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As filed with the Securities and Exchange Commission on January 7, 1999
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CHENIERE ENERGY, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 95-4352386
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1200 Smith Street, Suite 1740
Houston, Texas 77002-4313
(713) 659-1361
(Address, including zip
code, and telephone number, including area code, of
registrant's principal executive offices)
Walter L. Williams
President and Chief Executive Officer
Cheniere Energy, Inc.
1200 Smith Street, Suite 1740
Houston, Texas 77002-4312
(713) 659-1361
(Name, address, including zip
code, and telephone number, including area code,
of agent for service)
Copies to:
John B. Clutterbuck
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002-2778
(713) 225-7000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum
Title of each offering aggregate Amount of
class of securities to Amount to be price offering registration
be registered Registered per share price fee
<S> <C> <C> <C> <C>
Common Stock,
par value $.003
per share 2,666,667 $0.938/(1) $2,500,000/(1) $ 737.50
Common Stock,
par value $.003
per share, to be
issued upon exercise
of Warrants 2,962,500(2) $1.797/(3) $ 5,325,000 $1,570.88
Total 5,629,167 --- $ 7,825,000 $2,308.38
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee, based on the average of the high and low prices for the
Company's Common Stock as reported on The Nasdaq SmallCap Market on January
4, 1999 in accordance with Rule 457(c) under the Securities Act of 1933.
(2) Represents the number of shares issuable upon the exercise of Warrants.
(3) Estimated solely for the purpose of computing the amount of the
registration fee, based on the exercise price of the Warrants in accordance
with Rule 457(g).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Prospectus Subject to Completion
- ---------- January 7, 1999
5,629,167 SHARES
CHENIERE ENERGY, INC.
COMMON STOCK
This Prospectus covers 5,629,167 shares of Common Stock, $.003 par
value (the "Common Stock" or the "Shares"), of Cheniere Energy, Inc. ("Cheniere
Energy" or the "Company"), which may be offered from time to time by one or all
of the selling stockholders named herein (the "Selling Stockholders"). We will
not receive any proceeds of such sales, but we will receive payment for the
exercise price of any Warrants in the event that any of the Warrants are
exercised. We have agreed to bear certain expenses of registration of the
Shares and other securities offered by this Prospectus under federal and state
laws.
The shares of Common Stock being registered pursuant to the
registration statement of which this prospectus is a part include (i) 2,616,667
shares issued in connection with private placements conducted by the Company
during the period from August 1998 to December 1998, (ii) 50,000 shares issued
in connection with the extension of the maturity date of a certain note payable
of the Company and (iii) 2,962,500 shares issuable upon the exercise of warrants
exercisable on or before December 16, 2003 at exercise prices of $1.50 to $2.00
per share. For more information concerning the Shares and the transactions
pursuant to which they were or will be issued, see "Issuance of Securities to
Selling Stockholders" and "Description of Securities."
To the extent required, the specific shares of Common Stock to be
sold, the names of the Selling Stockholders, the public offering price, the
names of any agent dealer or underwriter and any applicable commission or
discount with respect to any particular offer is set forth herein or will be set
forth in an accompanying Prospectus Supplement. See "Selling Stockholders" and
"Plan of Distribution."
Our Common Stock is traded on The Nasdaq SmallCap Market under the
symbol "CHEX." The last reported sales price of the Common Stock on The Nasdaq
SmallCap Market on January 4, 1998 was $1.00 per share.
--------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 3,
FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
--------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------------------------------
<PAGE>
The date of this Prospectus is January __, 1999
You should rely only on the information incorporated by reference or
provided in this Prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of the Shares or other
securities offered by this Prospectus in any state where the offer is not
permitted. You should not assume that the information in this Prospectus, in
any Prospectus Supplement or in any document incorporated by reference herein is
accurate as of any date other than the date on the front of those documents.
ADDITIONAL INFORMATION
This Prospectus is a part of a Registration Statement on Form S-3
("Registration Statement") we have filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, because we have omitted certain parts in
accordance with the rules and regulations of the Commission. For further
information we refer you to the Registration Statement. Statements contained
herein concerning the provisions of any document are not necessarily complete,
and each such statement is qualified in its entirety by reference to the copy of
such document filed with the Commission.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and we are required to file
reports, proxy and information statements and other information with the
Commission. Such reports, proxy and information statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, NW, Washington, D.C. 20549,
and at the following Regional Offices of the Commission: New York Regional
Office, Seven World Trade Center, New York, New York 10048, and Central Regional
Office, 1801 California Street, Suite 4800, Denver, Colorado 80202. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, NW, Washington, D.C. 20549 upon payment of the
prescribed fees. The Common Stock of the Company is quoted on The Nasdaq
SmallCap Market. You may also read our reports, proxy and information
statements and other information concerning the Company at The Nasdaq Stock
Market at 1735 K Street, NW, Washington, D.C. 20006. In addition, the Commission
maintains a World Wide Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus is part of the Registration Statement that we filed
with the Commission to register the shares of Common Stock referenced on the
cover page of this Prospectus. It does not repeat important information that
you can find in our Registration Statement or in the annual, quarterly and
special reports, proxy statements and other documents that we file with the
Commission. The Commission allows us to "incorporate by reference" the
information we file with it, which means that we can disclose in this Prospectus
important information to you by referring you to those documents. The
information below is incorporated in this Prospectus by reference and is an
important part of this Prospectus, and certain information that we file after
the date of this Prospectus with the Commission will automatically be
incorporated in this Prospectus and update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
until all of the securities offered by this Prospectus are sold:
(1) The Company's Proxy Statement dated October 10, 1997;
(2) The Company's Transition Report on Form 10-K for the transition
period from September 1, 1997 to December 31, 1997
(3) The Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1998;
(4) The Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1998; and
(5) The Company's Current Report on Form 8-K dated December 9, 1998
(filed December 14, 1998);
Any statement incorporated herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
We will provide without charge to each person to whom a copy of this
Prospectus has been delivered, upon written or oral request of such person, a
copy of the documents incorporated by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
such documents). Requests for such documents should be submitted in writing to
Don A. Turkleson, Chief Financial Officer, Cheniere Energy, Inc., 1200 Smith
Street, Suite 1740, Houston, Texas 77002-4312 or by telephone to Mr. Turkleson
at (713) 659-1361.
THE COMPANY
Cheniere Energy, Inc., a holding company ("Cheniere," together with
Cheniere Operating (as defined below), the "Company"), is the owner of 100% of
the outstanding common stock of Cheniere Energy Operating Co., Inc. ("Cheniere
Operating"). References herein to the "Company" or "Cheniere" refer to
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Cheniere Energy, Inc. and its wholly owned subsidiaries. Cheniere is a Houston-
based company formed for the purpose of oil and gas exploration, and if
warranted, development and exploitation. Cheniere 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
meaningful operating revenues before the year 1999.
Cheniere is involved with one major project, a joint exploration program
pursuant to the Exploration Agreement with regard to a proprietary 3-D seismic
exploration project in southern Louisiana (the "3-D Exploration Program").
Cheniere owns a 50% interest in 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 (the "Survey AMI"). Field
acquisition of the seismic data was completed in July 1997, area-wide processing
was completed in December 1997, leasing activities were begun in March 1998, and
further interpretation of the seismic data continues. Drilling of prospects
identified within the Survey AMI is scheduled to begin in the first quarter of
1999.
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.
RISK FACTORS
YEAR 2000
The Year 2000 presents significant issues for many computer systems.
Much of the software in use today may not be able to accurately process data
beyond the year 1999. The vast majority of computer systems process
transactions using two digits for the year of the transaction, rather than the
full four digits, making such systems unable to distinguish January 1, 2000 from
January 1, 1900. Such systems may encounter significant processing inaccuracies
or become inoperable when Year 2000 transactions are processed. Such matters
could impact not only the Company in its day-to-day operations but also the
Company's financial institutions, customers and vendors as well as state,
provincial and federal governments with jurisdictions where the Company
maintains operations.
The Company is currently addressing Year 2000 issues and is presently
focussing on its internal business systems and processes. To the extent
necessary, the Company will assess the readiness of any key business partners
(financial institutions, customers, vendors, oil and gas operators, etc.).
It has been the Company's strategy to use, wherever possible, industry
prevalent products and processes with minimal customization. As a result, the
Company does not expect any extensive in-house hardware, software or process
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conversions in an effort to be Year 2000 compliant nor does the Company expect
its Year 2000 compliance related costs to be material to its operations.
The Company's goal is to be Year 2000 compliant by June 30, 1999
wherever possible and to have contingency plans in place where compliance is not
possible in a timely manner. While it is the Company's goal to be Year 2000
compliant, there can be no assurance that there will not be a material adverse
effect on the Company as a result of a Year 2000 related issue. The Company's
business partners may present the area of greatest risk to the Company, in part
because of the Company's limited ability to influence actions of third parties,
and in part because of the Company's inability to estimate the level and impact
of noncompliance of third parties. Additionally, there are many variables and
uncertainties associated with judgments regarding any contingency plans
developed by the Company.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
The Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this report and
other filings with the Securities and Exchange Commission and in reports to its
stockholders.
All statements, other than statements of historical facts so included in
this 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; and statements about non-historical Year 2000
information, are forward-looking statements within the meaning of the Act.
These forward-looking statements are, and will be, based on management's then
current views and assumptions regarding future events.
FACTORS THAT MAY IMPACT FORWARD-LOOKING STATEMENTS OR FINANCIAL PERFORMANCE
The following are some of the important factors that could affect the
Company's financial performance or could cause actual results to differ
materially from estimates contained in the Company's forward-looking statements.
-- The Company's ability to generate sufficient cash flows to support
capital expansion plans, obligations to repay debt and general
operating activities.
-- The Company's ability to obtain additional financing from lenders,
through debt or equity offerings, or through sales of a portion of its
interest in the 3-D Exploration Program.
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-- The Company's ability to encounter hydrocarbons in sufficient
quantities to be economically viable, and its ability to overcome the
operating hazards that are inherent in the oil and gas industry.
-- Changes in laws and regulations, including changes in accounting
standards, taxation requirements (including tax rate changes, new tax
laws and revised tax law interpretations) and environmental laws in
domestic or foreign jurisdictions.
-- The uncertainties of litigation as well as other risks and
uncertainties detailed from time to time in the Company's Securities
and Exchange Commission filings.
-- The Company's ability to replace, modify or upgrade computer programs
in ways that adequately address the Year 2000 issue.
The foregoing list of important factors is not exclusive.
FACTORS RELATING TO THE COMPANY
Limited Operating History
The Company has a limited operating history with respect to its oil and gas
exploration activities which were commenced through a joint exploration program
in April 1996 by Cheniere Energy Operating Co., Inc. ("Cheniere Operating").
Following a reorganization with Bexy Communications, Inc. ("Bexy"), Cheniere
Operating became a wholly-owned subsidiary of Cheniere on July 3, 1996. From
inception (February 21, 1996) to September 30, 1998, the Company incurred a net
loss of $3,334,105 and for the nine-month period ended September 30, 1998, the
Company incurred a net loss of $1,147,429. The Company continued to incur losses
during the remainder of 1998, and may continue to incur losses in 1999,
depending on whether it generates sufficient revenue from producing reserves
acquired either through acquisitions or drilling activities.
Limited Assets; No Proven Reserves or Current Production
The Company has not yet established oil and gas production, nor has it
booked proven oil and gas reserves. Currently, the Company's primary asset is
its interest in a joint exploration program pursuant to the Exploration
Agreement. Since almost all of the Company's assets are represented by the
investment to date in the 3-D Exploration Program (as defined below) and
additional amounts will be invested, the Company is highly dependent on the
success of the 3-D Exploration Program.
Need for Additional Financing
The Company presently has no operating revenues. As of September 30, 1998,
the Company had only $233,841 of current assets. Additional capital will be
required to pay for the Company's share of costs relating to the development of
prospects the Company may wish to pursue, to exercise lease options, to acquire
additional oil and gas leases and to drill wells on potential prospects, the
total amount of which will be determined by the number of prospects generated
within the 3-D Exploration Program and by
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the working interest that the Company retains in such prospects. In addition,
the Company may need funds for the repayment of a portion of its $4.0 million in
short-term senior notes payable that will mature on January 15, 1999 as well as
any accrued interest thereon. As of January 5, 1999, the Company has received
commitments from the holders of $2,034,750 of these short-term senior term notes
payable to exchange such notes payable for 2,826,042 shares of Common Stock at a
price of $0.72 per share, such exchange to occur on or before March 15, 1999.
Should the Company choose to make an acquisition of producing oil and gas
properties, it is likely that such an acquisition would require that some
portion of the purchase price be paid in cash, and thus create the need for
additional capital. Additional capital may be secured from a combination of
funding sources that may include borrowings from financial institutions, debt
offerings (which would increase the leverage of the Company and add to its need
for cash to service such debt), additional offerings of Cheniere's equity
securities (which could cause substantial dilution of the Common Stock), or
sales of portions of Cheniere Operating's working interest in the prospects
within the 3-D Exploration Program (which would reduce any future revenues from
the 3-D Exploration Program). The Company's ability to raise additional capital
will depend on its results of operations and the status of various capital and
industry markets at the time such additional capital is sought. Accordingly,
there can be no assurances that capital will be available to the Company from
any source or that, if available, it will be on terms acceptable to the Company.
3-D Exploration Program Payments; Insufficient Capital
In accordance with the terms of an Exploration Agreement between Cheniere
Operating and Zydeco Exploration, Inc. ("Zydeco"), an operating subsidiary of
Zydeco Energy, Inc. (the "Exploration Agreement"), Cheniere has made seismic
fund payments totaling $16.4 million and has earned a 50% interest in the
seismic data. Zydeco is obligated under the terms of the Exploration Agreement
to develop prospects from its analysis of the seismic data and to present such
prospects to Cheniere for Cheniere's election as to participation. Should
Cheniere elect to participate in a prospect proposed by Zydeco, Cheniere must
make payment to Zydeco as a reimbursement of prospect expenses within 45 days of
the date such expenses are billed by Zydeco. Neither Cheniere Operating nor
Cheniere currently has sufficient capital to meet its future payment obligations
under the Exploration Agreement if it elects to participate in prospects
proposed thereunder and there can be no assurance that Cheniere Operating or
Cheniere will successfully secure the necessary funds.
Arbitration Proceedings
The Company has received the binding award of an independent panel of
arbitrators reviewing claims against the Company and counterclaims by the
Company related to certain rights and obligations pursuant to an Exploration
Agreement. The Exploration Agreement between Cheniere and Zydeco Exploration,
Inc. governs the activities of the two companies in connection with their
jointly owned 3-D Seismic Program in Cameron Parish, Louisiana.
The panel confirmed Cheniere's 50% ownership in the proprietary 3-D Seismic
Data, including the right to possess field tapes and all volumes of
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such data acquired prior to December 31, 1997. The panel also confirmed
Cheniere's right to review Zydeco's seismic interpretations within the area of
mutual interest ("AMI") and to purchase an interest of up to 50% in any
prospects generated by Zydeco in the AMI, including the right to acquire
ownership of all processing volumes conducted after December 1997 related to
such prospects. The arbitration panel confirmed Zydeco's right to manage the
exploration process for a period of 90 days after it declares a prospect's
assembly and development to be complete. In addition, the panel affirmed
Cheniere's right to generate prospects and manage the exploration process for
any prospect generated by Cheniere and rejected by Zydeco (subject to Zydeco's
right to acquire a 50% interest in any lease acquired by Cheniere).
Ownership of the existing prospects was also determined by the panel. All
ownership in prospects acquired by either party, where the non-acquiring party
declined to participate, was confirmed to belong to the acquiring party.
Consequently, Cheniere has 100% ownership in six prospects, Cheniere and Zydeco
have 50% ownership each in three prospects and 25% each in another prospect, and
Zydeco has 100% ownership in one Federal lease which covers a portion of one
prospect.
In addition, the panel decreed that all prospects on leases acquired by
Zydeco in the June 1998 Louisiana state lease sale must be offered to Cheniere
and that Cheniere would have 30 days from such offer to review the prospects and
elect or decline to participate.
The panel found that in future state lease sales, Zydeco may require
Cheniere to advance its 50% share of the proposed bid at the time of the sale or
forfeit its right to acquire an interest in such leases, but only if the lease
relates to a prospect which Zydeco has notified Cheniere is completely assembled
and developed, and only if adequate decision making data is provided 30 days
prior to the sale.
The panel has found that certain activities related to the selling of
prospects are the equivalent of marketing, sale or licensure of the proprietary
seismic data acquired under the Exploration Agreement. In the event such
marketing, sale or licensure of data occurs, the Exploration Agreement provides
that 100% of the proceeds related to seismic data will be directed to Cheniere
until Cheniere recoups $13,500,000 of its investment; thereafter the proceeds
will be shared 50/50 between Cheniere and Zydeco.
The panel found that Zydeco was not authorized to issue cash calls to
Cheniere for seismic costs incurred after December 31, 1997. Accordingly,
$1,115,143 in billings made by Zydeco to Cheniere were not allowed under the
Exploration Agreement and Cheniere has no liability for such costs as billed.
The panel also stated that some portion of such costs may be appropriately
charged to Cheniere as a component of prospects in which Cheniere elects to
acquire an interest. The panel also found that Zydeco owes the joint venture
account $271,132 and that certain equipment acquired by Zydeco with joint
venture funds, including a Hewlett Packard SPP1600 supercomputer, is the joint
property of the parties.
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Lack of Liquidity of the Common Stock
For January 1, 1998 through December 31, 1998, the average daily trading
volume of the Common Stock of Cheniere was approximately 36,000 shares. The
completion of the offering of the Common Stock provides no assurance that the
trading market for the Common Stock will become more active. Cheniere is listed
on The Nasdaq SmallCap Market.
No Dividends
Cheniere has not paid any dividends since its inception and presently
anticipates that all earnings, if any, will be retained for development of the
Company's business and that no dividends on its Common Stock will be declared in
the foreseeable future. Any future dividends will be subject to the discretion
of Cheniere's Board of Directors and will depend upon, among other things,
future earnings, the operating and financial condition of the Company, its
capital requirements and general business conditions.
Possible Issuance of Additional Shares; Shareholder Dilution
Cheniere has 45,000,000 authorized shares of stock, consisting of (a)
40,000,000 shares of the Common Stock, having a par value of $.003 per share,
and (b) 5,000,000 shares of preferred stock, having a par value of $.0001 per
share (the "Preferred Stock"). As of January 5, 1999, approximately 52.6% of
the shares of the Common Stock remained unissued. Cheniere's Board of Directors
has the power to issue any and all of such shares without shareholder approval.
It is likely that Cheniere will issue shares of the Common Stock, among other
reasons, in order to raise capital to sustain operations, to exchange for or to
repay its $4.0 million in senior short-term notes payable and/or to finance
future oil and gas exploration projects. In addition, Cheniere has reserved
4,703,334 and 2/3 shares of the Common Stock for issuance upon the exercise of
outstanding warrants and 950,000 shares of the Common Stock for issuance upon
the exercise of stock options. As of January 5, 1999, there are 686,444 and 2/3
issued and outstanding options to purchase Common Stock. Any issuance of the
Common Stock by Cheniere may result in a reduction in the book value per share
or market price per share of the outstanding shares of the Common Stock and will
reduce the proportionate ownership and voting power of such shares. See
"Description of Securities."
Dependence on Key Personnel
The Company is dependent upon its executive officers for its various
activities. The Company does not maintain "key person" life insurance policies
on any of its personnel nor does it have employment agreements with any of its
personnel. The loss of the services of any of these individuals could
materially and adversely affect the Company. In addition, the Company's future
success will depend in part upon its ability to attract and retain additional
qualified personnel. The Company currently has eight full-time employees.
Dependence on Industry Partners
As the Company has few employees and limited operating revenues, the
Company will be largely dependent upon industry partners for the success of its
oil and gas exploration projects for the foreseeable future.
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Control by Principal Stockholders
William D. Forster, Co-Chairman of the Board of Directors of the Company,
and BSR Investments, Ltd. ("BSR"), an entity under the control of a member of
the immediate family of Charif Souki, Co-Chairman of the Board of Directors of
the Company, own in the aggregate approximately 30.8% of the outstanding Common
Stock (including warrants held by BSR for the purchase of 566,667 shares of
Common Stock). Accordingly, it is likely that Mr. Forster and BSR will
effectively be able to elect all of the directors of Cheniere and to control
Cheniere's management, operations and affairs, including the ability to prevent
or cause a change in control of Cheniere.
Certain Anti-Takeover Provisions
The Company's Certificate of Incorporation and By-laws and the Delaware
General Corporation Law contain provisions that may have the effect of
discouraging unsolicited takeover proposals for the Company. These provisions,
among other things, authorize the Board of Directors to designate the terms of
and issue new series of preferred stock, limit the personal liability of
directors, require the Company to indemnify directors and officers to the
fullest extent permitted by applicable law and impose restrictions on business
combinations with certain interested parties.
FACTORS RELATING TO THE OIL AND GAS INDUSTRY
Operating Hazards and Uninsured Risks
The oil and gas operations of the Company are subject to all of the risks
and hazards typically associated with the exploration for, and the development
and production of, oil and gas. Risks in drilling operations include cratering,
explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution
and other environmental risks. The Company's activities are also subject to
perils specific to marine operations, such as capsizing, collision, and damage
or loss from severe weather. These hazards can cause personal injury and loss
of life, severe damage to and destruction of property and equipment, pollution
or environmental damage and suspension of operations. In accordance with
customary industry practices, the Company intends to maintain insurance against
some, but not all, of such risks and some, but not all, of such losses. The
occurrence of a significant event not fully insured or indemnified against could
materially and adversely affect the Company's financial condition and
operations. Moreover, no assurance can be given that the Company will be able
to maintain adequate insurance in the future at rates considered reasonable by
the Company.
Exploration Risks
The Company's exploration activities involve significant risks. There can
be no assurance that the use of technical expertise as applied to geophysical or
geological data will ensure that any well will encounter hydrocarbons. Further,
there is no way to know in advance of drilling and testing whether any prospect
encountering hydrocarbons in the Survey AMI (as defined below) by the 3-D
Exploration Program will yield oil or gas in sufficient quantities to be
economically viable. In addition, the Company is
10
<PAGE>
highly dependent upon seismic activity and the related application of new
technology as a primary exploration methodology. There can be no assurance that
the 3-D Exploration Program's efforts will be successful.
High Dependence upon Lease Acquisition Activities
Both the United States Department of the Interior and the State of
Louisiana award oil and gas leases on a competitive bidding basis and non-
governmental owners of the onshore mineral interests within the Survey AMI are
not obligated to lease their mineral rights to the 3-D Exploration Program
except to the extent they have granted lease options to the 3-D Exploration
Program. Other major and independent oil and gas companies having financial
resources significantly greater than those of the 3-D Exploration Program may
bid against the 3-D Exploration Program for the purchase of oil and gas leases.
Accordingly, there can be no assurance that the 3-D Exploration Program or any
other oil and gas venture of the Company will be successful in acquiring
farmouts, seismic permits, lease options, leases or other rights to explore or
recover oil and gas. Consequently, the proportion of the Survey AMI which could
be subsequently explored through drilling would be reduced to the extent that
the 3-D Exploration Program is not successful at such acquisitions.
Lack of Diversification; Oil and Gas Industry Conditions; Volatility of
Prices for Oil and Gas
As an independent energy company, the Company's revenues and profits will
be substantially dependent on the oil and gas industry in general and the
prevailing prices for oil and gas in particular. Oil and gas prices have been
and are likely to continue to be volatile and subject to wide fluctuations in
response to any of the following factors: relatively minor changes in the supply
of and demand for oil and gas; market uncertainty; political conditions in
international oil producing regions; the extent of domestic production and
importation of oil in certain relevant markets; the level of consumer demand;
weather conditions; the competitive position of oil or gas as a source of energy
as compared with other energy sources; the refining capacity of oil purchasers;
and the effect of federal and state regulation on the production, transportation
and sale of oil. It is likely that adverse changes in the oil market or the
regulatory environment would have an adverse effect on the Company's ability to
obtain capital from lending institutions, industry participants, private or
public investors or other sources.
Intense Competition in Oil and Gas Industry
The oil and gas industry is highly competitive. Most of the Company's
current and potential competitors have significantly greater financial resources
and a significantly greater number of experienced and trained managerial and
technical personnel than the Company and the 3-D Exploration Program. There can
be no assurance that the Company or the 3-D Exploration Program will be able to
compete effectively with such firms.
Risks of Turnkey Contracts
The Company anticipates that any wells to be drilled in which the Company
will have an interest will be drilled by established industry
11
<PAGE>
contractors under turnkey contracts that limit the Company's financial and legal
exposure. Under a turnkey drilling contract a negotiated price is agreed upon
and the money placed in escrow. The contractor then assumes all of the risk and
expense, including any cost overruns, of drilling a well to contract depth and
completing any agreed upon evaluation of the wellbore. Upon performance of all
these items, the escrowed money is released to the contractor.
On a footage or day work basis, all risk and expense, including cost
overruns, of drilling a well to total depths lies with the operator.
Circumstances may arise where a turnkey contract is not economically beneficial
to the Company or is otherwise unobtainable from proven industry contractors.
In such instances, the Company may decide to drill, or cause to be drilled, the
applicable 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 would also be liable for any cost
overruns attributable to downhole drilling problems that otherwise would have
been covered by a turnkey contract had one been negotiated.
United States Governmental Regulation, Taxation and Price Control
Oil and gas production and exploration are subject to comprehensive
federal, state and local laws and regulations controlling the exploration for
and production and sale of oil and gas and the possible effects of such
activities on the environment. Failure to comply with such rules and
regulations can result in substantial penalties and may adversely affect the
Company. Present, as well as future, legislation and regulations could cause
additional expenditures, restrictions and delays in the Company's business, the
extent of which cannot be predicted and which may require the Company to limit
substantially, delay or cease operations in some circumstances. In most, if not
all, areas where the Company may conduct activities, there may be statutory
provisions regulating the production of oil and natural gas which may restrict
the rate of production and adversely affect revenues. The Company plans to
acquire oil and gas leases in the Gulf of Mexico, which will be granted by the
federal government and administered by the U.S. Department of Interior Minerals
Management Service (the "MMS"). The MMS strictly regulates the exploration,
development and production of oil and gas reserves in the Gulf of Mexico. Such
regulations could have a material adverse effect on the Company's operations in
the Gulf of Mexico. The federal government regulates the interstate
transportation of oil and natural gas, through the Federal Energy and Regulatory
Commission ("FERC"). The FERC has in the past regulated the prices at which oil
and gas could be sold. Federal reenactment of price controls or increased
regulation of the transport of oil and natural gas could have a material adverse
effect on the Company. In addition, the Company's operations are subject to
numerous laws and regulations governing the discharge of oil and hazardous
materials into the environment or otherwise relating to environmental
protection, including the Oil Pollution Act of 1990. These laws and regulations
have continually imposed increasingly strict requirements for water and air
pollution control, solid waste management, and strict financial responsibility
and remedial response obligations relating to oil spill protection. The cost of
complying with such environmental legislation could have a general adverse
effect on the Company's operations.
12
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares.
Based on the current exercise price of the Warrants (as defined below), the
Company will not receive any proceeds from the exercise of the Warrants unless
and until the market value of the Company's common stock increases beyond $1.50
per share. The Company expects to use any such proceeds for ongoing activities
related to its 3-D seismic exploration project in Cameron Parish, Louisiana,
working capital and/or general corporate purposes.
13
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of January
5, 1999 by each Selling Stockholder.
<TABLE>
<CAPTION>
Amount of Shares Offered
Hereby(2)
------------------------------------
Shares of Common
Number Stock Underlying
Name of Shares Beneficially of Shares Warrants Shares Beneficially
Selling Owned Prior of Common to Purchase Owned After
Stockholder to Offering(1) Stock Common Stock (3) the Offering(2)
- ---------------------------------- --------------------- --------- ---------------------- --------------------
Number Percent Number Percent
--------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Alana Group The, Ltd. 562,500 2.9 375,000 187,500 0 *
Alba Limited 45,000 20,000 25,000 *
Arabella S.A. 855,000 4.3 380,000 475,000 2.4
Borenstein, Richard N. 75,833 * 40,000 35,833 *
BSR Investments, Ltd. 3,168,667 16.2 400,000 2,768,667 14.5
Cullman, Joseph F. III 237,917 1.3 20,000 217,917 1.1
Dulverton Holdings Limited 450,000 2.4 300,000 150,000 0 *
Forster, Gail Daly 132,917 * 20,000 112,917 *
Hellmold, Ralph O. 256,583 1.3 60,000 196,583 1.0
Israel, Robert I. 37,917 * 20,000 17,917 *
Kessler, Douglas W., P.C. 37,917 * 20,000 17,917 *
Lessman, Andrew 666,667 3.5 666,667 0 *
MM&B Holdings, L.L.C. 1,195,500 5.9 50,000 787,500 358,000 1.9
Moore, James E. Revocable Trust 450,000 2.4 300,000 150,000 0 *
u/d/t dtd. 7/8/94
Neel, John S. Jr. 98,015 * 40,000 58,015 *
Nomina Finance Limited BVI 450,000 2.4 300,000 150,000 0 *
Oakwood Holdings Limited 450,000 2.4 300,000 150,000 0 *
Olofson, Erik L. II 112,500 * 75,000 37,500 0 *
Robinson, Joe Sam Jr., M.D. 332,390 1.7 70,000 262,390 1.4
Rover Enterprises. 650,000 3.4 300,000 150,000 200,000 1.1
Salton, Albin 75,833 * 40,000 35,833 *
Smisson, Hugh F. III, M.D. 234,039 1.2 50,000 184,039 *
Wagstaff, Michael J. 36,667 * 20,000 16,667 *
</TABLE>
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Commission and generally includes voting or investment
power with respect to securities. Information with respect to beneficial
ownership is based on information as of January 5, 1999 and assumes that
there is outstanding an aggregate of 18,973,749 shares of Common Stock.
Warrants to purchase shares of Common Stock which are currently exercisable
or will become exercisable within 60 days of January 5, 1999 are deemed to
be outstanding for purposes of the individuals named in this chart. Except
as indicated otherwise in the footnotes below, and subject to community
property laws where applicable, the Company believes based on information
furnished by the Selling Stockholders that the persons named in the table
above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Assumes the sale of all Shares offered hereby and no other purchases or
sales of the Company's Common Stock. See "Plan of Distribution."
(3) All Warrants are immediately exercisable.
14
<PAGE>
ISSUANCE OF SECURITIES TO SELLING STOCKHOLDERS
In the period from August 31, 1998 through December 15, 1998, the Company
sold 1,950,000 units (each unit being comprised of one share of Common Stock and
one half warrant to purchase one share of Common Stock; in the aggregate,
1,950,000 shares of Common Stock and warrants to purchase 975,000 shares of
Common Stock) to seven investors at a price of $0.67 per share pursuant to
Regulation D promulgated by the Securities and Exchange Commission. Warrants
issued in connection with these sales of units are exercisable, in whole or in
part, at anytime on or before the second anniversary date of the date the units
were sold at an exercise price of $2.00 per share.
In December 1998, the Company sold 666,667 shares of Common Stock to one
investor at a price of $0.75 per share pursuant to Regulation D promulgated by
the Securities and Exchange Commission.
In connection with extensions of the maturity date of short-term senior
term notes payable the Company issued 50,000 shares of Common Stock and warrants
to purchase 1,987,500 shares of Common Stock as follows: (i) in September 1998
the Company issued 50,000 shares of Common Stock and warrants to purchase
1,675,000 shares of Common Stock (of which warrants to purchase 1,200,000 shares
are exercisable, in whole or in part, at anytime on or before September 15, 2002
at an exercise price of $1.50 per share and warrants to purchase 475,000 shares
are exercisable, in whole or in part, at anytime on or before September 15, 2003
at an exercise price of $2.00 per share), (ii) in October 1998 the Company
issued warrants to purchase 87,500 shares of its Common Stock exercisable, in
whole or in part, at anytime on or before October 15, 2003 at an exercise price
of $1.50 per share, (iii) in November 1998 the Company issued warrants to
purchase 100,000 shares of its Common Stock exercisable, in whole or in part, at
anytime on or before November 15, 2003 at an exercise price of $1.50 per share,
and (iv) in December 1998 the Company issued warrants to purchase 125,000 shares
of its Common Stock exercisable, in whole or in part, at anytime on or before
November 15, 2003 at an exercise price of $1.50 per share.
DESCRIPTION OF SECURITIES
Cheniere has 45,000,000 authorized shares of stock, consisting of (a)
40,000,000 shares of the Common Stock, having a par value of $.003 per share,
and (b) 5,000,000 shares of preferred stock, having a par value of $.0001 per
share (the "Preferred Stock").
The shares of Common Stock being registered pursuant to the registration
statement of which this prospectus is a part include (i) 2,616,667 shares issued
in connection with private placements conducted by the Company during the period
from August 1998 to December 1998, (ii) 50,000 shares issued in connection with
the extension of the maturity date of a certain note payable of the Company and
(iii) 2,962,500 shares issuable upon the exercise of warrants exercisable on or
before December 16, 2003 at exercise prices of $1.50 to $2.00 per share. For
more information concerning the Shares and the transactions pursuant to which
they were or will be issued, see "Issuance of Securities to Selling
Stockholders."
15
<PAGE>
COMMON STOCK
As of January 5, 1999, there were 18,973,749 shares of the Common Stock
outstanding. All of such outstanding shares of Common Stock are fully paid and
nonassessable. Each share of the Common Stock has an equal and ratable right to
receive dividends when, as and if declared by the Board of Directors of Cheniere
out of assets legally available therefor and subject to the dividend obligations
of Cheniere to the holders of any Preferred Stock then outstanding.
As of January 5, 1999, the Company has received commitments from the
holders of $2,134,750 of its $4,000,000 short-term senior term notes payable to
exchange such notes payable for 2,826,042 shares of Common Stock at a price of
$0.72 per share, such exchange to occur on or before March 15, 1999.
In the event of a liquidation, dissolution or winding up of Cheniere, the
holders of Common Stock are entitled to share equally and ratably in the assets
available for distribution after payment of all liabilities, and subject to any
prior rights of any holders of Preferred Stock that at the time may be
outstanding.
The holders of Common Stock have no preemptive, subscription, conversion or
redemption rights, and are not subject to further calls or assessments of
Cheniere. There are no sinking fund provisions applicable to the Common Stock.
Each share of Common Stock is entitled to one vote in the election of directors
and on all other matters, submitted to a vote of stockholders. Holders of
Common Stock have no right to cumulate their votes in the election of directors.
See "Possible Anti-Takeover Provisions."
PREFERRED STOCK
As of the date of this Prospectus, there were no shares of Preferred Stock
outstanding. Preferred Stock may be issued from time to time in one or more
series, and the Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rates and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences and
any other rights, preferences, privileges and restrictions applicable to each
series of Preferred Stock. The purpose of authorizing the Board of Directors to
determine such rights, preferences, privileges and restrictions is to eliminate
delays associated with a stockholder vote on specific issuances. The issuance
of Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to gain control of
Cheniere.
WARRANTS
Cheniere has issued and outstanding certain warrants described herein
(collectively, the "Warrants"). Cheniere is registering the Common Stock
issuable upon the exercise of certain of such Warrants pursuant to the
Registration Statement of which this Prospectus is a part.
16
<PAGE>
Cheniere has issued and outstanding 141,666 and 2/3 warrants (collectively,
the "June Warrants"), each of which entitles the registered holder thereof to
purchase one share of Common Stock. The June Warrants are exercisable at any
time on or before June 14, 1999, at an exercise price of $3.00 per share
(subject to customary anti-dilution adjustments). The June Warrants were
originally issued by Cheniere Operating and were converted to warrants of
Cheniere following the Reorganization. The June Warrants were issued to a group
of 11 investors in connection with a private placement of unsecured promissory
notes of Cheniere Operating in the aggregate principal amount of $425,000. In
connection with the payment of an additional promissory note to one such
investor, Cheniere has issued to such investor an additional warrant to purchase
64,500 shares of the Common Stock (on the same terms as the June Warrants), in
accordance with the terms of the original Note Agreement, which expires on June
14, 1999.
In consideration of certain investment advisory and other services to the
Company, pursuant to warrant agreements each dated as of August 21, 1996,
Cheniere issued to C.M. Blair, W.M. Foster & Co., Inc. and Redliw Corp. warrants
to purchase 13,600 and 54,400 shares of Common Stock, respectively
(collectively, the "Adviser Warrants"). The Adviser Warrants are exercisable at
any time on or before May 15, 1999 at an exercise price of $3.00 per share
(subject to customary anti-dilution adjustments).
In connection with the December 1997 Bridge Financing, Cheniere issued
100,000 shares of common stock and four-year warrants to purchase 1,333,334
shares of common stock at $2-3/8 per share. Additional warrants to purchase
1,600,000 shares of Cheniere common stock were issued on September 15, 1998 in
consideration for the extension to that date. The notes were extended again in
September 1998 to a maturity date of December 15, 1998, which date was further
extended to January 15, 1999 at the option of the Company. In connection with
the extension to December 15, 1998, the Company offered two alternatives of
consideration. Holders of $3,000,000 of the notes elected to reduce the
exercise price of their warrants to $1.50. The holder of $1,000,000 of the
notes elected to reduce the exercise price of its warrants to $2.00 per share,
to extend the term of such warrants to five years from the latter of September
15, 1998 or the date of issue, to receive additional warrants to purchase as
many as 387,500 shares of common stock and to receive 50,000 shares of common
stock.
In conjunction with a private placement of Common Stock in March 1997 the
Company issued 50,000 warrants to a financial advisor. The warrants were issued
in March 1998 at an exercise price of $3.125 per share and are exercisable on or
before March 31, 2000.
In conjunction with the issuance of $180,000 senior term notes payable in
June 1998, the Company issued warrants to purchase 83,334 shares of Common Stock
at an exercise price of $2.00 per share. Such warrants are exercisable on or
before June 4, 2002 at an exercise price of $2.00 per share (subject to
customary anti-dilution adjustments).
In the period from August 31, 1998 through December 15, 1998, the Company
sold 1,950,000 units, each unit consisting of one share of Common Stock and one
half warrant to purchase one share of Common Stock, in the
17
<PAGE>
aggregate, 1,950,000 shares of Common Stock and warrants to purchase 975,000
shares of Common Stock. Each warrant is exercisable on or before the second
anniversary of the date the units were sold at an exercise price of $2.00 per
share (subject to customary anti-dilution adjustments).
The Warrants do not confer upon the holders thereof any voting or other
rights of a stockholder of Cheniere.
POSSIBLE ANTI-TAKEOVER PROVISIONS
The Amended and Restated Certificate of Incorporation of Cheniere (the
"Charter") contains certain provisions that might be characterized as anti-
takeover provisions. Such provisions may render more difficult certain possible
takeover proposals to acquire control of Cheniere and make removal of management
of Cheniere more difficult.
As described above, the Charter authorizes a class of undesignated
Preferred Stock consisting of 5,000,000 shares. Preferred Stock may be issued
from time to time in one or more series, and the Board of Directors, without
further approval of the stockholders, is authorized to fix the rights,
preferences, privileges and restrictions applicable to each series of Preferred
Stock. The purpose of authorizing the Board of Directors to determine such
rights, preferences, privileges and restrictions is to eliminate delays
associated with a stockholder vote on specific issuances. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to gain control of
Cheniere.
Cheniere is incorporated under the laws of the State of Delaware. Section
203 of the Delaware General Corporation Law prevents an "interested stockholder"
(defined as a stockholder owning 15 percent or more of a corporation's voting
stock) from engaging in a business combination with such corporation for a
period of three years from the time such stockholder became an interested
stockholder unless (a) the corporation's board of directors had earlier approved
either the business combination or the transaction by which the stockholder
became an interested stockholder, or (b) upon attaining that status, the
interested stockholder had acquired at least 85 percent of the corporation's
voting stock (not counting shares owned by persons who are directors and also
officers), or (c) the business combination is later approved by the board of
directors and authorized by a vote of two-thirds of the stockholders (not
including the shares held by the interested stockholder). Cheniere is currently
subject to Section 203.
In addition, William D. Forster, Co-Chairman of the Board of Directors of
the Company, and BSR Investments, Ltd. ("BSR"), an entity under the control of a
member of the immediate family of Charif Souki, Co-Chairman of the Board of
Directors of the Company, own in the aggregate approximately 30.8% of the
outstanding shares of the Common Stock. Accordingly, it is likely that Mr.
Forster and BSR will have the ability to effectively prevent or cause a change
in control of the Company.
18
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer Corporation.
PLAN OF DISTRIBUTION
Shares of Common Stock covered hereby may be offered and sold from time to
time by the Selling Stockholders. The Selling Stockholders will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. The Selling Stockholders may sell the Shares
being offered hereby: (i) on the Nasdaq SmallCap Market, or otherwise at prices
and at terms then prevailing or at prices related to the then current market
price; or (ii) in private sales at negotiated prices directly or through a
broker or brokers, who may act as agent or as principal or by a combination of
such methods of sale. The Selling Stockholders and any underwriter, dealer or
agent who participate in the distribution of such shares may be deemed to be
"underwriters" under the Securities Act, and any discount, commission or
concession received by such persons might be deemed to be an underwriting
discount or commission under the Securities Act. The Company has agreed to
indemnify the Selling Stockholders against certain liabilities arising under the
Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Stockholders (and, if acting as agent for the
purchaser of such shares, from such purchaser). Usual and customary brokerage
fees will be paid by the Selling Stockholders. Broker-dealers may agree with
the Selling Stockholders to sell a specified number of shares at a stipulated
price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for the Selling Stockholders, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or by a
combination of such methods of sale or otherwise at market prices prevailing at
the time of sale or at negotiated prices, and in connection with such resales
may pay to or receive from the purchasers of such shares commissions computed as
described above.
Under applicable rules and regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), any person engaged in the distribution of
the Common Stock may not simultaneously engage in market making activities with
respect to Cheniere for a period of five business days prior to the commencement
of such distribution. In addition and without limiting the foregoing, the
Selling Stockholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including, without limitation,
Regulation M, which may limit the timing of purchases and sales of shares of
Common Stock by the Selling Stockholders.
19
<PAGE>
The Selling Stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act. Any commissions paid or
any discounts or concessions allowed to any such broker-dealers, and any profits
received on the resale of such shares, may be deemed to be underwriting
discounts and commissions under the Securities Act if any such broker-dealers
purchase shares as principal.
In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
Common Stock may not be sold unless such shares have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
The Company will keep this Registration Statement or a similar registration
statement effective until the earliest to occur of (i) the date that all
securities registered pursuant to the Registration Statement of which this
Prospectus is a part have been disposed of in accordance with the plan of
disposition indicated herein, (ii) the date that all securities registered
pursuant to the Registration Statement of which this Prospectus is a part have
become eligible for sale pursuant to Rule 144(k) under the Securities Act. No
sales may be made pursuant to this Prospectus after such date unless the Company
amends or supplements this Prospectus to indicate that it has agreed to extend
such period of effectiveness. There can be no assurance that the Selling
Stockholders will sell all or any of the shares of Common Stock offered
hereunder.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon by Mayor, Day, Caldwell & Keeton, L.L.P., Houston, Texas, counsel to the
Company.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Company's Transition Report on Form 10-K for the transition
period from September 1, 1997 to December 31, 1997 have been so included in
reliance on the report (which contains an explanatory paragraph relating to the
Company's ability to continue as a going concern as described in Note 13 to the
consolidated financial statements) of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The Registrant will bear no expenses in connection with any sale or other
distribution by the Selling Stockholders of the shares being registered other
than the expenses of preparation and distribution of this Registration Statement
and the Prospectus included in this Registration Statement. Such expenses are
set forth in the following table. All of the amounts shown are estimates except
the Securities and Exchange Commission ("SEC") registration fee.
SEC registration fee $ 2,308
Legal fees and expenses 10,000
Accounting fees and expenses 2,000
Miscellaneous expenses 1,000
-------
Total $15,308
=======
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Certificate of Incorporation and By-laws provide for indemnification of the
Registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
Registrant has also entered into agreements with its directors and officers that
will require the Registrant, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors to the fullest extent not prohibited by law. In addition, the
Registrant carries director and officer liability insurance.
In connection with this offering, the Selling Stockholders have agreed to
indemnify the Registrant, its directors and officers and each such person who
controls the Registrant, against any and all liability arising from inaccurate
information provided to the Registrant by the Selling Stockholders and contained
herein.
II-1
<PAGE>
Item 16. Exhibits.
Exhibits.
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))
5.1 Opinion of Mayor, Day, Caldwell & Keeton, L.L.P.
23.1 Consent of Mayor, Day, Caldwell & Keeton, L.L.P. (included in
Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Powers of Attorney (included on signature page)
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
II-2
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Cheniere Energy, Inc. certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Houston, State of Texas, on January 5, 1999.
CHENIERE ENERGY, INC.
By: /s/ WALTER L. WILLIAMS
-------------------------------------
Walter L. Williams
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Walter L.
Williams and Don A. Turkleson, and each of them acting individually, as his or
her attorney-in-fact, each with full power of substitution, for him or her in
any and all capacities to sign any and all amendments to this Registration
Statement (including post-effective amendments), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney to any and all amendments
to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ WALTER L. WILLIAMS President, Chief Executive January 4, 1999
- ------------------------------------- Officer and Director
Walter L. Williams (Principal Executive Officer)
/s/ DON A. TURKLESON Chief Financial Officer January 4, 1999
- ------------------------------------- (Principal Financial and
Don A. Turkleson Accounting Officer)
/s/ WILLIAM D. FORSTER Co-Chairman of the Board January 4 1999
- -------------------------------------
William D. Forster
/s/ CHARIF SOUKI Co-Chairman of the Board January 4 1999
- -------------------------------------
Charif Souki
/s/ KENNETH R. PEAK Director January 4, 1999
- -------------------------------------
Kenneth R. Peak
/s/ CHARLES M. REIMER Director January 4, 1999
- -------------------------------------
Charles M. Reimer
/s/ EFREM ZIMBALIST, III Director January 4, 1999
- -------------------------------------
Efrem Zimbalist, III
</TABLE>
II-4
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MAYOR, DAY, CALDWELL & KEETON, L.L.P.]
January 5, 1999
Cheniere Energy, Inc.
1200 Smith Street, Suite 1740
Houston, Texas 77002
Ladies and Gentlemen:
We have acted as counsel for Cheniere Energy, Inc., a Delaware corporation
(the "Company"), in connection with the registration of up to an aggregate of
5,629,167 (the "Shares") of Common Stock, par value $0.003 per share, of the
Company ("Common Stock"), to be sold by certain selling stockholders of the
Company as described in the Company's Registration Statement on Form S-3, filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended ("Registration Statement"). In such capacity, we have familiarized
ourselves with the Articles of Incorporation, as amended to date, and Bylaws of
the Company, as amended to date, and have examined all statutes and other
records, instruments and documents pertaining to the Company that we have deemed
necessary to examine for the purposes of this opinion.
Based upon our examination as aforesaid, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware; and
2. The Shares currently outstanding are, and the Shares underlying
warrants when delivered for sufficient consideration and pursuant to the
provisions of the warrants will be, duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of our name in the Registration Statement at each place in which it appears.
Sincerely,
/s/ Mayor, Day Caldwell & Keeton, L.L.P.
----------------------------------------
Mayor, Day, Caldwell & Keeton, L.L.P.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
June 12, 1998 appearing on page 19 of Cheniere Energy, Inc.'s Transition Report
on Form 10-K for the period from September 1, 1997 to December 31, 1997. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------------
PRICEWATERHOUSECOOPERS LLP
January 5, 1999
Houston, Texas
