<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
COMMISSION FILE NO. 0-9092
CHENIERE ENERGY, INC.
(Exact name as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
95-4352386
(I. R. S. Identification No.)
1200 Smith Street, Suite 1740
Houston, Texas
(Address or principal place of business)
77002-4312
(Zip Code)
(713) 659-1361
(Registrant's telephone number, including area code)
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 [ ].
As of August 13, 1998, there were 27,574,217 shares of Cheniere Energy, Inc.
Common Stock, $.003 par value, issued and outstanding.
================================================================================
<PAGE>
CHENIERE ENERGY, INC.
INDEX TO FORM 10-Q
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet......................................... 3
Consolidated Statement of Operations............................... 4
Consolidated Statement of Stockholders' Equity..................... 5
Consolidated Statement of Cash Flows............................... 7
Notes to Consolidated Financial Statements......................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds....................... 14
Item 6. Exhibits and Reports on Form 8-K................................ 14
SIGNATURES................................................................... 15
2
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,393,269 $ 143,868
Accounts Receivable 653,705 95,837
Subscriptions Receivable - 500,000
Prepaid Expenses and Other Current Assets 540,968 8,833
------------ ------------
Total current assets 2,587,942 748,538
OIL AND GAS PROPERTIES, full cost method
Unevaluated 24,777,673 20,000,425
FIXED ASSETS, net 90,285 89,511
------------ ------------
Total Assets $ 27,455,900 $ 20,838,474
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 2,625,307 $ 523,144
Notes Payable 1,974,980 1,974,980
------------ ------------
Total current liabilities 4,600,287 2,498,124
------------ ------------
LONG-TERM NOTES PAYABLE
Related Party - 2,000,000
Other - 25,020
------------ ------------
Total long-term liabilities - 2,025,020
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, $.003 par value
Authorized: 60,000,000 and 40,000,000 shares, respectively
Issued and Outstanding: 27,307,977 shares at June 30, 1999;
18,973,749 at December 31, 1998 81,924 56,922
Preferred Stock, $.0001 par value
Authorized: 5,000,000 shares
Issued and Outstanding: none - -
Additional Paid-in-Capital 27,282,199 20,084,928
Deficit Accumulated During the Development Stage (4,508,510) (3,824,520)
------------ ------------
Total Stockholders' Equity 22,855,613 16,317,330
------------ ------------
Total Liabilities and Stockholders' Equity $ 27,455,900 $ 20,840,474
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30, Cumulative
-------------------------- -------------------------- from the Date
1999 1998 1999 1998 of Inception
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $ - $ - $ - $ - $ -
---------- ---------- ---------- ---------- ------------
General and Administrative Expenses 360,182 436,435 694,182 631,829 4,616,958
---------- ---------- ---------- ---------- ------------
Loss from Operations Before Other Income
and Income Taxes (360,182) (436,435) (694,182) (631,829) (4,616,958)
Interest Income 5,298 6,619 10,192 12,513 147,449
Interest Expense - - - - (39,001)
---------- ---------- ---------- ---------- ------------
Loss From Operations Before Income Taxes (354,884) (429,816) (683,990) (619,316) (4,508,510)
Provision for Income Taxes - - - - -
---------- ---------- ---------- ---------- ------------
Net Loss $ (354,884) $ (429,816) $ (683,990) $ (619,316) $ (4,508,510)
========== ========== ========== ========== ============
Net Loss Per Share (basic and diluted) $ (0.02) $ (0.03) $ (0.03) $ (0.04) $ (0.31)
========== ========== ========== ========== ============
Weighted Average Number of Shares
Outstanding 23,464,488 15,865,084 21,503,556 14,891,462 14,533,332
========== ========== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<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
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<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 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
Sale of Shares on April 8, 1998 2.00 530,000 1,590 1,058,410 - 1,060,000
Issuance of Shares in Settlement of
Charges for Previous Legal Services 1.40 70,000 210 97,790 - 98,000
Sale of Shares on May 29, 1998 2.00 22,000 66 43,934 - 44,000
Sale of Shares on June 4, 1998 1.40 890,644 2,672 1,244,230 - 1,246,902
Expenses Related to Offerings - - - (168,000) - (168,000)
Issuance of Shares to Adjust Prices of
Shares Sold on April 8 and May 29** - 236,572 710 (710) - -
Issuance of Warrants with
Bridge Notes on June 4, 1998 - - - 3,661 - 3,661
Issuance of Shares on August 26, 1998
Pursuant to Exercise of Warrants 1.00 100,000 300 99,700 - 100,000
Sale of Shares on August 31, 1998 0.67 750,000 2,250 499,000 - 501,250
Issuance of Warrants and Shares to
Extend Bridge Notes on March 15 and
September 15, 1998 0.67 50,000 150 349,183 - 349,333
Sale of Shares on November 15, 1998 0.67 1,200,000 3,600 796,400 - 800,000
Sale of Shares on December 30, 1998 0.75 666,667 2,000 498,000 - 500,000
Net Loss - - - - (1,637,844) (1,637,844)
---------- ------- ----------- ----------- -----------
Balance - December 31, 1998 18,973,749 56,922 20,084,928 (3,824,520) 16,317,330
Issuance of Shares in Exchange for Notes
on February 2 and March 15, 1999 0.72 2,812,528 8,437 2,016,583 - 2,025,020
Repricing of Warrants to Extend Bridge
Notes on March 15, 1999 - 35,702 35,702
Issuance of shares in Exchange for Production
Payment on April 8, 1999 0.68 584,475 1,753 398,247 - 400,000
Sale of Shares on April 12, 1999 1.00 300,000 900 299,100 - 300,000
Sale of Shares on May 12, 1999 1.50 600,000 1,800 898,200 - 900,000
Sale of Shares on May 25, 1999 1.31 41,225 124 53,726 - 53,850
Sale of Shares on June 2, 1999 0.83 1,200,000 3,600 996,400 - 1,000,000
Sale of Shares on June 9, 1999 1.00 500,000 1,500 498,500 - 500,000
Sale of Shares on June 30, 1999 1.00 2,296,000 6,888 2,289,112 - 2,296,000
Expenses Related to Offerings - - - (288,299) - (288,299)
Net Loss - - - - (683,990) (683,990)
---------- ------- ----------- ----------- -----------
Balance - June 30, 1999 27,307,977 81,924 27,282,199 (4,508,510) 22,855,613
========== ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Cumulative
-------------------------- from the Date
1998 1997 of Inception
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (683,990) $ (619,316) $(4,508,510)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation and Amortization 21,326 18,225 75,304
Compensation Paid in Common Stock - - 654,400
Increase in Accounts Receivable (555,868) (23,394) (653,705)
Decrease in Subscriptions Receivable 500,000 - -
Increase in Prepaid Expenses and Other Current Assets (532,135) (79,763) (540,968)
Increase (Decrease) in Accounts Payable and Accrued Liabilities 2,102,163 (74,655) 2,723,307
Non-Cash Interest Expense (Issuance of Warrants) - - 19,200
---------- ---------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ 851,496 (778,903) (2,230,972)
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Fixed Assets (22,099) (82,320) (165,587)
Proceeds from Sales of Oil and Gas Seismic Data - - 46,000
Oil and Gas Property Additions (4,741,545) (1,390,319) (24,216,065)
---------- ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (4,763,645) (1,472,639) (24,216,065)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes with Detachable Warrants - 180,000 4,605,000
Proceeds from Issuance of Notes Payable or Advances 240,000 - 1,437,000
Repayment of Notes Payable or Advances (240,000) - (1,832,000)
Sale of Common Stock 5,449,848 2,448,902 26,000,828
Offering Costs (288,299) (113,000) (2,370,523)
---------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,161,549 2,515,902 27,840,305
---------- ---------- -----------
NET INCREASE (DECREASE) IN CASH 1,249,401 264,360 1,393,269
CASH - BEGINNING OF PERIOD 143,868 787,523 -
---------- ---------- -----------
CASH - END OF PERIOD $1,393,269 $1,051,883 $ 1,393,269
---------- ---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest (net of amounts capitalized) $ - $ - $ 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 at closing 100,000 shares of common
stock (valued at $237,500), and upon extension of the maturity date 50,000
shares (valued at $33,500), which were recorded as debt issuance costs. In the
same financing, the Company issued 1,333,334 warrants (valued at $101,000) and
1,987,500 warrants (valued at $315,833) related to extensions of the maturity
dates. In conjunction with a short-term bridge financing in June 1998, the
Company issued 83,334 warrants (valued at $3,661). In conjunction with a short-
term bridge financing in June 1998, the Company issued 83,334 warrants (valued
at $3,661). In conjunction with a 1999 extension of the maturity dates of the
December 1997 notes, the exercise price was reduced by $0.25 per share for
warrants related to the extended notes. This repricing of warrants was valued at
$35,702. The amortization of such warrant costs was included in interest expense
which was capitalized as a cost of oil and gas properties.
In 1998, the Company issued 70,000 shares of common stock (valued at $98,000)
in settlement of invoices for previously rendered legal services.
In 1999, the Company repriced certain warrants (valued at $35,702) in
connection with an extension of its short-term notes payable and issued
2,812,528 shares of common stock in exchange for the cancellation of long-term
notes payable totaling $2,025,000.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Cheniere Energy, Inc.
("Cheniere" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments necessary for a fair presentation, have been included.
For further information, refer to the financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998. Interim results are not necessarily indicative of results to be
expected for the full fiscal year ended December 31, 1999.
The Company is currently a development stage enterprise and reports as such
under the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 7, "Accounting and Reporting by Development Stage Enterprises." The
Company's future business will be in the field of oil and gas exploration and
exploitation.
The Company intends to adopt SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," issued in June 1998 effective with its
fiscal year beginning January 1, 2000 as required by the Statement. Due to the
Company's current and anticipated limited use of derivative instruments,
management anticipates that adoption of SFAS 133 will not have any significant
impact on the Company's financial position or results of operations.
NOTE 2 - NOTES PAYABLE
In December 1997, Cheniere completed the private placement of a $4,000,000
bridge financing (the "December 1997 Bridge Financing"). The notes payable
issued by Cheniere had an initial maturity date of March 15, 1998, which was
extended to September 15, 1998 and further extended to January 15, 1999. In
December 1998, Cheniere received commitments from certain noteholders to
exchange notes payable for an aggregate of 2,812,528 shares of Cheniere common
stock at a price of $0.72 per share. Accordingly, the $2,025,020 face amount of
the exchanged notes was classified as a long-term obligation as of December 31,
1998. For those notes which were not exchanged for common stock, the maturity
date was extended. The notes bear interest at a rate of LIBOR plus 4%. The
securities purchase agreements which govern such bridge financing specify that,
during the term of the notes, capital raised by the Company in excess of
$12,000,000 must be directed to repayment of the notes.
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. In connection with the extension
to January 15, 1999, 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
8
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
per share. 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 387,500 shares of common stock and to
receive 50,000 shares of common stock. In January 1999, the maturity date was
extended to March 15, 1999. In March 1999, the maturity date was extended to
April 15, 1999. As consideration for the extension to April 15, 1999, the
Company reduced the exercise price by $0.25 per share for all warrants issued in
connection with the issuance or extensions of the notes. In April 1999, the
maturity date was extended to July 15, 1999, at which time 50% of the
outstanding balance was repaid and the maturity date for the remainder was
extended to October 15, 1999. (See Note 8 - Subsequent Events.)
NOTE 3 - COMMON STOCK ISSUANCES
In April 1999, the Company completed the private placement of 300,000
units, each unit representing one share of Cheniere common stock and a warrant
to purchase one share of common stock at a share price equal to the lesser of
$1.00 or an amount calculated as 65% times the lowest trading price of Cheniere
common stock during the 30-day period ending June 12, 1999. Net proceeds were
$270,000 after payment of $30,000 in selling commissions. In July 1999, Cheniere
issued an additional 150,000 units pursuant to the price adjustment provision of
the original April 1999 private placement, reducing the average price to $0.67
per unit. These issuances were made in reliance on the exemption from
registration provided by Section 506 of Regulation D.
Also in April 1999, the Company issued 584,475 shares of common stock at
$0.68 per share in exchange for the cancellation of a production payment which
it had sold in March 1999. The terms of the production payment and stock option
agreement provided for the per share price of the exchange to be an amount equal
to 75% times the average closing bid price for the five-day period preceding
notice of the exchange. The balance of the production payment at the time of the
exchange was $400,000. These issuances were made in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933.
In May 1999, Cheniere issued 600,000 shares of common stock in exchange for
$900,000 of prepaid drilling services. In addition, the Company issued 41,225
shares as partial payment of drilling services previously provided at a cost of
$53,850. These issuances were made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
In June 1999, the Company completed three private placements of common
stock. On June 2, 1999, Cheniere issued 1,200,000 shares of common stock at a
price of $0.83 per share for proceeds of $1,000,000. These issuances were made
in reliance on the exemption from registration provided by Section 506 of
Regulation D. On June 9, 1999, Cheniere issued 500,000 shares of common stock to
acquire a license to use 3-D seismic data covering 8,700 square miles in the
shallow waters of the Gulf of Mexico. These issuances were made in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933. On June 30, 1999, Cheniere issued 2,296,000 shares of common stock at a
price of $1.00 per share resulting in net proceeds of $2,082,000 after payment
of $214,000 in selling commissions. These issuances were made in reliance on the
exemption from registration provided by Section 506 of Regulation D.
NOTE 4 - STOCK OPTIONS
On March 18, 1999, the Company granted options to certain employees under
the Cheniere Energy, Inc. 1997 Stock Option Plan. Options covering a total of
218,500 shares of common stock were granted to employees, exercisable at $1.50
per share, which is above the quoted market price of the stock at the time of
the grant. The options vest 25% at each of the first four anniversaries of the
date of grant and expire on the fifth anniversary date of the grants.
Also on March 18, 1999, the Company's Board of Directors elected a new
director. This
9
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
director was granted options to purchase 35,000 shares of the Company's common
stock at an exercise price of $3.00 per share, which is above the quoted market
price at the time of the grant. These options vest on 22,500 shares on March 18,
2000, and on 12,500 shares on March 18, 2001, and will expire on March 17, 2004.
On June 1, 1999, the Company granted options to an employee to purchase
300,000 shares of common stock. The options are exercisable at $1.50 per share,
which is above the quoted market price of the stock at the time of the grant.
Options on 150,000 of the shares are fully vested, options on 150,000 of the
shares vest 25% at each of the first four anniversaries of the date of grant and
expire on the fifth anniversary date of the grant.
NOTE 5 - WARRANTS
In April 1999, Cheniere sold 300,000 units to three investors at a price of
$1.00 per share, resulting in net proceeds of $270,000 after payment of $30,000
in selling commissions. Each unit was comprised of one share of common stock and
one warrant to purchase one share of common stock, adding up to 300,000 shares
of common stock and warrants to purchase 300,000 shares of common stock.
Warrants issued in connection with these sales of units are exercisable on or
before the second anniversary date of the date the units were sold at an
exercise price of $1.00 per share. These issuances were made in reliance on the
exemption from registration provided by Section 506 of Regulation D.
In June 1999, the Company issued 1,000,000 warrants to its president and
chief executive officer and 200,000 warrants to another member of its board of
directors, both of whom were instrumental in negotiating the Company's license
of 8,700 square miles of 3-D seismic data in the Gulf of Mexico. Warrants
issued in connection with this transaction are exercisable on or before the
fifth anniversary of the date the transaction closed at an exercise price of
$1.50 per share. These issuances were made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
NOTE 6 - RELATED PARTY TRANSACTIONS
In conjunction with certain of the Company's private placements of equity
securities, placement fees have been paid to Investors Administration Services,
Limited ("IAS"), a company in which the brother of Cheniere's Chairman is a
principal. Placement fees totaling $235,000 were paid to IAS related to
Cheniere's 1999 private placements of equity securities.
During May 1999, the Company received and repaid $240,000 in short-term
advances from a major stockholder, BSR Investments, Ltd., whose president is the
mother of Cheniere's Chairman. Interest totaling $584 was paid on the advances
at a rate of LIBOR plus 4%, the same rate then payable on the Company's notes
payable.
NOTE 7 - CONTINGENT LIABILITIES
On June 9, 1999 Cheniere entered into a master license agreement covering
the license of approximately 8,700 square miles of 3-D seismic data in the Gulf
of Mexico. In connection with the license agreement, the Company has made a
commitment to reprocess certain of the seismic data and to pay a fee for such
reprocessing as the reprocessed data is delivered. If
10
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
reprocessed seismic data are delivered to Cheniere on the schedule specified in
the agreement, Cheniere will be obligated to make processing payments of
approximately $200,000 per month for the period from December 1999 through
December 2001.
NOTE 8 - SUBSEQUENT EVENTS
On July 15, 1999, the Company repaid one half of the then-outstanding
balance of its notes payable. For the remaining balance, totaling $987,490,
the maturity date was extended to October 15, 1999 and the interest rate was
increased by 2% to LIBOR plus 6%.
In July 1999, Cheniere issued 50,000 warrants exercisable at $1.50 per
share on or before June 30, 2004 as consideration for the use of a prospect lead
database.
The Company also issued 150,000 additional warrants exercisable at $1.00
per share on or before July 5, 2004 in connection with a pricing adjustment to
the number of units sold in April 1999.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL - Cheniere Energy, Inc. is currently a development stage company,
which has not yet begun generating revenues, and reports as such under the
provisions of SFAS No. 7. The Company's unaudited consolidated financial
statements and notes thereto relate to the three-month and six-month periods
ended June 30, 1999 and 1998. These statements, the notes thereto and the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 contain detailed information that
should be referred to in conjunction with the following discussion.
RESULTS OF OPERATIONS
COMPARISON OF THREE-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 - The
Company's operating results for the three months ended June 30, 1999 reflect a
loss of $354,884, or $0.02 per share, compared to a loss of $429,816 or $0.03
per share a year earlier. The Company is in the development stage; accordingly,
there continue to be no operating revenues. General and administrative expenses
of $360,182 in the three months ended June 30, 1999 were lower than the $436,435
reported for the comparable period a year earlier. The decrease in expenses
results principally from the inclusion in 1998 results of legal expenses related
to arbitration proceedings which began in April 1998. Legal expenses for the
1999 quarter were $43,000 compared to $207,000 a year earlier. Offsetting the
decrease in legal expenses is an increase in personnel and office costs
resulting from the Company's increased level of activity since commencing
drilling operations in February 1999.
COMPARISON OF SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 - The
Company's operating results for the six months ended June 30, 1999 reflect a
loss of $683,990, or $0.03 per share, compared to a loss of $619,316 or $0.04
per share a year earlier. General and administrative expenses of $694,182 in the
six months ended June 30, 1999 were higher than the $631,829 reported for the
comparable period a year earlier. The increase in expenses results from the
hiring of additional management and technical personnel and the expansion of the
Company's offices in 1999. Offsetting these increases is the decline in legal
expenses of approximately $90,000 between periods due to the arbitration
proceedings which were initiated in April 1998 and concluded in December 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since Cheniere's inception in February 1996, the business plan of the
Company has included a lengthy start-up period before revenues would begin.
Some of the prerequisite activities to be accomplished before the commencement
of operating revenues were: the acquisition of 3-D seismic data, the processing
of that seismic data, the interpretation of that seismic data to identify
prospects, the leasing of those prospects, and the drilling of those prospects
to prove up oil and gas reserves for production and sale to generate operating
revenues. Cheniere has completed the acquisition of proprietary data over a 230-
square-mile 3-D seismic survey in Cameron Parish, Louisiana, and the adjacent
offshore area. It has processed and is interpreting the seismic data. It has
identified 15 prospects to date and has acquired leases over the majority of
those prospects. Cheniere has just begun the drilling phase of its exploration
project in 1999.
Drilling operations commenced in February 1999. A completion attempt was
made on
12
<PAGE>
the Company's initial well, at the Cobra Prospect, but the well was not deemed
to be productive in commercial quantities. Cheniere then commenced drilling a
test well on its second prospect, Redfish, which has been completed and tested
and where production is expected to commence in September 1999. The Company
drilled a well on its third prospect, Shark, and determined that the indicated
reserves found present were not adequate to justify a completion in an offshore
environment. Cheniere has drilled a well on its fourth prospect, Stingray, which
has been completed and tested and where production is expected to commence in
September 1999 after the installation of a platform which will be used for both
Redfish and Stingray production. Cheniere is presently preparing the location
for the drilling of its fifth prospect, Heron, on which drilling is expected to
commence in August 1999.
To fund its activities to date, Cheniere has raised $25,855,000 through
private placements of its equity securities and $1,974,980 (net) through the
issuance of bridge notes payable. The Company has raised these funds through a
series of private placements of moderate amounts of its securities. The Company
has consistently issued its common stock in amounts necessary to meet financial
needs when required. It has not been the strategy of the Company to raise a
significant amount of capital in excess of its current needs, but rather, to
sell stock as funds are required.
The Company anticipates that future liquidity requirements, including
repayment of $987,490 in short-term notes payable maturing on October 15, 1999,
payment of $1,603,000 in production platform costs due on September 2, 1999,
other oil and gas exploration and development activities, and general corporate
requirements will be met by a combination of: 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 further sales of equity, future borrowings, or
sales of portions of its interest in the 3-D Exploration Program or in the
prospects generated thereunder will be accomplished.
During 1999, Cheniere has raised funds from the following sources: $913,000
through the sale of interests in five prospects, $275,000 through the sale of a
seismic option on three additional prospects, $2,025,020 through the issuance of
common stock in exchange for the cancellation of notes payable, $400,000 through
the sale of a production payment, $300,000 through the issuance of units
comprised of common stock and warrants, $3,296,000 through the issuance of
common stock for cash and $1,128,000 through the issuance of common stock in
exchange for drilling services and well equipment.
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
considered necessary, the Company is
13
<PAGE>
assessing 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
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.
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 are forward-looking statements within the meaning of the Act, 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. 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.
-- The Company's ability to discover 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The information contained in Notes 2, 3, 4 and 5 to the Consolidated Financial
Statements is incorporated herein by reference.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Each of the following exhibits is incorporated by reference or filed
herewith:
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation of Cheniere
Energy, Inc. ("Cheniere")
3.2 Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of Cheniere Energy, Inc.
3.3 By-laws of Cheniere as amended through April 7, 1997
(Incorporated by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10-K filed on March 29, 1999 (File No.
0-9092))
15
<PAGE>
10.28 Master License Agreement dated June 9, 1999 between Fairfield
Industries Incorporated and Cheniere. Certain information in
this exhibit has been omitted and filed separately with the
Commission. Confidential treatment has been requested with
respect to the omitted portions.
10.29 Supplement Agreement No. 1 to Master License Agreement dated
June 9, 1999 between Fairfield Industries Incorporated and
Cheniere. Certain information in this exhibit has been omitted
and filed separately with the Commission. Confidential treatment
has been requested with respect to the omitted portions.
27.1 Financial Data Schedule
(b) Current Reports on Form 8-K: None.
SIGNATURES
Pursuant to the requirements of the Securities and 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.
/s/ Don A. Turkleson
--------------------------------
Don A. Turkleson
Chief Financial Officer (on behalf of the
registrant and as principal accounting
officer)
Date: August 13, 1999
16
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BEXY COMMUNICATIONS, INC.
UNDER SECTIONS 242 AND 245 OF THE
DELAWARE GENERAL CORPORATION LAW
Originally incorporated under the name
All American Burger, Inc.
The undersigned, being the President of BEXY COMMUNICATIONS, INC., a
corporation existing under the laws of the State of Delaware (the "Company"),
does hereby certify as follows:
FIRST: The name of the Company is BEXY COMMUNICATIONS, INC.
SECOND: The certificate of incorporation of the Company was filed by the
Secretary of State of the State of Delaware on the 25th day of March, 1983.
THIRD: The amendments to the certificate of incorporation effected by this
Certificate are as follows:
(1) To change the name of the Company to "Cheniere Energy, Inc.;"
(2) To change the total number of shares of capital stock which the Company
shall have authority to issue to 21,000,000 shares;
(3) To amend and supplement the provisions of the certificate of incorporation
relating to personal liability of the directors of the Company and
indemnification by the Company;
(4) To change the total number of the shares of common stock which the Company
shall have authority to issue to 20,000,000 shares;
(5) To change the par value of the common stock to $.003 per share;
<PAGE>
(6) To add a provision authorizing the issuance of 1,000,000 shares of a new
class of preferred stock, the rights, powers and preferences of which shall be
set by resolution of the Board of Directors of the Company;
(7) To change the registered office of the Company in the State of Delaware to
1013 Centre Road, City of Wilmington 19805, County of New Castle; and
(8) To change the registered agent of the Company in the State of Delaware to
Corporation Service Company, 1013 Centre Road, City of Wilmington 19805, County
of New Castle.
FOURTH: The amendments and the restatement of the certificate of
incorporation have been duly adopted in accordance with Sections 242 and 245 of
the General Corporation Law of the State of Delaware by the unanimous vote of
the Board of Directors.
FIFTH: The text of the certificate of incorporation of said BEXY
Communications, Inc. is hereby restated as amended by this Certificate, to read
in full, as follows:
FIRST: The name of the corporation is Cheniere Energy, Inc. (hereinafter
referred to as the "Company").
SECOND: The address of the registered office of the Company in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware
19805. The name of the registered agent of the Company at such address is
Corporation Service Company.
THIRD: The nature of the business or purposes to be conducted or promoted by
the Company are to engage in, promote, and carry on any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (hereinafter referred to as the "GCL").
FOURTH: The total number of shares of stock that the Company shall have
authority to issue is 21,000,000 shares, consisting of:
-2-
<PAGE>
(1) 20,000,000 shares of Common Stock, having a par value of $.003 per share;
and
(2) 1,000,000 shares of Preferred Stock with a par value of $.0001 per share.
The Board of Directors of the Company is authorized, subject to limitations
prescribed by law and by filing any certificate prescribed by law, to establish
the par value of such Preferred Stock, to provide for the issuance of such
Preferred Stock in series, and to establish the number of shares to be included
in each such series, the full or limited voting powers, or the denial of voting
powers of each such series, and such designations, preferences and relative,
participating, optional or other special rights, and the qualifications or
restrictions and other distinguishing characteristics, if any, of the shares of
each such series. The authority of the Board of Directors with respect to the
shares of each such series shall include, without limitation, determination of
the following:
(a) the number of shares of each such series and the designation thereof;
(b) the par value of shares of each such series;
(c) the annual rate or amount of dividends, if any, payable on shares of each
such series (which dividends would be payable in preference to any dividends on
Common Stock), whether such dividends shall be cumulative or non-cumulative and
the conditions upon which and/or the date when such dividends shall be payable;
(d) whether the shares of each such series shall be redeemable and, if so,
the terms and conditions of such redemption, including the time or times when
and the price or prices at which shares of each such series may be redeemed;
(e) the amount, if any, payable on shares of each such series in the vent of
liquidations, dissolution or winding up of the affairs of the Company;
(f) whether the shares of each such series shall be convertible into or
exchangeable for shares of any other class, or any series of the same or any
other class, and, if so, the terms and conditions thereof, including the price
or prices or the rate or rates at which shares of each such series shall be so
convertible or exchangeable, and the adjustment which shall be made, and the
circumstances in which such adjustments shall be made, in such conversion or
exchange prices or rates; and
(g) whether the shares of each such series shall have any voting rights in
addition to those prescribed by law and, if so, the terms and conditions of
exercise of voting rights.
FIFTH: The Board of Directors of the Company shall have the power to adopt,
amend or repeal the Bylaws of the Company at any meeting at which a quorum is
present by the affirmative vote of a majority of the whole Board of Directors.
Election of directors need not be by written ballot. Any director may be
removed at any time with or without cause, and the vacancy resulting from such
removal shall be filled, by vote of a
-3-
<PAGE>
majority of the stockholders of the Company at a meeting called for that purpose
or by unanimous consent in writing of the stockholders.
SIXTH: Personal liability of the directors of the Company is hereby
eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of
Section 102 the GCL, as the same may be amended from time to time.
SEVENTH: The Company shall, to the fullest extent permitted by Section 145 of
the GCL, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
IN WITNESS WHEREOF, the undersigned being thereunto duly authorized has
executed this Amended and Restated Certificate of Incorporation this 2nd day of
July, 1996.
/s/ WILLIAM D. FORSTER
----------------------
William D. Forster
President
-4-
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CHENIERE ENERGY, INC.
Pursuant to Section 242 of the General Corporation Law of the State of
Delaware, Cheniere Energy, Inc., a corporation organized and existing under and
by virtues of the General Corporation Law of the State of Delaware (the
"Company"),
DOES HEREBY CERTIFY
FIRST: That the Board of Directors of the Company (the "Board"), by the
unanimous written consent of its members, filed with the minutes of the Board,
adopted a resolution proposing and declaring advisable an amendment to the
Amended and Restated Certificate of Incorporation of the Company. The resolution
setting forth the proposed amendment is as follows:
NOW THEREFORE, BE IT RESOLVED, that, the first sentence and items (1) and
(2) of Article Fourth of the Company's Amended and Restated Certificate of
Incorporation be amended to be and read in their entirety as follows:
FOURTH: The total number of shares of stock that the Company
shall have the authority to issue is 65,000,000 shares, consisting of:
(1) 60,000,000 shares of Common Stock, having a par value
of $.0003 per share; and
(2) 5,000,000 shares of Preferred Stock with a par value of
$.0001 per share.
SECOND: That thereafter, the 1999 annual meeting of the stockholders of
the Corporation was July called and held, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware, at which meeting
the necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Don A. Turkleson, its Chief Financial Officer, Secretary and
Treasurer, this 18th day of June 1999.
/s/ Don A. Turkleson
---------------------------------
Don A. Turkleson
Chief Financial Officer, Secretary and Treasurer
<PAGE>
EXHIBIT 10.28
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
MASTER LICENSE AGREEMENT
AGREEMENT dated the 9th of June 1999 between Fairfield Industries Incorporated,
a Delaware corporation ("Data Owner"), with offices at 14100 Southwest Freeway,
Suite 600, Sugar Land, Texas 77478, Fax: (281) 275-7550, and CHENIERE ENERGY
INCORPORATED, a Delaware corporation ("Licensee"), with offices at Two Allen
Center, 1200 Smith Street, Suite 1740, Houston, Texas 77002-4312, Fax: (713)
659-5459.
WITNESSETH:
WHEREAS, Licensee wishes to license from time to time from Data Owner
geophysical seismic data owned by Data Owner (the "Data"), the content and form
of which will be identified by supplements to this Agreement ("Supplements"),
and Data Owner is willing to license the Data to Licensee, all on the terms
hereinafter set forth;
NOW, THEREFORE, Data Owner and Licensee hereby agree as follows:
1. Definitions.
The term "Data Products" means any result or product derived from any
processing, interpretation or other use by or for the Licensee of any Data or
Data Product.
References to "this Agreement" include the Supplements.
2. Ownership of the Data.
Licensee acknowledges that Data Owner owns or will own all rights in and to
the Data, that the Data is and will be a valuable asset and trade secret of Data
Owner, and that title to and all other rights in the Data will at all times
remain in Data Owner - Licensee is acquiring only the non-exclusive right to use
the Data as provided in this Agreement. Licensee may use, disclose, and show
the Data and Data Products only as expressly permitted by this Agreement.
Licensee may not, except as expressly provided in this Agreement, sell,
sublicense, transfer, assign, encumber or otherwise dispose of or exploit any of
the Data or any Data Product; but Licensee may at any time destroy any Data or
Data Product. Licensee's merging or consolidating with one or more entities,
regardless of whether Licensee is the surviving entity, will constitute a
transfer.
3. License of the Data.
(a) Data Owner grants Licensee the non-exclusive right to use Data
identified in any Supplement for a period of twenty-five (25) years from the
date of that Supplement, but for Licensee's internal use only. Licensee may
produce Data Products and copies of Data and Data Products, but Licensee will
use the Data and Data Products and copies thereof only for its internal
purposes, will not permit any other use of any Data or Data Product, and will
not disclose or permit the disclosure of, transmit or permit or provide access
to, or show any Data or Data Product except as expressly permitted by this
Agreement.
Licensee will store the Data and Data Products in a safe place to secure
them from loss and theft and from any disclosure that is not permitted by this
Agreement. Licensee will maintain records of the location at all times of all
Data and Data Products. Data Owner may, on request and during Licensee's normal
business hours, inspect Licensee's storage facility and records of the location
for the Data and Data Products.
(b) (i) Any copy of a Data Product (other than any Data Product, including
working drafts, which Licensee will not disclose to anyone else and which
Licensee will destroy within fourteen (14) days after Licensee produces it) must
state conspicuously on each page of the hard copy retained in storage files, and
the outside of each tape copy or other copy or version of a Data Product must
state conspicuously on a label to that copy or version, the following:
The data disclosed or contained herein is a valuable asset and trade
secret of Fairfield Industries Incorporated and is subject to the
terms of a license agreement which, among other things, restricts the
use and disclosure of any of the data.
(ii) Each Data Product (other than any Data Product, including working
drafts, which Licensee will not disclose to anyone else and which Licensee will
destroy within fourteen (14) days after Licensee produces it) must contain the
following notice in the data description portion of a seismic data set
definition:
<PAGE>
*WARNING: DATA BELONGS TO FAIRFIELD INDUSTRIES
SUBJECT TO LICENSE RESTRICTIONS*
For SEG-Y formatted Data, the notice should be the first 80 byte card image
in the EBCDIC card image block.
(c) Licensee may disclose Data and Data Products to a consultant or a third
party in the business of processing or interpreting geophysical seismic data (a
"Consultant") solely to enable the Consultant to advise on the Data or Data
Products, interpret the Data, or to otherwise produce a Data Product, but only
if prior to viewing any Data or Data Product and commencing any work, the
Consultant executes and delivers to Licensee a written agreement whereby the
Consultant agrees (i) to maintain the Data in the strictest confidence and not
to disclose the Data and Data Products to any other person and not to use them
for any purpose other than its work for Licensee, (ii) except for the purpose of
processing Data and Data Products to produce Data Products for Licensee, Data
and Data Products shall not be removed from Licensee's premises, and (iii) not
to show or transmit any Data or Data Products to any person in any form or via
electronic transmission from any location. Licensee will furnish Data Owner
copies of these agreements upon Data Owner's request. Each Consultant must be a
bona fide consultant within the oil and gas industry or a bona fide processor of
geophysical seismic data. Licensee will not permit the Consultant to remove any
Data or Data Products from Licensee's premises except for the purpose of
processing them to produce Data Products solely for Licensee, and in this case
the removal may only be to the Consultant's premises; and Licensee will cause
the Consultant to return or deliver to Licensee all copies of the Data and Data
Products when the Consultant completes its work.
In addition, in the case of a Consultant which will process Data and Data
Products, the agreement described above must also contain covenants by the
Consultant (i) not to remove any Data or Data Products from Licensee's premises
except to transport them to Consultant's premises for the purpose of producing
Data Products solely for Licensee, and not to permit any Data or Data Products
to be removed from the Consultant's premises except for delivery to Licensee,
and (ii) to return to Licensee all copies of Data and Data Products when the
Consultant completes its work.
(d) Licensee may permit third parties to view-and only to view-the Data and
Data Products, but only in an environment whereby such third parties are not
able to make copies or otherwise acquire a knowledge of the Data comparable to
having a copy of the Data, and only for the purpose of the third party
determining whether to enter into a farmout, operating agreement, acreage trade,
joint bidding agreement, exploration agreement, participation agreement, or
other arrangement with Licensee for the joint exploration or development of
particular geographical areas, or whether to purchase or provide financing with
respect to any of those areas or verifying the hydrocarbon reserves of any of
those areas, and only if prior to viewing any Data or Data Product the third
party executes an agreement pursuant to which that third party agrees not to use
any of the Data and/or Data Product for any other purpose and to maintain the
Data and/or Data Product in the strictest confidence and not to disclose any of
the Data or Data Product to anyone else. Licensee will furnish Data Owner with
copies of these agreements upon request. Licensee will not permit any third
party to view the Data and Data Products, whether in a single viewing session or
in more than one viewing session, for more than 6 hours in the aggregate for all
viewing sessions in respect of any one geophysical prospect. Licensee will not,
without Data Owner's prior written consent, give the third party a copy of any
of the Data or a copy of any Data Product or any portion thereof. In addition
to the foregoing, Licensee will prevent third parties to which it discloses any
Data or Data Product from confirming a prospect by independently working the
Data or Data Product unless such third party has a license to the Data covering
the prospect. The provisions of this Section 3(d) do not affect the provisions
of Section 3(c). Licensee's Consultants may participate in the viewing sessions
under this Section 3(d) subject to their compliance with the confidentiality
provisions of this Agreement as if they were the Licensee.
(e) Licensee may disclose Data Products to the Minerals Management Service,
an agency of the United States government ("MMS"), if required by applicable
law; provided that Licensee discloses no more of the Data Products than required
and gives Data Owner written notice before delivering the Data Products to the
MMS. The written notice must contain a detailed description of Data Products
disclosed, exact coordinates of the data volume, and date of disclosure. Data
Owner, not Licensee, will disclose any Data required to be disclosed to the MMS.
Pursuant to regulations (30 CFR Parts 250 and 251) effective January 23,
1998 issued by MMS, Data Owner notifies Licensee - and Licensee acknowledges -
that by the license of geological and/or geophysical data from Data Owner,
Licensee assumes the obligations under 30 CFR Section 251.11 and/or 251.12, as
the case may be, as the same may from time to time be amended. The provisions
of this paragraph do not limit or supersede the provisions of the foregoing
paragraph.
4. Remedies.
(a) Licensee acknowledges that Data Owner's business is the licensing or
other exploitation of the very Data licensed to Licensee under this Agreement.
Thus, upon the occurrence of any breach of Section 2 or Section 3 of this
Agreement by Licensee or anyone to whom Licensee discloses any of the Data,
Licensee
2
<PAGE>
shall pay Data Owner, as liquidated damages and not as a penalty, a fee of (1)
Data Owner's then highest current license fee for each block of Data involved in
such breach times (2) the greater of 1 or the number of third parties which had
access prohibited by this Agreement to each such block of Data. Further, if the
breach is a failure to affix labels or include a notice as required by Section
3(b) or a failure to obtain a written agreement from a Consultant as required by
Section 3(c), and if Licensee cures that breach by affixing the required labels
or adding the required notice or obtaining the required agreement within ten
(10) days after the breach occurs, then Licensee will not be required to pay the
fee under the foregoing sentence with respect to that breach. The provisions of
this Section 4(a) are without prejudice to, and are in addition to, any other
remedies that Data Owner has, including, without limitation, the right to
injunctive relief.
However, notwithstanding the foregoing, if Licensee merges or consolidates
with another company and if the common shareholders of Licensee own more than
50% of the outstanding common shares of the surviving company immediately after
the merger or consolidation and if they control the surviving company, then such
merger or consolidation shall not prevent the Data or any Data Product from
being transferred to the surviving company and no transfer fee shall be payable
to the Licensor for the transfer of Data to the surviving company. For purposes
of determining the outstanding shares of the surviving company, any shares which
may be acquired under any option, conversion privilege or other right will be
deemed to be outstanding. Control means the ability to control or determine the
management of the surviving company whether by election of those members who can
determine the decisions of the board of directors or by any other means. The
surviving company shall succeed to all rights and assume all obligations of
Licensee under this Agreement.
If a merger or consolidation does not satisfy the requirements of the
foregoing provisions for a permitted transfer of the Data or any Data Product
without payment of a transfer fee, then Licensee (and the surviving company as
successor to all rights and obligations of Licensee) will pay Data Owner, within
thirty (30) days after the effective date of the merger or consolidation, a fee
of [*], and the surviving company will be entitled to all rights and will be
responsible for all obligations of Licensee under this Agreement.
If in a single transaction or a series of transactions a person or a group
of persons acting in concert acquires shares of the common stock of the Licensee
resulting in that person or group owning and/or controlling more than 50% of the
outstanding common stock of Licensee, Licensee will pay Data Owner, within
thirty (30) days after that person or group owns and/or controls more than 50%
of the outstanding common stock of Licensee, a fee of [*]. For purposes of
determining the outstanding shares of the Licensee, shares which may be acquired
under any option, conversion privilege or other right will be disregarded. The
term "person" includes an individual, corporation, partnership, limited
liability company or other entity. A group of persons shall be deemed to be
"acting in concert" if such persons act together in accordance with an agreement
with each other.
If either of the two preceding paragraphs applies and if at the time of the
merger or consolidation or, as the case may be, at the time the person or group
acquires ownership and/or control of more that 50% of Licensee's outstanding
stock, Licensee has licensed fewer than 1,000 blocks of Reprocessed Data under
Supplement Agreement No. 1 to this Master License Agreement, then the fee under
the applicable paragraph will be [*], the product of [*] and the greater of (i)
the number of blocks of Reprocessed Data that Licensee has licensed at that
time, or (ii) the number of blocks of Reprocessed Data that Licensee should have
licensed at that time to the extent that a sufficient number of blocks of
Reprocessed Data was available for Licensee to license.
(b) The license and rights of the Licensee under this Agreement will (i)
automatically terminate without notice of any kind by Data Owner or any other
person on the occurrence of the second breach of any of the terms of Section 2
or Section 3 of this Agreement by Licensee or anyone to whom Licensee discloses
any of the Data or any Data Product and (ii) terminate 10 business days after
written notice is sent by Data Owner to Licensee of the breach of any other term
of this Agreement if Licensee shall not have cured such breach during such ten
business day period. The termination of the license and the rights of Licensee
shall not affect Licensee's obligations under this Agreement, including any
obligations under a Supplement to pay for Data ordered or provide additional
consideration, and all such obligations shall survive any termination of the
license and rights of the Licensee under this Agreement. The provisions of item
(i) of the first sentence of this paragraph will not apply to affixing labels,
including notices, or obtaining agreements as described in the first paragraph
of Section 4(a) provided the breach is cured immediately upon discovery thereof
by Licensee or within ten (10) business days after written notice of such breach
is given by Data Owner to Licensee, whichever is the earlier.
(c) On termination of the license, Licensee will return to Data Owner all
copies of the Data and will destroy all Data Products, and will verify such
destruction to Data Owner in writing; but Licensee is not required to destroy
copies of Data Products which, pursuant to the provisions of this Agreement, are
in the possession of MMS or which Licensee has given to third parties with the
written permission of Data Owner; and on termination of the license on
expiration of its 25-year term, Licensee may retain all of its Data Products.
3
<PAGE>
(d) In addition to any other remedies that Data Owner has, Data Owner will
be entitled, without posting bond or other security, to injunctive and other
equitable relief to enforce the provisions of Section 2 or Section 3; and it
will not be a defense to any request for such relief that Data Owner has an
adequate remedy at law. If Data Owner is successful in any application for
injunctive or other equitable relief, Licensee will pay Data Owner the expenses
Data Owner incurs in obtaining such relief including, without limitation,
reasonable legal fees and disbursements, court costs and the cost of appellate
proceedings.
(e) The rights and remedies of Data Owner are cumulative.
5. License Fee; Taxes.
Licensee will pay Data Owner a fee for Data licensed under this Agreement
as specified in the Supplement pertaining to that Data. If any government unit
should levy a sales, use, or other tax of any nature relating to licensing or
transfer for the Data covered by this Agreement, Licensee shall pay all such
taxes and reimburse Data Owner for any such taxes paid by Data Owner.
6. Disclaimer of Warranties; Limitation of Liability.
(a) DATA OWNER MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND OR
DESCRIPTION, EXPRESS OR IMPLIED, WITH RESPECT TO THE DATA EXCEPT THAT IT OWNS OR
WILL OWN THE DATA AND MAY LICENSE IT TO LICENSEE PURSUANT TO THIS AGREEMENT
WITHOUT VIOLATING THE RIGHTS OF ANY THIRD PARTY. ALL DATA IS DELIVERED TO
LICENSEE, "AS IS WHERE IS". ANY USE WHICH THE LICENSEE MAKES OF THE DATA AND
ANY ACTION WHICH THE LICENSEE TAKES BASED ON THE DATA WILL BE AT THE LICENSEE'S
SOLE RISK, EXPENSE AND LIABILITY, AND LICENSEE WILL NOT HAVE ANY CLAIM AGAINST
DATA OWNER BY REASON OF ANY SUCH USE OR ACTION.
(b) Data Owner will have and incur no liability to Licensee with respect to
the Data, and Licensee will have no remedies against Data Owner, except for (i)
any liability that Licensee incurs to a third party by reason of a claim against
Licensee by that third party because of a breach of Data Owner's warranties
under Section 6(a) with respect to the ownership of and the right to license the
Data, and (ii) the costs to defend any such claim (including, without
limitation, reasonable legal fees and disbursements, court costs and the cost of
appellate proceedings). Licensee will promptly notify Data Owner of any claim
that might result in liability by Data Owner under this Section 6(b) with the
details of the claim. Data Owner may elect to defend the claim, in which case
Data Owner will not be liable to Licensee for legal fees and disbursements after
Data Owner notifies Licensee that it will assume the defense. Licensee will not
settle any such claim without Data Owner's written consent unless Licensee
releases Data Owner from its obligations under this Section 6(b).
Under no circumstance will Data Owner be liable for any other damages of
the Licensee.
7. Confidentiality.
Licensee agrees that the terms of this Agreement (including any
Supplements) are confidential and may not be disclosed to any individual or
entity without the Data Owner's prior written consent, except (a) this Agreement
and its terms may be disclosed (1) to Licensee's employees as required in the
performance of their duties, (2) to outside auditors and counsel to the extent
necessary to perform their respective duties to the Licensee, and (3) as
required by law or by any governmental rule, regulation or order or by any
judicial order and (b) the terms of Section 3(d) may be disclosed to any
consultant used to interpret the Data as permitted by this Agreement.
In addition, the provisions of this Section will not apply to the recording
of any overriding royalty pursuant to any Supplement or to the disclosure that
Data Owner is entitled to an overriding royalty in the amount specified in that
Supplement.
8. Severability.
If any provision of this Agreement or the application of any such provision
to any person or circumstance is held invalid, the remainder of this Agreement,
and the application of such provision other than to the extent it is held
invalid, will not be invalidated or affected thereby.
9. Entire Agreement.
This Agreement contains the entire understanding of the parties with
respect to the subject matter of this Agreement, and it supersedes all prior
understandings and agreements, whether written or oral, and all prior dealings
of the parties with respect to the subject matter hereof.
10. Amendment.
This Agreement may be amended only by an instrument in writing signed by
the parties.
4
<PAGE>
11. Assignment.
Except as otherwise expressly provided in this Agreement, Licensee may not
transfer, assign, or grant a security interest in any of its rights or
obligations under this Agreement without the prior written consent of Data
Owner.
12. Notice.
Notices and other communications under this Agreement must be in writing
and sent to each party at its address or fax number set forth above or, in the
event of a change in any such address or fax number, then to such other address
or fax number as to which notice is given. Notice will be deemed given on
receipt thereof.
13. Governing Law.
This Agreement will be governed by and construed in accordance with the law
of the State of Texas.
14. Section Headings.
Section headings are for reference purposes only and will not in any way
affect the meaning or interpretation of any provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
FAIRFIELD INDUSTRIES INCORPORATED CHENIERE ENERGY INCORPORATED
SIGNATURE: /s/ Marc A. Lawrence SIGNATURE: /s/ Walter L. Williams
------------------------ --------------------------
NAME: MARC A. LAWRENCE NAME: WALTER L. WILLIAMS
---------------------------- -----------------------------
TITLE: SR. VICE PRESIDENT TITLE: VICE CHAIRMAN
---------------------------- -----------------------------
5
<PAGE>
EXHIBIT 10.29
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
SUPPLEMENT AGREEMENT NO. 1
TO MASTER LICENSE AGREEMENT
This Supplement Agreement No. 1 dated June 9, 1999 ("Supplement") is between
Fairfield Industries Incorporated, a Delaware corporation ("Data Owner"), with
offices at 14100 Southwest Freeway, Suite 600, Sugar Land, Texas 77478, Fax:
(281) 275-7550, and Cheniere Energy Incorporated, a Delaware corporation
("Licensee"), with offices at Two Allen Center, 1200 Smith Street, Suite 1740,
Houston, Texas 77002-4312, Fax: (713) 659-5459.
Data Owner and Licensee hereby agree as follows:
1. Introduction.
Data Owner and Licensee are parties to the Master License Agreement dated
June 9, 1999 ("Master License"). This Supplement is referred to in and is
subject to the terms of the Master License. Licensee may only use the Data
subject to this Supplement as permitted by the Master License. Capitalized
terms used in this Supplement that are defined in the Master License shall have
the meanings assigned to such terms in the Master License.
2. Data Licensed.
Data Owner presently has available non-exclusive 3D seismic Data as
described in Section 3 below covering the areas depicted on the map attached
hereto as Exhibit A ("Completed 3D Data").
Data Owner hereby licenses to Licensee, on a non-exclusive basis, 1113 blocks
of Completed 3D Data identified in Exhibit B hereto. Licensee may, at any time
and from time to time on or before June 30, 2001, select and license from Data
Owner on a non-exclusive basis any other Completed 3D Data which Data Owner has
available and additional Data, if any, that Data Owner acquires prior to June
30, 2001 as part of Data Owner's "Gulf of Mexico Shallow Water/Transition 3D
Seismic Program", as such program is developed from time-to-time. Data Owner,
however, is not obligated to acquire any additional Data.
3. Content and Form.
The content and form of the Data licensed under Section 2 of this
Supplement is as follows:
a. DLT or 8mm Tape(s) of Preserved Amplitude 3D Post-Stack Time Migrated
Data Volume in SEG-Y Format
b. DLT or 8mm Tape(s) of AGC 3D Post-Stack Time Migrated Data Volume in
SEG-Y Format
c. 1"=2000' Blackline Print of 3D Bin Center Position Map
4. [*]
5. [*]
6. License of Reprocessed Data.
Licensee will also license from Data Owner, on a non-exclusive basis, for a
fee of [*] per block, the Data licensed to it under Section 2 of this Supplement
reprocessed in the following format ("Reprocessed Data"):
a. DLT or 8mm Tape(s) of Kirchhoff 3D Pre-Stack Time Migrated Data,
Migrated Gathers, all Offset Stacks, Near Angle Stacks and Far Angle
Stacks in SEG-Y Format.
b. 1"=2000' Blackline Print of 3D Bin Center Position Map
Data Owner will reprocess the Data identified in Exhibit B hereto for the
areas listed on Exhibit C hereto in the order in which those areas are listed on
Exhibit C. Data Owner will reprocess any other Data licensed to Licensee under
Section 2 above in the order mutually agreed in writing by Licensee and Data
Owner.
Data Owner will notify Licensee when Reprocessed Data is available. During
the first month following the month in which that notice is given and during
each of the next five (5) months Licensee will
1
<PAGE>
license from Data Owner all Reprocessed Data that Data Owner delivers to
Licensee, but, (i) in no event shall Licensee be required to accept a license of
Reprocessed Data prior to September 1, 1999; and (ii) unless Licensee otherwise
agrees, Licensee will not be required to license more than forty (40) blocks of
Reprocessed Data in any one month. During each calendar month thereafter,
Licensee will license from Data Owner all Reprocessed Data that Data Owner
delivers to Licensee, but, unless Licensee otherwise agrees, Licensee will not
be required to license more than one hundred (100) blocks of Reprocessed Data in
any one month. The provisions of this paragraph apply only to the Reprocessed
Data identified in Exhibit B. For any other Reprocessed Data, Licensee will
license that Reprocessed Data from Data Owner as Data Owner delivers it to
Licensee.
Data Owner will not produce during any month data that it will license on a
non-exclusive basis in the format specified in items 6.a and 6.b above if that
production will prevent Data Owner from having available for Licensee at least
the maximum amount of Reprocessed Data which Licensee is required to license for
the following month under the foregoing paragraph.
Data Owner will deliver to Licensee Exhibit B Reprocessed Data in accordance
with the following schedule:
Minimum Cumulative Number of
Blocks of Reprocessed Data
Date By That Date
------------
December 31, 1999 40
March 31, 2000 160
June 30, 2000 280
September 30, 2000 400
December 31, 2000 520
March 31, 2001 640
June 30, 2001 760
September 30, 2001 880
December 31, 2001 1000
If Data Owner does not make either of these deliveries by the specified
date, then Licensee may elect, by giving data Owner notice of its election prior
to Data Owner's delivering the required number of blocks at any time after the
specified date, either to license or not to license any of the remaining Exhibit
B Reprocessed Data as Data Owner makes it available. If Licensee makes this
election, the provisions of the immediately preceding paragraph will not apply
after the election is made; but all of the other provisions of this Supplement
and the Master License will apply to the licensing by Licensee of Reprocessed
Data after Licensee makes the election.
Licensee will pay the fee for each block of Reprocessed Data that it
licenses within thirty (30) days after delivery of that Data to it.
[*]
7. Selection Requirements.
a. A "block" is 5000 acres or 7.8125 square miles.
b. Rates for all other sized blocks will be prorated accordingly.
c. Each Data selection may cover Data consisting of all or any portion of
a block or blocks.
d. Minimum Data selection is 5000 contiguous acres or 7.8125 square miles.
e. Data must be selected along in-lines and cross-lines, i.e. no diagonals
across Data volumes.
8. Federal Regulations Compliance.
Pursuant to regulations (30 CFR Parts 250 and 251) effective January 23,
1998 issued by MMS, Data Owner notifies Licensee - and Licensee acknowledges -
that by the license of geological and/or geophysical data from Data Owner,
Licensee assumes the obligations under 30 CFR Section 251.11 and/or 251.12, as
the case may be, as the same may from time to time be amended. The provisions
of this paragraph do not limit or supersede the provisions of paragraph 3(e) of
the Master License Agreement.
9. Confidentiality.
Licensee agrees that the terms of this Agreement are confidential and may
not be disclosed to any individual or entity without the Data Owner's prior
written consent, except (a) this Agreement and its terms may be disclosed (1) to
Licensee's employees as required in the performance of their duties, (2) to
outside auditors and counsel to the extent necessary to perform their respective
duties to the Licensee, and (3) as required by law or by any governmental rule,
regulation or order or by any judicial order and
2
<PAGE>
(b) the terms of Sections 3(d) of the Master License Agreement may be disclosed
to any consultant used to interpret the Data as permitted by this Agreement.
In addition, the provisions of this Section will not apply to the recording
of any assignment of an overriding royalty pursuant to Section 4 or to the
disclosure that Data Owner is entitled to an overriding royalty and the amount
of that royalty, and the form of assignment of such overriding royalty.
10. Entire Agreement.
This Supplement contains the entire understanding of the parties with
respect to the subject matter of the Supplement, and it supersedes all prior
understandings and agreements, whether written or oral, and all prior dealings
of the parties with respect to the subject matter hereof.
11. Amendment.
This Supplement may be amended only by an instrument in writing signed by
the parties.
12. Assignment.
Licensee may not transfer, assign, or grant a security interest in any of
its rights or obligations under this Supplement without the prior written
consent of Data Owner.
13. Notice.
Notices and other communications under this Supplement must be in writing
and sent to each party at its address or fax number set forth above or, in the
event of a change in any such address or fax number, then to such other address
or fax number as to which notice is given. Notice will be deemed given on
receipt thereof.
14. Governing Law.
This Supplement will be governed by and construed in accordance with the
law of the State of Texas.
15. Section Headings.
Section headings are for reference purposes only and will not in any way
affect the meaning or interpretation of any provision of this Supplement.
Executed as of the date first above written.
FAIRFIELD INDUSTRIES INCORPORATED CHENIERE ENERGY INCORPORATED
SIGNATURE: /s/ Marc A. Lawrence SIGNATURE: /s/ Walter L. Williams
------------------------- ---------------------------
NAME: MARC A. LAWRENCE NAME: WALTER L. WILLIAMS
----------------------------- -------------------------------
TITLE: SR. VICE PRESIDENT TITLE: VICE CHAIRMAN
----------------------------- -------------------------------
3
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