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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-K
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM SEPTEMBER 1, 1997 TO DECEMBER 31, 1997
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 STREET, SUITE 1740
HOUSTON, TEXAS 77002-4312
(Address of principal executive offices) (Zip code)
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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's common stock held by non-
affiliates of the registrant was approximately $25,022,902 as of June 30, 1998
(based upon the June 30, 1998 closing sales price of such common stock as
reported by the Nasdaq SmallCap Market).
16,207,082 shares of the registrant's Common Stock were outstanding as of
June 30, 1998.
Documents incorporated by reference: The Form 10-Q filed on January 14,
1998 by the registrant is incorporated herein by reference.
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CHENIERE ENERGY, INC.
INDEX TO FORM 10-K
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PART I
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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 7A. Quantitative and Qualitative Disclosures about Market Risk............................. 17
Item 8. Financial Statements and Supplementary Data............................................. 18
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 33
Item 11. Executive Compensation................................................................. 35
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 39
Item 13. Certain Relationships and Related Transactions......................................... 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 31
SIGNATURES...................................................................................... 44
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PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
GENERAL
Cheniere Energy, Inc. is a Delaware corporation engaged in exploration for
oil and gas reserves. The terms "Cheniere" and "Company" refer to Cheniere
Energy, Inc. and its subsidiaries. The Company principally operates through its
wholly-owned subsidiary, Cheniere Energy Operating Co., Inc. ("Cheniere
Operating"). Cheniere is a Houston-based company formed for the purpose of oil
and gas exploration, 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.
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
significant operating revenues before 1999.
Cheniere is involved with one major project, a joint exploration program
pursuant to an Exploration Agreement between Cheniere 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 has
earned a 50% participation in the 3-D Exploration Program. The 3-D seismic
survey (the "Survey") covers 228 square miles within a 310 square-mile area
running three to five miles north and generally eight 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. Cheniere and Zydeco 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.
Field acquisition of seismic data in the Survey was completed in July 1997.
Area-wide processing of the data was completed in December 1997. Since beginning
its interpretation work in July 1997, Cheniere has identified nine prospects for
inclusion in an initial drilling program within the Survey AMI. The Company has
leased acreage over most of the prospects in this initial drilling program and
expects to begin drilling in late 1998. Interpretation work will continue
throughout 1998.
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 1740, Houston, Texas 77002, and its telephone number is
(713) 659-1361.
On April 7, 1998, the Company's Board of Directors approved a change in
fiscal year-end from August 31 to December 31. The change in year-end resulted
in a transition period from September 1, 1997 to December 31, 1997. As a
result, the Company is filing this Transition Report on Form 10-K for the four-
month period ended December 31, 1997.
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 oil and gas exploration opportunities are
becoming 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's current activities are
focused on its proprietary 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.
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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 has earned a 50% participation in the 3-D Exploration Program.
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 uses the latest technology to enhance the efficiency and
economy of its exploration, development and production efforts. These include
the use of advanced 3-D seismic acquisition and processing techniques in the
Survey AMI.
Control Overhead Costs
The Company maintains a small, but experienced working staff, and leverages
its talents through relationships with industry partners and outside consultants
with appropriate geographic and technical experience. Beginning in July 1997,
Cheniere engaged a consulting geophysicist through INEXS (Interactive
Exploration Solutions, Inc.), a leading seismic consulting firm in Houston, to
complement Zydeco's in-house interpretation effort. Further, in November 1997,
Cheniere engaged a consulting geologist to assist in the interpretation process.
These consultants became employees of Cheniere on January 1, 1998 and they are
continuing to interpret the seismic data from the Survey and to generate
prospects from such data.
THE 3-D EXPLORATION PROGRAM IN CAMERON PARISH, LOUISIANA TRANSITION ZONE
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 to lower its development costs
compared to those in other geographic regions and facilitate timely development
of oil and gas discoveries. The Company's officers and technical staff 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
was 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 earn 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: acquiring and processing seismic data; legal
costs; options to lease land and leases of land; and the cost of seismic permits
including the seismic permit granted by the State of Louisiana discussed below.
Under the terms of the Exploration Agreement, Zydeco has the responsibility
to perform, or cause to be performed, all of the planning, land, geologic, and
interpretative functions necessary to the project, and to 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
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thereto. Cheniere 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 has paid 100% of the first $13.5 million of Seismic Costs.
Cheniere's 50% share of excess Seismic Costs through December 31, 1997, was
estimated in the Seventh Amendment to the Exploration Agreement to be
approximately $2.9 million, which amount was payable to Zydeco on December 31,
1997. Cheniere made such payment on December 31, 1997, thereby completing its
payment obligations to earn a 50% participation in the 3-D Exploration Program.
The Exploration Agreement includes a joint operating agreement (the "Joint
Operating Agreement") providing 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).
The entire Survey AMI is located within an existing pipeline
infrastructure. As a result, it will generally be more efficient 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 natural gas consumer markets of the East Coast.
Permit and Lease Status Within the Survey AMI
The Survey AMI covers onshore lands, State Waters, and Federal Outer
Continental Shelf ("OCS") acreage. The permit and lease status of the three
areas is described below.
Onshore Area. Lease options were obtained over 28,000 acres, and farmouts
had been obtained over 5,000 acres of land lying onshore in the central portion
of the Survey AMI prior to the acquisition of the Survey. Subsequent to
shooting, individual options were either exercised or dropped as they neared
expiration, based on the prospectivity of the area. In addition, onshore acreage
has been leased to supplement the exercised options over identified prospects.
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 (extending to
a 3 1/2 mile limit located within the Survey AMI) in the western half of Cameron
Parish. The initial term of the Louisiana Seismic Permit was 18 months; and it
was extended for an additional six months. As discussed below in "Seismic
Results to Date," the shooting and gathering of seismic data has been completed.
During the term of the Louisiana Seismic Permit, Zydeco and Cheniere had the
exclusive right to nominate blocks of acreage for leasing in the covered state
waters. Although the period of exclusivity expired in February 1998, the Company
and Zydeco may nominate blocks of acreage for leasing at any time.
At the State of Louisiana Mineral Board lease sale held on April 8, 1998,
Cheniere and Zydeco acquired leases on four tracts, aggregating 1,830 acres.
At the State of Louisiana Mineral Board lease sale held on June 10, 1998,
Cheniere acquired leases on four tracts, aggregating 381 acres and Zydeco
acquired leases on nine
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tracts, aggregating 5,357 acres. Both Cheniere and Zydeco are continuing
negotiations for leasehold interests or drilling rights with several onshore
property owners.
Federal Waters. The Survey AMI includes an area extending southward
generally up to 5 miles into federal waters. The Minerals Management Service
holds periodic lease sales at which open federal acreage is available for
bidding. In the March 1998 federal lease sale, Zydeco acquired leases over
3,095 acres within the Survey AMI, and Cheniere has the right to participate in
these leases should it elect to do so.
Seismic Results to Date
In the fourth quarter of 1996 approximately 12% of the Survey was shot
prior to a shutdown for the winter. Shooting resumed in April 1997 and was
completed in July 1997. During the winter months, the initial data was
processed and the optimal processing sequence was determined for the remainder
of the data which was acquired in 1997. A second phase of processed data,
created using pre-stack time migration techniques, became available beginning in
November 1997 and was completed in December 1997. Interpretation of the Survey
data, including prospect generation, continues to be conducted by Cheniere and
Zydeco personnel.
Schedule for the 3-D Exploration Program
Interpretation of the Survey data will continue throughout 1998. Cheniere
has identified nine prospects in the West Cameron area of Louisiana for
inclusion in an initial drilling program in the area. The drilling program is
the first of several which Cheniere expects to be generated within the area and
is expected to be drilled over a 12-month period beginning in late 1998. The
prospects of the initial program were selected to stay within a reasonable range
of drilling depth, cost and risk, while maximizing hydrocarbon exposure. The
initial prospects can be tested by wells drilled to depths of 10,000 to 13,000
feet.
Cheniere and Zydeco 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 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.
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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 federal and state statutes and extensive rules and regulations
promulgated by federal and state agencies. Failure to comply with such laws 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 laws are frequently amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with them.
Production
In most, if not all, areas in which the Company conducts activities,
statutes concerning the production of oil and natural gas authorize
administrative agencies to adopt rules which, among others matters, (i) regulate
the operation of, and production from, both oil and gas wells, (ii) determine
the reasonable market demand for oil and gas, and (iii) establish allowable
rates of production. Such regulation may restrict the rate at which the
Company's wells may produce oil or gas, with the result that the amount or
timing of the Company's revenues could be adversely affected.
MMS Regulation
The Company conducts certain activities on federal oil and gas leases,
which the Minerals Management Service ("MMS") administers. The MMS issues
leases through competitive bidding. These leases contain relatively
standardized terms and require compliance with detailed MMS regulations and
orders pursuant to The Outer Continental Shelf Lands Act ("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 adopted regulations requiring
offshore production facilities located on the OCS to meet stringent engineering
and construction specifications. The MMS also has regulations restricting the
flaring or venting of natural gas, and has amended such regulations to prohibit
the flaring of liquid hydrocarbons and oil without prior authorization except
under certain limited circumstances. Also, 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 will be able to obtain such bonds or other surety in all cases.
The MMS has issued a notice of proposed rulemaking in which it proposes to
amend its regulations governing the calculation of royalties and the valuation
of crude oil produced from federal leases. This proposed rule would modify the
valuation procedures for both arm's length and non-arm's length crude oil
transactions to decrease reliance on oil posted prices and assign a value to
crude oil that better reflects its market value, establish a new MMS form for
collecting differential data, and amend the valuation procedure for the sale of
federal royalty oil. The Company cannot predict what action the MMS will take
on this matter, nor can it predict how the Company will be affected by any
change to this regulation.
In April 1997, after two years of study, the MMS withdrew proposed changes
to the way it values natural gas for royalty payments and requested comment on
two alternative options for natural gas valuation. The changes as originally
proposed would have established an alternative market-based method to calculate
royalties on certain natural gas sold to affiliates or pursuant to non-arm's
length sales contracts. Informal discussions among the MMS
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and industry officials are continuing, although it is uncertain whether, and
what, changes may be proposed regarding gas royalty valuation.
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 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 Natural Gas Act of 1938 ("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.
Commencing in April 1992, the FERC issued its Order No. 636 and related
clarifying orders ("Order No. 636"), which, among other things, purported to
restructure the interstate natural gas industry and to require interstate
pipelines to provide transportation services separate, or "unbundled," from the
pipelines' sales of natural gas. Order No. 636 and certain related proceedings
have been the subject of a number of judicial appeals and orders on remand by
the FERC. Although Order No. 636 has largely been upheld on appeal, several
appeals remain pending in related restructuring proceedings. The Company cannot
predict when these remaining appeals will be completed or their impact on the
Company. FERC continues to address Order 636-related issues (including capacity
brokering, alternative and negotiated ratemaking and transportation policy
matters) in a number of pending proceedings. 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.
OCSLA requires that all pipelines operating on or across the OCS provide
open-access, non-discriminatory service. Although 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 issued a Statement
of Policy ("Policy Statement") regarding the application of its jurisdiction
under the 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
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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.
The FERC has also issued numerous orders confirming the sale and
abandonment of natural gas gathering facilities previously owned by interstate
pipelines and acknowledging that if the FERC does not have jurisdiction over
services provided thereon, then such facilities and services may be subject to
regulation by state authorities in accordance with state law. A number of
states have either enacted new laws or are considering inadequacy of existing
laws affecting gathering rates and/or services. In addition, FERC's approval of
transfers of previously regulated gathering systems to independent or pipeline-
affiliated gathering companies that are not subject to FERC regulation may
affect both the costs and the nature of gathering services that will be
available to interested producers or shippers in the future. Whether on state
or federal land or in offshore waters subject to OCSLA, natural gas gathering
may receive greater federal regulatory scrutiny in the post-Order No. 636
environment. The effects, if any, of these policies on the Company's operations
are uncertain.
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.
Operating Hazards and Environmental Matters
The oil and gas business involves a variety of operating risks, including
the risk of fire, explosions, blow-outs, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
natural gas leaks, ruptures and discharge of toxic gases, the occurrence of any
of which could result in substantial losses to the Company due to injury or loss
of life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations. Such
hazards may hinder or delay drilling, development and on-line production
operations.
Extensive federal, state and local laws and regulations govern oil and gas
operations regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. These laws and
regulations may require the acquisition of a permit before drilling commences,
restrict or prohibit the types, quantities and concentration of substances that
can be released into the environment or wastes that can be disposed of in
connection with drilling and production activities, prohibit drilling activities
on certain lands lying within wetlands or other protected areas and impose
substantial liabilities for pollution or releases of hazardous substances
resulting from drilling and production operations. Failure to comply with these
laws and regulations may also result in civil and criminal fines and penalties.
Moreover, state and federal environmental laws and regulations may become more
stringent.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the original conduct, on certain classes of persons who are
considered to be responsible for 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. Under CERCLA, such persons may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment, for damages
to natural resources and for the costs of certain health studies, and it is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by the release of hazardous
substances.
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The Company's operations may be subject to the Clean Air Act ("CAA") and
comparable state and local requirements. Amendments to the CAA were adopted in
1990 and contain provisions that may result in the gradual imposition of certain
pollution control requirements with respect to air emissions from the operations
of the Company. The EPA and states have been developing regulations to
implement these requirements. The Company may be required to incur certain
capital expenditures in the next several years for air pollution control
equipment in connection with maintaining or obtaining permits and approvals
addressing other air emission-related issues. The Company does not believe,
however, that its operations will be materially adversely affected by any such
requirements.
In addition, the U.S. Oil Pollution Act ("OPA") requires owners and
operators of facilities that could be the source of an oil spill into "waters of
the United States" (a term defined to include rivers, creeks, wetlands, and
coastal waters) to adopt and implement plans and procedures to prevent any spill
of oil into any waters of the United States. OPA also requires affected
facility owners and operators to demonstrate that they have at least $35 million
in financial resources to pay for the costs of cleaning up an oil spill and
compensating any parties damaged by an oil spill. Such financial assurances may
be increased to as much as $150 million if a formal assessment indicates such an
increase is warranted.
Operations of the Company are also subject to the federal Clean Water Act
("CWA") and analogous state laws. In accordance with the CWA, the state of
Louisiana has issued regulations prohibiting discharges of produced water in
state coastal waters effective July 1, 1997. Producers may be required to incur
certain capital expenditures in the next several years in order to comply with
the prohibition against the discharge of produced waters into Louisiana coastal
waters or increase operating expenses in connection with offshore operations in
Louisiana coastal waters. Pursuant to other requirements of the CWA, the EPA
has adopted regulations concerning discharges of storm water runoff. This
program requires covered facilities to obtain individual permits, participate in
a group permit or seek coverage under an EPA general permit. The Company
believes that it will be able to obtain, or be included under, such storm water
discharge permits, where necessary.
In addition, the disposal of wastes containing naturally occurring
radioactive material, which are commonly generated during oil and gas
production, is regulated under state law. Typically, wastes containing naturally
occurring radioactive material can be managed on-site or disposed of at
facilities licensed to receive such waste at costs that are not expected to be
material.
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 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.
10
<PAGE>
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"). 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, the Company
engaged Mr. Buddy Young, the former President and Chief Executive Officer of
Bexy, as a consultant to provide Cheniere 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 had eight full-time employees as of June 30, 1998.
PROPERTIES
Until March 1998, the Company subleased 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. In March 1998, Cheniere terminated its
sublease from Zydeco and has leased 2,678 square feet of office space through
March 2003 at a monthly rental rate of $4,190.
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 activities and
the ability of the Company to attract additional working interest owners to
participate in the exploration and development within the Survey AMI.
YEAR 2000 ISSUE
The Company has initiated a comprehensive review of its computer systems
and business processes to identify the areas that could be affected by the "Year
2000" issue. The Company does not expect the amounts which would be required to
be incurred to prepare its systems for the year 2000 to be significant, and it
expects all Year 2000 issues to be resolved in a timely manner during 1998 and
1999.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Legal proceedings currently pending against the Company are summarized in
the following paragraphs.
1. Zydeco Exploration, Inc. v. Cheniere Energy, Inc., No. 70 198 00107 98,
before the American Arbitration Association ("AAA").
This proceeding was commenced by Zydeco against the Company on April 17,
1998. Zydeco seeks arbitration of certain claims against the Company under the
Exploration Agreement. Specifically, Zydeco seeks a declaration that Zydeco has
complete management and control of the West Cameron project, that the Company is
prohibited from bidding on leases within the Survey AMI defined in the
Exploration Agreement, that the Company must assign to Zydeco leases that the
Company acquired at a state lease sale on April 8, 1998, that the Company must
pay damages for having allegedly competed with Zydeco at the state lease sale,
that the Company must refrain from disclosing data to third parties, and that
the Company is required to pay Zydeco 50% of certain costs incurred since
December 31, 1997, or suffer a "discontinuance," which would reduce its
ownership interest in the 3-D Exploration Project.
The Company filed an answer and counter claim on April 27, 1998.
On May 15, 1998, Zydeco filed an amended claim against the Company that
adds allegations of conversion, tortious interference with prospective contacts,
breach of fiduciary duties, and an unspecified amount of actual damages and
punitive damages. The amended claim also adds allegations against two of the
Company's employees, which allegations had originally been made in the state-
court lawsuit discussed below.
On May 21, 1998, a panel of three arbitrators was appointed by the AAA to
hear this dispute. The arbitrators have not yet held an initial scheduled
conference and there is not yet in place any schedule.
Management believes that the Company has properly earned and preserved its
interest in leases acquired within the Survey AMI, as defined in the Exploration
Agreement, and that all of its actions to date, including its handling of
confidential data, are entirely within the scope of the Exploration Agreement.
Cheniere feels it will ultimately prevail in the arbitration process.
2. Zydeco Energy, Inc. and Zydeco Exploration, Inc. v. M.A. Wes Mosteller
and Stephen C. Pollard, Cause No. 98-18094 in the 215/th/ Judicial District
Court of Harris County, Texas.
This case was originally filed against two employees of the Company on
April 22, 1998. Plaintiffs sought an injunction preventing these employees from
utilizing or disclosing confidential information they received when they were
allegedly acting as consultants to Plaintiffs.
On April 27, 1998, the Company intervened in the suit as a defendant to
oppose the granting of an injunction. The Company also sought to have the case
abated or dismissed and to have the claims resolved in arbitration.
On May 4, 1998, the Court entered an Agreed Temporary Injunction that
expired on June 15, 1998. Under that injunction, all parties were required to
use a certain form of Confidentiality Agreement when showing certain data to
third parties. The injunction also contemplated that the claims in the lawsuit
would be resolved in the arbitration proceeding discussed above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information requested by this item is incorporated by reference to Part
II, Item 4 of the Company's Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 on Form 10-Q filed on January 14, 1998 (File
No. 0-09092).
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of the Company 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 11, 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.
High ($) Low ($)
-------- -------
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
Four Months Ended December 31, 1997 3-15/16 1-7/8
As of June 30, 1998, there were 16,207,082 shares of the Company's common
stock outstanding held by 783 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 deems relevant.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data set forth below are derived from the Consolidated
Financial Statements of the Company 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 Four Months Ended For the Period Ended From Inception
------------------------- ---------------------------- -----------------
December 31, August 31, to
------------------------- ---------------------------- -----------------
1997 1996 1997 1996 December 31, 1997
----------- ----------- ------------ ------------ -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net operating revenues $ - $ - $ - $ - $ -
Loss from operations (447,023) (192,330) (1,713,461) (103,813) (2,264,298)
Net loss (388,361) (193,553) (1,676,468) (121,847) (2,186,676)
Net loss per share (basic and diluted) $ (0.03) $ (0.02) $ (0.14) $ (0.01) $ (0.19)
December 31, August 31,
------------------------- ----------------------------
1997 1996 1997 1996
------------ ----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash $ 787,523 $2,419,264 $ 234,764 $ 1,093,180
Oil and gas properties, unevaluated 16,534,054 6,000,000 13,500,000 4,000,000
Total assets 17,705,627 8,476,710 13,841,712 5,145,310
Long-term obligations - - - -
Total liabilities 4,285,599 262,798 888,291 718,855
Total stockholders' equity 13,420,028 8,213,912 12,953,421 4,426,455
Cash dividends per share - - - -
</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 engaging in the oil and gas exploration business, initially on the
Louisiana Gulf Coast. On July 3, 1996, Cheniere Operating underwent a
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.
On April 7, 1998, the Company's Board of Directors approved a change in
fiscal year-end from August 31 to December 31. The change in year-end resulted
in a transition period from September 1, 1997 to December 31, 1997. As a result,
the Company is filing this Transition Report on Form 10-K for the four-month
period ended December 31, 1997.
RESULTS OF OPERATIONS -- PERIOD FROM INCEPTION (FEBRUARY 21, 1996) TO
DECEMBER 31, 1997
The Company's operating results reflect accumulated losses of $2,186,676 or
$0.19 per share, (both basic and diluted) as the Company has yet to generate
revenues from operations. General and administrative ("G&A") expenses of
$2,264,298 included a one-time, non-cash charge of $624,400 incurred during the
year 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 is
comprised primarily of 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
14
<PAGE>
promissory notes. Interest income of $116,623 was generated on the Company's
cash balances and on funds it has advanced into the 3-D Exploration Program.
RESULTS OF OPERATIONS--COMPARISON OF THE FOUR-MONTH PERIODS ENDED DECEMBER 31,
1997 AND 1996
The Company's operating results for the four months ended December 31,
1997, reflect a loss of $388,361 or $0.03 per share (both basic and diluted) as
compared to a loss of $193,553, or $0.02 per share for the four months ended
December 31, 1996. The Company did not generate revenues from operations in
either of the periods. The increased loss in the most recent four-month period
is primarily due to higher G&A expenses of $447,023, as compared to $192,330 a
year earlier. G&A expenses are higher in the most recent period as the result
of: (a) increased professional fees related to financing activities and to the
Company's initial annual stockholders' meeting in November 1997, (b) fees
related to recruiting technical professionals who were hired January 1, 1998 and
(c) insurance expenses for coverages not carried in the earlier period. Interest
income of $58,662 in the four months ended December 31, 1997 includes $49,000
related to an agreement that interest earned from inception to date on funds
advanced by Cheniere into the 3-D Exploration Program accrues to the benefit of
the Company.
RESULTS OF OPERATIONS--COMPARISON OF THE PERIODS ENDED AUGUST 31, 1997 AND 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 (both basic and diluted) as
compared to a loss of $121,847, or $0.01 per share for the 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 ended August 31, 1996. The higher level of
G&A expenses in the more recent period is the result of: (a) a one-time, non-
cash charge of $624,400 for investment banking services, (b) increased
professional fees related to registrations of previously issued shares 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 that was not consummated. Interest income of
$56,161 in the latter 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
The Company anticipates that future liquidity requirements, including
future commitments to the 3-D Exploration Program, will be met by cash balances,
the sale of equity, further borrowings, and/or the sale of portions of its
interest in the 3-D Exploration Program or in the prospects generated
thereunder. At this time, no assurance can be given that such sales of equity,
future borrowings, or sales of portions of its interest in the 3-D Exploration
Program will be accomplished.
Private Placements of Equity
Since its inception, Cheniere's primary source of financing for operating
expenses and payments to the 3-D Exploration Program has been the sale of its
equity securities. Through December 31, 1997, $15.6 million of proceeds, net of
offering costs, has been raised through the sale of equity, and $16.6 million
(funded in part by the December 1997 issuance of $4,000,000 in term notes
payable) has been invested in the 3-D Exploration Program.
From inception through the Reorganization, Cheniere Operating raised $2.8
million, net of offering costs, from the sale of common stock (which was
exchanged for common stock of Cheniere Energy, Inc. 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 proceeds of a $425,000 short-term note, were used to
fund Cheniere's initial $3 million payment to the 3-D Exploration Program.
15
<PAGE>
Subsequent to the Reorganization and prior to August 31, 1996, the Company
raised $1.7 million, net of offering costs, 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
in August 1996.
During the year ended August 31, 1997, the Company raised $9.4 million, net
of offering costs, from the sale of common stock to accredited investors
pursuant to Regulation D and to offshore investors pursuant to Regulation S.
From the $9.4 million net proceeds and other available funds, $9.5 million was
invested in the 3-D Exploration Program.
During the four months ended December 31, 1997, the Company raised $0.5
million, net of offering costs, from the sale of common stock to accredited
investors pursuant to Regulation D and to offshore December 1997 investors
pursuant to Regulation S. The proceeds, together with cash balances and
proceeds from a $4.0 million December 1997 bridge financing, were used to fund a
$2.9 million payment to the 3-D Exploration Program.
Subsequent to December 31, 1997, the Company has raised approximately $3.0
million through private placements of common stock ($2.2 million) and short-term
bridge notes and advances ($0.8 million). Proceeds have been and will be used
for the acquisition of leases and other exploration costs, as well as for
general corporate purposes.
Short-Term Promissory Notes
In June 1996, Cheniere borrowed $425,000 through a private placement of
short-term promissory notes (the "Notes"). In connection with the placement of
the Notes, Cheniere 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 common stock by private placement during May 1996, as the
Company's common 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 issued a new promissory note in the amount of
$215,000 to the Remaining Noteholder, which Cheniere 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 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 note was repaid by the Company on September 22, 1997,
including all incurred interest. The collateral securing the note has been
released.
In December 1997, Cheniere completed the private placement of a $4,000,000
bridge financing (the "December 1997 Bridge Financing"). The senior term notes
payable issued by Cheniere had an initial maturity date of March 15, 1998 and
have been extended at the option of the Company to September 15, 1998. Proceeds
from the December 1997 Bridge Financing were used to fund the Company's
activities related to the 3-D Exploration Program and for general corporate
purposes.
In conjunction with the December 1997 Bridge Financing, Cheniere issued
100,000 shares of common stock and 4-year warrants to purchase 1,333,334 shares
of common stock at $2-3/8 per share. Additional warrants to purchase 266,667
shares of Cheniere common stock will be issued for each month the notes remain
outstanding during the period from March 15, 1998 through the maturity of the
notes in September 1998. The senior term notes bear interest at an annual rate
of LIBOR plus 4%; interest is payable quarterly.
16
<PAGE>
Management's Plans and Continued Capital Raising Activities
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Cheniere is a
development stage company which has not yet generated any operating revenues.
At various times during the life of the Company to date, it has been necessary
for the Company to raise additional capital through private placements of debt
or equity financing. When such a need has arisen, the Company has met it
successfully. It is management's belief that it will continue to be able to
meet its needs for additional capital as such needs arise in the future.
At December 31, 1997, the Company had outstanding $4,000,000 in senior term
notes payable which mature on or before September 15, 1998. These notes were
issued as part of a bridge financing in conjunction with an offering of units
comprised of preferred stock and warrants to purchase common stock. The units
offering was subsequently withdrawn, and the Company has not yet determined
whether it will seek to raise additional capital for the repayment of the notes
or seek to refinance the notes.
In the event that the Company should not be successful in future efforts to
raise capital for its operations, management is confident that through trades or
sales of partial interests to industry partners the value of the oil and gas
assets in which it has earned an ownership interest can be utilized to
accomplish the Company's financial objectives of exploring and developing its
oil and gas properties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
CHENIERE ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants................................. 19
Consolidated Balance Sheet........................................ 20
Consolidated Statement of Operations.............................. 21
Consolidated Statement of Stockholders' Equity.................... 22
Consolidated Statement of Cash Flows.............................. 23
Notes to Consolidated Financial Statements........................ 24
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Cheniere Energy, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Cheniere
Energy, Inc. and its subsidiaries (a development stage company) at December 31,
1997, August 31, 1997 and August 31, 1996, and the results of their operations
and their cash flows for the four-month period ended December 31, 1997, the year
ended August 31, 1997, the period from inception (February 21, 1996) through
August 31, 1996 and the period from inception (February 21, 1996) through
December 31, 1997 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company is a development stage enterprise which has
not yet generated any operating revenues and which, since its inception in
February 1996, has been dependent on capital contributions to finance its oil
and gas exploration activities. The recoverability of the Company's unevaluated
oil and gas properties is dependent on future events, including obtaining
adequate financing for its exploration and development program, the successful
completion of its planned drilling program, and the achievement of a level of
operating revenues that is sufficient to support the Company's cost structure.
In addition, at December 31, 1997 the Company has $4,000,000 of senior term debt
outstanding which are due on or before September 15, 1998. Management's plans in
regard to these matters are also described in Note 13. The uncertainties
associated with these matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
June 12, 1998
19
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, August 31, August 31,
1997 1997 1996
------------ ------------ ------------
ASSETS
- ------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 787,523 $ 234,764 $ 1,093,180
Accounts Receivable 102,330 - -
Debt Issuance Costs, net 224,306 - -
Prepaid Expenses and Other Current Assets 10,543 57,141 4,800
------------ ------------ ------------
TOTAL CURRENT ASSETS 1,124,702 291,905 1,097,980
OIL AND GAS PROPERTIES, full cost method
Unevaluated 16,534,054 13,500,000 4,000,000
FIXED ASSETS, net 46,871 49,807 47,330
------------ ------------ ------------
TOTAL ASSETS $ 17,705,627 $ 13,841,712 $ 5,145,310
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 369,766 $ 388,291 $ 292,894
Notes Payable 2,000,000 - 425,000
Note Payable - Related Party 2,000,000 500,000 -
Less Cost of Detachable Warrants (84,167) - -
Advance from Officers - - 961
------------ ------------ ------------
TOTAL LIABILITIES 4,285,599 888,291 718,855
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES - - -
STOCKHOLDERS' EQUITY
Common Stock, $.003 par value
Authorized: 45,000,000 shares at December 31, 1997;
20,000,000 prior; Issued and Outstanding: 14,457,866
shares at December, 1997; 14,160,866 and 9,931,767
at August 31, 1997 and 1996, respectively 43,374 42,483 29,795
Preferred Stock, $.0001 par value
Authorized: 5,000,000 shares at December 31, 1997;
1,000,000 prior; Issued and Outstanding: none - - -
Additional Paid-in-Capital 15,563,330 14,709,253 4,518,507
Deficit Accumulated During the Development Stage (2,186,676) (1,798,315) (121,847)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 13,420,028 12,953,421 4,426,455
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,705,627 $ 13,841,712 $ 5,145,310
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Four Months Ended
December 31, Year Ended Period Ended Cumulative
----------------------------- August 31, August 31, from the Date
1997 1996 1997 1996 of Inception
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ - $ - $ - $ - $ -
------------ ------------ ------------ ------------ ------------
General and Administrative Expenses 447,023 192,330 1,713,461 103,814 2,264,298
------------ ------------ ------------ ------------ ------------
Loss from Operations Before Other Income
and Income Taxes (447,023) (192,330) (1,713,461) (103,814) (2,264,298)
Interest Income 58,662 7,329 56,161 1,800 116,623
Interest Expense - (8,552) (19,168) (19,833) (39,001)
------------ ------------ ------------ ------------ ------------
Loss From Operations Before Income Taxes (388,361) (193,553) (1,676,468) (121,847) (2,186,676)
Provision for Income Taxes $ - $ - $ - $ - $ -
------------ ------------ ------------ ------------ ------------
Net Loss $ (388,361) $ (193,553) $ (1,676,468) $ (121,847) $ (2,186,676)
============ ============ ============ ============ ============
Net Loss Per Share (basic and diluted) $ (0.03) $ (0.02) $ (0.14) $ (0.01) $ (0.19)
============ ============ ============ ============ ============
Weighted Average Number of Shares
Outstanding 14,348,128 10,601,368 12,143,919 8,610,941 11,681,140
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S 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 Offerings - - - (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 Offerings - - - (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
Sale of Shares on September 15, 1997 3.00 67,000 201 200,799 - 201,000
Sale of Shares on September 16, 1997 3.00 130,000 390 389,610 - 390,000
Expenses related to offerings (74,532) (74,532)
Issuance of Warrants and Shares with
Bridge Notes on December 15, 1997 2.375 100,000 300 338,200 338,500
Net Loss - - - (388,361) (388,361)
---------- -------- ------------ ------------ ------------
Balance - December 31, 1997 14,457,866 $ 43,374 $ 15,563,330 $ (2,186,676) $ 13,420,028
========== ======== ============ ============ ============
</TABLE>
* Additional shares were issued to the purchasers of shares sold on February
28, 1997 and March 4, 1997 pursuant to the terms of those sales. All of the
sales of shares indicated above were made pursuant to private placement
transactions.
The accompanying notes are an integral part of the financial statement.
22
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Four Months Ended
December 31, Year Ended Period Ended Cumulative
----------------------------- August 31, August 31, from the Date
1997 1996 1997 1996 of Inception
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (388,361) $ (193,553) $ (1,676,468) $ (121,847) $ (2,186,676)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation and Amortization 2,936 2,695 8,268 3,603 14,807
Compensation Paid in Common Stock - - 624,400 30,000 654,400
(Increase) in Accounts Receivable (102,330) - - - (102,330)
(Increase) Decrease in Prepaid Expenses
and Other Current Assets 46,598 (1,832) (52,341) (4,800) (10,543)
Increase (Decrease) in Accounts Payable
and Accrued Liabilities (18,525) (31,056) 95,397 292,894 369,766
Increase (Decrease) in Advance from Officers - - (961) 961 -
Non-Cash Interest Expense (Issuance of
Warrants) - - 6,450 12,750 19,200
------------ ------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (459,682) (223,746) (995,255) 213,561 (1,241,376)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Fixed Assets - (6,180) (10,745) (50,933) (61,668)
Proceeds from Sale of Oil and Gas
Seismic Data 46,000 - - - 46,000
Oil and Gas Property Additions (3,050,027) (2,000,000) (9,500,000) (4,000,000) (16,550,027)
------------ ------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (3,004,027) (2,006,180) (9,510,745) (4,050,933) (16,565,705)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes with
Detachable Warrants 4,000,000 - - 425,000 4,425,000
Proceeds from Issuance of Notes - - 500,000 - 500,000
Repayment of Notes Payable (500,000) (215,000) (215,000) - (715,000)
Sale of Common Stock 591,000 4,460,375 10,516,025 5,191,803 16,298,828
Offering Costs (74,532) (689,365) (1,153,441) (686,251) (1,914,224)
------------ ------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,016,468 3,556,010 9,647,584 4,930,552 18,594,604
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 552,759 1,326,084 (858,416) 1,093,180 787,523
CASH - BEGINNING OF PERIOD 234,764 1,093,180 1,093,180 - -
------------ ------------ ------------ ------------ ------------
CASH - END OF PERIOD $ 787,523 $ 2,419,264 $ 234,764 $ 1,093,180 $ 787,523
------------ ------------ ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid for Interest $ 6,718 $ 8,552 $ 15,635 $ - $ 22,353
============ ============ ============ ============ ============
Cash Paid for Income Taxes $ - $ - $ - $ - $ -
============ ============ ============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
The Company issued 105,000 shares of common stock upon the conversion of
$210,000 of notes payable in September 1996.
In conjunction with its December 1997 Bridge Financing, the Company issued
100,000 shares of common stock, valued at $237,500, and recorded as debt
issuance costs. In the same financing, 1,333,334 warrants were issued,
valued at $101,000. The amortization of such debt issuance and warrant costs
was included in interest expense which was capitalized as a cost of oil and
gas properties.
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-ORGANIZATION AND NATURE OF OPERATIONS
Cheniere Energy, Inc., a Delaware corporation, is a development stage
company engaged in exploration for oil and gas reserves. The terms "Cheniere"
and "Company" refer to Cheniere Energy, Inc. and its subsidiaries. The Company
operates principally through its wholly-owned subsidiary, Cheniere Energy
Operating Co., Inc. ("Cheniere Operating"). Cheniere Operating is a Houston-
based company formed for the purpose of oil and gas exploration, 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.
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 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 Energy, Inc. Subsequently, the
Company distributed the outstanding capital stock of Mar Ventures to the
original holders of Bexy common stock.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Cheniere
Energy, Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
period amounts have been reclassified to conform to the current period
presentation.
The financial statements presented include the accounts of the Company
since the inception of Cheniere Operating (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.
On April 7, 1998, the Company's Board of Directors approved a change in
fiscal year-end from August 31 to December 31. The change in year-end resulted
in a transition period from September 1, 1997 to December 31, 1997. As a
result, the Company is filing this Transition Report on Form 10-K for the four-
month period ended December 31, 1997.
Oil and Gas Properties
The Company follows the full cost method of accounting for its oil and gas
properties. Under this method, all productive and nonproductive exploration and
development costs incurred for the purpose of finding oil and gas reserves are
capitalized. Such capitalized costs include lease acquisition, geological and
geophysical work, delay rentals, drilling, completing and equipping oil and gas
wells, together with internal costs directly attributable to property
acquisition, exploration and development activities. Interest is capitalized on
oil and gas properties not subject to amortization and in the process of
development. The Company capitalized interest in the amount of $49,616 during
the four-month period ended December 31, 1997.
24
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The costs of the Company's oil and gas properties, including the estimated
future costs to develop proved reserves, will be depreciated using a composite
units-of-production rate based on 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. Net capitalized costs are limited to a capitalization ceiling,
calculated on a quarterly basis as the aggregate of the present value,
discounted at 10%, of estimated 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, less related income tax effects.
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 oil
and gas reserves.
Debt Issuance Costs
Costs incurred in connection with the issuance of debt are capitalized and
amortized using the straight-line method over the term of the related debt.
Accumulated amortization was $13,194 as of December 31, 1997.
Fixed Assets
Fixed assets 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 which range from three to seven years. Upon retirement or other
disposition of property and equipment, the cost and related depreciation is
removed from the accounts and the resulting gains or losses recorded.
Offering Costs
Offering costs consist primarily of placement fees, professional fees and
printing costs. These costs are charged against the related proceeds from the
sale of common stock in the periods in which they occur.
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 Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the current period's
provision for income taxes.
Stock-Based Compensation
SFAS 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 ("APB") Opinion No. 25, "Accounting for Stock Issued
to 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. The Company grants options at or above the market
price of its common stock at the date of each grant.
Earnings (Loss) Per Share
Earnings (loss) per share ("EPS") is computed in accordance with the
requirements of SFAS No. 128, "Earnings Per Share," which the Company adopted
effective December 31, 1997. Basic EPS excludes dilution and is computed by
dividing net income (loss) by the weighted average number of shares outstanding
during the period.
25
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dilutive EPS reflects potential dilution and is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period increased by the number of additional common shares that would have been
outstanding if the potential common shares had been issued. Although SFAS No.
128 requires retroactive restatement of prior period EPS information in the
period of adoption, the adoption of these provisions had no impact on the
Company's EPS calculations for the periods prior to December 31, 1997 presented
herein, since the effect of the Company's options and warrants is antidilutive
to its net loss per share under both SFAS No. 128 and the former accounting
method for calculating EPS.
Cash Equivalents
The Company classifies all investments with original maturities of three
months or less as cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value because of the short maturity of those
instruments. The carrying value of the Company's notes payable is considered to
approximate the fair value of those instruments based on the borrowing rates
currently available to the Company for loans with similar terms and maturities.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that the Company make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates. Management
believes its estimates are reasonable.
NOTE 3-FIXED ASSETS
Fixed assets consist of the following:
August 31,
December 31, -----------------------
1997 1997 1996
------------ --------- ---------
Furniture and Fixtures $ 29,914 $ 29,914 $ 26,006
Computers and Office Equipment 31,764 31,764 24,427
Other - - 500
--------- --------- ---------
61,678 61,678 50,933
Less: Accumulated Depreciation (14,807) (11,871) (3,603)
--------- --------- ---------
Fixed Assets, Net $ 46,871 $ 49,807 $ 47,330
========= ========= =========
NOTE 4- OIL AND GAS PROPERTIES
The Company's investment in oil and gas properties has been made pursuant
to an Exploration Agreement between Cheniere Operating and Zydeco Exploration,
Inc. ("Zydeco"), an operating subsidiary of Zydeco Energy, Inc. (the
"Exploration Agreement"). The Exploration Agreement defines a proprietary 3-D
seismic exploration project in southern Louisiana (the "3-D Exploration
Program"). The 3-D seismic survey covers 228 square miles within a 310 square-
mile area running three to five miles north and generally eight miles south of
the coastline in the most westerly 28 miles of Cameron Parish, Louisiana.
As of December 31, 1997, August 31, 1997, and August 31, 1996, payments
made by Cheniere to the 3-D Exploration Program totaled $16,427,000, $13,500,000
and $4,000,000, respectively. As the result of its cash payments through
December 31, 1997, the Company has earned a 50% interest in the 3-D Exploration
Program. Under the terms of the Exploration Agreement and its amendments,
additional payments will be required as prospects are generated within the 3-D
Exploration Program. The Company's level of participation in such prospects will
depend upon its making such required payments when due.
26
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's financial statements reflect its proportionate interest in
the revenues, costs, expenses, and capital with respect to the 3-D Exploration
Program. Because the exploration project has not reached the drilling phase as
of December 31, 1997, a determination has not yet been made as to the extent of
any oil and gas reserves that should be classified as proved. Consequently, all
of the Company's oil and gas property costs are classified as unevaluated and
are not yet subject to depreciation, depletion and amortization. The Company
estimates that amortization of these costs will begin in 1999.
NOTE 5-NOTES PAYABLE
December 1997 - $4,000,000 Bridge Financing
In December 1997, Cheniere completed the private placement of a $4,000,000
bridge financing (the "December 1997 Bridge Financing"). The senior term notes
payable issued by Cheniere had an initial maturity date of March 15, 1998 which
has been extended to September 15, 1998. The senior term notes bear interest at
an annual rate of 9.90625% (LIBOR plus 4% as of December 15, 1997, the date of
closing), which is payable quarterly. The securities purchase agreements which
govern the bridge financing specify that, during the term of the notes, capital
raised by the Company in excess of $5,000,000 must be directed to the repayment
of the senior term notes.
The Company's $4,000,000 December 1997 Bridge Financing included two
tranches: one domestic and one European. In conjunction with the European
tranche, BSR Investments, Ltd., a major shareholder of the Company, purchased
$2,000,000 of the notes and pledged a portion of its investment in Cheniere
common stock to fund its participation.
In connection with the December 1997 Bridge Financing, Cheniere issued
100,000 shares of common stock and 4-year warrants to purchase 1,333,334 shares
of common stock at $2-3/8 per share (Note 7). Additional warrants to purchase
266,667 shares of Cheniere common stock will be issued for each month the notes
remain outstanding during the period from March 15, 1998 through September 15,
1998. The common stock issued at closing was recorded as a debt issuance cost at
the then-current market price for the shares.
July 1997 - $500,000 Note Payable Related Party
On July 31, 1997, Cheniere Operating borrowed $500,000 from Sam B. Myers,
Jr., Chairman of Zydeco Energy, Inc., 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 Company repaid the
$500,000 promissory note, including all accrued interest, on September 22, 1997.
June 1996 - $425,000 Bridge Notes
In June 1996, Cheniere Operating borrowed $425,000 through a private
placement of short-term promissory notes with an initial interest rate of 8%
(the "Notes"). The Notes 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 1) 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 (Note 7).
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, one of the Noteholders purchased the promissory notes of the
remaining Noteholders, increasing his total holdings of the Notes to $215,000.
As per the terms of the Notes, 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
27
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (Note 7).
NOTE 6-INCOME TAXES
From its inception the Company has recorded losses for both financial
reporting purposes and for federal income tax reporting purposes. Accordingly,
the Company is not presently a taxpayer and has not recorded a provision for
income taxes in any of the periods presented in the accompanying financial
statements.
At December 31, 1997, the Company had net operating loss ("NOL")
carryforwards for tax reporting purposes of approximately $2,933,000. In
accordance with SFAS No. 109, a valuation allowance equal to the tax benefit for
deferred taxes has been established due to the uncertainty of realizing the
benefit of such NOL carryforwards.
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 December 31,
1997 and August 31, 1997 and 1996 are as follows:
August 31,
December 31, -------------------------
Deferred Tax Assets 1997 1997 1996
- ------------------------- ------------ ---------- ----------
NOL Carryforwards $ 997,000 $ 865,000 $ 295,000
Less: Valuation Allowance (997,000) (865,000) (295,000)
---------- ---------- ----------
Net Deferred Tax Assets $ - $ - $ -
========== ========== ==========
Net operating loss carryforwards expire starting in 2006 through 2012. 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.
NOTE 7-WARRANTS
As of December 31, 1997 the Company has issued and outstanding 1,720,000
and 2/3 warrants. Warrants issued by the Company do not confer upon the holders
thereof any voting or other rights of a stockholder of the Company. The
issuances and terms of the warrants are described below.
December 1997 Bridge Financing Warrants
In conjunction with Cheniere's $4,000,000 December 1997 Bridge Financing
(Note 5), the Company issued warrants to purchase 1,333,334 shares of common
stock exercisable at a price of $2-3/8 per share any time on or before December
31, 2001. Additional warrants to purchase 266,667 shares of Cheniere common
stock will be issued for each month the notes remain outstanding during the
period from March 15, 1998 through September 15, 1998. Pursuant to APB Opinion
No. 14, the warrants have been valued at the differential rate between the
stated rate (9.9%) and the then estimated market rate (20%), applied to the
principal balance outstanding for the initial term of the senior term notes.
This value ($101,000) has been credited to additional paid-in capital and
$16,833 of this amount has been recorded as interest expense, which has been
capitalized to oil and gas properties, in the four-month period ended
December 31, 1997.
Unit Warrants
In August 1996, the Company sold 100,000 units, each such unit consisting
of 5 shares of common stock and a warrant to purchase one share of common stock
for total proceeds of $1,000,000. Each such warrant is
28
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
exercisable on or before September 1, 1999 at an exercise price of $3.125 per
share. The exercise price represents the approximate market price of the
underlying common stock at the time of the transaction.
Adviser Warrants
In consideration of certain investment advisory and other services to the
Company, and 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. The exercise price represents the approximate market price of the
underlying common stock at the time of the transaction.
June Warrants
In conjunction with the issuance of the Notes (Note 5), the Company issued
and continues to have 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. The
exercise price was determined at a 100% premium to the sales price of Cheniere
stock by private placement during May 1996. The June Warrants were originally
issued by Cheniere and were converted to warrants of Cheniere following the
Reorganization. The June Warrants were issued to a group of eleven investors in
connection with a private placement of unsecured promissory notes. Pursuant to
APB Opinion No. 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 outstanding principal balance. This value, $12,750, has been
credited to additional paid-in capital and charged to interest expense for the
period ended August 31, 1996.
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. One of the
Noteholders 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 Opinion No. 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 and charged to interest expense for the period ended
August 31, 1997.
Commission Warrants
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. The exercise price
represents the approximate market price of the underlying common stock at the
time of the transaction.
29
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8-STOCK OPTIONS
In 1997 the Company established the Cheniere Energy, Inc. 1997 Stock Option
Plan (the "Option Plan"). The option plan allows for the issuance of options to
purchase up to 950,000 shares of Cheniere common stock. Grants made by the
Company are summarized in the following table:
<TABLE>
<CAPTION>
August 31,
December 31, -------------------------------
1997 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Outstanding at beginning of period 319,444 2/3 319,444 2/3 -
Options granted at an exercise price
of $3.00 per share 220,000 12,000 300,000
Options granted at an exercise price
of $1.80 per share - - 19,444 2/3
Options canceled - (12,000) -
------------- ------------- ------------
Outstanding at end of period 539,444 2/3 319,444 2/3 319,444 2/3
============= ============= ============
Exercisable at end of period 131,944 2/3 131,944 2/3 19,444 2/3
============= ============= ============
Weighted average exercise price of
options outstanding $ 2.96 $ 2.93 $ 2.93
============= ============= ============
Weighted average exercise price of
options exercisable $ 2.82 $ 2.82 $ 1.80
============= ============= ============
Weighted average remaining contractual
life of options outstanding 4.0 years 4.0 years 5.0 years
</TABLE>
The disclosure-only provisions of SFAS No. 123 do not have a material
effect on the Company's financial statements.
NOTE 9-COMMON STOCK RESERVED
The Company has reserved 1,720,000 and 2/3 shares of common stock for
issuance upon the exercise of outstanding warrants (Note 7).
The Company has reserved 950,000 shares of common stock for insurance upon
the exercise of options which have been granted or which may be granted (Note
8).
NOTE 10-RELATED PARTY TRANSACTIONS
The Company's $4,000,000 December 1997 Bridge Financing included two
tranches: one domestic and one European. In conjunction with the European
tranche, BSR Investments, Ltd., a major shareholder of the Company, purchased
$2,000,000 of the notes and pledged a portion of its investment in Cheniere
common stock to fund its participation. In conjunction with the financing, BSR
received warrants to purchase 166,667 shares of the Company's common stock.
In conjunction with certain of the Company's private placements of equity,
placement fees have been paid to Investors Administration Services, Limited
("IAS"), a company in which the brother of the Company's Co-Chairman, Charif
Souki, is a principal. Payments to IAS totaled $255,000 during the year ended
August 31, 1997. Such payments were recorded as offering costs and reflected as
a reduction of additional paid-in capital.
30
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11-COMMITMENTS AND CONTINGENCIES
The Company subleased its Houston, Texas headquarters from Zydeco under a
month-to-month sublease until March 1998. See Note 12 for a description of the
Company's office leasing activity subsequent to December 31, 1997.
Rent expense recorded in the financial statements is as follows:
<TABLE>
<CAPTION>
Four-Month Period Ended
Period Ended August 31
December 31, ------------------------
1997 1997 1996
------------ --------- ---------
<S> <C> <C> <C>
Office Rental (including parking) $ 6,887 $ 22,403 $ 3,884
Other Rental Property (terminated June, 1997) - 48,000 13,920
-------- --------- ---------
$ 6,887 $ 70,403 $ 17,804
======== ========= =========
</TABLE>
Pursuant to a Consulting Agreement dated as of July 3, 1996, between the
Company and the former President of Bexy, Cheniere engaged Bexy's former
President as a consultant to provide advice regarding the management and
business of the Company. Bexy's former President agreed to provide such
consulting services to Cheniere for two years ending on July 3, 1998, at a rate
of $75,000 per year. Bexy's former President is not an employee of Cheniere and
serves only in the capacity of a consultant.
NOTE 12-SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company completed four private
placements of its common stock pursuant to Regulation D under the Securities Act
of 1933 (the "Act"). In April 1998 Cheniere issued 530,000 shares, generating
net proceeds of $1,018,000. In May 1998 the Company issued 22,000 shares with
proceeds of $44,000 and an additional 70,000 shares in partial payment of
$215,000 of legal charges related principally to previous offerings of the
Company's common stock. In June 1998 Cheniere issued 890,644 shares of common
stock, generating net proceeds of $1,175,900. In conjunction with the June 1998
financing, the Company also issued $180,000 in short-term notes with detachable
warrants.
In March 1998, the Company terminated its sublease from Zydeco for office
space and entered into a lease for 2,678 square feet of office space from an
unrelated third party. The term of the lease is six years. Rentals total
$4,190 per month.
On April 7, 1998, the Audit Committee of the Company's Board of Directors
elected to change the fiscal year-end of the Company from August 31 to December
31.
At the State of Louisiana Mineral Board lease sale held on April 8, 1998,
Cheniere and Zydeco acquired leases on four tracts, aggregating 1,830 acres. At
the State of Louisiana Mineral Board lease sale held on June 10, 1998, Cheniere
acquired leases on four tracts, aggregating 381 acres and Zydeco acquired leases
on nine tracts, aggregating 5,357 acres.
On April 21, 1998, Zydeco filed a petition with the American Arbitration
Association for arbitration in order to resolve certain disputes that have
arisen with the Company. These disputes pertain to the rights and obligations
of the parties involved and the claims for reimbursement of certain seismic
costs and expenses incurred by Zydeco. The Company believes it has properly
earned and preserved its interest in the project area covered by the Exploration
Agreement and that all of its actions to date have been entirely within the
scope of the Exploration Agreement. The Company believes it will ultimately
prevail in the arbitration process.
31
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 27, 1998, the Company filed a counterclaim to the petition filed
by Zydeco. The Company denies all claims made in the Zydeco filing. In its
counterclaim, the Company asserts that Zydeco is liable for material
misrepresentations, mismanagement and breaches of the Exploration Agreement.
Cheniere seeks recovery of damages and other relief.
NOTE 13 - MANAGEMENT'S PLANS AND CONTINUED CAPITAL RAISING ACTIVITIES
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Cheniere is a
development stage company which has not yet generated any operating revenues.
At various times during the life of the Company to date, it has been necessary
for the Company to raise additional capital through private placements of debt
or equity financing. When such a need has arisen, the Company has met it
successfully. It is management's belief that it will continue to be able to
meet its needs for additional capital as such needs arise in the future.
At December 31, 1997, the Company had $4,000,000 outstanding in senior term
notes payable which mature on or before September 15, 1998. These notes were
issued as part of a bridge financing in conjunction with an offering of units
comprised of preferred stock and warrants to purchase common stock. The units
offering was subsequently withdrawn, and the Company has not yet determined
whether it will seek to raise additional capital for the repayment of the notes
or seek to refinance the notes.
In the event that the Company should not be successful in future efforts to
raise capital for its operations, management is confident that through trades or
sales of partial interests to industry partners the value of the oil and gas
assets in which it has earned an ownership interest can be utilized to
accomplish the Company's financial objectives of exploring and developing its
oil and gas properties.
32
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the directors
and executive officers of the Company as of June 30, 1998:
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE AGE POSITION
- ---- -------------- --- --------
<S> <C> <C> <C>
Keith F. Carney ............ - 42 Executive Vice President
William D. Forster ......... 1996 50 Co-Chairman of the Board of Directors
Kenneth R. Peak ............ 1997 52 Director
Charles M. Reimer .......... 1998 53 Director
Charif Souki ............... 1996 45 Co-Chairman of the Board of Directors
Don A. Turkleson ........... - 43 Chief Financial Officer, Secretary and Treasurer
Walter L. Williams ......... 1996 70 President, Chief Executive Officer and Director
Efrem Zimbalist, III ....... 1996 51 Director
</TABLE>
The executive officers of the Company serve at the pleasure of the Board of
Directors and are subject to annual appointment by the Board. The Company had
five executive officers during the four-month period ended December 31, 1997.
Information concerning the backgrounds of the directors and executive officers
of the Company is provided in the following paragraphs.
Keith F. Carney is currently Executive Vice President of Cheniere. He
served as Chief Financial Officer and Treasurer of the Company from July 1996
through November 1997. Prior to joining Cheniere, Mr. Carney was a securities
analyst in the oil and gas exploration/production sector with Smith Barney, Inc.
from 1992-1996. From 1982-1990 he was employed by Shell Oil as an exploration
geologist, with assignments in the Gulf of Mexico, the Middle East and other
areas. He received a Master of Science degree in geology from Lehigh University
in 1982 and a Master of Business Administration/Finance degree from the
University of Denver in 1992. Mr. Carney currently serves as a Director for Pyr
Energy.
William D. Forster, co-founder of Cheniere, is currently Co-Chairman of the
Board of Directors and a member of the Stock Option Committee. He served as
President and Chief Executive Officer of Cheniere from July 1996 to September
1997. Mr. Forster was an investment banker with Lehman Brothers from 1975 to
1990, serving as a Managing Director for 11 years, initially in the oil and gas
department for seven years, and then in various other areas. In 1990, he
founded his own private investment bank, W. Forster & Co. Inc. Mr. Forster is a
Director of Equity Oil Company, a Nasdaq National Market company. He holds a
Bachelor of Arts degree in economics from Harvard College and a Master of
Business Administration degree from Harvard Business School.
Kenneth R. Peak is currently a Director of Cheniere and a member of the
Audit Committee and the Stock Option Committee. Mr. Peak has been the President
of Peak Enernomics, Incorporated, a company engaged in consulting activities in
the oil and gas industry, since forming the company in 1990. From 1989 to 1990
Mr. Peak served as a Managing Director and Co-Manager, Corporate Finance, of
Howard Weil Incorporated, an investment banking firm. Prior to joining Howard
Weil Incorporated, Mr. Peak served as Vice President-Finance for Forest Oil
Corporation from 1988 to 1989. Mr. Peak received a Bachelor of Science in
physics from Ohio University and a Master of Business Administration degree
from Columbia University. He currently serves as a director of NL Industries,
Inc. and Cellxion, Inc.
33
<PAGE>
Charles M. Reimer is currently a Director of Cheniere. He is also Chairman
and CEO of Virginia Indonesia Company (VICO), the operator on behalf of Union
Texas Petroleum Holdings, Inc. and LASMO plc, of major gas and oil reserves and
production located in East Kalimantan, Indonesia. Mr. Reimer began his career
with Exxon Company USA in 1967 and held various professional and management
positions in Texas and Louisiana. After leaving Exxon, Mr. Reimer was named
President of Phoenix Resources Company in 1985 and relocated to Cairo, Egypt to
begin eight years of international assignments.
Charif Souki, also co-founder of Cheniere, is currently Co-Chairman of the
Board of Directors and a member of the Audit Committee and the Stock Option
Committee. Mr. Souki is an independent investment banker with twenty years of
experience in the industry. In the past few years he has specialized in
providing financing for promising microcap and small capitalization companies
with an emphasis on the oil and gas industry. He holds a Bachelor of Arts
degree from Colgate University and a Master of Business Administration from
Columbia University.
Don A. Turkleson is currently Chief Financial Officer, Secretary and
Treasurer of Cheniere. Prior to joining Cheniere, Mr. Turkleson was employed by
PetroCorp Incorporated from 1983 to 1996, as Controller until 1986, then as Vice
President-Finance, Secretary and Treasurer. From 1975 to 1983 he worked as a
Certified Public Accountant in the natural resources division of Arthur Andersen
& Co. Mr. Turkleson received a Bachelor of Science degree in accounting from
Louisiana State University in 1975. He is a member of the American Institute of
Certified Public Accountants and of the Texas Society of Certified Public
Accountants. He is a Director, Treasurer and past Chairman of the Board of
Neighborhood Centers, Inc.
Walter L. Williams is currently President and Chief Executive Officer and a
Director of Cheniere. Prior to joining Cheniere, Mr. Williams spent 32 years as
a founder and later Chairman and Chief Executive Officer of Texoil, Inc., a
publicly held Gulf Coast exploration and production company. Prior to that time
he was an independent petroleum consultant. He received a Bachelor of Science
degree in petroleum engineering from Texas A&M University in 1949 and is a
Registered Engineer in both the states of Louisiana and Texas. Mr. Williams has
served as a Director and Member of the Executive Committee of the Board of the
Houston Museum of Natural Science.
Efrem Zimbalist, III is currently a Director of Cheniere, Chairman of the
Audit Committee and a member of the Stock Option Committee. He is also
President and Chief Executive Officer of Times Mirror Magazines, a division of
Times Mirror Co., and a Vice President of Times Mirror Co. He formerly served
as Vice President, Strategic Development for Times Mirror Co. from 1993 to 1995.
Previously he served as Chairman and Chief Executive Officer of Correia Art
Glass, Inc., a family owned business. He also served five years as a senior
engagement manager at the management consulting firm of McKinsey and Co., Inc.
in Los Angeles. Mr. Zimbalist received a Bachelor of Arts degree in economics
from Harvard College and a Master of Business Administration degree from Harvard
Business School.
34
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for the executive
officers for services to the Company during the year ended December 31, 1997,
the year ended August 31, 1997, and the period from inception (February 21,
1996) through August 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term
----------------------------------- Compensation Awards
---------------------
Other Annual Securities Underlying
Name and Principal Position Year(1) Salary Compensation Options/SARs(#)
- --------------------------- ------- -------- ------------ ---------------------
<S> <C> <C> <C> <C>
Walter L. Williams 1997c $120,000 $0 50,000
President and 1997 $120,000 $0 --
Chief Executive Officer 1996 $0 $30,000(2) 150,000
Keith F. Carney 1997c $90,833 $0 50,000
Executive Vice President 1997 $90,000 $0 --
1996 $11,250 (3) $0 150,000
Don A. Turkleson 1997c $8,333 (4) $0 50,000
Chief Financial Officer, 1997 $0 $0 --
Secretary and Treasurer 1996 $0 $0 --
</TABLE>
(1) The Company's first period of operations was from inception (February 21,
1996) to August 31, 1996. The next period reported is the year ended August
31, 1997. The one-year period ending December 31, 1997 is indicated in the
table above with the caption "1997c", and is included due to a change in
the Company's fiscal year-end.
(2) Mr. Williams' Other Annual Compensation for 1996 represents 30,000 shares
of common stock, valued at $1.00 per share, received in lieu of cash
compensation for three months of employment from his inception date of June
1, 1996 through August 31, 1996 based on an annual salary of $120,000.
(3) Mr. Carney's 1996 salary was payment for six weeks of employment from his
inception date of July 16, 1996 through August 31, 1996 based on an annual
salary of $90,000. Effective December 1, 1997, Mr. Carney's annual salary
was increased to $100,000.
(4) Mr. Turkleson's salary for the one-year period ended December 31, 1997 was
payment for one month of employment from his inception date of December 1,
1997 based on an annual salary of $100,000.
35
<PAGE>
OPTIONS GRANTS
Stock options granted to executive officers during the one-year period
ended December 31, 1997 are summarized in the following table:
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value
- ---------------------------------------------------------------------------------------------- at Assumed Annual Rates
Number of Securities % of Total of Stock Price Appreciation
Underlying Options/SARs Exercise or for Option Term
Options/SARs Granted to Employees Base Price Expiration ----------------------------
Name Granted in Fiscal Period Per Share Date 5%(1) 10%
- ------------------ -------------------- --------------------- --------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Walter L. Williams 50,000 28.60% $3.00 12/14/02 - $36,215
Keith F. Carney 50,000 28.60% $3.00 12/14/02 - $36,215
Don A. Turkleson 50,000 28.60% $3.00 12/14/02 - $36,215
</TABLE>
(1) The market price of the Company's common stock at the date of grant was
$2.3125. At an assumed annual rate of appreciation of 5%, the market price
of the Company's common stock would remain below the exercise price of $3.00
per share throughout the term of the options.
Outside members of the Board of Directors (those who do not serve as
executive officers of the Company) are compensated for their services to the
Company through the grant of options to purchase common stock of the Company.
During the four months ended December 31, 1997, Mr. Peak received options to
purchase 35,000 shares of common stock and Mr. Zimbalist received options to
purchase 10,000 shares of common stock, all at an exercise price of $3.00 per
share on or before September 28, 2002.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information regarding unexercised options to
purchase shares of common stock granted by the Company to its executive
officers. No executive officers exercised any Common Stock options during the
one-year period ended December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS/SARs AT DECEMBER 31, 1997 OPTIONS/SARs AT DECEMBER 31, 1997 (1)
--------------------------------------------- -------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- --------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Walter L. Williams 75,000 125,000 -- --
Keith F. Carney 37,500 162,500 -- --
Don A. Turkleson -- 50,000 -- --
</TABLE>
(1) The value of unexercised options to purchase common stock at December 31,
1997 is nil since the $2.25 per share market value of the underlying
securities at December 31, 1997 was less than the $3.00 exercise price.
36
<PAGE>
BOARD REPORT ON EXECUTIVE COMPENSATION
The Board of Directors has furnished the following report on executive
compensation for the four months ended December 31, 1997:
Because the Company is a development stage company, the Company has no
employment agreements with any of its executive officers and two executive
officers served with no compensation for the four months ended December 31,
1997. William D. Forster and Charif Souki, Co-Chairmen of the Board of
Directors for the four months ended December 31, 1997, did not receive any
compensation in the form of salary or options and the Company does not currently
intend to pay any such compensation to such officers until the Company has
raised significant additional capital.
For those executive officers receiving compensation, the Company seeks to
relate a significant portion of the potential total executive compensation to
the Company's financial performance. In general, executive financial rewards
may be segregated into the following components: salary and stock-based
benefits.
Base compensation for senior executive officers is intended to afford a
reasonable degree of financial security and flexibility to those individuals who
are regarded by the board as acceptably discharging the levels and types of
responsibility implicit in the various executive positions. The board also
takes into consideration industry and non-industry compensation levels for
professional peer groups. Based on these factors, Walter L. Williams received
salary at a rate of $120,000 per year beginning September 1, 1996; Keith F.
Carney received salary at a rate of $90,000 per year beginning July 16, 1996,
which was increased to $100,000 per year effective December 1, 1997; Don A.
Turkleson received salary at a rate of $100,000 per year beginning December 1,
1997.
The board of directors is of the view that properly designed and
administered stock-based incentives for senior executives closely align the
executives' economic interests with those of stockholders and provide a direct
continuing focus upon the goal of constantly striving to increase long-term
stockholder value. Toward that goal, the Company (i) on June 1, 1996, granted
Mr. Williams options to purchase 150,000 shares of the common stock and on July
3, 1996, granted Mr. Williams 30,000 shares of common stock in lieu of cash
compensation for three months of employment from his inception date of June 1,
1996 until the end of the fiscal year on August 31, 1996, (ii) on July 16, 1996,
granted Mr. Carney options to purchase 150,000 shares of common stock and (iii)
on December 15, 1997 granted options to purchase 50,000 shares of common stock
to each of Messrs. Williams, Carney and Turkleson. See "Executive Compensation-
- -Summary Compensation Table and --Option Grants" for details.
Since the Company has no compensation committee, the foregoing report was
given by the entire incumbent Board of Directors as of December 31, 1997.
THE BOARD OF DIRECTORS
William D. Forster, Co-Chairman
Charif Souki, Co-Chairman
Kenneth R. Peak
Walter L. Williams
Efrem Zimbalist III
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Because the Company has no compensation committee, all incumbent members of
the Board of Directors, as of December 31, 1997, participated in deliberations
concerning executive officer compensation. In addition to serving as a director
of the Company, several directors held positions as executive officers during
the four months ended December 31, 1997. Mr. Forster served as Co-Chairman of
the Board, Mr. Souki served as Co-Chairman of the Board and Mr. Williams served
as President and Chief Executive Officer.
37
<PAGE>
COMMON STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock against, the S&P Oil and Gas (Exploration & Production)
Index, and the Russell 1000 Index for the period beginning on July 3, 1996 and
ending at December 31, 1997. The Company's Common Stock began trading on the OTC
Bulletin Board on July 3, 1996 and moved to the NASDAQ SmallCap Market on April
11, 1997. The graph was constructed on the assumption that $100 was invested in
the Company's Common Stock, the S&P Oil and Gas (Exploration & Production)
Index, and the Russell 2000 Index on July 3, 1996.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CHENIERE ENERGY, INC., S&P OIL & GAS (EXPLORATION & PRODUCTION) INDEX, AND
RUSSELL 1000 INDEX
[Graph appears Here]
<TABLE>
<CAPTION>
JULY 3, 1996 AUGUST 31, 1996 AUGUST 31, 1997 DECEMBER 31, 1997
------------ --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Cheniere Energy, Inc. $100 $117 $119 $102
S&P Oil & Gas (Exploration &
Production) Index $100 $ 98 $136 $148
Russell 1000 Index $100 $ 99 $116 $106
</TABLE>
38
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS
The following table sets forth information with respect to the shares of
common stock owned of record and beneficially as of June 30, 1998 by all persons
who own of record or are known by the Company to own beneficially more than 5%
of the outstanding common stock by each director and executive officer, and by
all directors and executive officers as a group:
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP PERCENT OF CLASS
- --------------------------- -------------------------- ----------------
BSR Investments, Ltd. 2,768,667 (1) 16.9%
Keith F. Carney 75,000 (2) *
William D. Forster 2,846,211 (3) 17.6%
Kenneth R. Peak -- (4) *
Charles M. Reimer 28,571 (5) *
Charif Souki -- (6) *
Don A. Turkleson 25,000 (7) *
Walter L. Williams 180,000 (8) 1.1%
Efrem Zimbalist, III 22,000 (9) *
All Directors and Officers
as a group (8 persons) 3,176,782 (10) 19.3%
_______________
* Less than 1%
(1) BSR Investments, Ltd. is controlled by Nicole Souki, the President of BSR
and the mother of Charif Souki. Charif Souki disclaims beneficial ownership
of the shares. Includes warrants to purchase 166,667 of the Company's common
stock. BSR's address is: c/o Harney, Westwood & Riegels, Box 71, Craigmuir
Chambers, Road Town, Tortola, B.V.I.
(2) Includes 75,000 shares issuable upon exercise of presently exercisable
options. Excludes 125,000 shares issuable upon the exercise of options held
by Mr. Carney but not exercisable within 60 days of the filing of this Form
10-K Transition Report.
(3) Does not include 100,000 shares held by a trust for the benefit of Mr.
Forster's mother of which Mr. Forster is a 20% remainderman and of which
shares he disclaims beneficial ownership. Mr. Forster's address is c/o
Cheniere Energy, Inc., 1200 Smith Street, Suite 1740, Houston, TX 77002-
4312.
(4) Excludes 35,000 shares issuable upon the exercise of options held by Mr.
Peak but not exercisable within 60 days of the filing of this Form 10-K
Transition Report.
(5) Excludes 35,000 shares issuable upon the exercise of options held by Mr.
Reimer but not exercisable within 60 days of the filing of this Form 10-K
Transition Report.
(6) Does not include 2,602,000 shares nor warrants to purchase 166,667 shares of
Cheniere common stock held by BSR Investments, Ltd. of which Charif Souki
disclaims beneficial ownership. BSR Investments, Ltd. is controlled by
Nicole Souki, the President of BSR Investments, Ltd. and the mother of
Charif Souki.
(7) Excludes 50,000 shares issuable upon the exercise of options held by Mr.
Turkleson but not exercisable within 60 days of the filing of this Form 10-K
Transition Report.
(8) Includes 150,000 shares issuable upon exercise of presently exercisable
options. Excludes 50,000 shares issuable upon the exercise of options held
by Mr. Williams but not exercisable within 60 days of the filing of this
Form 10-K Transition Report.
(9) Excludes 10,000 shares issuable upon the exercise of options held by Mr.
Zimbalist but not exercisable within 60 days of the filing of this Form 10-K
Transition Report.
(10)Includes an aggregate of 225,000 shares issuable upon exercise of presently
exercisable options. Excludes an aggregate of 270,000 shares issuable upon
the exercise of options not exercisable within 60 days of the filing of this
Form 10-K Transition Report.
39
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BSR Investments, Ltd. ("BSR"), an entity holding approximately 16.9% of the
outstanding shares of the Company's common stock, is under the control of Nicole
Souki, the mother of Charif Souki, Co-Chairman of the Board of Directors for the
our months ended December 31, 1997. Charif Souki has been engaged, from time to
time, as a consultant to BSR. Charif Souki disclaims beneficial ownership of
all shares held by BSR.
The Company's $4,000,000 December 1997 Bridge Financing included two
tranches: one domestic and one European. In conjunction with the European
tranche, BSR purchased $2,000,000 of the notes and pledged a portion of its
investment in Cheniere common stock to fund its participation. In conjunction
with the financing, BSR received warrants to purchase 166,667 shares of the
Company's common stock.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits
(1) Financial Statements
Report of Independent Accounts................... 19
Consolidated Balance Sheet....................... 20
Consolidated Statement of Operations............. 21
Consolidated Statement of Stockholders' Equity... 22
Consolidated Statement of Cash Flows............. 23
Notes to Consolidated Financial Statements....... 24
(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))
3.3 Board Resolutions Amending By-laws of Cheniere
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))
41
<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 Young (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-K 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.
(Incorporated by reference to Exhibit 10.15 of the Annual Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
on Form 10-K filed on October 14, 1997 (File No. 0-9092))
10.16 Form of Warrant Agreement between Cheniere and Reefs & Co., Ltd.
(Incorporated by reference to Exhibit 10.16 of the Annual Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
on Form 10-K filed on October 14, 1997 (File No. 0-9092))
10.17 Form of Warrant Agreement governing warrants issued pursuant to
Noteholders Agreement (Incorporated by reference to Exhibit 10.17 of
the Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-K filed on October 14, 1997 (File No.
0-9092))
10.18 Fifth Amendment to the Exploration Agreement between FX Energy, Inc.
(now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.18 of the Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 on Form 10-K filed on
October 14, 1997 (File No. 0-9092))
10.19 Sixth Amendment to the Exploration Agreement between FX Energy, Inc.
(now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.19 of the Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 on Form 10-K filed on
October 14, 1997 (File No. 0-9092))
42
<PAGE>
10.20 Form of Letter Agreement between Cheniere and Sam B. Myers, Jr.
regarding Promissory Note in the principal amount of $500,000
(Incorporated by reference to Exhibit 10.20 of the Annual Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
on Form 10-K filed on October 14, 1997 (File No. 0-9092))
10.21 Form of Noteholder Agreement between Cheniere and Sam B. Myers, Jr.
relating to Promissory Note in the principal amount of $500,000
(Incorporated by reference to Exhibit 10.21 of the Annual Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
on Form 10-K filed on October 14, 1997 (File No. 0-9092))
10.22 Form of Security Agreement between Cheniere and Sam B. Myers, Jr.
relating to Promissory Note in the principal amount of $500,000
(Incorporated by reference to Exhibit 10.22 of the Annual Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
on Form 10-K filed on October 14, 1997 (File No. 0-9092))
10.23 Seventh Amendment to the Exploration Agreement between FX Energy, Inc.
(now known as Cheniere Operating) and Zydeco (Incorporated by
reference to Exhibit 10.23 of the Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 on Form 10-K filed on
October 14, 1997 (File No. 0-9092))
10.24 Form of Letter Agreement between Cheniere and Sam B. Myers, Jr.
regarding Promissory Note Extension (Incorporated by reference to
Exhibit 10.24 of the Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 on Form 10-K filed on October 14,
1997 (File No. 0-9092))
10.25 Cheniere Energy, Inc. 1997 Stock Option Plan (Incorporated by
reference to Exhibit 10.25 of the Quarterly Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-Q filed
on January 14, 1998 (File No. 0-9092))
10.26 Eighth Amendment to the Exploration Agreement between FX Energy, Inc.
(now known as Cheniere Operating) and Zydeco
10.27 Form of Securities Purchase Agreement dated December 15, 1997
10.28 Form of First Amendment to Securities Purchase Agreement dated
December 15, 1997
10.29 Securities Purchase Agreement among Cheniere, Arabella S.A., Alba
Limited and Scorpion Energy Partners dated December 15, 1997
10.30 Letter Agreement between Cheniere and Zydeco dated December 31, 1997
21.1 Subsidiaries of Cheniere Energy, Inc. (Incorporated by reference to
Exhibit 21.1 of the Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 on Form 10-K filed on October 14,
1997 (File No. 0-9092))
27.1 Financial Data Schedule
(b) Reports On Form 8-K
The Company filed Current Reports on Form 8-K on September 24, 1997,
regarding the repayment of a $500,000 short-term note payable, a rescheduling of
amounts payable under the Exploration Agreement and sales of equity securities
pursuant to Regulation S; on October 10, 1997, regarding new director and
management changes; on December 18, 1997, regarding a $4,000,000 bridge
financing and a units offering; on April 23, 1998, regarding Zydeco's filing a
petition for arbitration to resolve certain disputes; and on May 22, 1998
regarding a change in accountants.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHENIERE ENERGY, INC.
By: /s/ WALTER L. WILLIAMS
--------------------------
Walter L. Williams
President and Chief Executive Officer
Date: July 2, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ WILLIAM D. FORSTER Co-Chairman of the Board July 2, 1998
- ------------------------
William D. Forster
/s/ CHARIF SOUKI Co-Chairman of the Board July 2, 1998
- ------------------------
Charif Souki
/s/ WALTER L. WILLIAMS President and Chief Executive Officer, July 2, 1998
- ------------------------ Director
Walter L. Williams
/s/ DON A. TURKLESON Chief Financial Officer, Secretary and July 2, 1998
- ------------------------ Treasurer
Don A. Turkleson
/s/ KENNETH R. PEAK Director July 2, 1998
- ------------------------
Kenneth R. Peak
/s/ CHARLES M. REIMER Director July 2, 1998
- ------------------------
Charles M. Reimer
/s/ EFREM ZIMBALIST, III. Director July 2, 1998
- ------------------------
Efrem Zimbalist, III
44
<PAGE>
Exhibit 3.3
RESOLUTIONS AMENDING CHENIERE BY-LAWS
ADOPTED BY THE BOARD OF DIRECTORS ON APRIL 7, 1998
Resolved that the Company change its fiscal year-end from August 31 to
December 31 beginning with December 31, 1997, and reporting the transition
period from September 1, 1997 to December 31, 1997 on Form 10-K;
Resolved Further that, effective December 31, 1997, Article VII, Section
7.01 of the Company's By-Laws be hereby amended to read, "Fiscal Year. The
fiscal year of the Corporation shall end on the thirty-first day of December of
each year unless changed by resolution of the Board."
<PAGE>
Exhibit 10.26
[ZYDECO EXPLORATION, INC. LETTERHEAD]
October 30, 1997
Cheniere Energy, Inc.
1200 Smith Street, Suite 1710
Houston, Texas 77002
Attention: Mr. Walter L. Williams, President
Re: Eighth 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 Blocks
within the area of 3-D seismic coverage acquired by Zydeco Exploration, Inc.
from Fairfield Industries, Inc. by supplement Agreement No. 2 to Master License
Agreement dated January 9, 1997, being all or those portions of the following
described blocks lying or being situated outside of the existing AMI, to wit:
West Cameron Blocks 46, 47, 48, 53, 54, 55, 56 and Sabine Pass Blocks 3 and 6.
Except as herein specifically amended, all other provisions of the captioned
Agreement and previous amendments shall remain unchanged. If you are in
agreement with the foregoing, please so indicate by signing and returning the
attached duplicate original of this letter for completion of our files.
Very truly yours,
ZYDECO EXPLORATION, INC.
By: /s/ JOHN O. SMITH
-----------------
Title: President & COO
ACCEPTED AND AGREED TO
THIS 31 DAY OF OCTOBER, 1997.
CHENIERE ENERGY, INC.
BY: /s/ WALTER L. WILLIAMS
----------------------
TITLE: President
<PAGE>
Exhibit 10.27
CHENIERE ENERGY, INC.
Two Allen Center
1200 Smith Street, Suite 1710
Houston, Texas 77002-4312
December 15, 1997
Address~
Address1~
Address2~
Address3~
Re: FORM OF SECURITIES PURCHASE AGREEMENT
Cheniere Energy, Inc., a Delaware corporation ("BORROWER"), and the
undersigned, a Lender ("LENDER"), in consideration of the mutual covenants
contained herein, agree as follows:
1. COMMITMENT. In accordance with the terms and conditions set forth herein and
upon receipt by Lender of the items listed on Schedule 1, Lender agrees to
make a term loan hereunder to Borrower in the amount of $Term Loan Amount~
(the "TERM LOAN"). As additional consideration for the Term Loan, Borrower
will issue to Lender (i) Lender Stock~ shares (the "LENDER STOCK") of
Borrower's common stock, par value $.003 per share (the "COMMON STOCK") and
(ii) warrants in the form of EXHIBIT A (the "LENDER WARRANTS") to purchase
Lender Warrants~ shares of Common Stock at an exercise price of Exercise
Price~ per share (the "EXERCISE PRICE") which expire on December 31, 2001
(the "EXPIRATION DATE").
2. TERMS OF PAYMENT.
a) The Term Loan shall be evidenced by, and payable in accordance with the terms
of, a promissory note (the "NOTE") executed by Borrower, payable to the order
of Lender, in substantially the form of EXHIBIT B.
b) Borrower may prepay the Note, in whole or in part, without premium or
penalty, at any time.
c) In addition to prepayments under clause (b) above, Borrower shall make
prepayments of principal of the Term Loan equal to the net cash proceeds
received by Borrower from any private placement of Borrower's equity
securities or from any sale by Borrower of seismic data, less up to
$1,000,000 which may be retained by Borrower.
3. EXTENSION OF MATURITY DATE. If no Default or Potential Default exists,
Borrower may extend the Maturity Date for a period of up to 180 days by
notifying Lender of such extension prior to the original Maturity Date. If
Borrower extends the Maturity Date hereunder, Borrower shall issue to Lender
additional warrants (the "ADDITIONAL LENDER
<PAGE>
WARRANTS") with an exercise price equal to the Exercise Price which expire on
the Expiration Date in the form of EXHIBIT A to purchase Additional Lender
Warrants~ shares of Common Stock for each 30 day period after the original
Maturity Date during which any amount of the Term Loan is outstanding and
unpaid until the date (the "FINAL REPAYMENT DATE") that is the earlier of (x)
the date of repayment of the Term Loan in full and (y) 180 days after the
original Maturity Date. The Additional Lender Warrants shall be issued within
10 days after the Final Repayment Date.
4. CERTAIN REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender that:
a) Borrower is a corporation duly organized, validly existing and in good
standing under the laws of Delaware, is duly qualified to transact business
as a foreign corporation in each jurisdiction where the nature and extent of
its business require the same (except where the failure to do so would not
constitute a Material Adverse Event), and possesses all requisite authority,
powers, licenses, permits and franchises to conduct its business and execute,
deliver and comply with the terms of the Loan Papers executed or to be
executed by it, all of which have been duly authorized and approved by all
requisite corporate action and for which no approval or consent of any
person, entity or governmental authority is required that has not been
obtained;
b) Borrower is not, and the execution, delivery and performance of the Loan
Papers will not cause it to be, in violation of any law, regulation or
agreement (to the extent such violation is a Material Adverse Event) or its
corporate charter or bylaws;
c) upon execution and delivery by all parties thereto, each Loan Paper will
constitute a legal and binding obligation of Borrower, enforceable against it
in accordance with its terms, except as enforceability may be limited by
applicable Debtor Relief Laws and general principles of equity;
d) Borrower is not involved in or aware of the threat of any litigation which,
if determined adversely to it, would be a Material Adverse Event, and there
are no outstanding or unpaid judgments against Borrower;
e) all financial statements (or any replacements thereto) of Borrower and
related information concerning Borrower delivered to Lender by Borrower were
true and correct in all material respects as of the date thereof, were (in
the case of financial statements) prepared in accordance with generally
accepted accounting principles in the United States ("GAAP") and fairly
present the financial condition, results of operations and all material
liabilities of Borrower, and, except as previously disclosed to Lender, there
have been no material adverse changes in the financial condition of Borrower
since the date of such financial statements;
f) the Lender Warrants and Additional Lender Warrants (collectively, the
"WARRANTS") when issued, will be binding obligations of Borrower, enforceable
against it in accordance with the terms of the Warrants, except as
enforceability may be limited by applicable Debtor Relief Laws and general
principles of equity; the Common Stock issuable upon exercise of each Warrant
will, when issued and paid for in accordance with such Warrant, be duly and
validly authorized and issued, fully paid and nonassessable; and
2
<PAGE>
g) the Note and the Warrants are not being offered or sold by any form of
general solicitation or general advertising.
5. CERTAIN AFFIRMATIVE COVENANTS. Borrower shall:
a) use the proceeds of the Term Loan only for working capital and general
corporate purposes (including, without limitation, payments to Zydeco
Exploration, Inc., a subsidiary of Zydeco Energy, Inc., under Borrower's
Exploration Agreement with them);
b) deliver to Lender each filing made by Borrower during the term of the Term
Loan pursuant to the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT");
c) promptly pay when due all taxes due by Borrower, except taxes being contested
in good faith by appropriate legal proceedings, for which adequate reserves
in accordance with GAAP have been established.
6. CERTAIN NEGATIVE COVENANTS. Borrower will not, directly or indirectly:
a) use the proceeds of any advance hereunder (i) to acquire any other entity,
(ii) to purchase or carry (or to extend credit to another for the purpose of
purchasing or carrying) "margin stock" (as defined in Regulation U of the
Federal Reserve System), (iii) to pay any wages (unless a payment to or
deposit with the United States of all amounts of tax required to be deducted
and withheld with respect thereto has been made), or (iv) for any unlawful
purpose;
b) merge or consolidate with any entity, or dissolve;
c) declare, make or pay any distribution or dividend to its owners;
d) sell, lease or otherwise dispose of all or any substantial portion of its
assets;
e) engage in any business other than that in which it is presently engaged; or
f) pledge any of its assets, including its interest in seismic data.
3
<PAGE>
7. LENDER ACKNOWLEDGMENTS.
A) TRANSFER RESTRICTIONS. Lender acknowledges that (i) the Term Note, Lender
Stock, Warrants and the Common Stock underlying the Warrants (collectively,
the "RESTRICTED SECURITIES") to be issued to it hereunder have not been and
are not being registered under the provisions of the Securities Act of 1933,
as amended (the "SECURITIES ACT"), or any applicable state securities laws
(except as provided in SECTION 9), and may not be offered, sold, pledged or
otherwise transferred unless (A) the Restricted Securities are subsequently
registered under the Securities Act and all applicable state securities laws
or (B) the holder of the Restricted Securities shall have delivered to
Borrower an opinion of counsel, reasonably satisfactory in form, scope and
substance to Borrower, to the effect that the Restricted Securities may be
sold or transferred pursuant to a valid exemption from such registration
requirements; (ii) the Restricted Securities are and will be "restricted
securities" (as defined in Rule 144 promulgated under the Securities Act);
(iii) any sale of the Restricted Securities, as the case may be, made in
reliance on Rule 144 promulgated under the Securities Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of the Restricted Securities, as the case may be,
under circumstances in which the seller, or the person through whom the sale
is made, may be deemed to be an underwriter, as that term is used in the
Securities Act, may require compliance with some other exemption under the
Securities Act or the rules and regulations of the Securities and Exchange
Commission (the "SEC") thereunder; and (iv) neither Borrower nor any other
person is under any obligation to register the Restricted Securities (other
than as set forth in SECTION 9) under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
b) RESTRICTIVE LEGEND. Lender acknowledges and agrees that "stop transfer"
instructions shall be given regarding the Restricted Securities on the
transfer books of Borrower, and that the certificate(s) evidencing the
Restricted Securities shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE SECURITIES ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE DISPOSED OF FOR VALUE UNLESS A REGISTRATION STATEMENT HAS BECOME
EFFECTIVE WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE CORPORATION THAT THERE IS AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS."
4
<PAGE>
8. LENDER REPRESENTATIONS, WARRANTIES AND COVENANTS.
Lender represents and warrants to, and covenants and agrees with, Borrower as
follows:
a) Lender is purchasing the Restricted Securities for its own account, for
investment only and not with a view towards the public sale or distribution
thereof in violation of the Securities Act, and with no present intention of
dividing or allowing others to participate in this investment.
b) If Lender is an individual, Lender is an "accredited investor" as that term
is defined in Rule 501(a)(5) or (6) of Regulation D promulgated under the
Securities Act by reason that Lender is an individual (i) having an
individual net worth, or a joint net worth with Lender's spouse, at the time
of the purchase that exceeds $1,000,000, or (ii) who had an individual income
in excess of $200,000 in each of the two most recent years or joint income
with Lender's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
or if Lender is a corporation or other business entity, the Lender is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3),
(7) or (8) of Regulation D promulgated under the Securities Act and Lender
was not organized for the specific purpose of acquiring the Restricted
Securities.
c) Lender has such knowledge, sophistication and experience in business, tax and
financial matters that Lender is capable of evaluating, and is familiar with,
the merits and risks of an investment in the Restricted Securities, can bear
the substantial economic risk of an investment in the Restricted Securities
for an indefinite period of time and can afford a complete loss of such
investment.
d) Lender represents that its overall commitment to investments which are not
readily marketable is not disproportionate to Lender's net worth, and
Lender's investment in the Restricted Securities will not cause such overall
commitment to become excessive.
e) All subsequent offers and sales of the Restricted Securities by Lender shall
be made pursuant to registration of such securities under the Securities Act
and applicable state securities laws or pursuant to a valid exemption from
such registration requirements.
f) Lender understands that the Restricted Securities are being offered and sold
to it in reliance on specific exemptions from the registration requirements
of United States federal and state securities laws and that Borrower is
relying upon the truth and accuracy of, and Lender's compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of Lender set forth herein in order to determine the availability of such
exemptions and the eligibility of Lender to acquire the Restricted
Securities. Lender agrees that, if any of the representations, warranties,
agreements, acknowledgments or understandings deemed to have been made by it
in connection with its investment in the Restricted Securities is no longer
accurate, it shall promptly notify Borrower and consult with Borrower in
order to determine an appropriate course of action.
g) Lender has carefully read the terms and provisions hereof and, to the extent
that Lender believed necessary, has discussed the representations, warranties
and agreements which
5
<PAGE>
Lender makes herein and the applicable limitations upon
Lender's resale of the Restricted Securities with Lender's counsel.
h) Lender and its advisors have been afforded the opportunity to ask questions
of Borrower, and have received complete and satisfactory answers to any and
all such inquiries and has had access to such financial and other information
concerning Borrower and the Restricted Securities as it has deemed necessary
in connection with its decision as to whether to make its investment.
i) Lender understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Restricted Securities.
9. REGISTRATION PROCEDURES.
a) Within 120 days after the issuance of the Note, Borrower shall prepare and
file or cause to be filed with the SEC a registration statement (the
"REGISTRATION STATEMENT") with respect to the Lender Stock and the shares of
Common Stock underlying the Warrants (collectively, the "REGISTRABLE
SHARES"). Borrower shall thereafter use diligence in attempting to cause the
Registration Statement to be declared effective by the SEC and shall
thereafter use reasonable efforts to maintain the effectiveness of the
Registration Statement until the earlier to occur of (i) the date which is
one year from the effective date of the Registration Statement, (ii) the date
on which all of the Warrants and Registrable Shares are no longer held by
Lender or (iii) the date on which no warrants are held by Lender and the
Registrable Shares held by Lender can be resold pursuant to Rule 144.
b) Following effectiveness of the Registration Statement, Borrower shall
furnish to Lender a prospectus as well as such other documents as Lender may
reasonably request.
c) Borrower shall use reasonable efforts to (i) register or otherwise
qualify the Registrable Shares for sale under the securities laws of such
jurisdictions as Lender may reasonably request, (ii) prepare and file in
those jurisdictions such amendments (including post-effective amendments) and
supplements as may be required, (iii) take such other actions as may be
necessary to maintain such registrations and/or qualifications in effect at
all times while the Registration Statement is likewise maintained effective
and (iv) take all other actions reasonably necessary or advisable to qualify
the Registrable Shares for sale in such jurisdictions; provided, however,
that Borrower shall not be required in connection therewith or as a condition
thereto to (I) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this SECTION 9(C), (II) subject
itself to general taxation in any such jurisdiction, (III) file a general
consent to service of process in any such jurisdiction, (IV) provide any
undertakings that cause more than nominal expense or burden to Borrower or
(V) make any change in its certificate of incorporation or bylaws, which in
each case the Board of Directors of Borrower determines to be contrary to the
best interests of Borrower and its stockholders.
d) Borrower shall, following effectiveness of the Registration Statement,
as promptly as practicable after becoming aware of any such event, notify
Lender of the happening of any event of which Borrower has knowledge, as a
result of which the
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prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use reasonable efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to
Lender or as Lender may reasonably request. Borrower may voluntarily suspend
the effectiveness of such Registration Statement for a limited time, which in
no event shall be longer than 90 days, if Borrower has been advised by legal
counsel that the offering of Common Stock pursuant to the Registration
Statement would adversely affect, or would be improper in view of (or
improper without disclosure in a prospectus), a proposed financing, a
reorganization, recapitalization, merger, consolidation, or similar
transaction involving Borrower or its subsidiaries, and, during such
suspension, Lender and its affiliates shall not sell or otherwise dispose for
value any Registered Shares, in which event the one year period referred to
in clause (i) of SECTION 9(A) shall be extended for an additional period of
time beyond such one year period for an additional period of time equal to
the number of days the effectiveness thereof has been suspended pursuant to
this sentence.
e) Following effectiveness of the Registration Statement, Borrower, as
promptly as practicable after becoming aware of any such event, will notify
Lender of the issuance by the SEC of any stop order or other suspension of
effectiveness of the Registration Statement at the earliest possible time.
f) Following effectiveness of the Registration Statement, Borrower will
use reasonable efforts either to (i) cause all the Registrable Shares to be
listed on each national securities exchange on which similar securities
issued by Borrower are then listed, if any, if the listing of the Registrable
Shares is then permitted under the rules of such exchange, or (ii) secure the
quotation of the Registrable Shares on the Nasdaq Stock Market, Inc.
("NASDAQ"), if the listing of the Registrable Shares is then permitted under
the rules of Nasdaq, or (iii) if, despite Borrower's reasonable efforts to
satisfy the preceding clause (i) or (ii), Borrower is unsuccessful in
satisfying the preceding clause (i) or (ii) and without limiting the
generality of the foregoing, to use reasonable efforts to arrange for at
least two market makers to register with the National Association of
Securities Dealers, Inc. as such with respect to such Common Stock.
g) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Shares not later than the effective date of the
Registration Statement.
h) It shall be a condition precedent to the obligations of Borrower to
take any action pursuant to this SECTION 9 that Lender shall furnish to
Borrower such information regarding itself as Borrower may reasonably request
to effect the registration of the Registrable Shares and shall execute such
documents in connection with such registration as Borrower may reasonably
request.
i) Lender agrees to cooperate with Borrower in any manner reasonably
requested by Borrower in connection with the preparation and filing of the
Registration Statement hereunder.
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j) Lender agrees that, upon receipt of any notice from Borrower of the
happening of any event of the kind described in SECTION 9(D) or 9(E), Lender
will immediately discontinue disposition of Registrable Shares pursuant to
the Registration Statement until Lender receives notice from Borrower that
sales may resume and copies of the supplemented or amended prospectus and, if
so directed by Borrower, shall deliver to Borrower (at the expense of
Borrower) or destroy (and deliver to Borrower a certificate of destruction)
all copies in Lender's possession of the prospectus covering the Registrable
Shares current at the time of receipt of such notice.
k) All expenses, other than (i) underwriting discounts and commissions,
(ii) other fees and expenses of investment bankers and (iii) brokerage
commissions, incurred in connection with registrations, filings or
qualifications pursuant to this SECTION 9, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees
and the fees and disbursements of counsel to Borrower, shall be borne by
Borrower.
l) To the extent permitted by law, Borrower will indemnify and hold
harmless Lender, the directors, if any, of Lender, the officers, if any, of
Lender, each person, if any, who controls Lender within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for Lender, the directors, if any, of such underwriter and
the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "INDEMNIFIED PERSON"), against any losses, claims,
damages, expenses or liabilities (joint or several) (collectively, "CLAIMS")
to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations in the
Registration Statement, or any post effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus
if used prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if Borrower
files any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which
the statements therein were made, not misleading or (iii) any violation or
alleged violation by Borrower of the Securities Act, any state securities law
or any rule or regulation under the Securities Act, the Exchange Act or any
state securities law (the matters in the foregoing clauses (i) through (iii)
are hereinafter collectively referred to as the "VIOLATIONS"). Subject to
the restrictions set forth in SECTION 9(N) with respect to the number of
legal counsel, Borrower shall reimburse Lender and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable expenses incurred
by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnity
contained in this SECTION 9(L) (I) shall not apply to a Claim arising out of
or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to Borrower by any Indemnified Person
or underwriter for such Indemnified Person
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expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto; (II) with
respect to any preliminary prospectus shall not inure to the benefit of any
person from whom the person asserting any Claim purchased the Restricted
Securities that are the subject thereof (or to the benefit of any person
controlling such person) if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected in the prospectus, as
then amended or supplemented, if such final prospectus was timely made
available by Borrower; (III) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
Borrower, which consent shall not be unreasonably withheld. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Person and shall survive the transfer of the
Restricted Securities by Lender; and (IV) shall not apply to a Claim arising
out of or based upon the failure of an Indemnified Person to deliver a final
prospectus to purchasers of Registrable Securities if Borrower provided such
final prospectus to the Indemnified Person.
m) Lender agrees to indemnify and hold harmless, to the same extent and
in the same manner set forth in SECTION 9(L), Borrower, each of its
directors, each of its officers who signs the Registration Statement, each
person, if any, who controls Borrower within the meaning of the Securities
Act or the Exchange Act, any underwriter and any other stockholder selling
securities pursuant to the Registration Statement or any of its directors or
officers or any person who controls such stockholder or underwriter within
the meaning of the Securities Act or the Exchange Act (each such person and
each Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation
by Lender, in each case to the extent (and only to the extent) that (I) such
Violation occurs in reliance upon and in conformity with written information
furnished to Borrower by Lender expressly for use in connection with such
Registration Statement or such prospectus or (II) is a result of the breach
of federal or state securities laws pertaining to the transfer by Lender of
the Restricted Securities or the securities underlying the Restricted
Securities; and Lender will reimburse any reasonable legal or other expenses
reasonably incurred by any Indemnified Party in connection with investigating
or defending any such Claim; provided, however, that the indemnity contained
in this SECTION 9(M) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of
Lender, which consent shall not be unreasonably withheld; provided, further,
that Lender shall be liable under this SECTION 9(M) for only that amount of a
Claim as does not exceed the net proceeds to Lender as a result of the sale
of Shares pursuant to such Registration Statement or such prospectus. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Restricted Securities (or underlying securities)
by Lender. Notwithstanding anything to the contrary contained herein the
indemnity contained in this SECTION 9(M) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as then amended
or supplemented.
n) Promptly after receipt by an Indemnified Person or Indemnified Party
under SECTION 9(L) or 9(M) of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is made against any indemnifying
party under this SECTION 9, deliver to the
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indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying parties; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party,
the representation by such counsel of the Indemnified Person or Indemnified
Party and the indemnifying party would be inappropriate due to actual or
potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. Except as provided in the preceding sentence, Borrower shall pay
for only one separate legal counsel for the Indemnified Persons. The failure
to deliver written notice to the indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under
this SECTION 9, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action. The indemnity required by
this SECTION 9 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as such expense, loss,
damage or liability is incurred and is due and payable.
10. DEFAULT. "DEFAULT" means the occurrence of any one or more of the following
(and "POTENTIAL DEFAULT" means the occurrence of any event which, with
notice or lapse of time or both, would become a Default):
a) the failure or refusal of Borrower (i) to pay any principal, interest or
other part of the Obligation when due, (ii) to punctually and properly comply
with any covenant in SECTION 6, or (iii) to punctually and properly comply
with any other covenant in any Loan Paper and such failure continues for a
period of 10 days after Borrower has notice thereof;
b) Borrower becomes a party to (other than as a claimant or creditor) or is made
the subject of any proceeding provided by any Debtor Relief Law which is not
stayed or dismissed within 60 days;
c) Borrower fails to have discharged, within a period of 60 days after
commencement, any judgment, warrant of attachment, sequestration or similar
proceeding against its assets with a value in excess of $400,000; and
d) a default exists in respect of any other Senior Note.
11. REMEDIES AND RIGHTS. If a Default exists, then the holders of Senior Notes
evidencing at least two-thirds of the aggregate principal amount then
outstanding under the Senior Notes may exercise any and all legal and
equitable rights and remedies afforded by the Loan Papers, applicable laws,
or otherwise, including, without limitation, declaring the Senior Notes
immediately due and payable. All rights available to the holders of the
Senior Notes under the Loan Papers are cumulative of and in addition to all
other rights at law or in equity. Any sums spent by Lender to exercise any
right provided herein become part of the Obligation and bear interest from
the date spent until the date repaid by Borrower at LIBOR plus 4% per annum.
The obligations of Borrower and the rights of Lender under the Loan Papers
continue in full force and effect until the Obligation is paid and performed
in full.
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12. DEFINITIONS.
DEBTOR RELIEF LAWS means the Bankruptcy Code of the United States of
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension
of payments or similar laws affecting creditors' rights.
LIBOR means, initially, the three-month London InterBank Offered Rate, as
published in the "Money Rates" column of The Wall Street Journal on the date of
this agreement. With respect to any extension period under SECTION , "LIBOR"
means the London InterBank Offered Rate, as published in such column on the
original Maturity Date, for the period closest in length to such extension
period.
LOAN PAPERS means this agreement, the Note, any and all other agreements,
instruments and documents ever delivered pursuant hereto, and all renewals,
extensions or restatements of, or amendments or supplements to, all or any part
of the foregoing.
MATERIAL ADVERSE EVENT means any set of one or more circumstances or events
which, individually or collectively, could result in any (a) material adverse
effect upon the validity or enforceability of any material Loan Paper, (b)
material adverse effect upon the financial condition or business operations of
Borrower, or (c) Default.
MATURITY DATE means the earlier of (a) subject to the extension provisions
of SECTION , March 15, 1998, and (b) the date that the Senior Notes are declared
immediately due and payable pursuant to SECTION in the event of a Default;
provided that Lender's rights continue until the Obligation has been paid and
performed in full.
NOTE is defined in SECTION .
OBLIGATION means all debt now or hereafter owed to Lender by Borrower
pursuant to any Loan Paper, together with all interest accruing thereon and
costs, expenses and attorneys' fees incurred in the enforcement or collection
thereof.
SENIOR NOTES means the Note issued under this agreement and each of the
other promissory notes of similar tenor issued by Borrower under loan agreements
of even date herewith, in an aggregate principal amount of $4,000,000.
TERM LOAN is defined in SECTION .
13. MISCELLANEOUS.
14. All financial terms shall be determined in accordance with GAAP, and the
accounting principles applied in a current period shall be comparable in all
respects to those applied during the preceding comparable period.
a) THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES SHALL GOVERN THE RIGHTS
AND DUTIES OF THE PARTIES HERETO AND THE VALIDITY, CONSTRUCTION, ENFORCEMENT
AND INTERPRETATION OF THE LOAN PAPERS. Where appropriate, words of any number
shall include the plural and singular or of any gender shall include each
other gender. Headings and
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captions may not be used in interpreting provisions in the Loan Papers.
References to monetary amounts and payments are to United States currency.
Any action that is due on a non-Texas banking business day may be delayed
until the next succeeding Texas banking business day, but interest accrues on
any payment until made. Unless specifically otherwise provided, any
communication under the Loan Papers to any party must be in writing (which
may be by facsimile transmission if a facsimile number is provided herein for
such party and if, without affecting the date such facsimile transmission was
actually made, subsequently confirmed by delivery or mailing in accordance
with this paragraph) to be effective and shall be deemed to have been given
on the day actually delivered or, if mailed, on the third Texas banking
business day after it is enclosed in an envelope, addressed to the party to
be notified, properly stamped, sealed and deposited in the appropriate postal
service. Until changed by notice pursuant hereto, the address for each party
is set forth after its name on the first page of this agreement. The form,
substance and number of counterparts of each writing to be furnished under
any Loan Paper must be satisfactory to Lender. An exception to a covenant
does not permit violation of any other covenant. All provisions in any Loan
Paper shall survive all closings under the Loan Papers and shall not be
affected by any investigation made by any party. If any provision in any Loan
Paper is unenforceable, the remaining provisions thereof shall remain in full
force and effect. The Loan Papers may be amended only by an instrument in
writing executed jointly by Borrower and Lender, and supplemented only by
documents delivered or to be delivered in accordance with the express terms
thereof. If any payment is ever rescinded or must be restored or returned for
any reason, then all rights and obligations are automatically reinstated as
though the payment had not been made. Any conflict or ambiguity between the
terms and provisions herein and terms and provisions in any other Loan Paper
shall be controlled by the terms and provisions herein. Any Loan Paper may be
executed in any number of counterparts, with the same effect as if all
signatories had signed the same document, and all of those counterparts
constitute, collectively, one agreement.
14. ENTIRETY. THE LOAN PAPERS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
15. ACCEPTANCE; PARTIES BOUND. This agreement binds and inures to the benefit of
Lender and Borrower, and their respective successors and assigns; provided
that Borrower may not, without the prior written consent of Lender, assign
any rights, duties, or obligations hereunder, and any purported assignment
without such consent is void.
Very truly yours,
CHENIERE ENERGY, INC.
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Don A. Turkleson
Chief Financial Officer
The foregoing is accepted and agreed to in all respects.
LENDER:
By:
Name:
Title:
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SCHEDULE 1
CLOSING DOCUMENTS
1. SECURITIES PURCHASE AGREEMENT between Borrower and Lender.
2. TERM NOTE executed by Borrower.
3. WARRANT AGREEMENT representing the Lender Warrants.
4. STOCK CERTIFICATES representing the Lender Stock.
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EXHIBIT A
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR
UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED EXCEPT IN ACCORDANCE WITH
THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH STATE LAWS OR UPON DELIVERY TO
THE COMPANY OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE COMPANY THAT AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
Form of
WARRANT TO PURCHASE COMMON STOCK
OF
CHENIERE ENERGY, INC.
This Warrant to Purchase Common Stock (this "Warrant") is issued
__________________, 1997, by Cheniere Energy, Inc., a Delaware corporation (the
"Company"), to __________________ (the "Holder").
1. Issuance of Warrant; Term. The Company hereby grants to Holder,
subject to the provisions hereinafter set forth, the right to purchase
_________________ shares of common stock $.003 par value per share, of the
Company (the "Common Stock"). The shares of Common Stock issuable upon exercise
of this Warrant are hereinafter referred to as the "Shares." This Warrant shall
be exercisable at any time before 5:00 p.m. (Houston, Texas time) on December
31, 2001.
2. Exercise Price. This exercise price per share for which all or any of
the Shares may be purchased pursuant to the terms of this Warrant shall be
$_____________ (the "Exercise Price").
3. Exercise
a This Warrant may be exercised by Holder in whole or in part, upon
delivery of written notice of intent to the Company at the address of the
Company set forth below its signature below or such other address as the Company
shall designate in written notice to Holder, together with this Warrant and
payment (in the manner described in Section 3(b) below) for the aggregate
Exercise Price of the Shares so purchased. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable execute and deliver to
Holder a certificate or certificates for the total number of whole Shares for
which this Warrant is being exercised in such names and denominations as are
requested by Holder. If this Warrant shall be exercised with respect to less
than all of the Shares, Holder shall be entitled to receive a new Warrant
covering the number of Shares in respect of which this Warrant shall not have
been exercised, which new Warrant shall in all other respects be identical to
this Warrant.
b Payment for the Shares to be purchased upon exercise of this
Warrant may be made by the delivery of a certified or cashier's check payable to
the Company for the aggregate Exercise Price of the Shares to be purchased.
4. Covenants and Conditions. The above provisions are subject to the
following:
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a Neither this Warrant not the Shares have been registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws
("Blue Sky Laws"). This Warrant and the Shares have been acquired for
investment purposes and not with a view to distribution or resale, and the
Shares may not be made subject to a security interest, pledged, hypothecated,
sold or otherwise transferred without an effective registration statement
therefor under the Act and such applicable Blue Sky Laws or an opinion of
counsel (which opinion and counsel rendering same shall be reasonably acceptable
to the Company) that registration is not required under the Act and under any
applicable Blue Sky Laws. The certificates representing the Shares shall bear
substantially the following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN
ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE
WITH REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL (WHICH OPINION AND
COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY) REGISTRATION UNDER
THE LAW OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED OFFER, SALE OR TRANSFER.
Other legends as required by applicable federal and state laws may be
placed on such certificates. Holder and the Company agree to execute such
documents and instruments as counsel for the Company reasonably deems necessary
to effect compliance of the issuance of this Warrant and any Shares issued upon
exercise hereof with applicable federal and state securities laws.
b The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable.
5. Warrantholder not Stockholder. This Warrant does not confer upon
Holder any voting rights or other rights as a stockholder of the Company.
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6. Certain Adjustments.
6.1 Capital Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time there shall be a capital reorganization (other than a
combination or subdivision of Common Stock otherwise provided for herein), a
share exchange (subject to and duly approved by the stockholders of the Company)
or a merger or consolidation of the Company with or into another corporation, or
the sale of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, share
exchange, merger, consolidation or sale, lawful provision shall be made so that
Holder shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified in this Warrant and upon payment of the Exercise
Price, the number of shares of stock or other securities or property of the
Company or the successor corporation resulting from such reorganization, share,
exchange, merger, consolidation or sale, to which Holder would have been
entitled under the provisions of the agreement in such reorganization, share
exchange, merger, consolidation or sale if this Warrant had been exercised
immediately before that reorganization, share exchange, merger, consolidation or
sale. In any such case, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of Holder
after the reorganization, share exchange, merger, consolidation or sale to the
end that the provisions of this Warrant (including adjustment of the Exercise
Price then in effect and the number of the Shares) shall be applicable after
that event, as near as reasonably may be, in relation to any shares or other
property deliverable after that event upon exercise of this Warrant.
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6.2 Splits and Subdivisions. If the Company at any time or from time
to time fixes a record date for the effectuation of a split or subdivision of
the outstanding shares of Common Stock or the determination of the holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as the "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or Common Stock Equivalents, then, as of such
record date (or the date of such distribution, split or subdivision if no record
date is fixed), the Exercise Price shall (i) in the case of a split or
subdivision, be appropriately decreased and the number of the Shares shall be
appropriately increased in proportion to such increase of outstanding shares and
(ii) in the case of a dividend or other distribution, the holder of the warrant
shall have the right to acquire without additional consideration, upon exercise
of the warrant, such property or cash as would have been distributed in respect
of the shares of Common Stock for which the warrant was exercisable had such
shares of Common Stock been outstanding on the date of such distribution.
6.3 Combination of Shares. If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination or
reverse stock split of the outstanding shares of Common Stock, the Exercise
Price shall be appropriately increased and the number of the Shares shall be
appropriately decreased in proportion to such decrease in outstanding shares.
6.4 Adjustments for Other Distributions. In the event the Company
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 6.2, upon exercise of
this Warrant, Holder shall be entitled to a proportionate share of any such
distribution as though Holder was the holder of the number of shares of Common
Stock of the Company into which this Warrant may be exercised as of the record
date fixed for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.
6.5 Certificate as to Adjustments. In the case of each adjustment or
readjustment of the Exercise Price pursuant to this Section 6, the Company will
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based
to be delivered to Holder. The Company will, upon the written request at any
time of Holder, furnish or cause to be furnished to Holder a certificate setting
forth:
a Such adjustment and readjustments;
b The Exercise Price at the time in effect; and
c The number of Shares and the amount, if any, of other property
at the time receivable upon the exercise of the Warrant.
6.6 Notices of Record Date, etc. In the event of:
a Any taking by the Company of a record of the holders of any class
of securities of the Company for the purpose of determining the holders thereof
who are entitled to receive any dividends or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
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b Any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all of the assets of the Company to any other person or any
consolidation, share exchange or merger involving the Company; or
c Any voluntary or involuntary dissolution, liquidation or winding up
of the Company, the Company will mail to Holder at least 20 days prior to the
earliest date specified herein, a notice specifying:
i The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right; and
ii The date on which any such reorganization, reclassification,
transfer, consolidation, share exchange, merger, dissolution, liquidation
or winding up is expected to become effective and the record date for
determining stockholders entitled to vote thereon.
7 Call of Warrant. This Warrant may be called and canceled by the Company
at its election at any time following the date upon which the closing price of
the Common Stock on its principal trading market has been 200% or more of the
Exercise Price for a period of 20 consecutive trading days (all as determined in
good faith by the Company's Board of Directors) at a price equal to $.01 per
share of Common Stock for which this Warrant shall be exercisable on the Call
Date (as defined below). The Company shall give the holder of this Warrant at
least 30 days prior written notice of any such call of this Warrant, which
notice shall certify the foregoing condition for such call and set forth the
date upon which the call shall occur (the "Call Date"). The holder of this
Warrant shall, however, be entitled to exercise this Warrant, in whole or in
part, prior to the Call Date and, in that event, the Company's right to call
this Warrant shall be limited to the extent to which the Warrant remains
unexercised on the Call Date.
8 Reservation of Common Stock. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the exercise of this Warrant, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
exercise of this Warrant, and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the exercise
of the entire Warrant, in addition to such other remedies as shall be available
to the holder of this Warrant, the Company will use commercially reasonable
efforts to take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
9 Split-Up, Combination, Exchange and Transfer of Warrants. Subject to
and limited by the provisions of Section 4(a) hereof, this Warrant may be split
up, combined or exchanged for another Warrant or Warrants containing the same
terms and entitling the Holder to purchase a like aggregate number of Shares.
If the Holder desires to split up, combine or exchange this Warrant, the Holder
shall make such request in writing delivered to the Company and shall surrender
to the Company this Warrant and any other Warrants to be so split up, combined
or exchanged. Upon any such surrender for a split-up, combination or exchange,
the Company shall execute and deliver to the person entitled thereto a Warrant
or Warrants, as the case may be, as so requested. The Company shall not be
required to effect any split-up, combination or exchange which will result in
the issuance of a Warrant entitled the Warrantholder to purchase upon exercise a
fraction of a share of Common Stock or a fractional Warrant.
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The Company may require such Holder to pay a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any split-up,
combination or exchange of Warrants.
10 Successors and Assigns. All the covenants and provisions of this
Warrant shall bind and inure to the benefit of the Company's successors and
assigns, and the heirs, legatees, devisees, executors, administrators, personal
and legal representatives, and successors and permitted assigns of Holder.
11 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws, and not the laws of conflicts, of the State of
Delaware. The Holder hereby consents and agrees to submit to the jurisdiction
in the United States of the District Court of the State of Texas located in
Harris County or of the United States District Court for the Southern District
of Texas for any action or proceeding brought by the Company arising under this
Warrant and to the venue of such action or proceeding in such courts.
CHENIERE ENERGY, INC.
By: ____________________________________________
Name: ____________________________________________
Title: _____________________________
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<PAGE>
EXHIBIT B
FORM OF SENIOR TERM NOTE
$________________ December ___, 1997
FOR VALUE RECEIVED, the undersigned ("MAKER") hereby promises to pay to the
order of ______________________ ("PAYEE"), at its offices at
____________________________, the principal sum of ___________________ DOLLARS,
together with interest, as hereinafter described.
This note is executed and delivered pursuant to the Agreement (as renewed,
extended, and amended from time to time, the "AGREEMENT") dated as of December
15, 1997, between Maker and Payee. Unless indicated otherwise, capitalized
terms in this note are used as defined in the Agreement. This note is one of the
Loan Papers referred to in the Agreement and is therefore subject to the
applicable provisions of the Agreement (including, without limitation, SECTION
13 thereof).
The principal of this note is due and payable on the Maturity Date.
Interest on this note shall be due and payable quarterly as it accrues and at
maturity.
The principal from day to day unpaid shall, except as stated below, bear
interest at a rate per annum which shall from day to day be equal to the lesser
of (a) the Maximum Rate (hereinafter defined) and (b) the sum of 4% plus LIBOR.
At the option of the holder of this note and to the extent permitted by
applicable law, all past-due principal of this note and accrued and past-due
interest on this note shall bear interest from the date due and payable (stated
or by acceleration) until paid at a rate per annum which shall from day to day
be equal to the lesser of (a) the Maximum Rate and (b) the sum of 4% plus LIBOR,
regardless of whether such payment is made before or after entry of a judgment.
Each change in the Maximum Rate will become effective, without notice to Maker
or any other person or entity, upon the effective date of such change.
If at any time the rate determined under either clause (b) in the foregoing
paragraph (the "CONTRACT RATE") exceeds the Maximum Rate, the rate of interest
on this note shall be limited to the Maximum Rate, but any subsequent reductions
in the Contract Rate shall not reduce the rate of interest below the Maximum
Rate until the total amount of interest accrued equals the amount of interest
which would have accrued if the Contract Rate applicable from time to time had
at all times been in effect. If at maturity (stated or by acceleration), or at
final payment of this note, the total amount of interest paid or accrued is less
than the amount of interest which would have accrued if the Contract Rate
applicable from time to time had at all times been in effect, then, at such time
and to the extent permitted by applicable law, Maker shall pay to the holder
hereof an amount equal to the sum of (a) the lesser of the
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amount of interest which would have accrued if the Contract Rate applicable from
time to time had at all times been in effect and the amount of interest which
would have accrued if the Maximum Rate had at all times been in effect minus (b)
the amount of interest actually paid or accrued on this note.
Interest shall be calculated on the basis of actual days (including the
first day but excluding the last day) elapsed but computed as if each calendar
year consisted of 360 days (unless the result would exceed the Maximum Amount,
in which event such interest shall be calculated on the basis of a year of 365
or 366 days, as the case may be).
As used herein, the terms "MAXIMUM AMOUNT" and "MAXIMUM RATE" mean,
respectively, the maximum amount and the maximum rate of interest which, under
applicable law, the holder hereof is permitted to contract for, charge, take,
reserve or receive on this note. Regardless of any provision in the Loan
Papers, the holder hereof shall never be entitled to contract for, charge, take,
reserve, receive, or apply, as interest on this note any amount in excess of the
Maximum Amount, and, if the holder hereof ever contracts for, charges, takes,
reserves, receives or applies as interest any such excess, it shall be deemed a
partial prepayment of principal and treated hereunder as such and any remaining
excess shall be refunded to Maker. In determining whether or not the interest
paid or payable, under any specific contingency, exceeds the Maximum Amount,
Maker and the holder hereof shall, to the maximum extent permitted under
applicable law, (a) treat all advances as but a single extension of credit (and
the holder hereof and Maker agree that such is the case and that any provision
herein for multiple advances is for convenience only), (b) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (c)
exclude voluntary prepayments and the effects thereof, and (d) "spread" the
total amount of interest throughout the entire contemplated term of this note;
provided that if this note is paid in full prior to the end of the full
contemplated term hereof, and if the interest received for the actual period of
existence hereof exceeds the Maximum Amount, the holder hereof shall refund such
excess, and, in such event, the holder hereof shall not to the extent permitted
by applicable law, be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving or receiving interest in excess of
the Maximum Amount. To the extent the laws of the State of Texas are applicable
for purposes of determining the "Maximum Rate" or the "Maximum Amount," such
term shall mean the "indicated rate ceiling" from time to time in effect under
Article 1.04, Title 79, Revised Civil Statutes of Texas, as amended.
Maker and each surety, endorser, guarantor and other party ever liable for
payment of any part hereof jointly and severally waive presentment and demand
for payment, protest, notice of intention to accelerate, notice of acceleration
and notice of protest and nonpayment, and agree that their liability on this
note shall not be affected by, and hereby consent to, any renewal or extension
in the time of payment hereof, any indulgences, or any release or change in any
security for the payment of this note.
CHENIERE ENERGY, INC.
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By:
Name:
Title:
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<PAGE>
Exhibit 10.28
[Letterhead of Cheniere Energy, Inc.]
As of December 15, 1997
[Name and address of Lender]
Re: Form of First Amendment to Securities Purchase Agreement
Ladies & Gentlemen:
Reference is made to the Securities Purchase Agreement dated as of December
15, 1997 (the "AGREEMENT"), between Cheniere Energy, Inc., a Delaware
corporation ("BORROWER"), and __________________("LENDER"). Unless otherwise
indicated, all capitalized terms herein are used as defined in the Agreement.
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Borrower and Lender agree as follows:
1. Amendment of Terms of Payment. SECTION 2 of the Agreement is hereby amended
by adding to the end of such Section a new paragraph (d) which reads as
follows in its entirety:
"(d) All payments on the Notes shall be applied pro rata to the then due
and outstanding principal amounts or interest obligations, as the case may be,
under each of the Notes."
2. REPRESENTATIONS AND WARRANTIES. BORROWER REPRESENTS AND WARRANTS THAT IT
POSSESSES ALL REQUISITE POWER AND AUTHORITY TO EXECUTE, DELIVER AND COMPLY
WITH THE TERMS OF THIS INSTRUMENT, WHICH HAS BEEN DULY AUTHORIZED AND
APPROVED BY ALL NECESSARY CORPORATE ACTION AND FOR WHICH NO CONSENT OF ANY
PERSON IS REQUIRED.
3. Fees and Expenses. Borrower agrees to pay the reasonable fees and expenses of
counsel to Lender for services rendered in connection with the negotiation
and execution of this instrument.
4. Loan Paper; Effect. This instrument is a Loan Paper and, therefore, is
subject to the applicable provisions of SECTION 13 of the Agreement, all of
which are incorporated herein by reference the same as if set further herein
verbatim. Except as amended in this instrument, the Loan Papers are and shall
be unchanged and shall remain in full force and effect. In the
<PAGE>
event of any inconsistency between the terms of the Agreement as hereby
modified (the "AMENDED AGREEMENT") and any other Loan Papers, the terms of
the Amended Agreement shall control and such other document shall be deemed
to be amended hereby to conform to the terms of the amended Agreement.
5. No Waiver of Defaults. This instrument does not constitute a waiver of, or a
consent to any present or future violation of or default under, any provision
of the Loan Papers, or a waiver of Lender's right to insist upon future
compliance with each term, covenant, condition and provision of the Loan
Papers, and the Loan papers shall continue to be binding upon, and inure to
the benefit of, Borrower, Lender and their respective successors and assigns.
6. Final Agreement. THE LOAN PAPERS, AS AMENDED HEREBY, REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
If the foregoing terms and conditions are acceptable to Lender, Lender should
indicate its acceptance by signing in the space provided below, whereupon this
letter shall become an agreement binding upon and inuring to the benefit of
borrower and lender and their respective successors and assigns.
Sincerely,
CHENIERE ENERGY, INC.
By:______________________________
Don A. Turkleson
Chief Financial Officer
Accepted and agreed to as of the day and year first set forth in the foregoing
letter.
[Lender's name]
By:______________________________
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<PAGE>
Exhibit 10.29
CHENIERE ENERGY, INC.
Two Allen Center
1200 Smith Street, Suite 1710
Houston, Texas 77002-4312
December 15, 1997
Arabella S.A.
35, rue Glesener
L-1631
Luxembourg
Alba Limited
c/o Huntlaw Corporate Services, Ltd.
P.O. Box 1350GT
The Huntlaw Building
Fort Street
Grand Cayman, Cayman Islands
Scorpion Energy Partners
505 Park Avenue, 12th Floor
New York, New York 10022
Re: SECURITIES PURCHASE AGREEMENT
Cheniere Energy, Inc. ("CHENIERE"), Arabella S.A. ("ARABELLA"), Alba
Limited ("ALBA") and Scorpion Energy Partners ("SCORPION"; Arabella, Alba and
Scorpion are collectively referred to herein as the "LENDER GROUP") in
consideration of the mutual covenants contained herein, agree as follows:
1. ISSUANCE OF STOCK AND WARRANTS.
(a) In accordance with the terms and conditions set forth herein and
as additional consideration for the purchase of Term Notes in the principal
amount of $1,900,000 by Arabella and $100,000 by Alba from BSR Investments, Ltd.
("BSR"), Cheniere will issue (i) to Scorpion 50,000 shares (the "LENDER STOCK")
of Cheniere's common stock, par value $.003 per share (the "COMMON STOCK"); (ii)
to Arabella warrants in the form of EXHIBIT A (the "LENDER WARRANTS") to
purchase 475,000 shares of Common Stock at an exercise price of 2.375 per share
(the "EXERCISE PRICE"); and (iii) to Alba Lender Warrants to purchase 25,000
shares of Common Stock at the Exercise Price.
(b) If BSR extends the Maturity Date of the Term Notes pursuant to the
terms of the Note Purchase Agreements, Cheniere will issue to Arabella and Alba
additional warrants (the "ADDITIONAL LENDER WARRANTS" and together with the
Lender Warrants, the "WARRANTS") with an exercise price equal to the Exercise
Price which expire on the Expiration Date in the form of EXHIBIT A to
<PAGE>
purchase 63,334 and 3,333 shares of Common Stock, respectively, for each 30 day
period after the original Maturity Date during which any amount of the Term Loan
is outstanding and unpaid until the date (the "FINAL REPAYMENT DATE") that is
the earlier of (x) the date of repayment of the Term Loan in full and (y) 180
days after the original Maturity Date. The Additional Lender Warrants shall be
issued within 10 days after the Final Repayment Date.
2. LENDER GROUP ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. Each member of the Lender Group
acknowledges that (i) the Lender Stock, Warrants and the Common Stock underlying
the Warrants (collectively, the "RESTRICTED SECURITIES") to be issued to it
hereunder have not been and are not being registered under the provisions of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), or any applicable
state securities laws (except as provided in SECTION 4), and may not be offered,
sold, pledged or otherwise transferred unless (A) the Restricted Securities are
subsequently registered under the Securities Act and all applicable state
securities laws or (B) the holder of the Restricted Securities shall have
delivered to Cheniere an opinion of counsel, reasonably satisfactory in form,
scope and substance to Cheniere, to the effect that the Restricted Securities
may be sold or transferred pursuant to a valid exemption from such registration
requirements; (ii) the Restricted Securities are and will be "restricted
securities" (as defined in Rule 144 promulgated under the Securities Act); (iii)
any sale of the Restricted Securities, as the case may be, made in reliance on
Rule 144 promulgated under the Securities Act may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable, any
resale of the Restricted Securities, as the case may be, under circumstances in
which the seller, or the person through whom the sale is made, may be deemed to
be an underwriter, as that term is used in the Securities Act, may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Securities and Exchange Commission (the "SEC") thereunder;
and (iv) Cheniere is not under any obligation to register the Restricted
Securities (other than as set forth in SECTION 4) under the Securities Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
(b) RESTRICTIVE LEGEND. Each member of the Lender Group acknowledges
and agrees that "stop transfer" instructions shall be given regarding the
Restricted Securities on the transfer books of Cheniere, and that the
certificate(s) evidencing the Restricted Securities shall bear the following
legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE SECURITIES ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE DISPOSED OF FOR VALUE UNLESS A REGISTRATION STATEMENT HAS BECOME
EFFECTIVE WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE CORPORATION THAT THERE IS AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS."
3. LENDER GROUP REPRESENTATIONS, WARRANTIES AND COVENANTS.
Each member of the Lender Group jointly and severally represents and
warrants to, and covenants and agrees with, Cheniere as follows:
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<PAGE>
(a) Each member of the Lender Group is purchasing the Restricted
Securities for its own account, for investment only and not with a view towards
the public sale or distribution thereof in violation of the Securities Act, and
with no present intention of dividing or allowing others to participate in this
investment.
(b) Each member of the Lender Group is an "accredited investor" as
that term is defined in Rule 501(a)(1), (2), (3), (7) or (8) of Regulation D
promulgated under the Securities Act and no member of the Lender Group was
organized for the specific purpose of acquiring the Restricted Securities.
(c) Each member of the Lender Group has such knowledge, sophistication
and experience in business, tax and financial matters that it is capable of
evaluating, and is familiar with, the merits and risks of an investment in the
Restricted Securities, can bear the substantial economic risk of an investment
in the Restricted Securities for an indefinite period of time and can afford a
complete loss of such investment.
(d) Each member of the Lender Group represents that its overall
commitment to investments which are not readily marketable is not
disproportionate to its net worth, and its investment in the Restricted
Securities will not cause such overall commitment to become excessive.
(e) All subsequent offers and sales of the Restricted Securities by
each member of the Lender Group shall be made pursuant to registration of such
securities under the Securities Act and applicable state securities laws or
pursuant to a valid exemption from such registration requirements.
(f) Each member of the Lender Group understands that the Restricted
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that Cheniere is relying upon the truth and accuracy of, and compliance
by each member of the Lender Group with the representations, warranties,
agreements, acknowledgments and understandings of each member of the Lender
Group set forth herein in order to determine the availability of such exemptions
and the eligibility of each member of the Lender Group to acquire the Restricted
Securities. Each member of the Lender Group agrees that, if any of the
representations, warranties, agreements, acknowledgments or understandings
deemed to have been made by it in connection with its investment in the
Restricted Securities is no longer accurate, it shall promptly notify Cheniere
and consult with Cheniere in order to determine an appropriate course of action.
(g) Each member of the Lender Group has carefully read the terms and
provisions hereof and, to the extent that it believed necessary, has discussed
the representations, warranties and agreements which each member of the Lender
Group makes herein and the applicable limitations upon the resale of the
Restricted Securities by each member of the Lender Group with its counsel.
(h) Each member of the Lender Group and its advisors have been
afforded the opportunity to ask questions of Cheniere, and have received
complete and satisfactory answers to any and all such inquiries and has had
access to such financial and other information concerning Cheniere and the
Restricted Securities as it has deemed necessary in connection with its decision
as to whether to make its investment.
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(i) Each member of the Lender Group understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Restricted
Securities.
4. REGISTRATION PROCEDURES.
(a) Within 120 days after the issuance of the Lender Stock and the
Lender Warrants, Cheniere shall prepare and file or cause to be filed with the
SEC a registration statement (the "REGISTRATION STATEMENT") with respect to the
Lender Stock and the shares of Common Stock underlying the Warrants
(collectively, the "REGISTRABLE SHARES"). Cheniere shall thereafter use
diligence in attempting to cause the Registration Statement to be declared
effective by the SEC and shall thereafter use reasonable efforts to maintain the
effectiveness of the Registration Statement until the earlier to occur of (i)
the date which is one year from the effective date of the Registration
Statement, (ii) the date on which all of the Warrants and Registrable Shares are
no longer held by Any member of the Lender Group or (iii) the date on which no
warrants are held by any member of the Lender Group and the Registrable Shares
held by any member of the Lender Group can be resold pursuant to Rule 144.
(b) Following effectiveness of the Registration Statement, Cheniere
shall furnish to each member of the Lender Group a prospectus as well as such
other documents as each member of the Lender Group may reasonably request.
(c) Cheniere shall use reasonable efforts to (i) register or otherwise
qualify the Registrable Shares for sale under the securities laws of such
jurisdictions as each member of the Lender Group may reasonably request, (ii)
prepare and file in those jurisdictions such amendments (including post-
effective amendments) and supplements as may be required, (iii) take such other
actions as may be necessary to maintain such registrations and/or qualifications
in effect at all times while the Registration Statement is likewise maintained
effective and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Shares for sale in such jurisdictions; provided,
however, that Cheniere shall not be required in connection therewith or as a
condition thereto to (I) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this SECTION 9(C), (II)
subject itself to general taxation in any such jurisdiction, (III) file a
general consent to service of process in any such jurisdiction, (IV) provide any
undertakings that cause more than nominal expense or burden to Cheniere or (V)
make any change in its certificate of incorporation or bylaws, which in each
case the Board of Directors of Cheniere determines to be contrary to the best
interests of Cheniere and its stockholders.
(d) Cheniere shall, following effectiveness of the Registration
Statement, as promptly as practicable after becoming aware of any such event,
notify each member of the Lender Group of the happening of any event of which
Cheniere has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use reasonable efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, and deliver a number of copies of such supplement
or amendment to each member of the Lender Group or as each member of the Lender
Group may reasonably request. Cheniere may voluntarily suspend the
effectiveness of such Registration Statement for a limited time, which in no
event shall be longer than 90 days, if Cheniere has been advised by legal
counsel that the offering of Common Stock pursuant to the Registration Statement
would adversely affect, or would be improper in view of (or improper without
disclosure in a prospectus), a proposed
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financing, a reorganization, recapitalization, merger, consolidation, or similar
transaction involving Cheniere or its subsidiaries, and, during such suspension,
each member of the Lender Group and its affiliates shall not sell or otherwise
dispose for value any Registered Shares, in which event the one year period
referred to in clause (i) of SECTION 9(A) shall be extended for an additional
period of time beyond such one year period for an additional period of time
equal to the number of days the effectiveness thereof has been suspended
pursuant to this sentence.
(e) Following effectiveness of the Registration Statement, Cheniere,
as promptly as practicable after becoming aware of any such event, will notify
each member of the Lender Group of the issuance by the SEC of any stop order or
other suspension of effectiveness of the Registration Statement at the earliest
possible time.
(f) Following effectiveness of the Registration Statement, Cheniere
will use reasonable efforts either to (i) cause all the Registrable Shares to be
listed on each national securities exchange on which similar securities issued
by Cheniere are then listed, if any, if the listing of the Registrable Shares is
then permitted under the rules of such exchange, or (ii) secure the quotation of
the Registrable Shares on the Nasdaq Stock Market, Inc. ("NASDAQ"), if the
listing of the Registrable Shares is then permitted under the rules of Nasdaq,
or (iii) if, despite Cheniere's reasonable efforts to satisfy the preceding
clause (i) or (ii), Cheniere is unsuccessful in satisfying the preceding clause
(i) or (ii) and without limiting the generality of the foregoing, to use
reasonable efforts to arrange for at least two market makers to register with
the National Association of Securities Dealers, Inc. as such with respect to
such Common Stock.
(g) Provide a transfer agent and registrar, which may be a single
entity, for the Registrable Shares not later than the effective date of the
Registration Statement.
(h) It shall be a condition precedent to the obligations of Cheniere
to take any action pursuant to this SECTION 9 that each member of the Lender
Group shall furnish to Cheniere such information regarding itself as Cheniere
may reasonably request to effect the registration of the Registrable Shares and
shall execute such documents in connection with such registration as Cheniere
may reasonably request.
(i) Each member of the Lender Group agrees to cooperate with Cheniere
in any manner reasonably requested by Cheniere in connection with the
preparation and filing of the Registration Statement hereunder.
(j) Each member of the Lender Group agrees that, upon receipt of any
notice from Cheniere of the happening of any event of the kind described in
SECTION 9(D) or 9(E), each member of the Lender Group will immediately
discontinue disposition of Registrable Shares pursuant to the Registration
Statement until each member of the Lender Group receives notice from Cheniere
that sales may resume and copies of the supplemented or amended prospectus and,
if so directed by Cheniere, shall deliver to Cheniere (at the expense of
Cheniere) or destroy (and deliver to Cheniere a certificate of destruction) all
copies of the prospectus covering the Registrable Shares current at the time of
receipt of such notice in the possession of each member of the Lender Group.
(k) All expenses, other than (i) underwriting discounts and
commissions, (ii) other fees and expenses of investment bankers and (iii)
brokerage commissions, incurred in connection with registrations, filings or
qualifications pursuant to this SECTION 9, including, without limitation, all
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registration, listing and qualification fees, printers and accounting fees and
the fees and disbursements of counsel to Cheniere, shall be borne by Cheniere.
(l) To the extent permitted by law, Cheniere will indemnify and hold
harmless each member of the Lender Group, the directors, if any, of each member
of the Lender Group, the officers, if any, of each member of the Lender Group,
each person, if any, who controls each member of the Lender Group within the
meaning of the Securities Act or the Exchange Act, any underwriter (as defined
in the Securities Act) for any member of the Lender Group, the directors, if
any, of such underwriter and the officers, if any, of such underwriter, and each
person, if any, who controls any such underwriter within the meaning of the
Securities Act or the Exchange Act (each, an "INDEMNIFIED PERSON"), against any
losses, claims, damages, expenses or liabilities (joint or several)
(collectively, "CLAIMS") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or contained in
the final prospectus (as amended or supplemented, if Cheniere files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by
Cheniere of the Securities Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) are hereinafter
collectively referred to as the "VIOLATIONS"). Subject to the restrictions set
forth in SECTION 9(N) with respect to the number of legal counsel, Cheniere
shall reimburse each member of the Lender Group and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnity
contained in this SECTION 9(L) (I) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to Cheniere by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (II) with respect to any preliminary prospectus shall not
inure to the benefit of any person from whom the person asserting any Claim
purchased the Restricted Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such final prospectus was
timely made available by Cheniere; (III) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of Cheniere, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Restricted Securities by the members of the Lender Group; and (IV) shall not
apply to a Claim arising out of or based upon the failure of an Indemnified
Person to deliver a final prospectus to purchasers of Registrable Securities if
Cheniere provided such final prospectus to the Indemnified Person.
(m) Each member of the Lender Group agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in SECTION 9(L),
Cheniere, each of its directors, each of its
6
<PAGE>
officers who signs the Registration Statement, each person, if any, who controls
Cheniere within the meaning of the Securities Act or the Exchange Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the Securities
Act or the Exchange Act (each such person and each Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the Securities Act, the Exchange Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation by any member of the Lender Group,
in each case to the extent (and only to the extent) that (I) such Violation
occurs in reliance upon and in conformity with written information furnished to
Cheniere by any member of the Lender Group expressly for use in connection with
such Registration Statement or such prospectus or (II) is a result of the breach
of federal or state securities laws pertaining to the transfer by any member of
the Lender Group of the Restricted Securities or the securities underlying the
Restricted Securities; and each member of the Lender Group will reimburse any
reasonable legal or other expenses reasonably incurred by any Indemnified Party
in connection with investigating or defending any such Claim; provided, however,
that the indemnity contained in this SECTION 9(M) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such member of the Lender Group, which consent shall not be
unreasonably withheld; provided, further, that each member of the Lender Group
shall be liable under this SECTION 9(M) for only that amount of a Claim as does
not exceed the net proceeds to such member of the Lender Group as a result of
the sale of Registrable Shares pursuant to such Registration Statement or such
prospectus. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Restricted Securities (or underlying securities) by
the members of the Lender Group. Notwithstanding anything to the contrary
contained herein the indemnity contained in this SECTION 9(M) with respect to
any preliminary prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
(n) Promptly after receipt by an Indemnified Person or Indemnified
Party under SECTION 9(L) or 9(M) of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is made against any indemnifying
party under this SECTION 9, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying parties;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. Except as provided in the preceding sentence, Cheniere shall pay
for only one separate legal counsel for the Indemnified Persons. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this SECTION 9,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnity required by this SECTION 9 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as such expense, loss, damage or liability is incurred and is due
and payable.
7
<PAGE>
(o) If Arabella exercises its right under the Pledge Agreement between
BSR and Arabella to take possession of the shares of Common Stock held by BSR
and pledged as security for the BSR Term Notes issued to Arabella and Alba (the
"PLEDGED COMMON STOCK"), Arabella shall have the right, on one and only one
occasion, to require Cheniere to prepare and file a registration statement
regarding the Pledged Common Stock (the "PLEDGED COMMON STOCK REGISTRATION
STATEMENT") pursuant to the terms and agreements regarding the registration of
Registrable Shares set forth in SECTIONS 4(B) 4(G). Cheniere shall file the
Pledged Common Stock Registration Statement within 120 days of receipt of the
written request of Arabella for registration pursuant to this SECTION 4(H). For
purposes of SECTIONS 4(B) 4(G) in connection with the Pledged Common Stock
Registration Statement, the Pledged Common Stock shall be considered to be
Restricted Securities.
5. MISCELLANEOUS.
(a) THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES SHALL GOVERN
THE RIGHTS AND DUTIES OF THE PARTIES HERETO AND THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION HEREOF. Where appropriate, words of any number
shall include the plural and singular or of any gender shall include each other
gender. Headings and captions may not be used in interpreting provisions
hereof. Any action that is due on a non-Texas banking business day may be
delayed until the next succeeding Texas banking business day. Unless
specifically otherwise provided, any communication hereunder to any party must
be in writing (which may be by facsimile transmission if a facsimile number is
provided herein for such party and if, without affecting the date such facsimile
transmission was actually made, subsequently confirmed by delivery or mailing in
accordance with this paragraph) to be effective and shall be deemed to have been
given on the day actually delivered or, if mailed, on the third Texas banking
business day after it is enclosed in an envelope, addressed to the party to be
notified, properly stamped, sealed and deposited in the appropriate postal
service. Until changed by notice pursuant hereto, the address for each party is
set forth after its name on the first page of this agreement. If any provision
herein is unenforceable, the remaining provisions thereof shall remain in full
force and effect. The terms herein may be amended only by an instrument in
writing executed jointly by Cheniere, Arabella, Alba and Scorpion, and
supplemented only by documents delivered or to be delivered in accordance with
the express terms thereof. This Agreement may be executed in any number of
counterparts, with the same effect as if all signatories had signed the same
document, and all of those counterparts constitute, collectively, one agreement.
6. ACCEPTANCE; PARTIES BOUND. This agreement binds and inures to the
benefit of Cheniere, Arabella, Alba and Scorpion, and their respective
successors and assigns; provided that Cheniere may not, without the prior
written consent of Arabella, Alba and Scorpion, assign any rights, duties, or
obligations hereunder, and any purported assignment without such consent is
void.
Very truly yours,
CHENIERE ENERGY, INC.
By: ___________________________________________
Name: ___________________________________________
Title: ___________________________________________
The foregoing is accepted and agreed to in all respects.
8
<PAGE>
ARABELLA S.A.
By: ___________________________________________
Name: ___________________________________________
Title: ___________________________________________
ALBA LIMITED
By: ___________________________________________
Name: ___________________________________________
Title: ___________________________________________
SCORPION ENERGY PARTNERS
By: ___________________________________________
Name: ___________________________________________
Title: ___________________________________________
9
<PAGE>
EXHIBIT A
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR
UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED EXCEPT IN ACCORDANCE WITH
THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH STATE LAWS OR UPON DELIVERY TO
THE COMPANY OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE COMPANY THAT AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
Form of
WARRANT TO PURCHASE COMMON STOCK
OF
CHENIERE ENERGY, INC.
This Warrant to Purchase Common Stock (this "Warrant") is issued
__________________, 1997, by Cheniere Energy, Inc., a Delaware corporation (the
"Company"), to __________________ (the "Holder").
1. Issuance of Warrant; Term. The Company hereby grants to Holder,
subject to the provisions hereinafter set forth, the right to purchase
_________________ shares of common stock $.003 par value per share, of the
Company (the "Common Stock"). The shares of Common Stock issuable upon exercise
of this Warrant are hereinafter referred to as the "Shares." This Warrant shall
be exercisable at any time before 5:00 p.m. (Houston, Texas time) on December
31, 2001.
2. Exercise Price. This exercise price per share for which all or any of
the Shares may be purchased pursuant to the terms of this Warrant shall be
$_____________ (the "Exercise Price").
3. Exercise
a This Warrant may be exercised by Holder in whole or in part, upon
delivery of written notice of intent to the Company at the address of the
Company set forth below its signature below or such other address as the Company
shall designate in written notice to Holder, together with this Warrant and
payment (in the manner described in Section 3(b) below) for the aggregate
Exercise Price of the Shares so purchased. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable execute and deliver to
Holder a certificate or certificates for the total number of whole Shares for
which this Warrant is being exercised in such names and denominations as are
requested by Holder. If this Warrant shall be exercised with respect to less
than all of the Shares, Holder shall be entitled to receive a new Warrant
covering the number of Shares in respect of which this Warrant shall not have
been exercised, which new Warrant shall in all other respects be identical to
this Warrant.
b Payment for the Shares to be purchased upon exercise of this
Warrant may be made by the delivery of a certified or cashier's check payable to
the Company for the aggregate Exercise Price of the Shares to be purchased.
4. Covenants and Conditions. The above provisions are subject to the
following:
10
<PAGE>
a Neither this Warrant not the Shares have been registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws
("Blue Sky Laws"). This Warrant and the Shares have been acquired for
investment purposes and not with a view to distribution or resale, and the
Shares may not be made subject to a security interest, pledged, hypothecated,
sold or otherwise transferred without an effective registration statement
therefor under the Act and such applicable Blue Sky Laws or an opinion of
counsel (which opinion and counsel rendering same shall be reasonably acceptable
to the Company) that registration is not required under the Act and under any
applicable Blue Sky Laws. The certificates representing the Shares shall bear
substantially the following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN
ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE
WITH REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL (WHICH OPINION AND
COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY) REGISTRATION UNDER
THE LAW OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED OFFER, SALE OR TRANSFER.
Other legends as required by applicable federal and state laws may be
placed on such certificates. Holder and the Company agree to execute such
documents and instruments as counsel for the Company reasonably deems necessary
to effect compliance of the issuance of this Warrant and any Shares issued upon
exercise hereof with applicable federal and state securities laws.
b The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable.
5. Warrantholder not Stockholder. This Warrant does not confer upon
Holder any voting rights or other rights as a stockholder of the Company.
11
<PAGE>
6. Certain Adjustments.
6.1 Capital Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time there shall be a capital reorganization (other than a
combination or subdivision of Common Stock otherwise provided for herein), a
share exchange (subject to and duly approved by the stockholders of the Company)
or a merger or consolidation of the Company with or into another corporation, or
the sale of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, share
exchange, merger, consolidation or sale, lawful provision shall be made so that
Holder shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified in this Warrant and upon payment of the Exercise
Price, the number of shares of stock or other securities or property of the
Company or the successor corporation resulting from such reorganization, share,
exchange, merger, consolidation or sale, to which Holder would have been
entitled under the provisions of the agreement in such reorganization, share
exchange, merger, consolidation or sale if this Warrant had been exercised
immediately before that reorganization, share exchange, merger, consolidation or
sale. In any such case, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of Holder
after the reorganization, share exchange, merger, consolidation or sale to the
end that the provisions of this Warrant (including adjustment of the Exercise
Price then in effect and the number of the Shares) shall be applicable after
that event, as near as reasonably may be, in relation to any shares or other
property deliverable after that event upon exercise of this Warrant.
6.2 Splits and Subdivisions. If the Company at any time or from time
to time fixes a record date for the effectuation of a split or subdivision of
the outstanding shares of Common Stock or the determination of the holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as the "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or Common Stock Equivalents, then, as of such
record date (or the date of such distribution, split or subdivision if no record
date is fixed), the Exercise Price shall (i) in the case of a split or
subdivision, be appropriately decreased and the number of the Shares shall be
appropriately increased in proportion to such increase of outstanding shares and
(ii) in the case of a dividend or other distribution, the holder of the warrant
shall have the right to acquire without additional consideration, upon exercise
of the warrant, such property or cash as would have been distributed in respect
of the shares of Common Stock for which the warrant was exercisable had such
shares of Common Stock been outstanding on the date of such distribution.
6.3 Combination of Shares. If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination or
reverse stock split of the outstanding shares of Common Stock, the Exercise
Price shall be appropriately increased and the number of the Shares shall be
appropriately decreased in proportion to such decrease in outstanding shares.
6.4 Adjustments for Other Distributions. In the event the Company
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 6.2, upon exercise of
this Warrant, Holder shall be entitled to a proportionate share of any such
distribution as though Holder was the holder of the number of shares of Common
Stock of the Company into which this Warrant may be exercised as of the record
date fixed for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.
12
<PAGE>
6.5 Certificate as to Adjustments. In the case of each adjustment or
readjustment of the Exercise Price pursuant to this Section 6, the Company will
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based
to be delivered to Holder. The Company will, upon the written request at any
time of Holder, furnish or cause to be furnished to Holder a certificate setting
forth:
a Such adjustment and readjustments;
b The Exercise Price at the time in effect; and
c The number of Shares and the amount, if any, of other property
at the time receivable upon the exercise of the Warrant.
6.6 Notices of Record Date, etc. In the event of:
a Any taking by the Company of a record of the holders of any class
of securities of the Company for the purpose of determining the holders thereof
who are entitled to receive any dividends or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
b Any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all of the assets of the Company to any other person or any
consolidation, share exchange or merger involving the Company; or
c Any voluntary or involuntary dissolution, liquidation or winding up
of the Company, the Company will mail to Holder at least 20 days prior to the
earliest date specified herein, a notice specifying:
i The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right; and
ii The date on which any such reorganization, reclassification,
transfer, consolidation, share exchange, merger, dissolution, liquidation
or winding up is expected to become effective and the record date for
determining stockholders entitled to vote thereon.
13
<PAGE>
7 Call of Warrant. This Warrant may be called and canceled by the Company
at its election at any time following the date upon which the closing price of
the Common Stock on its principal trading market has been 200% or more of the
Exercise Price for a period of 20 consecutive trading days (all as determined in
good faith by the Company's Board of Directors) at a price equal to $.01 per
share of Common Stock for which this Warrant shall be exercisable on the Call
Date (as defined below). The Company shall give the holder of this Warrant at
least 30 days prior written notice of any such call of this Warrant, which
notice shall certify the foregoing condition for such call and set forth the
date upon which the call shall occur (the "Call Date"). The holder of this
Warrant shall, however, be entitled to exercise this Warrant, in whole or in
part, prior to the Call Date and, in that event, the Company's right to call
this Warrant shall be limited to the extent to which the Warrant remains
unexercised on the Call Date.
8 Reservation of Common Stock. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the exercise of this Warrant, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
exercise of this Warrant, and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the exercise
of the entire Warrant, in addition to such other remedies as shall be available
to the holder of this Warrant, the Company will use commercially reasonable
efforts to take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
9 Split-Up, Combination, Exchange and Transfer of Warrants. Subject to
and limited by the provisions of Section 4(a) hereof, this Warrant may be split
up, combined or exchanged for another Warrant or Warrants containing the same
terms and entitling the Holder to purchase a like aggregate number of Shares.
If the Holder desires to split up, combine or exchange this Warrant, the Holder
shall make such request in writing delivered to the Company and shall surrender
to the Company this Warrant and any other Warrants to be so split up, combined
or exchanged. Upon any such surrender for a split-up, combination or exchange,
the Company shall execute and deliver to the person entitled thereto a Warrant
or Warrants, as the case may be, as so requested. The Company shall not be
required to effect any split-up, combination or exchange which will result in
the issuance of a Warrant entitled the Warrantholder to purchase upon exercise a
fraction of a share of Common Stock or a fractional Warrant. The Company may
require such Holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split-up, combination or
exchange of Warrants.
10 Successors and Assigns. All the covenants and provisions of this
Warrant shall bind and inure to the benefit of the Company's successors and
assigns, and the heirs, legatees, devisees, executors, administrators, personal
and legal representatives, and successors and permitted assigns of Holder.
11 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws, and not the laws of conflicts, of the State of
Delaware. The Holder hereby consents and agrees to submit to the jurisdiction
in the United States of the District Court of the State of Texas located in
Harris County or of the United States District Court for the Southern District
of Texas for any action or proceeding brought by the Company arising under this
Warrant and to the venue of such action or proceeding in such courts.
CHENIERE ENERGY, INC.
14
<PAGE>
By: ___________________________________________
Name: ___________________________________________
Title: ___________________________________________
15
<PAGE>
Exhibit 10.30
[Letterhead of Cheniere Energy, Inc.]
December 31 1997
Mr. John O. Smith
President & Chief Operating Officer
Zydeco Exploration, Inc.
1710 Two Allen Center
1200
Smith Street
Houston, TX 77002
Re: Exploration Agreement dated April 4, 1996, as Amended
Payment Required on December 31, 1997 Per Seventh Amendment
dated August 28, 1997
Dear Mr. Smith:
In accordance with the provisions of the Exploration Agreement dated April 4,
1996, as amended, by and between Zydeco Exploration, Inc. ("Zydeco") and FX
Energy, Inc. now and hereinafter referred to as Cheniere Energy Operating Co.,
Inc. ("Cheniere") (the "Agreement"), Cheniere is obligated to pay Zydeco on or
before December 31, 1997 amounts as follows:
50% of Excess Costs accumulated to July 31, 1997 and
50% of the August cash call $2,177,000
50% of estimated additional Program Expenses
through December 31, 1997 750,000
----------
Total amount payable December 31, 1997 $2,927,000
==========
These amounts are as specified in the captioned Seventh Amendment to the
Agreement, which Amendment also specifies that there be no grace period for
amounts due on December 31, 1997, that timely payment on or before such date
shall entitle Cheniere to assignment of a one-half interest in all leases and
options acquired through such date by Zydeco for the joint account, and that
Cheniere shall also own the 50% interest in the Seismic Data as provided in the
Agreement.
<PAGE>
Zydeco has requested that the payment be in the form of a wire transfer to its
account No. 1890324955 at Bank One, Texas, NA, Houston, Texas. Accordingly,
Cheniere is directing such a wire transfer to be made (copy of wire instructions
attached).
Zydeco Exploration, Inc.
December 31, 1997
Page 2
By its acknowledgment below, Zydeco accepts payment by Cheniere and agrees that
such payment satisfies its obligations for payment on December 31, 1997 as
specified in the Seventh Amendment to the Agreement, that such payment entitles
Cheniere to assignment of a one-half interest in all leases and options acquired
through such date by Zydeco for the joint account, and that Cheniere owns the
50% interest in the Seismic Data as provided in the Agreement.
Very truly yours,
CHENIERE ENERGY OPERATING CO., INC.
/s/ WALTER L. WILLIAMS
- ----------------------
Walter L. Williams
President and Chief Executive Officer
ACCEPTED AND AGREED TO THIS
31st DAY OF DECEMBER, 1997
ZYDECO EXPLORATION, INC.
By: /s/ JOHN O. SMITH
-----------------
Title: PRESIDENT, COO
2
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> SEP-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 787,523
<SECURITIES> 0
<RECEIVABLES> 102,330
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,124,702
<PP&E> 16,534,054
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,705,627
<CURRENT-LIABILITIES> 4,285,599
<BONDS> 0
0
0
<COMMON> 43,374
<OTHER-SE> 13,376,654
<TOTAL-LIABILITY-AND-EQUITY> 17,705,627
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
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<OTHER-EXPENSES> 447,023
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (388,361)
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