,000
Issuance of Warrants - - - 6,450 - 6,450
Sale of Shares on December 6, 1996 2.25 475,499 1,426 1,068,448 - 1,069,874
Sale of Shares on December 9, 1996 2.50 400,000 1,200 998,800 - 1,000,000
Sale of Shares on December 11, 1996 2.25 22,222 67 49,933 - 50,000
Sale of Shares on December 19, 1996 2.50 200,000 600 499,400 - 500,000
Sale of Shares on December 20, 1996 2.50 220,000 660 549,340 - 550,000
Sale of Shares on February 28, 1997 4.25 * 352,947 1,059 1,498,967 - 1,500,026
Sale of Shares on March 4, 1997 4.25 * 352,947 1,059 1,498,966 - 1,500,025
Sale of Shares on May 22, 1997 3.00 535,000 1,605 1,603,395 - 1,605,000
Issuance of Shares to Adjust Prices of Shares
Sold on February 28 and March 4 - * 294,124 883 (883) - -
Sale of Shares on June 26, 1997 3.00 33,333 100 99,900 - 100,000
Sale of Shares on July 24, 1997 3.00 250,000 750 749,250 - 750,000
Issuance of Shares in Connection with
Financial Advisory Services 3.125 200,000 600 624,400 - 625,000
Sale of Shares on July 30, 1997 3.00 100,000 300 299,700 - 300,000
Sale of Shares on August 19, 1997 3.00 100,000 300 299,700 - 300,000
Expenses Related to Offering - - - (1,153,441) - (1,153,441)
Net Loss - - - - (1,676,468) (1,676,468)
----------- ------- ----------- ----------- -----------
Balance - August 31, 1997 $14,160,866 $42,483 $14,709,253 $(1,798,315) $12,953,421
=========== ======= =========== =========== ===========
</TABLE>
All of the sales of shares indicated above were made pursuant to private
placement transactions.
* Additional shares were issued to the purchasers of the shares sold on February
28, 1997 and March 4, 1997 pursuant to the terms of those sales.
The accompanying notes are an integral part of this report.
21
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year For the Period
Ended Ended Cumulative
August 31, August 31, from Date
1997 1996 of Inception
------------- ---------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,676,468) $ (121,847) $(1,798,315)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities: -
Depreciation 8,268 3,603 11,871
Compensation Paid in Common Stock 624,400 30,000 654,400
(Increase) in Prepaid Expenses and Other Current (52,341) (4,800) (57,141)
Assets
(Increase) Decrease in Other Assets 500 (500) -
Increase in Accounts Payable and
Accrued Expenses 95,387 292,904 388,291
Increase (Decrease) in Advance from Officers (961) 961 -
------------ ----------- ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,001,215) 200,321 (800,894)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture, Fixtures and Equipment (11,235) (50,443) (61,678)
Investment in 3-D Exploration Program (9,500,000) (4,000,000) (13,500,000)
------------ ----------- ------------
NET CASH USED BY INVESTING ACTIVITIES (9,511,235) (4,050,443) (13,561,678)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Note Issuance 500,000 425,000 925,000
Repayment of Note (215,000) - (215,000)
Proceeds from Issuances of Common Stock 10,516,025 5,191,803 15,707,828
Issuance of Warrants 6,450 12,750 19,200
Offering Costs (1,153,441) (686,251) (1,839,692)
------------ ----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,654,034 4,943,302 14,597,336
------------ ----------- ------------
NET(DECREASE) INCREASE IN CASH (858,416) 1,093,180 234,764
CASH- BEGINNING OF YEAR 1,093,180 - -
------------ ----------- ------------
CASH - END OF YEAR 234,764 1,093,180 234,764
============ =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 15,635 $ - $ 15,635
============ =========== ============
Cash Paid for Income Taxes $ - $ - $ -
============ =========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES:
Common stock totaling 105,000 shares was issued upon the conversion of
$210,000 of debt.
Common stock totaling 200,000 shares was issued in exchange for financial
advisory services and of $600. These shares have been valued at a total
of $625,000, based on the quoted market price per share.
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
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 Operating is a Houston-
based company formed for the purpose of oil and gas exploration and, if
warranted, development 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. Cheniere California was formed in December
1996 to acquire a working interest in undeveloped leases off Santa Barbara
County, California. This acquisition did not occur and Cheniere California is
currently inactive.
The Company is currently a development stage enterprise under the provisions
of SFAS No. 7. As described above and in Note 5, the Company's future business
will be in the field of oil and gas exploration, development, and exploitation.
Basis of Consolidation
The consolidated financial statements include the accounts of Cheniere
Energy, Inc. and its 100% owned subsidiaries, Cheniere Energy Operating Co.,
Inc. and Cheniere Energy California, Inc. Accordingly, all references herein to
Cheniere Energy, Inc. or the "Company" include the consolidated results of its
subsidiaries. All significant inter-company accounts and transactions have
been eliminated in consolidation.
Basis of Presentation
On July 3, 1996, Cheniere, formerly Bexy Communications, Inc., acquired all
of the outstanding capital stock of Cheniere Operating as described in Note 3.
For accounting purposes, this acquisition has been treated as a recapitalization
of Cheniere Operating.
The financial statements presented include only the accounts of the Company
since Cheniere Operating's inception (February 21, 1996). While Cheniere
Operating did obtain a presence in the public market through the
recapitalization, it did not succeed to the business or assets of Bexy. For
this reason, the value of the shares issued to the former Bexy shareholders has
been deemed to be de minimis and, accordingly, no value has been assigned to
those shares.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with acquisition, exploration,
and development of oil and gas reserves, including directly related overhead
costs, are capitalized.
All capitalized costs of oil and gas properties, including the estimated
future costs to develop proved reserves, will be amortized on the unit-of-
production method using estimates of proved reserves. Investments in unproved
properties and major development projects are not amortized until proved
reserves associated with the projects can be determined or until impairment
occurs. If the results of an assessment indicate that the properties are
impaired, the amount of the impairment is added to the capitalized costs to be
amortized.
In addition, the capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present value,"
discounted at a 10 percent interest rate, of future net revenues from proved
reserves, based on current economic and operating conditions, plus the lower of
cost or fair market value of unproved properties.
23
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved
reserves of oil and gas, in which case the gain or loss is recognized in income.
Abandonments of properties are accounted for as adjustments of capitalized
costs with no loss recognized.
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. 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 may 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
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or settled as
prescribed in FASB Statement No. 109, "Accounting for Income Taxes." As changes
in tax laws or rate are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
Investments
The Company continually reviews its investments to determine that the
carrying values have not been impaired.
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 reported period.
Actual results could differ from those estimates.
Per Share of Common Stock
Per share amounts have been computed based on the average number of common
shares outstanding during the period.
Offering Costs
Offering costs consist primarily of placement fees, professional fees and
printing costs. These costs are charged against the proceeds of the sale of
common stock in the periods in which they occur.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to
24
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
Employees," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
Long-Lived Assets
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," was issued (SFAS No. 121). SFAS No. 121 requires that long-
lived assets and certain identifiable intangibles to be held and used or
disposed of by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has adopted this statement and determined that no
impairment loss need be recognized for applicable assets of continuing
operations.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued a new
statement titled, "Earnings Per Share" (SFAS No. 128). This statement is
effective for both interim and annual periods ending after December 15, 1997 and
specifies the computation, presentation, and disclosure requirements for
earnings per share for entities with publicly held common stock or potential
common stock. After the effective date, all prior-period EPS data presented
shall be restated to conform with the provisions for SFAS No. 128.
If the provisions of SFAS No. 128 had been adopted in these financial
statements, there would not have been any impact on loss per share, since the
effect of the options and warrants would have been antidilutive.
NOTE 2-PROPERTY AND EQUIPMENT
Property and equipment at August 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Furniture and Fixtures $29,914 $26,006
Office Equipment 31,764 24,427
------- -------
61,678 50,433
Less Accumulated Depreciation 11,871 3,603
------- -------
Property and Equipment - Net $49,807 $46,830
======= =======
Depreciation Expense Recorded
In the Statement of Operations $ 8,268 $ 3,603
======= =======
</TABLE>
NOTE 3-REORGANIZATION
On July 3, 1996, Cheniere Operating underwent a reorganization by
consummating 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 (which aggregated
824.2422 common shares outstanding prior to a 10,000-to-1 stock split which was
effected immediately prior to the Reorganization) and the former shareholders of
Cheniere Operating received 8,242,422 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
600,945 shares (7%) of the outstanding Bexy stock. The mentioned stock split
has been given retroactive effect in the financial statements. As a result of
the completion of the share exchange a change in the control of the Company
occurred. The transaction has been accounted for as a recapitalization of
Cheniere Operating. In accordance with the terms of the Reorganization
Agreement, Bexy changed its name to Cheniere
25
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
Energy, Inc. Subsequently, the Company distributed the outstanding capital
stock of Mar Ventures to the original holders of Bexy common stock.
NOTE 4-OIL AND GAS PROPERTIES NOT SUBJECT TO AMORTIZATION
The Company is currently participating in oil and gas exploration activities
onshore and in the state waters of Cameron Parish, Louisiana, and in the
adjacent federal waters of the West Cameron Area. At August 31, 1997, a
determination cannot be made about the extent of any gas oil and gas reserves
that should be classified as proved reserves as a result of this project.
Consequently, the associated property costs and exploration costs have been
excluded in computing amortization of the full cost pool. The Company estimates
that amortization of these costs will begin during the calendar year 1998.
Unevaluated properties of $13,500,00 and $4,000,000 at August 31, 1997 and
1996, respectively, consist primarily of expenditures for leasehold and seismic
costs.
NOTE 5-INVESTMENT IN JOINT EXPLORATION PROGRAM
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 proprietary 3-D seismic exploration project in
southern Louisiana (the "3-D Exploration Program"). The Company has the right
to earn up to a 50% participation in the 3-D Exploration Program.
The 3-D seismic survey (the "Survey") covers 228 square miles within a 295
square-mile area running three to five miles north and generally five miles
south of the coastline in the most westerly 28 miles of Cameron Parish,
Louisiana (the "Survey AMI"). Field acquisition of the seismic data was
completed in July 1997, and the data is currently being processed and
interpreted.
As of August 31, 1997 and 1996, payments made to the 3-D Exploration Program
totaled $13,500,000 and $4,000,000 respectively.
Under the terms of the Exploration Agreement and its amendments, the Company
is required to make an additional payment estimated to be approximately $2.9
million to Zydeco on December 31, 1997, to earn its full 50% participation in
the 3-D Exploration Program. The Company's potential participation in the 3-D
Exploration Program could be reduced in the event of a failure by the Company to
make such required payment when due.
The Company's investment (reserves) in the 3-D Exploration Program will be
accounted for under the full cost method. The Company's financial statements
will reflect its proportionate interest in the revenues, costs, expenses, and
capital with respect to the 3-D Exploration Program.
NOTE 6-NOTES PAYABLE
1) On July 31, 1997, Cheniere Operating borrowed $500,000 from a related party,
evidenced by a promissory note bearing interest at 10% per annum and due on
August 29, 1997. On August 28, 1997, the maturity date was extended to
September 29, 1997. (See Note 13).
The promissory note is secured by:
A) An undivided 1.8519 interest in seismic data acquired pursuant to the
Exploration Agreement. (See Note 5.)
B) An undivided 1.8519% interest in the leases covered by the Exploration
Agreement.
C) An undivided 3.7038% interest in proceeds from the marketing of seismic
data under the Exploration Agreement.
26
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
The Company has granted the maker of the note an option to acquire an
interest in the Seismic Data, Lease Interests, and Exploration Agreement
through the conversion of the note as follows:
a. The interest acquired upon conversion in Seismic Data and Lease Interests
is determined by dividing the amount due under the note by $13,500,000,
and multiplying the result by 50% (the "Data Ownership Percentage").
b. The interest acquired upon conversion in the proceeds from the marketing
of proprietary seismic data under the Exploration Agreement would be a
fraction equal to twice the Data Ownership Percentage.
c. Upon conversion, the maker will agree to pay a fractional share of Excess
Costs (per the Exploration Agreement) equal to the Data Ownership
Percentage.
d. The Option may be exercised only after September 29, 1997. Should the
Note be repaid before such time, the Option would terminate.
e. The Option will terminate at the earlier of 180 days from July 31, 1997,
or upon repayment of the note.
2) During 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 were 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 (as adjusted for the 10,000-to-1 stock split
referred to in Note 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. Pursuant to
APB 14, the warrants issued have been valued at the differential rate
between the initial interest rate (8%) and the estimated market rate (20%),
applied to the principal balance. This value, $12,750, has been credited to
additional paid-in capital.
Terms of the Notes indicate that 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.
Effective as of September 14, 1996, certain of the Noteholders converted
their Notes into Common Stock at a price of $2.00 per share. As a result,
105,000 shares of Common Stock were issued to retire $210,000 of Notes.
In addition, an individual Noteholder purchased the promissory notes of the
remaining Noteholders. The holder thus held Notes totaling $215,000. As per
the terms of the Notes (as described above), the interest rate on these
outstanding Notes increased to 13% per annum, effective September 14, 1996.
The holder of the Notes was 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.
On December 13, 1996, the Company repaid the $215,000 Notes and related
accrued interest. Upon repaying the Notes, the Company issued 64,500
warrants in accordance with the loan agreement. Pursuant to APB14, these
additional warrants have been valued at the differential rate between the
rate charged (13%) and the then estimated market rate (25%), applied to the
principal balance for each month outstanding after September 14, 1996. This
value, $6,450, has been credited to additional paid-in capital.
27
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
NOTE 7-INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
August 31,
----------------
1997 1996
----- -----
<S> <C> <C>
Current Tax Expense
U.S. Federal $ - $ -
State and Local - -
----- -----
Total Current - -
----- -----
Deferred Tax Expense
U.S. Federal - -
State and Local - -
----- -----
Total Deferred - -
----- -----
Total Tax Provision from Continuing Operations $ - $ -
===== =====
</TABLE>
The reconciliation of the effective income tax rate to the federal statutory
rate is as follows:
<TABLE>
<S> <C> <C>
Federal Income Tax Rate (34.0)% (34.0)%
Deferred Tax Charge (Credit) - -
Effect of Valuation Allowance 34.0 % 34.0 %
State Income Tax, Net of Federal Benefit - -
----- -----
Effective Income Tax Rate 0.0 % 0.0 %
===== =====
</TABLE>
At August 31, 1997, the Company had net carryforward losses of approximately
$2,545,000. 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
carryfoward.
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 are
as follows:
<TABLE>
<CAPTION>
August 31,
-------------------------
1997 1996
--------- ----------
<S> <C> <C>
Deferred Tax Assets
Loss Carryforwards $ 865,000 $ 295,000
Less: Valuation Allowance (865,000) (295,000)
--------- ---------
Net Deferred Tax Assets $ - $ -
========= =========
</TABLE>
Net operating loss carryforwards expire starting in 2006 through 2011. Per
year availability of losses incurred prior to July 3, 1996, of approximately
$747,000 is subject to change of ownership limitations under Internal Revenue
Code Section 382.
28
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
NOTE 8-WARRANTS
The Company has issued and outstanding 386,666 and 2/3 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 antidilution adjustments). The exercise
price was determined at a 100% premium to the sale price of Cheniere Operating
stock by private placement during May, 1996. 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.
Pursuant to APB 14, the warrants issued have been valued at the differential
rate between the initial interest rate (8%) and the estimated market rate (20%),
applied to the principal balance. This value, $12,750, has been credited to
additional paid-in capital.
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 noteholders. 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
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 are similar to the June
Warrants. Pursuant to APB 14, these additional warrants have been valued at the
differential rate between the rate charged (13%) and the then estimated market
rate (25%), applied to the principal balance for each month outstanding after
September 14, 1996. This value, $6,450, has been credited to additional paid-in
capital.
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). The exercise price represents
the approximate market price of the underlying Common Stock at the time of the
transaction.
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). The exercise price represents the approximate
market price of the underlying Common Stock at the time of the transaction.
The warrants do not confer upon the holders thereof any voting or other
rights of a stockholder of the Company.
29
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
NOTE 9-STOCK OPTIONS
The Company had granted certain options to purchase shares of Common Stock to
two executives during the period ended August 31, 1996. 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.
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 a former President
of Bexy, Mr. Buddy Young, during the period ended August 31, 1996. 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 had granted 12,000 non-qualified options to an employee at
an exercise price of $3.00 per share during the fiscal year ended August 31,
1997. These options vested and became exercisable in equal annual installments
of 25% each on the first through the fourth anniversary of January 23, 1997, and
expire January 23, 2002. This employee left the Company in May, 1997, and these
options have been canceled.
The disclosure provisions of SFAS No. 123 do not have a material effect on
the financial statements.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
August 31,
----------------------------------
1997 1996
------------ -------------
<S> <C> <C>
Outstanding at beginning of year 319,444 2/3 -
Options granted at an exercise price
of $3.00 per share 12,000 300,000
Options granted at an exercise price
of $1.80 per share - 19,444 2/3
Options canceled (12,000.00) -
------------ ------------
Outstanding at end of year 319,444 2/3 319,444 2/3
============ ============
Exercisable at end of year 131,944 2/3 19,444 2/3
============ ============
Weighted average exercise price of
options outstanding $ 2.93 $ 2.93
============ ============
Weighted average exercise price of
options exercisable $ 2.82 $ 1.80
============ ============
Weighted average remaining contractual
life of options outstanding 4.0 years 4.0 years
</TABLE>
30
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
NOTE 10-COMMON STOCK RESERVED
The Company has reserved 386,666 and 2/3 shares of Common Stock for issuance
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).
NOTE 11-RELATED PARTY TRANSACTIONS
On July 31, 1997, the Company borrowed $500,000 in a transaction more fully
described in Note 6. The maker of this Note is Sam B. Myers, Jr., Chief
Executive Officer of Zydeco Energy, Inc., a subsidiary of which is Zydeco
Exploration, a party to the Joint Exploration Program described in Note 6.
NOTE 12-COMMITMENTS AND CONTINGENCIES
1) The Company subleases its Houston, Texas headquarters from Zydeco under a
month-to-month sublease.
Rent expense recorded in the financial statements is as follows:
<TABLE>
<CAPTION>
August 31,
---------------------
1997 1996
--------- ----------
<S> <C> <C>
Office Rental (including parking) $22,403 $ 3,884
Other Rental Property (terminated June, 1997) 48,000 13,920
------- -------
$70,403 $17,804
======= =======
</TABLE>
2) Pursuant to a Consulting Agreement dated as of July 3, 1996, between the
Company 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 two
years ending on July 3, 1998, at a rate of $75,000 per year. Mr. Young is not
an employee of the Company and serves only in the capacity of a consultant.
3) As discussed in Note 5, the Company is required to make an additional payment
estimated to be approximately $2.9 million to Zydeco on December 31, 1997 to
earn its full 50% participation in the 3-D Exploration Program. The Company's
potential participation in the 3-D Exploration Program could be reduced in
the event of a failure by the Company to make such required payment when due.
NOTE 13-SUBSEQUENT EVENTS
1) On September 22, 1997, the Company repaid the $500,000 promissory note
described in Note 6, including all accrued interest. The collateral securing
the Note has been released and, according to the terms of the Note, the
maker's option to acquire an interest in the Seismic Data, Lease Interest and
Exploration Agreement has been terminated.
2) During September 1997, pursuant to Regulation S promulgated under the
Securities Act of 1933, the Company sold an aggregate of 197,000 shares of
the Company's Common Stock for gross proceeds of $591,000 and net proceeds of
$531,900.
31
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
3) On September 29, 1997, the Company's Board of Directors elected a new outside
director. This director was granted options to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $3.00 per share, the quoted
market price on the date of the grant. These options vest 12,500 on September
29, 1998, and 12,500 on September 29, 1999, and will expire on September 29,
2002.
4) On September 29, 1997, the Company granted to each of two outside directors
options to acquire 10,000 shares of the Company's Common Stock at an
exercise price of $3.00 per share, the quoted market price on the date of
grant. These options will vest one year from the date of grant and will
expire five years after the date of the grant.
32
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
A current report on Form 8-K was filed June 9, 1997, relating to a change in
the Registrant's Certifying Accountant.
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
(which aggregated 824.2422 common shares outstanding prior to a 10,000-to-1
stock split which effected immediately prior to the reorganization) and the
former shareholders of Cheniere Operating received 8,242,422 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 600,945 (7%) of the outstanding Bexy stock. As
a result of the completion of the share exchange a change in the control of the
Company occurred. The transaction has been accounted for as a recapitalization
of Cheniere Operating. 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.
Prior to the Reorganization, Bexy had retained Farber & Haas as Bexy's
independent auditors and Cheniere Operating had retained Merdinger, Fruchter,
Rosen & Corso P.C. as Cheniere Operating's independent auditors. Due to the fat
that it was the business of Cheniere Operating, and not Bexy, which survived the
Reorganization, management of Cheniere deemed it to be in the best interest of
Cheniere to continue Cheniere Operating's relationship with Merdinger, Fruchter,
Rosen & Corso PC. And to terminate Cheniere Operating's relationship with Farber
& Hass as of July 3, 1996.
The reports of Farber & Hass on the financial statements of Bexy for the past
two fiscal years did not contain an adverse opinion or a disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles.
The decision to change accountants was not formally approved by the board of
directors of Cheniere, due to the fact that management of Cheniere did not
consider the dismissal of Farber & Hass and the continuation of Cheniere
Operating's relationship with Merdinger, Fruchter, Rosen & Corso P.C. to be a
substantive change in accountants.
During the two most recent fiscal years of Bexy, and the interim period prior
to dismissal of Farber & Hass, there were no disagreements with Farber & Hass on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Farber & Hass, would have caused Farber & Hass to make reference
to the subject matter of the disagreement in connection with its report.
At no time prior to the Reorganization did Bexy have any relationship with
Merdinger, Fruchter, Rosen & Corso P.C.
33
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As permitted by General Instruction G, the information called for in this item
with respect to the Company's directors is incorporated by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the fiscal year. Information with respect to
the Company's executive officers is set forth in Part 1 of this Annual Report on
Form 10-K under the heading "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
As permitted by General Instruction G, the information called for in this item
is incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As permitted by General Instruction G, the information called for in this item
is incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As permitted by General Instruction G, the information called for in this item
is incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.
34
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits
(1) Financial Statements
Independent Auditors' Report........................................18
Consolidated Balance Sheet..........................................19
Consolidated Statement of Operations................................20
Consolidated Statement of Stockholders' Equity......................21
Consolidated Statement of Cash Flows................................22
Notes to Consolidated Financial Statements..........................23
(2) Financial Statement Schedule
All consolidated financial statement schedules have been omitted
because they are not required, are not applicable, or the information
has been included elsewhere.
(3) Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of Cheniere
Energy, Inc. ("Cheniere") (Incorporated by reference to Exhibit
3.1 of the Company's Registration Statement under the Securities
Act of 1933 on Form S-1 filed on August 27, 1996 (File No. 333-
10905))
3.2 By-laws of Cheniere (Incorporated by reference to Exhibit 3.2 of
the Company's Amendment No. 1 on Form S-1 filed on August 27, 1996
(File No. 333-10905))
4.1 Specimen Common Stock Certificate of Cheniere (Incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.1 Exploration Agreement between FX Energy, Inc. (now known as
Cheniere Energy Operating Co., Inc. ("Cheniere Operating")) and
Zydeco Exploration, Inc. ("Zydeco") (Incorporated by reference to
Exhibit 10.1 of the Company's Registration Statement under the
Securities Act of 1933 on Form S-1 filed on August 27, 1996 (File
No. 333-10905))
10.2 First Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.2 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.3 Second Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.3 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.4 Third Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.4 of the Annual Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K
filed on November 27, 1996 (File No. 2-63115))
10.5 Form of Regulation D Subscription Agreement between Cheniere
Operating and certain "accredited investors" (Incorporated by
reference to Exhibit 10.5 of the Annual Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K
filed on November 27, 1996 (File No. 2-63115))
35
<PAGE>
10.6 Form of Noteholders Agreement between Cheniere and the holders of
promissory notes in the aggregate principal amount of $425,000
(Incorporated by reference to Exhibit 10.4 of the Company's
Registration Statement under the Securities Act of 1933 on Form S-
1 filed on August 27, 1996 (File No. 333-10905))
10.7 Form of Warrant Agreement governing warrants of Cheniere issued in
exchange for warrants of Cheniere Operating (which were issued
pursuant to the Noteholders Agreement) (Incorporated by reference
to Exhibit 10.5 of the Company's Registration Statement under the
Securities Act of 1933 on Form S-1 filed on August 27, 1996 (File
No. 333-10905))
10.8 Asset Transfer, Assignment and Assumption Agreement between Bexy
Communications, Inc. and Mar Ventures, Inc. (Incorporated by
reference to Exhibit 10.6 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.9 Indemnification Agreement between Buddy Young, Cheniere, Cheniere
Operating and the shareholders of Cheniere Operating named therein
(Incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement under the Securities Act of 1933 on Form S-
1 filed on August 27, 1996 (File No. 333-10905))
10.10 Form of Warrant Agreement between Cheniere and each of C.M. Blair,
W.M. Foster & Co., Inc. and Redliw Corp. (Incorporated by
reference to Exhibit 10.8 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.11 Consulting Agreement between Cheniere and Buddy (Incorporated by
reference to Exhibit 10.9 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.12 Letter Agreement between Cheniere and Buddy Young regarding
reverse splits of the Common Stock (Incorporated by reference to
Exhibit 10.10 of the Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 on Form 10- filed on
November 27, 1996 (File No. 2-63115))
10.13 Fourth Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.12 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on March 17,
1997 (File No. 333-23421))
10.14 Form of Letter Agreement between Cheniere and certain purchasers
of Common Stock pursuant to Regulation S (Incorporated by
reference to Exhibit 10.13 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on March 17,
1997 (File No. 333-23421))
10.15 Form of Warrant Agreement governing warrants issued in unit
offering to each of Western Slopes, Ltd. and Great Heritage
Holdings, Ltd.
10.16 Form of Warrant Agreement between Cheniere and Reefs & Co., Ltd.
10.17 Form of Warrant Agreement governing warrants issued pursuant to
Noteholders Agreement
10.18 Fifth Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco
10.19 Sixth Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco
10.20 Form of Letter Agreement between Cheniere and Sam B. Myers, Jr.
regarding Promissory Note in the principal amount of $500,000
10.21 Form of Noteholder Agreement between Cheniere and Sam B. Myers,
Jr. relating to Promissory Note in the principal amount of
$500,000
10.22 Form of Security Agreement between Cheniere and Sam B. Myers, Jr.
relating to Promissory Note in the principal amount of $500,000
10.23 Seventh Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco
10.24 Form of Letter Agreement between Cheniere and Sam B. Myers, Jr.
regarding Promissory Note Extension
21.1 Subsidiaries of Cheniere Energy, Inc.
27.1 Financial Data Schedule
36
<PAGE>
(b) Reports On Form 8-K
The Company filed Current Reports on Form 8-K on June 9, 1997, regarding a
change in accountants, and on August 7, 1997, and August 25, 1997, each
regarding Sales of Equity Securities Pursuant to Regulation S.
The Company filed a Current Report on Form 8-K on June 25, 1997, regarding
amended interim financials.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
CHENIERE ENERGY, INC.
By: /s/ Walter L. Williams
----------------------------------
President and Chief Executive Officer
Date: October 13, 1997
38
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of Cheniere
Energy, Inc. ("Cheniere") (Incorporated by reference to Exhibit 3.1
of the Company's Registration Statement under the Securities Act of
1933 on Form S-1 filed on August 27, 1996 (File No. 333-10905))
3.2 By-laws of Cheniere (Incorporated by reference to Exhibit 3.2 of
the Company's Amendment No. 1 on Form S-1 filed on August 27, 1996
(File No. 333-10905))
4.1 Specimen Common Stock Certificate of Cheniere (Incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.1 Exploration Agreement between FX Energy, Inc. (now known as
Cheniere Energy Operating Co., Inc. ("Cheniere Operating")) and
Zydeco Exploration, Inc. ("Zydeco") (Incorporated by reference to
Exhibit 10.1 of the Company's Registration Statement under the
Securities Act of 1933 on Form S-1 filed on August 27, 1996 (File
No. 333-10905))
10.2 First Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.2 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.3 Second Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.3 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.4 Third Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.4 of the Annual Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K
filed on November 27, 1996 (File No. 2-63115))
10.5 Form of Regulation D Subscription Agreement between Cheniere
Operating and certain "accredited investors" (Incorporated by
reference to Exhibit 10.5 of the Annual Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K
filed on November 27, 1996 (File No. 2-63115))
10.6 Form of Noteholders Agreement between Cheniere and the holders of
promissory notes in the aggregate principal amount of $425,000
(Incorporated by reference to Exhibit 10.4 of the Company's
Registration Statement under the Securities Act of 1933 on Form S-1
filed on August 27, 1996 (File No. 333-10905))
10.7 Form of Warrant Agreement governing warrants of Cheniere issued in
exchange for warrants of Cheniere Operating (which were issued
pursuant to the Noteholders Agreement) (Incorporated by reference
to Exhibit 10.5 of the Company's Registration Statement under the
Securities Act of 1933 on Form S-1 filed on August 27, 1996 (File
No. 333-10905))
10.8 Asset Transfer, Assignment and Assumption Agreement between Bexy
Communications, Inc. and Mar Ventures, Inc. (Incorporated by
reference to Exhibit 10.6 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.9 Indemnification Agreement between Buddy Young, Cheniere, Cheniere
Operating and the shareholders of Cheniere Operating named therein
(Incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement under the Securities Act of 1933 on Form S-1
filed on August 27, 1996 (File No. 333-10905))
10.10 Form of Warrant Agreement between Cheniere and each of C.M. Blair,
W.M. Foster & Co., Inc. and Redliw Corp. (Incorporated by reference
to Exhibit 10.8 of the Company's Registration Statement under the
Securities Act of 1933 on Form S-1 filed on August 27, 1996 (File
No. 333-10905))
10.11 Consulting Agreement between Cheniere and Buddy (Incorporated by
reference to Exhibit 10.9 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on August 27,
1996 (File No. 333-10905))
10.12 Letter Agreement between Cheniere and Buddy Young regarding reverse
splits of the Common Stock (Incorporated by reference to Exhibit
10.10 of the Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 on Form 10- filed on November 27,
1996 (File No. 2-63115))
1
<PAGE>
10.13 Fourth Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.12 of the Company's Registration Statement
under the Securities Act of 1933 on Form S-1 filed on March 17,
1997 (File No. 333-23421))
10.14 Form of Letter Agreement between Cheniere and certain purchasers of
Common Stock pursuant to Regulation S (Incorporated by reference to
Exhibit 10.13 of the Company's Registration Statement under the
Securities Act of 1933 on Form S-1 filed on March 17, 1997 (File
No. 333-23421))
10.15 Form of Warrant Agreement governing warrants issued in unit
offering to each of Western Slopes, Ltd. and Great Heritage
Holdings, Ltd.
10.16 Form of Warrant Agreement between Cheniere and Reefs & Co., Ltd.
10.17 Form of Warrant Agreement governing warrants issued pursuant to
Noteholders Agreement
10.18 Fifth Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco
10.19 Sixth Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco
10.20 Form of Letter Agreement between Cheniere and Sam B. Myers, Jr.
regarding Promissory Note in the principal amount of $500,000
10.21 Form of Noteholder Agreement between Cheniere and Sam B. Myers, Jr.
relating to Promissory Note in the principal amount of $500,000
10.22 Form of Security Agreement between Cheniere and Sam B. Myers, Jr.
relating to Promissory Note in the principal amount of $500,000
10.23 Seventh Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco
10.24 Form of Letter Agreement between Cheniere and Sam B. Myers, Jr.
regarding Promissory Note Extension
21.1 Subsidiaries of Cheniere Energy, Inc.
27.1 Financial Data Schedule
2
<PAGE>
Exhibit 10.15
THESE SECURITIES HAVE BEEN ISSUED (AND THE SECURITIES TO BE ISSUED UPON THE
EXERCISE OF THESE SECURITIES, ASSUMING COMPLIANCE WITH THE SUBSCRIPTION
AGREEMENT (AS DEFINED BELOW) AND THE TERMS HEREOF, WILL BE ISSUED) PURSUANT TO
REGULATION S AS AN EXEMPTION TO THE PROVISIONS UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES
CANNOT BE TRANSFERED, OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS
(AS SUCH TERMS ARE DEFINED IN REGULATION S), AND MAY NOT BE EXERCISED BY OR ON
BEHALF OF ANY U.S. PERSON (AS SO DEFINED), UNLESS SUCH SECURITIES ARE REGISTERED
UNDER THE SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES AND BLUE SKY LAWS
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
CHENIERE ENERGY, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
The transferability and resale of this Warrant is restricted as set forth
herein and in the related Subscription Agreement (as defined below), a copy
of which may be obtained from the Company (as defined below) at its
principal office.
No. WA-15 Up to 50,000 Shares
THIS CERTIFIES THAT for value received WESTERN SLOPES1 LTD. (the
"Holder") or its registered assigns is the owner of a Warrant to purchase during
the period exhibit no later than 5:00 p.m. New York time on September 1, 1999,
the number of fully paid and nor-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 (the "Warrant
Shares") upon payment of U.S. $3.125 per Warrant Share (the "Warrant Price") in
accordance with Section 2 below. This Warrant is issued under, and the rights
represented hereby are subject to, the terms and provisions contained in the
Subscription Agreement dated August 27, 1996 (the "Subscription Agreement")
between the Holder and the Company.
1. Exercise of Warrant. This Warrant may be exercised, from time to
-------------------
time,,in whole or in part, at any time prior to the expiration hereof. Upon the
exercise of this Warrant,, a Purchase Form substantially in the form attached
hereto as Annex 1 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 the Warrant Shares, a new Warrant for the remaining
number of the Warrant Shares, substantially in the form hereof, will be issued
upon such exercise and surrender of this Warrant.
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
1
<PAGE>
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.
THIS WARRANT MAY NOT BE EXERCISED BY ANY U.S. PERSON (AS DEFINED IN
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED).
2. Payment of Purchase Price Upon Exercise, At the time of any exercise of
---------------------------------------
this Warrant the purchase price for the Warrant Shares shall be paid in full to
the Company by check or wire transfer or other immediately available funds.
3. 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 this 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.
4. 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 Warrant
Shares.
5. Compliance With Law and Regulations. The obligation of the Company to
-----------------------------------
sell and deliver 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 n connection with, the offer, sale
and issuance of the Warrant Shares, this Warrant shall not be exercised by the
Holder in whole or in part unless such listing registration, qualification,
consent or approval shall have been effected or obtained, free of any conditions
not acceptable to the Board of Directors of the Company.
6. 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 any
sale of this Warrant or the issuance and sale of the Warrant Shares prior to the
delivery of any certificate representing this Warrant or any certificate for the
Warrant Shares.
7. Fractional Shares. To the extent required, fractional shares of Common
-----------------
Stock shall be issued upon the exercise of this Warrant up to but not more than
the nearest thousandth of a
2
<PAGE>
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.
8. Assignment of Warrant. (a) By acceptance of an assignment of this
---------------------
Warrant any assignee agrees and assents to all the terms and provisions hereof
and the relevant terms and provision of the Subscription Agreement.
9. Ownership of Warrant. The Company may deem and treat the person in
--------------------
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any person
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in section 10 hereof.
10. Transfer of Warrant. The Company agrees to maintain at the office of
-------------------
the Company (or of its transfer agent) books for the registration of transfers
of Warrants, and transfer of this. Warrant and all rights hereunder shall be
registered, in whole or in part, on such books, subject to the limitations on
transfer and resale contained in the Subscription Agreement, upon surrender of
this Warrant at such office, together with an Assignment Form substantially in
the form attached hereto as Annex 2, duly executed by the Holder or his duly
authorized agent or attorney-in-fact, and payment of any transfer taxes. Upon
surrender of this Warrant the Company shall execute and deliver a new Warrant or
Warrants of like tenor and representing in the aggregate the right to purchase
the same number of shares of Common Stock in the name of the assignee or
assignees and in the denominations specified In the Assignment Form, and this
Warrant shall promptly be canceled. Notwithstanding the foregoing, a Warrant may
be exercised by a new holder without having a new Warrant issued.
11. Division or Combination of Warrants. This Warrant may be divided or
-----------------------------------
combined with other Warrants upon surrender hereof and of any Warrant or
Warrants with which this Warrant is to be combined at the once of the Company
(or its transfer agent), together with a written notice specifying the names and
denominations in which the new Warrant or Warrants are to be issued1 signed by
the holders hereof and thereof or their respective duly authorized agents or
attorneys-in-fact. Subject to compliance with Section 10 hereof as to any
transfer which may be involved in the division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
12. Loss, Theft, Destruction, or Mutilation of Warrant Certificates.
---------------------------------------------------------------
Upon receipt by the Company of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of any such loss, theft or destruction, upon receipt of indemnity or security
reasonably satisfactory to the Company, or. in the case of any such mutilation,
upon surrender and cancellation of such Warrant, the Company will make and
deliver, In lieu of such lost, stolen, destroyed or mutilated Warrant, a new
Warrant of like tenor and representing the right to purchase the same aggregate
number of shares of Common Stock.
13. Expenses of Delivery of Warrants. The Company shall pay all expenses
--------------------------------
3
<PAGE>
(other than transfer taxes) and other charges payable in connection with the
preparation, issuance and delivery of Warrants and Warrant Shares hereunder.
14. Severability. Whenever possible, each provision of this Warrant will be
------------
interpreted in such manner as to be effective and valid wider applicable law,
but if any provision of this Warrant 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
Warrant.
15. Descriptive Headings. The descriptive headings of this Warrant are
--------------------
inserted for convenience only and do not constitute a part of this Warrant and
shall not be used in the interpretation hereof.
16. Successors and Assigns. This Warrant shall be binding upon any and all
----------------------
successors and assigns of the Company.
17. Governing Law. This Warrant shall be construed according to the laws of
-------------
the State of New York 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.
[Remainder of page intentionally left blank.]
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
representative, thereunto duly authorized, as of this 29th day of August, 1996.
CHENIERE ENERGY, INC.
By:
William D. Forster
President
5
<PAGE>
Annex 1
-------
PURCHASE FORM
-------------
Dated
-----------------
Annex 1
-------
The undersigned hereby irrevocably elects to exercise the attached
Warrant to the extent of purchasing ____________ shares of Common Stock (as
defined in the attached Warrant) and hereby makes payment in full by check or
wire transfer or other immediately available funds totaling U.S. $_____________.
INSTRUCTIONS FOR REGISTRATION OF COMMON STOCK
---------------------------------------------
Name
Address
(please typewrite or print in block letters)
REPRESENTATIONS AND WARRANTIES
------------------------------
In connection with the exercise of the attached Warrant, the undersigned
hereby represents and warrants that:
a. it is not a U.S. person (as defined under Regulation S ("Regulation S")
promulgated under the Securities Act of 1933, as amended (the "Securities Act)
and the attached Warrant is not being exercised on behalf of a U.S. person (as
defined under Regulation S);
b. it recognizes that the shares of Common Stock issuable pursuant to the
attached Warrant have not been registered under the Securities Act and may not
sold, pledged or otherwise transferred except in accordance with the t~ and
provisions of the Subscription Agreement (as defined in the attached Warrant);
c. it has received all material information with respect to Cheniere
Energy, Inc. (the "Company") which it deems necessary in connection with its
decision. to exercise the attached Warrant and it has been given an opportunity
to ask questions and receive answers from representatives of the Company;
d. this purchase order for the Common Stock has been originated outside
the United States; and
e. it is purchasing the shares of Common Stock for its own account and not
as a nominee for or for the benefit of a U.S. person or citizen of the United
States (as such
6
<PAGE>
terms are defined in Regulation S), and for investment and not with a view to
resale or distribution or any present intention to resell or distribute, except
in compliance with the Securities Act and all applicable state securities laws.
ISSUANCE OF NEW WARRANT
-----------------------
If said number of shares shall not be all the shares issuable upon exercise
of the attached Warrant, a new Warrant is to be issued in the name of the
undersigned for the balance remaining of such shares.
Signature
7
<PAGE>
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 (as defined in the attached Warrant)
represented by the attached 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 Cheniere Energy, Inc. with full power of substitution in the
premises.
Date 19
Signature
8
<PAGE>
THESE SECURITIES HAVE BEEN ISSUED (AND THE SECURITIES TO BE ISSUED UPON THE
EXERCISE OF THESE SECURITIES, ASSUMING COMPLIANCE WITH THE SUBSCRIPTION
AGREEMENT (AS DEFINED BELOW) AND THE TERMS THEREOF, WILL BE ISSUED) PURSUANT TO
REGULATION S AS AN EXEMPTION TO THE PROVISIONS UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES
CANNOT BE TRANSFERRED, OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS
(AS SUCH TERMS ARE DEFINED IN REGULATION S), AND MAY NOT BE EXERCISED BY OR ON
BEHALF OF ANY U.S. PERSON (AS SO DEFINED), UNLESS SUCH SECURITIES ARE REGISTERED
UNDER THE SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES AND BLUE SKY LAWS
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
CHENIERE ENERGY, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
The transferability and resale of this Warrant is restricted as set forth
herein and in the related Subscription Agreement (as defined below), a copy
of which may be obtained from the Company (as determined below) at its
principal office.
No. WA-14 Up to 50,000 Shares
THIS CERTIFIES THAT for value received GREAT HERITAGE HOLDINGS, LTD. (the
"Holder") or its 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 September 1, 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 (the "Warrant
Shares") upon payment of U.S. $3.125 per Warrant Share (the Warrant Price") in
accordance with Section 2 below. This Warrant is issued under, and the rights
represented hereby are subject to, the terms and provisions contained in the
Subscription Agreement dated August 27, 1996, (the "Subscription Agreement")
between the Holder and the Company.
1. Exercise of Warrant. This Warrant may be exercised, from time to time, in
-------------------
whole or in part, at any time prior to the expiration hereof. Upon the exercise
of this Warrant, a Purchase Form substantially in the form attached hereto as
Annex 1 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 the Warrant Shares. a new Warrant for the remaining number of
the Warrant Shares, substantially in the form hereof, will be issued upon such
exercise and surrender of this Warrant.
If this Warrant shall be surrendered for exercise within any period during
which the transfer
9
<PAGE>
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.
THIS WARRANT MAY NOT BE EXERCISED BY ANY U.S. PERSON (AS DEFINED IN
REGULATION S PROMULGATED UNDER THIE SECURITIES ACT OF 1933, AS AMENDED).
2. Payment of Purchase Price Upon Exercise. At the time of any exercise of
---------------------------------------
this Warrant the purchase price for the Warrant Shares shall be paid in full to
the Company by check or wire transfer or other immediately available funds.
3. Adjustments. In the event of any change in the outstanding Common Stock
-----------
the Company by reason of any stock recapitalization, merger1 consolidation,
combination or exchange of shares, the kind of shares subject to this 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.
4. 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 Warrant
Shares.
5. Compliance With Law and Regulations. The obligation of the Company to
-----------------------------------
sell and deliver the Warrant Shares shall be subject to all applicable federal
and state laws, ru1es 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, this Warrant shall not be exercised by the
Holder in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained, free of any conditions
not acceptable to the Board of Directors of the Company.
6. 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 any
sale of this Warrant or the issuance and sale of the Warrant Shares prior to the
delivery of any certificate representing this Warrant or any certificate for the
Warrant Shares.
10
<PAGE>
7. Fractional Shares. To the extent required, fractional shares of
-----------------
Common 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.
8. Assignment of Warrant. (a) By acceptance of an assignment of this
---------------------
Warrant any assignee agrees and assents to all the terms and provisions thereof
and the relevant terms and provision of the Subscription Agreement.
9. Ownership of Warrant. The Company may deem and treat the person in
--------------------
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any person
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in Section 10 hereof.
10. Transfer of Warrant. The Company agrees to maintain at the
-------------------
office of the Company (or of its transfer agent) books for the registration of
transfers of Warrants, and transfer of this Warrant and all rights hereunder
shall be registered1 in whole or in part, on such books, subject to the
limitations on transfer and resale contained in the Subscription Agreement, upon
surrender of this Warrant at such office, together with an Assignment Form
substantially in the form attached hereto as Annex 2, duly executed by the
Holder or his duly authorized agent or attorney-in-fact, and payment of any
transfer taxes. Upon surrender of this Warrant the Company shall execute and
deliver a new Warrant or Warrants of like tenor and representing in the
aggregate the right to purchase the same number of shares of Common Stock in the
name of the assignee or assignees and in the denominations specified in the
Assignment Form, and this Warrant shall promptly be canceled. Notwithstanding
the foregoing, a Warrant may be exercised by a new holder without having a new
Warrant issued.
11. Division or Combination of Warrants. This Warrant may be divided or
-----------------------------------
combined with other Warrants upon surrender hereof and of any warrant or
Warrants with which this Warrant is to be combined at the office of the Company
(or its transfer agent), together with a written notice specifying the names and
denominations in which the new Warrant or Warrants are to be issued, signed by
the holders hereof and thereof or their respective duly authorized agents or
attorneys-in-fact. Subject to compliance with Section 10 hereof as to any
transfer which may be involved in the division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
12. Loss, Theft, Destruction, or Mutilation of Warrant Certificates. Upon
---------------------------------------------------------------
receipt by the Company of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant and, in the case of any
such loss; theft or destruction, upon receipt of indemnity or security
reasonably satisfactory to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of such Warrant, the Company will make and
deliver, in
11
<PAGE>
lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like
tenor and representing the right to purchase the same aggregate number of shares
of Common Stock.
13. Expenses of Delivery of Warrants. The Company shall pay all expenses
--------------------------------
(other than transfer taxes) and other charges payable in connection with the
preparation, issuance and delivery of Warrants and Warrant Shares hereunder.
14. Severability. Whenever possible, each provision of this Warrant will be
------------
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant 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
Warrant.
15. Descriptive Heading. The descriptive headings of this Warrant are
-------------------
inserted for convenience only and do not constitute a part of this Warrant shall
not be used in the interpretation hereof.
16. Successors and Assigns. This Warrant shall be binding upon any and all
----------------------
successors and assigns of the Company.
17. Governing Law. This warrant shall be construed according to the laws
-------------
of the State of New York 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.
[Remainder of page intentionally left blank.]
12
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
exercised by its representative, thereunto duly authorized, as of this 29th day
of August,1996.
CHENIERE ENERGY, INC.
By: William D. Forster,
President
13
<PAGE>
Annex 1
-------
PURCHASE FORM
-------------
Dated
----------------
The undersigned hereby irrevocably elects to exercise the attached
Warrant to the extent of purchasing ___________ shares of Common Stock (as
defined in the attached Warrant) and hereby makes payment in full by check or
wire transfer or other immediately available funds totaling U.S.
$___________________.
INSTRUCTIONS FOR REGISTRATION OF COMMON STOCK
---------------------------------------------
Name
Address
(Please typewrite or print in block letters)
REPRESENTATIONS AND WARRANTIES
------------------------------
In connection with the exercise of the attached Warrant, the
undersigned hereby represents and warrants that:
a. it is not a U.S. person (as defined under Regulation S ("Regulation
S") promulgated under the Securities Act of 1933, as amended (the "Securities
Act") and the attached Warrant is not being exercised on behalf of a U.S. person
(as defined under Regulation S);
b. it recognizes that the shares of Common Stock issuable pursuant to
the attached Warrant have not been registered under the Securities Act and may
not sold, pledged or otherwise transferred except in accordance with the terms
and provisions of the Subscription Agreement (as defined in the attached
Warrant);
c. it has received all material information with respect to Cheniere
Energy, Inc. (the "Company") which it deems necessary in connection with its
decision to exercise the attached Warrant and it has been given an opportunity
to ask questions and receive answers from representatives of the Company;
d. this purchase order for the Common Stock has been originated
outside the United States; and
e. it is purchasing the shares of Common Stock for its own account and
not as a nominee for or for the benefit of a U.S. person or citizen of the
United States (as such terms are defined in Regulation S), and for investment
and not with a view to resale or distribute or any present intention to resell
or distribute, except in compliance with the Securities Act and all applicable
state securities laws.
14
<PAGE>
ISSUANCE OF NEW WARRANT
-----------------------
If said number of shares shall not be all the shares issuable upon exercise
of the attached Warrant, a new Warrant is to be issued in the name of the
undersigned for the balance remaining of such shares.
Signature
15
<PAGE>
Annex 2
-------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
Name
(Please typewrite or print in block 1etters)
Address
the right to purchase Common Stock (as defined in the attached Warrant)
represented by the attached 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 Cheniere Energy, Inc. with full power of substitution in the
premises.
Date 19__
Signature
16
<PAGE>
Exhibit 10.16
WARRANT AGREEMENT
WARRANT AGREEMENT (this "Agreement") is made as of August 9, 1996 by and
between CHENIERE ENERGY, INC., a Delaware corporation ("the Company"), and REEFS
& CO., LTD (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 12,500 shares (the "Warrant Shares") of Common Stock at the
purchase price of $3.125 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 August 9, 1998.
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 installment 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.
1
<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. 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
2
<PAGE>
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 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
-------
3
<PAGE>
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.
By:
----------------------------
Name: William D. Forster
Title: President
REEFS & CO., LTD
By:
Name:
Title:
Address: c/o State House Trust Company
18 Pariament Street
Hamilton HM12 Bermuda
Attention: Marcus Mahy
Tel:
---------------------------
Fax:
---------------------------
4
<PAGE>
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-_____ Up to 12,500 Shares
THIS CERTIFIES THAT for value received REEFS & CO., LTD (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 August 9, 1998, 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 $3.125. 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
5
<PAGE>
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.
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 9th day of August,
1996.
CHENIERE ENERGY, INC.
By:
------------------------------
William D. Forster
President
6
<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__
7
<PAGE>
Exhibit 10.17
WARRANT AGREEMENT
WARRANT AGREEMENT (this "Agreement") is made as of December 13, 1996 by and
between CHENIERE ENERGY, INC., a Delaware corporation ("the Company"), and Ralph
O. Hellmold (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 September 14, 1996 (the "Modification and Note
Exchange Agreement") between Company and the Holder with respect to the purchase
by Holder of a Promissory Note and common stock 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 64,500 shares (the "Warrant Shares") of Common Stock at the
purchase price of $3.00 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 installment 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
---------------------------------------
1
<PAGE>
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. 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.
2
<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 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.
3
<PAGE>
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.
By:
Keith F. Carney
Chief Financial Officer
By:
Ralph O. Hellmold
341 Summit Ave.
Leonia, NJ 07606
(212)399-6560 Fax (212) 399-6560
4
<PAGE>
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-17 Up to 64,500 Shares
THIS CERTIFIES THAT for value received Ralph O. Hellmold (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, $.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
$3.00. 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
5
<PAGE>
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.
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 13th day of December,
1996.
CHENIERE ENERGY, INC.
By:
-----------------------
Keith F. Carney
Chief Financial Officer
6
<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
---------------------------------------------------
7
<PAGE>
Exhibit 10.18
[LETTERHEAD OF ZYDECO ENERGY, INC.]
April 28, 1997
Cheniere Energy Operating Company, Inc.
237 Park Avenue, Suite 2100
New York, NY 10017
Re: Fifth Amendment to Exploration Agreement dated
April 4, 1996 between Zydeco Exploration, Inc. and
FX Energy, Inc.
Gentlemen:
In accordance with the provisions of Section 16.b of the captioned Agreement and
when accepted by you in the manner hereinafter provided, this letter shall
constitute our agreement to amend said document to provide for expansion of the
Area of Mutual Interest as stipulated in Section 14 thereof and depicted on
Exhibit "B" attached thereto as follows, to wit:
The Area of Mutual Interest is hereby expanded to include those Block within
the area of 3-D seismic coverage acquired by Zydeco Exploration, Inc. from
Fairfield Industries Inc. by Supplement Agreement No. 1 to Master License
Agreement dated January 9, 1997, lying or being situated outside of the
existing AMI, and being Blocks 24, 25, 40, 41, 42, 43, 44, and 45, West
Cameron Area, Offshore Louisiana.
Except as herein specifically amended, all other provisions of the captioned
Agreement shall remain unchanged. If you are in agreement with the foregoing,
please so indicated by signing and returning the attached copy of this letter
for completion of our files.
Very truly yours,
John O. Smith
President & Chief Operating Officer
ACCEPTED AND AGREED TO
THIS 28 DAY OF APRIL, 1997.
-- -----
CHENIERE ENERGY OPERATING COMPANY, INC.
BY: /s/ Walter L. Williams
-----------------------
WALTER L. WILLIAMS
TITLE: VICE CHAIRMAN
1
<PAGE>
Exhibit 10.19
[LETTERHEAD OF ZYDECO ENERGY, INC.]
July 18, 1997
Cheniere Energy Operating Co., Inc.
1710 Two Allen Center
1200 Smith Street
Houston, Texas 77002
Re: Sixth Amendment
Gentlemen:
I am writing with respect to that certain Exploration Agreement dated April 4,
1996, 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,
and that certain Fourth Amendment dated as of November 27, 1996, and that
certain Fifth Amendment dated as of April 28, 1997 (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").
Under Section 2 of the Agreement, Cheniere was to have paid $13,500,000 of
Seismic Funds. At the time of the Fourth Amendment. Cheniere had paid
$6,000,000, and the survey had been suspended. Further contributions of Seismic
Funds were suspended until the survey recommenced. It recommenced in March and
has been completed. Following ZEI's Notice to Cheniere to resume payments,
Cheniere resumed payment of Seismic Funds. Through yesterday, Cheniere had paid
$12,000,000, leaving $1,500,000 of the $13,500,000 of contributions to be paid.
Cheniere has requested, and ZEI has agreed, to extend the date by which Cheniere
is to make payment of the balance of its contribution. The rescheduled date is
July 31, 1997.
In addition, Seismic Costs have exceeded $13,500,000. Under the Agreement,
Seismic Costs over $13,500,000 ("Excess Costs") are borne equally by ZEI and
Cheniere. The parties have reached certain understandings on the manner of
payment of Excess Costs.
Accordingly, we agree as follows:
1. Cheniere shall pay the last installment of the $13,500,000 in Seismic Funds
on or before July 31, 1997. The amount of the payment is $1,500,000. No grace
period shall apply to this payment. Should the funds not be paid by July 31,
1997, the default shall be treated as a Discontinuance under Section 5.
2. At July 31, 1997, Excess Costs will have accumulated to approximately
$3,765,000 of which Cheniere's 50% share is $1,882,500. Accordingly, ZEI hereby
makes a cash call on Cheniere for $1,882,500. Cheniere shall pay the requested
cash call by August 8, 1997. No grace period shall
1
<PAGE>
apply to such payment. Should funds not be forwarded by August 8, 1997, the
default shall be treated as a Discontinuance under Section 5.
3. ZEI has advanced to date $2,305,000 toward Seismic Costs. As such, it has
already advanced its share of the current cash call.
4. ZEI estimates that Excess Costs to be incurred in August will be
approximately $422,000, which consist principally of the payment required for a
six-month extension of the Exclusive Seismic Permit. ZEI estimates that
additional Excess Costs for the period September through December 1997 will be
approximately $860,000. Assuming these costs, total Excess Costs through
December 31, 1997, would be approximately $5,047,303, bringing total Seismic
Costs to approximately $18,500,000.
5. ZEI will make cash calls for payment of Excess Costs for the August through
December 1997 period. It shall do so periodically as required to meet third
party obligations timely. Each cash call shall be payable by Cheniere thirty
days after receipt. No grace periods shall apply. To the extent that ZEI has
not itself already advanced its share of such sums, it shall do so at the same
times required of Cheniere. Should Cheniere or ZEI fail to forward a cash call
within thirty days of receipt of the cash call request under this paragraph, the
default shall be treated as a Discontinuance under Section 5.
6. In the event of a conflict between the terms of this amendment and the
Agreement as previously amended, the terms hereof shall control.
If I have correctly set forth our agreements, kindly so indicate by executing
one counterpart of this letter and returning it to the undersigned.
Yours very truly,
ZYDECO EXPLORATION, INC.
/s/ W. Kyle Willis
W. Kyle Willis, Vice President and Treasurer
ACCEPTED AND AGREED TO THIS
19TH DAY OF JULY, 1997.
CHENIERE ENERGY OPERATING CO., INC.
By: /s/ Walter Williams, Vice Chairman
Cheniere Energy Operating Co., Inc.
2
<PAGE>
Exhibit 10.20
[LETTERHEAD OF ZYDECO ENERGY, INC.]
July 31, 1997
Cheniere Energy Operating Co., Inc.
1710 Two Allen Center
1200 Smith Street
Houston, TX 77002A3 12
Gentlemen:
I am writing to confirm our agreement.
I have loaned you $500,000 today. To evidence such loan, you have executed
a promissory note maturing on August 29, 1997 and bearing interest at 10% per
annum (the "Note"). As security for such loan, you have executed a Security
Agreement of even date, together with a UCC-1 financing statement. The Security
Agreement and Financing Statement cover a fraction of your interest under the
following agreement (the "Zydeco Agreement"):
That certain Exploration Agreement dated April 4, 1996, 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,
and that certain Fourth Amendment dated as of November 27, 1996, and that
certain Fifth Amendment dated as of April 28, 1997, and that certain Sixth
Amendment dated as of July 18, 1997, as well as including permits, options
to lease, and leases (collectively, the Lease Interests") acquired
thereunder.as well as a fraction of your interest in seismic data (the
"Seismic Data") acquired under the Zydeco Agreement, including, without
limitation, that acquired under that certain Master Geophysical Data
Acquisition Agreement between Zydeco Exploration, Inc. and Grant
Geophysical, Inc. dated June 12, 1996 and that certain Master Geophysical
Data Acquisition Agreement with Supplemental Agreement No.1, both dated
March 14, 1997.
The fraction covered of the Seismic Data and Lease Interests is
500,000/13,500,000ths of 50% or 1.8519%; the fraction of your interest in the
Exploration Agreement is that which would correspond to the assignment by you of
500,000/13,500,000 of your interests under the Exploration Agreement.
For convenience, terms defined in the Exploration Agreement shall have the
same terms when used herein.
As reflected in the Sixth Amendment to the Agreement, Seismic Costs and
Excess Costs are expected to be $18,500,000 through the end of 1997.
In consideration of my agreement to extend the loan, you grant me an option
(the "Option")
1
<PAGE>
to acquire an interest in the Seismic Data, Lease Interests, and Zydeco
Agreement as follows:
a. The interest I acquire upon conversion in Seismic Data and Lease
Interests is determined by dividing the amount due under the Note by
$13,500,000, and multiplying the result by 50% (the "Data Ownership
Percentage"). You would assign me or my designee the Data Ownership
Percentage subject to the terms of the Zydeco Agreement.
b. I would also acquire a portion of your right to receive 100% of
proceeds from the marketing of proprietary seismic data under Section
15(b) of the Zydeco Agreement. The portion I would acquire would be a
fraction double the Data Ownership Percentage.
c. You have an obligation to pay a pro rata portion of Excess Costs. If I
exercise the Option, I recognize and agree to pay a fractional share
of Excess Costs equal to the Data Ownership Percentage.
d. The Option may be exercised only after August 29, 1997. Should the
Note be repaid before such time, the Option would terminate.
e. The Option may be exercised by tender of the Note to you.
f. I may assign the Option.
g. The Option will terminate at the earlier of 180 days from the date
hereof or upon repayment of the Note.
You agree to pay the attorneys fees I incur for this loan and option
agreement.
The general terms and provisions appearing on Exhibit "A" are incorporated
in this letter agreement.
The Exploration Agreement requires the approval of Zydeco Exploration, Inc.
to the pledge of interests under the agreement and assignment of interests in
the Seismic Data, Leases, and Exploration Agreement. I acknowledge such and
shall undertake to obtain Zydeco Exploration, Inc.'s approval at an appropriate
time.
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,
Sam Myers
ACCEPTED AND AGREED TO THIS
31st DAY OF JULY, 1997.
CHENIERE ENERGY OPERATING CO., INC.
By:
Walter L. Williams, Vice Chairman
2
<PAGE>
Exhibit 10.21
PROMISSORY NOTE
$500,000.00 HOUSTON, TEXAS JULY 31, 1997
FOR VALUE RECEIVED, the undersigned Cheniere Energy Operating Co. Inc., a
Delaware corporation, having its principal place of business at Suite 1710, Two
Allen Center, 1200 Smith Street, Houston, TX 77002A312 (herein called
"Borrower"), hereby promises to pay to the order of Sam Myers, an individual
residing at 4521 Belfort Place, Dallas, Dallas County, Texas 75205 ("Lender"),
the principal sum of FIVE HUNDRED THOUSAND and NO/1OO DOLLARS ($500,000.00),
together with interest on the unpaid balance thereof as hereinafter set forth,
payable in lawful money of the United States of America at the offices of Lender
at Suite 1710, Two Allen Center, 1200 Smith Street, Houston, TX 77002-4312 in
Harris County, Texas, or such other place within Harris County, Texas as from
time to time may be designated by Lender.
The principal amount of this note together with all accrued and unpaid
interest shall be due and payable August 29, 1997.
Borrower may prepay amounts due under this Note, in whole or in part, at
any time and from time to time, in any multiple, without premium or penalty.
Partial prepayments shall be credited first to payment of accrued and unpaid
interest and then to principal.
Interest on this Note shall be calculated at a rate of ten percent (10%)
per annum.
It is the intent of the parties that interest hereon should not exceed the
maximum amount of non-usurious interest that may be contracted for, taken,
reserved, charged or received under law; any interest in excess of that maximum
amount shall be credited on the principal of the debt, or, if that debt has been
paid, refunded. On any acceleration or required or permitted pre-payment, any
such excess shall be canceled automatically as of the acceleration or pre-
payment or, if already paid, credited on the principal of the debt or, if the
principal of the debt has been paid, refunded. This provision overrides other
provisions in this and/or all other instruments concerning the indebtedness.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or any bankruptcy, receivership, debtor
relief, probate or other court proceeding, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Except as otherwise expressly provided in this Note, Borrower and all
endorsers, sureties and guarantors of this Note hereby severally waive demand,
presentment for payment, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, diligence in collecting, the bringing of
any suit against any party and any notice of or defense on account of any
extensions, renewals, partial payments or changes in any manner of or in this
Note or in any of these terms, provisions and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other act of any
trustee or holder hereof, whether before or after maturity.
1
<PAGE>
Reference is made to that certain Exploration Agreement dated April 4,
1996, 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,
and that certain Fourth Amendment dated as of November 27, 1996, and that
certain Fifth Amendment dated as of April 28, 1997, and that certain Sixth
Amendment dated as of July 18, 1997 (as amended, the "Zydeco Agreement").
Borrower covenants and agrees that it will pay amounts due hereunder prior to
payment of Excess Costs, as defined in the Zydeco Agreement.
This Note and the rights and duties of the parties hereunder shall be
governed by the laws of the State of Texas, except to the extent the same are
governed by applicable federal law.
CHENIERE ENERGY OPERATING CO., INC.
By:
2
<PAGE>
Exhibit "A"
General Provisions
1. Additional Acts.
---------------
Every party to this Agreement agrees to perform all further acts and to
execute and deliver all further documents that may be reasonably necessary to
carry out the provisions of this Agreement.
2. Amendment.
---------
This Agreement may be amended only by an instrument signed by the party
against whom such amendment is sought to be enforced.
3. ARBITRATION.
-----------
The parties shall resolve any and all disputes arising from or related to
this agreement by binding arbitration under the Federal Arbitration Act and the
Commercial Arbitration Rules of the American Arbitration Association when not in
conflict with such act. Arbitration shall take place in Houston, Texas. Each
party shall select one impartial arbitrator, and the two so designated shall
select a third impartial arbitrator. If either party does not designate an
arbitrator within fourteen (14) days after arbitration is requested, or if the
two arbitrators do not select a third arbitrator within thirty (30) days after
arbitration is requested, then either party may require that the arbitrator be
selected by the American Arbitration Association. The arbitrators must render
their decision based on the substantive law of Texas exclusive of its conflicts
of law rules. Judgment upon an award of the majority of the arbitrators shall be
binding. The arbitrators shall permit the parties to conduct discovery pursuant
to the Federal Rules of Civil Procedure. The parties shall complete all
discovery within forty-five (45) days of selection of the third arbitrator. The
arbitrators shall hold the final hearing within sixty (60) days of the selection
of the third arbitrator. The arbitrators shall issue a final written decision
stating the findings of fact, conclusions of law and reasons for their award
within seventy-five (75) days of the conclusion of the final hearing. The costs
of the arbitration shall be borne equally.
4. 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.
5. Binding Effect.
--------------
All the terms of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties and their respective heirs, legal
representatives, successors, and permitted assigns.
6. Counterparts.
------------
3
<PAGE>
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
7. Consequential Damages.
---------------------
No party hereto shall be liable to another 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.
8. 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 not to exempt this transaction,
the following waiver shall apply. For the purpose of the following waiver,
Cheniere shall be deemed the Seller and Myers the Purchaser:
WAIVER OF CONSUMER RIGHTS
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) Purchaser'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 GIVESCONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF MY OWN
SELECTION, I VOLUNTARILY CONSENT TO THIS WAIVER.
9. Disclaimer of Agency
--------------------
This Agreement does not constitute a partnership agreement, nor does it
authorize any party to serve as the legal representative or agent of another. No
party hereto shall have any right or authority to assume, create, or incur any
liability or any obligation of any kind, express or implied, against or in the
name of or on behalf of another party.
10. Entire Agreement.
----------------
This Agreement constitutes the full and entire understanding and agreement
between Cheniere Energy Operating Co., Inc. and Sam Myers.
4
<PAGE>
11. Fiduciary Duty.
--------------
The obligations of the parties to this agreement to each other shall be
construed as only contractual. No party hereto shall be held to be a fiduciary
vis-a-vis another party hereto.
12. Force Majeure.
-------------
Except for the payment of money, neither party will be liable for any
failure or delay in performance under this Agreement which might be due, in
whole or in part, directly or indirectly, to any contingency, delay, failure, or
cause of any nature beyond the reasonable control of such party, including
without limitation, fire, explosion, earthquake, storm, flood or other weather,
unavailability of components, unavailability of manufacturing capacity,
activities of a combination of workmen or other labor difficulties, war,
insurrection, riot, act of God or the public enemy, law, act, order, export
control regulation, proclamation, decree, regulation; ordinance, or instructions
of Government or other public authorities, or judgment or decree of a court of
competent jurisdiction (not arising out of breach by such party of this
Agreement) In the event of the happening of such a cause, the party whose
performance is so affected will give prompt, written notice to the other party,
stating the period of time the same is expected to continue. Such delay will not
be excused under this Section for more than 180 days.
13. 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.
14. Independent Obligations.
-----------------------
Each covenant contained herein will be construed as a separate agreement
independent of any other provision of this Agreement.
15. 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.
16. No Partnership.
--------------
The obligations, duties and liabilities of the parties shall be several and
not joint or collective. This Agreement is not intended to and shall not be
construed to create a relationship of partnership or an association for profit
between or among the parties hereto.
17. Notices.
-------
5
<PAGE>
All notices, requests, demands, and other communications provided for or
permitted hereunder shall be in writing and shall be sent by mail, E-Mail,
telecopier or hand delivery as follows:
If to Myers:
Sam Myers
2170 Plaza of the Americas North
700 North Pearl Street
Dallas, Texas 75201-2816
214 999 9300
214 922 8076 fax
If to Cheniere:
Cheniere Energy Operating Co., Inc.
1710 Two Allen Center
1200 Smith Street
Houston, TX 77002-4312
Attention: Walter L. Williams
713 659 1361
713 659 5459 fax
All such notices, requests, demands and communications shall be effective upon
delivery.
18. Number and Gender.
-----------------
Whenever the context requires, reference herein made to the single number
shall be understood to include the plural,. and the plural shall likewise be
understood to include the singular. Words denoting sex shall be construed to
include the masculine, feminine and neuter when such construction is
appropriate; and specific enumeration shall not exclude the general, but shall
be construed as cumulative.
19. Punitive Damages.
----------------
The parties hereby relinquish any right to seek punitive damages against
another party to this agreement. Each party in entering this agreement has done
so in reliance and in consideration of such voluntary relinquishment by the
other parties hereto.
20. 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.
21. Statute of Limitations.
----------------------
No action by any party arising under this Agreement may be brought at any
time more than thirty six (36) months after the facts upon which the cause of
action is based occurred.
6
<PAGE>
22. Survival.
--------
The agreements of the parties contained in this Agreement shall survive the
signing of this Agreement and the consummation of the transactions contemplated
hereby.
23. 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.
24. Time.
----
Time is of the essence in all matters pertaining to this Agreement.
25. Waiver.
------
No term or provision hereof will be considered waived by any party, and no
breach excused by any party, unless such waiver or consent is in writing signed
on behalf of the party against whom the waiver is asserted. No consent by any
party to, or waiver of, a breach by any party, whether express or implied, will
constitute a consent to, waiver of, or excuse of any other, different, or
subsequent breach by any party.
7
<PAGE>
Exhibit 10.22
SECURITY AGREEMENT
-------- ---------
THE STATE OF TEXAS
COUNTY OF HARRIS
CHENIERE ENERGY OPERATING CO., INC., whose address is Suite 1710, Two Allen
Center, 1200 Smith Street, Houston, TX 77002-4312 in Harris County, Texas ,
being the owner and holder of the personal property described on Exhibit "A"
(herein called "Collateral"), as '1Debtor, " and Sam Myers, whose address is
Suite 1710, Two Allen Center, 1200 Smith Street, Houston, TX 77002-4312 in
Harris County, as "Secured Party," agree as follows:
I.
COLLATERAL
----------
Debtor hereby grants to Secured Party a security interest in and to:
A. all of the personal property described on Exhibit "A" attached to this
Security Agreement.
B. all proceeds of the personal property described in Exhibit "A" as such
term is defined in the Uniform Commercial Code.
For purposes of this Security Agreement, the herein above described assets
are referred to as the "Collateral."
II.
OBLIGATIONS
-----------
This Security Agreement is executed by Debtor to secure performance of
Debtor's obligations under that one (1) certain Promissory Note, of even date
herewith, in the original, principal sum of $500,000, executed by Debtor and
payable to the order of Secured Party, and maturing on August 29, 1997, the
obligation of Debtor to make all payments, jointly and severally, under such
Note, together with all costs of collection (if any) including reasonable
attorney's fees and trustee's fees are hereinafter referred to as the
"obligations. The Obligations shall include all extensions, renewals,
rearrangements, or modifications of the herein above described Note and any and
all other indebtedness, liability and obligations whatsoever of whatever nature
of Debtor to Secured Party, whether direct or indirect, absolute or contingent,
primary or secondary, due or to become due, and whether now existing or
hereafter arising and howsoever evidenced or acquired, whether joint or several,
and Debtor acknowledges that the security interest hereby granted shall secure
all future advances, as well as any and all other indebtedness, liabilities and
Obligations of Debtor to Secured Party, now existing, or arising hereafter.
III
COVENANTS OF DEBTOR
------------ ------
1
<PAGE>
A. Debtor shall pay to Secured Party any sum or sums due or which may
become due on the Obligations secured hereby in accordance with the terms of
such Obligations and the terms of this Security Agreement. Debtor shall pay to
Secured Party on demand all expenses and expenditures, including reasonable
attorney's fees and other legal expenses incurred or paid by Secured Party in
exercising or protecting its interest, rights and remedies under this Security
Agreement. Debtor shall pay immediately, without notice, the entire unpaid
indebtedness of Debtor to Secured Party, whether created or incurred pursuant to
this Security Agreement or otherwise, upon Debtor's default under this Security
Agreement.
B. Secured Party shall have the power to endorse any instrument described
as a portion of the "Collateral" above and Debtor hereby grants to Secured Party
a limited power of attorney, deemed coupled with an interest, for the purposes
of endorsing in the name of Debtor any such instrument or document constituting
Collateral or which may be received in payment for or as proceeds of the
Collateral.
C. Debtor authorized Secured Party, without the necessary joinder by
Debtor, to file in all jurisdictions where this authorization will be given fill
force and effect, one or more Financing Statements, executed only by Secured
Party, covering all or any portion of the Collateral. At the request of Secured
Party, Debtor covenants to join Secured Party in executing one or more of such
Financing Statements under the terms and provisions of the Texas Business and
Commerce Code, which Financing Statements will be in a form and content
acceptable to Secured Party and Debtor covenants to pay the cost of filing all
such Financing Statements, to the extent such filing is deemed by Secured Party
to be necessary or desirable, but Debtor's failure to execute any such Financing
Statement shall not affect the contents thereof or the Obligation of Debtor
hereunder.
IV.
REPRESENTIONS AND WARRANTIES OF DEBTOR
----------------- ------------- ------
Debtor represents, warrants and agrees that:
A. Debtor owns the Collateral herein described and has the right to
transfer any interest therein; the Collateral is not subject to the interest of
any third party; and Debtor will defend the Collateral and its proceeds against
the claims and demands of all third parties.
B. Secured Party's duty with reference to the Collateral shall be solely
to use reasonable care in the custody and preservation of the Collateral in
Secured Party's possession.
C. Demand, notice, protest and all demands and notices of any action taken
by Secured Party under this Security Agreement or in connection with the
Obligations secured hereby, except as otherwise provided in this Security
Agreement, are hereby waived, and any indulgence of Secured Party, substitution
for, exchange of or release of Collateral, in whole or in part, or addition or
release of any person liable on the Collateral is assented and consented to.
D. Secured Party shall not be responsible in any way for any depreciation
in the value of the Collateral, nor shall any duty or responsibility whatsoever
rest upon Secured Party to take
2
<PAGE>
necessary steps to preserve rights against prior parties or to enforce
collection of the Collateral by legal proceedings or otherwise, the sole duty of
Secured Party, its successors and assigns, being to receive collections,
remittances and payments on such Collateral as and when made and received by
Secured Party, and at Secured Party's option, applying the amount or amounts so
received after deduction of any collection costs incurred, as payment upon any
obligation of Debtor to Secured Party pursuant to the provisions of this
Security Agreement, or holding the same for the account and order of Debtor.
E. The address of Debtor, designated herein above, is a current address of
Debtor and Debtor agrees that Debtor will not change such address without prior
written notice to Secured Party.
F. Debtor agrees to execute such powers of attorney, pledge agreements,
endorsements of securities or other instruments, or other documents which may be
reasonably required by Secured Party in order to effectively grant to Secured
Party the security interest in and to the Collateral herein above described and
to enforce Secured Party's rights regarding same if in accordance with the
provisions of the Texas Business and Commerce Code, or otherwise.
V
EVENTS OF DEFAULT
-----------------
Debtor shall be in default under this Security Agreement upon the happening
of any of the following events or conditions, which shall be continuing for five
(5) days after notice by Secured Party (herein called an "Event of Default"):
A. Debtor's failure to pay when due any installment of principal or
interest on any Note executed by Debtor and payable to the order of Secured
Party, or to pay, following demand from Secured Party, any costs of collection
of such Note, including reasonable attorney's fees and trustee's fees in
connection with Debtor's default under the provisions of any such Note.
B. Default by Debtor in the punctual performance of any of the
Obligations, covenants, terms or provisions contained or referred to in this
Security Agreement or the Obligations or any part thereof.
C. The making of any levy on or seizure or attachment of any of the
Collateral.
D. Debtor's assignment of any assets for the benefit of creditors; the
commission of any act of bankruptcy; the institution of voluntary or involuntary
proceedings under the provisions of the United States Bankruptcy Code; the
exercise of dominion or control over any of the Collateral by a receiver for the
benefit of Debtor or Debtor's creditors; or the placing of any of the Collateral
in the custody of any court of competent jurisdiction or any officer, appointee,
or designee of such court.
E. The discovery by Secured Party that any representation or warranty made
by Debtor is, in any material respect, untrue, as of the date such
representation or warranty is made or furnished.
F. Secured Party's determination that the value of the Collateral has been
impaired, as a result of the action of Debtor, or any third person, or that the
value of such Collateral is insufficient,
3
<PAGE>
as a result of economic circumstances, to adequately secure Secured Party's
interest and ensure payment of the Obligation to Secured Party as contemplated
hereby, coupled with failure of Debtor to deliver to Secured Party additional
Collateral as contemplated in Section m above.
G. The granting by Debtor of any security interest in the Collateral or
any portion thereof to any third party without the prior written consent of
Secured Party (which security interest, if granted, shall, in all events, be
secondary, inferior and subordinate to the security interest granted herein).
H. The receipt by Debtor of any notice by any taxing authority of such
authority's intent to place or Fix a lien on part or all of the Collateral.
VI.
AUTHORITY OF SECURED PARTY
--------- -- ------- -----
A. This Security Agreement, Secured Party's rights hereunder, or the
Obligations secured hereby may be assigned from time to time, and in any such
case the Assignee shall be entitled to all of the rights, privileges and
remedies granted in this Security Agreement to Secured Party, and Debtor will
assert no claims or defenses Debtor may have against Secured Party or against
the Assignee except those granted in this Security Agreement.
B. Secured Party may at any time transfer the Collateral to itself or its
nominee, receive income, including money, thereon and hold the income as
Collateral or apply the income to the indebtedness secured hereby, the manner
and distribution of the application to be in the sole discretion of Secured
Party.
C. Secured Party may at any time demand, sue for, collect or make any
compromise or settlement with reference to the Collateral as Secured Party, in
its sole discretion, chooses.
D. Secured Party may delay exercising or omit to exercise any right or
remedy under this Security Agreement without waiving that or any other past,
present, or future right or remedy, except in writing signed by Secured Party.
VII.
REMEDIES OF SECURED PARTY
----------- ------- -----
Upon the occurrence of an Event of Default, and at any time thereafter:
A. Secured Party may declare the Obligations secured hereby immediately
performable.
B. Secured Party shall have, then or at any time thereafter, the rights
and remedies provided in the Uniform Commercial Code in force in the State of
Texas at the date of execution of this Security agreement.
C. In addition to the rights and remedies referred to above, Secured Party
may, in its discretion, sell, assign and deliver all or any part of the
Collateral at public or private sale without notice or advertisement, and bid
and become purchaser at any public sale.
4
<PAGE>
D. If notice to Debtor is required by the Uniform Commercial Code of Texas
of public or private sale of Collateral, Secured Party may give written notice
to Debtor five (5) days prior to the date of public sale of the Collateral or
prior to the date after which private sale of the Collateral will be made, by
mailing such notice to Debtor at the address designated at the beginning of this
Security Agreement. Secured Party may apply the proceeds of any disposition of
Collateral available for satisfaction of the Obligations and expenses of sale in
any order of preference which Secured party, in its sole discretion, chooses.
Debtor shall remain liable for any deficiency.
E. Upon any sale of any portion of the Collateral, Secured Party shall
have the right to deliver to the purchaser thereof all or any portion of the
Collateral, free and clear of any claim or right of Debtor, or any person
claiming by, through or under Debtor. The Collateral may be sold separately or
combined with the collateral of other debtors as Secured Party deems necessary
or desirable.
F. Secured Party shall not be obligated to make any sale pursuant to any
notice of sale herein provided and Secured Party may, without notice or
publication, adjourn any public or private sale or cause such sale to be
adjourned, from time to time, by written or oral announcement, given at the time
and place fixed for such sale and may reconvene such sale, pursuant to such
notice of adjournment, at any time or place designated by Secured Party in such
announcement.
G. In case of sale of all or any portion of the Collateral, on credit or
for future delivery, Secured Party shall be authorized to retain the Collateral
until the purchase price is paid by the purchaser thereof, or to deliver such
Collateral to the purchaser, on credit, but Secured Party shall incur no
liability for the failure of any such purchaser to pay for such Collateral so
sold and, in the event such purchaser fails to pay for such Collateral so sold,
Secured Party may repossess such Collateral and again offer it for sale in
accordance with the terms and provisions of this Security Agreement.
H. Secured Party shall not be required to conduct any sale of any of the
Collateral, pursuant to this Security Agreement, and shall be authorized to
proceed with collection of the Obligations from Debtor by all legal means
including, but not limited to, institution of a suit in a court of competent
jurisdiction for collection of the Obligations.
VIII.
MISCELLANEOUS PROVISIONS
------------------------
A. "Secured Party" and "Debtor" as used in this instrument shall include
the heirs, executors, administrators, legal representatives, successors and
assigns of such parties, including without limitation, receivers, trustees or
guardians of such parties.
B. Terms used in this instrument which are defined in the Texas Business
and Commerce Code are intended hereby to be used with the meanings therein
defined.
5
<PAGE>
C. The provisions of this Agreement shall be construed under and in
accordance with the provisions of the laws of the State of Texas, including,
without limitation, the Texas Business and Commerce Code. The jurisdiction for
any controversy arising hereunder shall be in the courts of competent
jurisdiction of Harris County, Texas, to the fullest extent permissible by Texas
law.
D. No delay or omission, on the part of Secured Party, to exercise any of
Secured Party's rights hereunder, shall operate as a waiver of any such right.
No acceptance by Secured Party of any payment after the due date thereof shall
be deemed to be a waiver by Secured Party of the provisions for event of default
hereunder.
E. The security interest granted hereby, and all of the terms and
provisions contained herein, shall be deemed to constitute a continuing security
interest and shall remain in full force and effect, as between the parties,
until the repayment by Debtor of all of the Obligations as set forth herein and
the receipt, acceptance and acknowledgment of such payment on the part of
Secured Party, coupled with Secured Party's revocation of the terms and
provisions of this Security Agreement.
F. Any notice or demand given by Secured Party to Debtor in connection
with this Security Agreement, the Collateral or the Obligations, shall be deemed
given and effective three (3) days after deposit in the United States mail,
postage prepaid, certified mail return receipt requested, addressed to Debtor at
the address of Debtor designated herein (subject to Debtor's right to change
notice of address pursuant to the provisions of this Agreement) and debtor shall
be conclusively deemed to have received any notice so deposited. In lieu of
deposit of any notice in the United States mail, Secured Party may personally
deliver such notice to Debtor.
G. The terms and provisions of this Security Agreement may not be altered,
amended or modified unless a written instrument has been executed by Debtor and
Secured Party, which instrument specifically refers to this Security Agreement
and which instrument clearly indicates that it is intended to alter, amend or
modify this Agreement.
H. This Security Agreement and the security interest herein granted are
given in addition to, and not in substitution of or in lieu of any prior or
contemporaneous Security Agreement, security interest, pledges or assignments
given by Secured Party to Debtor, or a person designated by Debtor. All powers,
rights and remedies of Secured Party in any other such Security Agreement are
deemed to be cumulative with the powers, rights and remedies of Secured Party as
set forth herein.
I. If any provision of this Security Agreement should be found, for any
reason, to be invalid or unenforceable under the laws of the State of Texas, or
any other state or governmental unenforceable provision shall be deleted from
the provisions of this Agreement and this Agreement shall be, thereafter,
construed and enforced without consideration of such invalid or unenforceable
provision.
3. This Security Agreement may be executed in any number of counterparts,
all of which together shall constitute one and the same instrument. Debtor
agrees and consents that any photocopy or other reproduction of any Financing
Statement executed by Debtor is sufficient to constitute a valid and enforceable
Financing Statement for all purposes, without limitation, for filing in any
jurisdiction where the filing of such copy shall be permitted by the provisions
of the Uniform Commercial Code of such jurisdiction.
6
<PAGE>
K. The parties agree that time is of the essence to each of the provisions
of this Security Agreement.
L. The Exploration Agreement, as defined on Exhibit "A,11 requires the
approval of Zydeco Exploration, Inc. to any pledge or sale of an interest in the
Exploration Agreement or the seismic data and permits, options to lease, and
leases described on Exhibit "A," Accordingly, notwithstanding anything herein to
the contrary, Debtor makes no representation or warranty that the consent of
Zydeco Exploration, Inc. is not required to effect the lien granted hereby.
State of Texas
County of Harris (S)
This instrument was acknowledged before me on July 31, 1997, by Walter L.
Williams, Vice Chairman of Cheniere Energy Operating Co., Inc., a Delaware
corporation, on behalf of said corporation.
Notary Public in and for
the State of Texas
State of Texas
County of Harris
This instrument was acknowledged before me on July 31, 1997, by Sam Myers.
Notary Public in and for
the State of Texas
EXECUTED this the 31st day of July, 1997.
DEBTOR:
CHENIERE ENERGY OPERATING CO., INC.
By: Walter L. Williams Vice Chairman
SECURED PARTY
Sam Myers
Exhibit "A"
Collateral
Reference is made to that certain Exploration Agreement dated April 4, 1996,
between FX Energy, Inc. and Zydeco Exploration, Inc., as amended by that certain
First Amendment dated May 15, 1996,
7
<PAGE>
and that certain Second Amendment dated August 5, 1996, and that certain Third
Amendment dated October 31, 1996, and that certain Fourth Amendment dated as of
November 27, 1996, and that certain Fifth Amendment dated as of April 28, 1997,
and that certain Sixth Amendment dated as of July 18, 1997 (as amended, the
"Exploration Agreement"), as well as including permits, options to lease, and
oil & gas leases acquired thereunder (collectively, the "Leases").
As the Collateral in the foregoing agreement, Debtor pledges:
(A) An undivided 1.8519% interest in seismic data acquired pursuant to the
Exploration Agreement under that certain Master Geophysical Data
Acquisition Agreement between Zydeco Exploration, Inc. and Grant
Geophysical, Inc. dated June 12, 1996 and that certain Master
Geophysical Data Acquisition Agreement with Supplemental Agreement No.1,
both dated March 14, 1997, under which Master Geophysical Data
Acquisition Agreements was acquired in the area of Cameron Parish
depicted on Appendix "A" hereto, including, without limitation, seismic
data acquired under such contracts including:
i. Final survey and support data including all control points.
ii. Final observer's (OB) notes and drill logs.
iii. Base maps showing:
(1) all swaths (shot and receiver lines) used in processing.
(2) offset limited fold plots.
(3) post-processing grid.
iv. SEGY 9-track tape copies of:
(1)
(2)
(3)
v. Diskettes containing the following information in ASCII format:
(1) DM0 Velocities.
(2) Migration Velocities.
(3) X-Y Control points for binning grid.
vi. field reels and support data
vii. pre-stack processing reels and support data
viii. prints and/or films containing portions of the data
(II) An undivided 1.8519% interest in the Leases; and
(III) An undivided 3.7038% interest in proceeds from the marketing of seismic
data under Section 15b) of the Exploration Agreement.
The interests so pledge are subject to the Exploration Agreement.
8
<PAGE>
Exhibit 10.23
[LETTERHEAD OF ZYDECO ENERGY, INC.]
August 28, 1997
Cheniere Energy Operating Co., Inc.
1710 Two Allen Center
1200 Smith Street
Houston, Texas 77002
Re: Seventh Amendment
Gentlemen:
I am writing with respect to that certain Exploration Agreement dated April
4, 1996, 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, and that certain Fourth Amendment dated as of November 27, 1996, and
that certain Fifth Amendment dated April 28, 1997, and that certain Sixth
Amendment dated July 18, 1997 (as amended, the "Agreement"). For convenience,
terms defined therein shall have the same meaning when used herein. FXEnergy,
Inc. ("FX") has changed its name to Cheniere Energy Operating Co., Inc.
("Cheniere").
Under the Agreement, Cheniere was to have paid 100% of the first
$13,500,000 of Seismic Costs. It has done so. Seismic Costs over $13,500,000
("Excess Costs") are borne equally by ZEI and Cheniere.
We wish to grant Cheniere an extension of certain monies presently due, and
memorialize certain other understandings.
1. At present, Cheniere owes $2,177,000, which represents its 50% of
Excess Costs accumulated to July31, 1997 and 50% of the August cash
call. Zydeco agrees to extend the time for Cheniere to pay such monies
until December 31, 1997.
2. Zydeco desires to continue the program by:
a) leasing and acquiring certain computer equipment and software;
b) acquiring non-State leases by the exercise of options and
outright lease Zydeco estimates the cost of such additional
program expenses (the "Program Expenses") through December 31,
1997 to be approximately $1,500,000, of which Cheniere's share
would be $750,000.
3. Cheniere authorizes Zydeco to incur such Program Expenses for their
joint account, and agrees to pay approximately $750,000 of Program
Expenses on December 31, 1997.
1
<PAGE>
4. No grace periods shall apply to amounts due on December 31, 1997.
5. If Cheniere timely pays the amounts due on December 31, 1997, Cheniere
shall own a one-half interest in all leases and options acquired by
Zydeco for their joint interest. It shall also own the 50% interest in
the Seismic Data provided in the Agreement.
6. If, however, Cheniere fails to pay all or a portion of monies due on
December 31, 1997, it shall be treated as a Discontinuance, and the
interest of Cheniere in the Seismic Data, leases, and options shall be
determined as of December 31, 1997.
7. Zydeco may nominate certain state acreage within the AMI for state
leases. It shall notify Cheniere when it does so. If Cheniere tenders
1/2 of the bid amount by certified check four business days before the
state lease sale, Cheniere shall be entitled to a 50% working interest
in any lease taken by successful bid. If Cheniere fails to so tender a
portion of the bid, it shall have no interest in leases acquired at
such sales.
8. In consideration of the agreements reflected herein:
a) Cheniere hereby releases Zydeco from any claims or causes of action
arising out of or related to the Agreement prior to the date hereof;
and
b) Zydeco hereby releases Cheniere from any claims or causes of action
arising out of or related to the Agreement prior to the date hereof.
9. In the event of a conflict between the terms of this amendment and
the Agreement as previously amended, the terms hereof shall control.
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:
Its:
ACCEPTED AND AGREEDTO THIS 28TH DAY OF AUGUST, 1997.
CHENIERE ENERGY OPERATING CO., INC.
By:
Its:
2
<PAGE>
Exhibit 10.24
[LETTERHEAD OF ZYDECO ENERGY, INC.]
August 28, 1997
Cheniere Energy Operating Co., Inc.
1710 Two Allen Center
1200 Smith Street
Houston, TX 77002-4312
Gentlemen:
I am writing with reference to that certain letter agreement dated July 31,
1997 between us (the "Letter Agreement"), and to the promissory note for
$500,000 referenced therein (the "Promissory Note").
You have requested, and I have agreed, as follows:
a. The maturity date of the Promissory Note is hereby extended from August
29, 1997 to September 29, 1997.
b. Our original agreement was that the Option, as defined in the Letter
Agreement, could not be exercised until after August 29, 1997. In lieu
of August 29, 1997, such date shall be September 29, 1997.
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,
Sam Myers
ACCEPTED AND AGREED TO THIS
28TH DAY OF AUGUST, 1997.
CHENIERE ENERGY OPERATING CO., INC.
By:
------------------------------
1
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF CHENIERE ENERGY, INC.
1. Cheniere Energy Operating Co., Inc.
2. Cheniere Energy California, Inc.
1
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