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Prospectus FILED PURSUANT TO RULE 424(B)(2)
- ---------- REGISTRATION NO. 333-94841
CHENIERE ENERGY, INC.
20,470,788 SHARES OF COMMON STOCK
This prospectus relates to the offer and sale of up to 20,470,788 shares of
common stock of Cheniere Energy, Inc. Of these shares, 16,573,854 are held by
stockholders and the other 3,896,934 are issuable upon the exercise of warrants
held by warrantholders. One or more of the selling stockholders may offer to
sell these shares from time to time. We will not receive any proceeds of these
sales, but if any of the warrants are exercised, we will receive payment for the
exercise price of the warrants.
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 April 24, 2000 was $.656 per share.
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 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.
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The date of this prospectus is May 19, 2000
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TABLE OF CONTENTS
Cheniere Energy, Inc..................................................... 3
Risk Factors............................................................. 5
Where you can Find More Information...................................... 11
Cautionary Statement Regarding Forward Looking Statements................ 12
Use of Proceeds.......................................................... 12
Selling Stockholders..................................................... 13
Description of Securities................................................ 15
Plan of Distribution..................................................... 18
Legal Matters............................................................ 19
Experts.................................................................. 20
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CHENIERE ENERGY, INC.
Cheniere is a Houston-based company formed for the purpose of oil and gas
exploration, development and exploitation. We are evaluating and generating
drilling prospects using a regional and integrated approach with a large 3-D
seismic database as a platform.
Cheniere was formed in 1996 to fund the acquisition of a proprietary 3-D
seismic database along the transition zone in Cameron Parish, Louisiana. The 228
square-mile survey was acquired and processed during 1997. Interpretation of the
data yielded drilling prospects located onshore and in the state and federal
waters of offshore Louisiana. Leasing activity occurred over identified
prospects throughout these three jurisdictions during 1998 and 1999 and
continues.
During 1999, we drilled exploration wells on six prospects: two were
discoveries and four were dry holes. Both discoveries are located on West
Cameron Block 49 in Louisiana state waters in approximately 25 feet of water.
Production of natural gas commenced from a common platform in September 1999.
Further drilling in the Cameron project area is scheduled for 2000 on leased
prospects, and multiple leads are under development for possible leasing in the
future.
To ensure continued access to high quality drilling prospects, we expanded
beyond the Cameron area and into the shallow waters of the Gulf of Mexico. We
hired additional management and technical expertise and licensed 8,700 square
miles of 3-D seismic data, which is currently being evaluated. We also made the
commitment to reprocess the entire seismic database and the resulting new data
set, being delivered over two years beginning in September, will provide us with
a higher resolution image of the subsurface than has previously been available.
The existing data set, in hand, and the reprocessed data set, as delivered,
provide us the framework with which to "capture" drilling prospects through
leasing at the area-wide federal and state lease sales, through farm-ins and
through participation in industry prospects.
Cheniere's common stock has been publicly traded since July 3, 1996 under
the name Cheniere Energy, Inc. Our corporate offices are located at 1200 Smith
Street, Suite 1740, Houston, Texas 77002, and our telephone number is
(713) 659-1361.
BUSINESS STRATEGY
The key to success in the exploration and production business is ensuring
that dollars invested add incremental reserve value. Simply put, the cost of
finding oil and gas must be less than the value received from the sale of those
reserves. In the current environment, we believe we can best add reserve value
by exploring for new reserves, as opposed to buying existing reserves.
We operate on the Gulf of Mexico shelf in less than 300 feet of water
depth and in adjacent onshore coastal areas of Texas and Louisiana.
We participate in drilling and developing prospects in three ways: (1)
participation in industry prospects, (2) farm-in to industry acreage and (3)
purchase of open leases. Initially, we are reviewing externally generated
prospects both inside and outside our 3-D seismic database. As our regional
mapping expands, we are internally generating drilling prospects that are
located on either held or open acreage. Those prospects located on held acreage
will be pursued via a farm-in agreement and those on open acreage will be
purchased at the area-wide lease sales.
OFFICERS AND DIRECTORS
Charif Souki, a co-founder of Cheniere, is currently chairman of the board
of directors of the company and a member of the stock option committee.
Mr. Souki is an independent investment banker with 20 years of experience in the
industry. In the past few years, he has specialized in providing financing for
promising microcap
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and small capitalization companies with an emphasis on the oil and gas industry.
Mr. Souki received his B.A. from Colgate University and his M.B.A. from Columbia
University.
Walter L. Williams is currently vice chairman and a director of the
company. Prior to joining the company, Mr. Williams spent 32 years as a founder
and later chairman and chief executive officer of Texoil, Inc., a publicly held
Gulf Coast exploration and production company. Prior to that time, he was an
independent petroleum consultant. Mr. Williams received a B.S. in petroleum
engineering from Texas A&M University and is a registered engineer in Louisiana
and Texas. He has served as a director and member of the executive committee of
the board of the Houston Museum of Natural Science.
Michael L. Harvey is currently president and chief executive officer and a
director of Cheniere. Mr. Harvey was elected president and chief executive
officer of the company in June 1999. Earlier in 1999, Mr. Harvey formed Vaquero
Capital Partners, which provided investment banking and capital formation for
independent oil and gas companies. Mr. Harvey continues as chairman of Estrella
del Golfo, LLC, which he co-founded in 1996 to conduct exploration and
production asset management in Venezuela. Mr. Harvey began his career in 1973
with Shell Oil Company in corporate planning and economics. He served as
manager of land operations for General Crude Oil Company from 1977 to 1979, when
he joined Roy M. Huffington, Inc. as vice president. In 1987, Mr. Harvey
founded Gulfstar Petroleum Corporation, Gulfstar Operating Company and Gulfstar
Energy, Inc. He served as president and CEO of the companies until 1997, when
Gulfstar Energy was merged into Domain Energy Corporation (now Range Resources).
He was executive vice president and a director for Domain in 1998. Mr. Harvey
resigned from Domain Energy Corporation upon its merger into Range Resources.
Mr. Harvey is a graduate of Texas A&M University and serves on the financial
advisory board of Texas A&M University School of Business.
Ron A. Krenzke is currently executive vice president - exploration for
Cheniere. Prior to joining Cheniere, Mr. Krenzke was executive vice president
and chief operating officer of XPLOR Energy, Inc. Mr. Krenzke started his
career as a geophysicist in 1974 and has since held various technical and
management positions at Mobil Oil, Texas Eastern, Monsanto Oil, and Amerada
Hess. In 1990, he founded South Coast Exploration Company and Interactive
Exploration Solutions, Inc. (INEXS), where he served as president and director,
respectively. In 1997, these companies were merged with XPLOR Energy.
Keith F. Carney is currently executive vice president - business
development of Cheniere. He served as chief financial officer and treasurer of
the company from July 1996 through November 1997. Prior to joining Cheniere,
Mr. Carney was a securities analyst in the oil and gas exploration/production
sector with Smith Barney, Inc. from 1992-1996. From 1982-1990, he was employed
by Shell Oil as an exploration geologist, with assignments in the Gulf of
Mexico, the Middle East and other areas. He received an M.S. in geology from
Lehigh University in 1982 and an M.B.A.-Finance from the University of Denver in
1992. Mr. Carney currently serves as a director for Pyr Energy.
Don A. Turkleson is currently chief financial officer, secretary and
treasurer of Cheniere. Prior to joining Cheniere, Mr. Turkleson was employed by
PetroCorp Incorporated from 1983 to 1996, as controller until 1986, then as vice
president - finance, secretary and treasurer. From 1975 to 1983, he worked as a
certified public accountant in the natural resources division of Arthur Andersen
& Co. in Houston. Mr. Turkleson received a B.S. in accounting from Louisiana
State University in 1975. He is a director, treasurer and past chairman of the
board of Neighborhood Centers, Inc., a nonprofit organization.
William D. Forster, a co-founder of Cheniere, is currently a director of
Cheniere, a member of the audit committee and the stock option committee.
Mr. Forster is Chairman and CEO of Stonington Corporation. He served as
president and CEO of Cheniere from July 1996 to November 1997 and co-chairman of
the board of directors from November 1997 to June 1999. Mr. Forster was an
investment banker with Lehman Brothers from 1975 to 1990, serving as a managing
director for eleven years, initially in the oil and gas department for seven
years, and then in various other areas. In 1990, he founded his own private
investment bank, W. Forster & Co. Inc. Mr. Forster is a director of Equity Oil
Company, a Nasdaq national market company. Mr. Forster holds a B.A. in economics
from Harvard College and an M.B.A. from Harvard Business School.
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Kenneth R. Peak is currently a director of Cheniere and a member of the
audit committee, the compensation committee, and the stock option committee.
Mr. Peak is also president and CEO of Contango Oil & Gas Company in Houston.
Prior to joining Contango in 1999, Mr. Peak had been the president of Peak
Enernomics, Incorporated, a company engaged in consulting activities in the oil
and gas industry, since forming the company in 1990. From 1989 to 1990, Mr.
Peak served as a managing director and co-manager, corporate finance of Howard
Weil Incorporated, an investment banking firm. Prior to joining Howard Weil
Incorporated, Mr. Peak served as vice president-finance for Forest Oil
Corporation from 1988 to 1989. Mr. Peak received a B.S. in physics from Ohio
University and an M.B.A. from Columbia University. He currently serves as a
director of NL Industries, Inc. and Contango Oil & Gas Company.
Charles M. Reimer is currently a director of Cheniere and a member of the
audit committee, the compensation committee, and the stock option committee. He
is also president of British-Borneo USA, Inc. in Houston. Prior to joining
British Borneo in November 1998, Mr. Reimer served as chairman and CEO of
Virginia Indonesia Company (VICO), the operator on behalf of Union Texas
Petroleum Holdings, Inc. and LASMO plc, of major gas and oil reserves and
production located in East Kalimantan, Indonesia. Mr. Reimer began his career
with Exxon Company USA in 1967 and held various professional and management
positions in Texas and Louisiana. After leaving Exxon, Mr. Reimer was named
president of Phoenix Resources Company in 1985 and relocated to Cairo, Egypt to
begin eight years of international assignments.
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY DURING WHICH WE HAVE CONTINUALLY INCURRED
LOSSES AND WE MAY CONTINUE TO INCUR LOSSES.
We have a limited operating history with respect to our oil and gas
exploration activities, which were commenced in April 1996. From our inception,
we have incurred losses and may continue to incur losses, depending on whether
we generate sufficient revenue from producing reserves acquired either through
acquisitions or drilling activities.
WE HAVE LIMITED CURRENT OIL AND GAS PRODUCTION AND LIMITED PROVED RESERVES,
WHICH MEANS THAT OUR SUCCESS IS HIGHLY DEPENDENT ON THE SUCCESS OF OUR
EXPLORATION PROGRAM.
We established our initial oil and gas production in September 1999. Through
our drilling in 1999, we established "proved reserves," which means that we have
identified oil and gas reserves that geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. The focus of our
business is exploratory drilling. Because almost all of our assets are
represented by investments to date in our exploration program, and we anticipate
investing additional amounts in the program, we are highly dependent on the
success of our exploration program.
WE MAY NEED ADDITIONAL FINANCING AND MAY NOT BE ABLE TO OBTAIN IT ON TERMS THAT
ARE ACCEPTABLE TO US, WHICH COULD HARM OUR ABILITY TO CONDUCT OUR BUSINESS.
We presently have limited operating revenues, all of which are currently
dedicated to making payments on our indebtedness. As of December 31, 1999, we
had only $3,445,292 of current assets and a working capital deficit of
$3,290,245. Because of our low level of current assets, we may need additional
capital for a number of purposes, and our inability to obtain additional
financing could significantly harm our ability to conduct our business,
including our ability to take advantage of opportunities that come from our
exploration program. Our needs for additional financing might include the
following:
- Additional capital will be required to pay for our share of costs
relating to the drilling of prospects and development of those that are
successful, to exercise lease options, and to acquire additional oil
and gas leases. The total amount of our capital needs will be
determined in part by the number
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of prospects generated within our exploration program and by the
working interest that we retain in those prospects.
- We may need funds for the repayment of our $3,100,000 short term note
payable which matures on June 30, 2000. If we are unable to obtain
sufficient new financings to pay off the note or to further extend its
maturity, then we may be in default with respect to the note, and the
holder of the note may have the right to seek immediate repayment of
the entire indebtedness due thereunder and enforce all other rights at
law or in equity. Such a default may also cause defaults under other
material contracts to which we are a party. Any of the foregoing
actions would have a material adverse effect on us.
- We may need funds for the payment of approximately $200,000 per month
related to deliveries of reprocessed 3-D seismic data through 2001.
- Should we 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 would
create the need for additional capital.
Additional capital could be obtained from a combination of funding sources.
These potential funding sources include:
- borrowings from financial institutions;
- debt offerings, which would increase our leverage and add to our need
for cash to service such debt;
- additional offerings of our equity securities, which could cause
substantial dilution of our common stock;
- the sale of a portion or all of the producing properties we own at West
Cameron Block 49; or
- sales of portions of our working interest in the prospects within our
exploration program, which would reduce future revenues from our
exploration program.
Our ability to raise additional capital will depend on the results of our
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 us from any source or that, if available, it will
be on terms acceptable to us.
BECAUSE OF OUR LACK OF DIVERSIFICATION, FACTORS HARMING THE OIL AND GAS INDUSTRY
IN GENERAL, INCLUDING DOWNTURNS IN PRICES FOR OIL AND GAS, WOULD BE ESPECIALLY
HARMFUL TO US.
As an independent energy company, our 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. Circumstances that harm the oil
and gas industry in general will have an especially harmful effect on us. 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;
- political conditions in international oil producing regions;
- the extent of domestic production and importation of oil in relevant
markets;
- the level of consumer demand;
- weather conditions;
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- 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 and gas.
It is likely that adverse changes in the oil market or the regulatory
environment would have an adverse effect on our ability to obtain capital from
lending institutions, industry participants, private or public investors or
other sources.
WE EXPERIENCE INTENSE COMPETITION IN THE OIL AND GAS INDUSTRY, WHICH MAY MAKE IT
DIFFICULT FOR US TO SUCCEED.
The oil and gas industry is highly competitive. If we are not able to
compete effectively, we will not succeed. A number of factors may give our
competitors advantages over us. For example, most of our current and potential
competitors have significantly greater financial resources and a significantly
greater number of experienced and trained managerial and technical personnel
than we do. There can be no assurance that we will be able to compete
effectively with such companies. Moreover, the oil and gas industry competes
with other industries in supplying the energy and fuel needs of industrial,
commercial and other consumers. Increased competition causing over supply and
depressed prices could greatly affect our operating revenues.
WE ARE SUBJECT TO SIGNIFICANT OPERATING HAZARDS AND UNINSURED RISKS, ONE OR MORE
OF WHICH MAY CREATE SIGNIFICANT LIABILITIES FOR US.
Our oil and gas operations are subject to all of the risks and hazards
typically associated with the exploration for, and the development and
production of, oil and gas. In accordance with customary industry practices, we
intend to maintain insurance against some, but not all, of these risks and
losses. The occurrence of a significant event not fully insured or indemnified
against could seriously harm us. Moreover, no assurance can be given that we
will be able to maintain adequate insurance in the future at rates we consider
reasonable. Risks in drilling operations include cratering, explosions,
uncontrollable flows of oil, gas or well fluids, fires, pollution and other
environmental risks. Our 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.
WE ARE SUBJECT TO SIGNIFICANT EXPLORATION RISKS, INCLUDING THE RISK THAT WE MAY
NOT BE ABLE TO FIND OR PRODUCE ENOUGH OIL AND GAS TO GENERATE ANY PROFITS.
Our exploration activities involve significant risks, including the risk
that we may not be able to find or produce enough oil and gas to generate any
profits. There can be no assurance that the use of technical expertise as
applied to geophysical or geological data will ensure that any well we drill
will discover oil or gas. Further, there is no way to know in advance of
drilling and testing whether any prospect will yield oil or gas in sufficient
quantities to make money for us. In addition, we are highly dependent on seismic
activity and the related application of new technology as a primary exploration
methodology. This methodology, however, requires greater pre-drilling
expenditures than traditional drilling strategies. Even when fully used and
properly interpreted, 3D seismic data can only assist us in identifying
subsurface structures and hydrocarbon indicators, and will not allow us to
determine conclusively if hydrocarbons will in fact be present and recoverable
in such structures. There can be no assurance that our exploration efforts will
be successful.
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WE MAY NOT BE ABLE TO ACQUIRE THE OIL AND GAS LEASES WE NEED TO SUSTAIN
PROFITABLE OPERATIONS.
There can be no assurance that we will be successful in acquiring farmouts,
seismic permits, lease options, leases or other rights to explore for or recover
oil and gas. Consequently, the area covered by our 3D seismic data that could
be explored through drilling could be reduced if these leases, permits, options
and the like are not acquired. Both the United States Department of the
Interior and the State of Louisiana award oil and gas leases on a competitive
bidding basis. Further, non-governmental owners of the onshore mineral
interests within the area covered by our exploration program are not obligated
to lease their mineral rights to us except where we have already obtained lease
options. Other major and independent oil and gas companies with financial
resources significantly greater than ours may bid against us for the purchase of
oil and gas leases.
IF WE ARE UNABLE TO OBTAIN SATISFACTORY TURNKEY CONTRACTS, WE MAY HAVE TO ASSUME
ADDITIONAL RISKS AND EXPENSES WHEN DRILLING WELLS.
We anticipate that any wells drilled in which we have an interest will be
drilled by established industry contractors under turnkey contracts that limit
our financial and legal exposure. Circumstances may arise, however, where a
turnkey contract is not economically beneficial to us or is otherwise
unobtainable from proven industry contractors. In such instances, we may decide
to drill wells on a day-rate basis, subjecting us to the usual drilling hazards
such as cratering, explosions, uncontrollable flows of oil, gas or well fluids,
fires, pollution and other environmental risks. We would also be liable for any
cost overruns attributable to drilling problems that otherwise would have been
covered by a turnkey contract.
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 non-turnkey
basis, all risk and expense, including cost overruns, of drilling a well to
total depths lies with the operator.
EXISTING AND FUTURE UNITED STATES GOVERNMENTAL REGULATION, TAXATION AND PRICE
CONTROLS COULD SERIOUSLY HARM US.
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 harm us. Present as well as future
legislation and regulations could cause additional expenditures, restrictions
and delays in our business, the extent of which cannot be predicted and which
may require us to limit substantially, delay or cease operations in some
circumstances. In most areas where we plan to conduct activities, there are
statutory provisions regulating the production of oil and natural gas which may
restrict the rate of production and adversely affect revenues. We plan 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 Department strictly regulates the exploration,
development and production of oil and gas reserves in the Gulf of Mexico. Such
regulations could seriously harm our 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 seriously harm us. In addition, our 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 harmful
effect on our operations.
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WE MAY EXPERIENCE YEAR 2000 PROBLEMS, WHICH COULD CAUSE DISRUPTIONS OF OUR
OPERATIONS.
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 us in our day-to-day operations but also our financial institutions,
customers and vendors as well as state, provincial and federal governments with
jurisdictions where we maintain operations.
We have addressed Year 2000 issues, and to date, we have not experienced any
problems or any significant expenses related to year 2000 issues. It has been
our strategy to use, wherever possible, industry prevalent products and
processes with minimal customization. As a result, we did not have any
extensive in-house hardware, software or process conversions in an effort to be
Year 2000 compliant nor did we have Year 2000 compliance related costs that were
material to our operations.
While it is our goal to be Year 2000 compliant, there can be no assurance
that there will not be a material adverse effect on Cheniere as a result of a
Year 2000 related issue. Our business partners may present the area of greatest
risk to us, in part because of our limited ability to influence actions of third
parties, and in part because of our 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 we
develop.
THERE IS ONLY LIMITED TRADING IN OUR COMMON STOCK, WHICH MAKES OUR STOCK MORE
DIFFICULT TO SELL THAN THE STOCK OF COMPANIES WITH MORE ACTIVE MARKETS.
Historically, there has been only limited trading in our common stock, which
makes our stock more difficult to sell than the stock of companies with more
active markets. During 1999, the average trading volume of our common stock on
The Nasdaq SmallCap Market was approximately 78,000 shares per day. During the
period from January 1, 2000 through April 25, 2000, the average trading of our
common stock has been approximately 565,000 shares per day.
WE HAVE NOT PAID DIVIDENDS AND DO NOT EXPECT TO IN THE FORESEEABLE FUTURE, SO
OUR STOCKHOLDERS WILL NOT BE ABLE TO RECEIVE A RETURN ON THEIR INVESTMENT
WITHOUT SELLING THEIR SHARES.
We have not paid dividends since our inception and do not expect to in the
foreseeable future, so our shareholders will not be able to receive a return on
their investments without selling their shares. We presently anticipate that
all earnings, if any, will be retained for development of our business. Any
future dividends will be subject to the discretion of our board of directors and
will depend on, among other things, future earnings, our operating and financial
condition, our capital requirements and general business conditions.
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OUR STOCKHOLDERS COULD EXPERIENCE DILUTION IN THE VALUE OF THEIR SHARES BECAUSE
OF ADDITIONAL ISSUANCES OF SHARES.
Any issuance of common stock by us may result in a reduction in the book
value per share or market price per share of our outstanding shares of common
stock and will reduce the proportionate ownership and voting power of such
shares. We have 65,000,000 authorized shares of stock, consisting of 60,000,000
shares of the common stock, and 5,000,000 shares of preferred stock. As of April
25, 2000, approximately 28% of the shares of the common stock remained unissued.
The board of directors has the power to issue any and all of such shares without
shareholder approval. It is likely that we will issue shares of the common stock
to raise capital to sustain operations, to exchange for or to repay our
$3,100,000 short-term note payable and/or to finance future oil and gas
exploration projects. In addition, we have reserved 9,162,769 shares of the
common stock for issuance upon the exercise of outstanding warrants and
2,550,000 shares of the common stock for issuance upon the exercise of stock
options. As of April 25, 2000, there were 2,144,445 issued and outstanding
options to purchase common stock. To the extent that outstanding warrants and
options are exercised, the percentage ownership of common stock of our
stockholders will be diluted. Moreover, the terms upon which we will be able to
obtain additional equity capital may be adversely affected because the holders
of outstanding warrants and options can be expected to exercise them at a time
when we would, in all likelihood, be able to obtain any needed capital on terms
more favorable than the exercise terms provided by such outstanding securities.
In the event of the exercise of a substantial number of warrants and options,
within a reasonably short period of time after the right to exercise commences,
the resulting increase in the amount of the common stock in the trading market
could substantially adversely affect the market price of the common stock or our
ability to raise money through the sale of equity securities.
WE DEPEND ON KEY PERSONNEL AND COULD BE SERIOUSLY HARMED IF WE LOST THEIR
SERVICES.
We depend on our executive officers for our various activities. We do not
maintain "key person" life insurance policies on any of our personnel nor do we
have employment agreements with any of our personnel. The loss of the services
of any of these individuals could seriously harm us. In addition, our future
success will depend in part upon our ability to attract and retain additional
qualified personnel. We currently have 19 full-time employees.
WE DEPEND ON INDUSTRY PARTNERS AND COULD BE SERIOUSLY HARMED IF THEY DO NOT
PERFORM SATISFACTORILY, WHICH IS USUALLY NOT WITHIN OUR CONTROL.
Because we have limited financial resources, we will be largely dependent
upon industry partners for the success of our oil and gas exploration projects
for the foreseeable future. We could be seriously harmed if our industry
partners do not perform satisfactorily on projects that affect us. We may often
have no control over factors that would influence their performance.
WE ARE CONTROLLED BY A SMALL NUMBER OF PRINCIPAL STOCKHOLDERS WHO MAY EXERCISE A
PROPORTIONATELY LARGER INFLUENCE ON CHENIERE THAN OUR STOCKHOLDERS WITH SMALLER
HOLDINGS.
We are controlled by a small number of principal stockholders who may do
things that are not in the interests of our stockholders with smaller holdings.
Together, William D. Forster, a director, and BSR Investments, Ltd. own
approximately 16% of the outstanding common stock. BSR Investments, Ltd. is
controlled by the mother of Charif Souki, chairman of our board of directors.
Accordingly, it is likely that Mr. Forster, a director, and BSR Investments,
Ltd. will have a significant influence on the election of our directors and on
our management, operations and affairs, including the ability to prevent or
cause a change in control of the company.
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ANTI-TAKEOVER PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW COULD ADVERSELY IMPACT A POTENTIAL ACQUISITION BY THIRD PARTIES
THAT MAY ULTIMATELY BE IN THE FINANCIAL INTERESTS OF OUR STOCKHOLDERS.
Our certificate of incorporation and bylaws and the Delaware General
Corporation Law contain provisions that may discourage unsolicited takeover
proposals. These provisions could have the effect of inhibiting fluctuations in
the market price of our shares that could result from actual or rumored takeover
attempts, preventing changes in our management or limiting the price that
investors may be willing to pay for shares of common stock. These provisions,
among other things, authorize the board of directors to designate the terms of
and to issue new series of preferred stock, to limit the personal liability of
directors, to require us to indemnify directors and officers to the fullest
extent permitted by applicable law and to impose restrictions on business
combinations with some interested parties.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any of these documents at the public reference rooms maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Securities and Exchange
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. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms. Our
filings are also available to the public from commercial documents retrieval
services and at the Internet website maintained by the Securities and Exchange
Commission at http://www.sec.gov.
Our common stock is quoted on The Nasdaq SmallCap Market. You may also
read our reports, proxy and information statements and other information at The
Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C. 20006.
This prospectus is part of the registration statement that we filed with the
Securities and Exchange Commission to register the shares of common stock
referred to above being offered. This prospectus does not contain important
information that you can find in our registration statement and in the annual,
quarterly and special reports, proxy statements and other documents that we file
with the Securities and Exchange Commission.
The Securities and Exchange 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 other documents
that have been or will be filed with the Securities and Exchange Commission. The
information below is incorporated in this prospectus by reference and is an
important part of this prospectus, except where any of the information has been
modified or superseded by the information in this prospectus or in information
incorporated by reference in this prospectus. Also, information that we file
after the date of this prospectus with the Securities and Exchange 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 Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until all of
the securities offered by this prospectus are sold:
- Our Annual Report on Form 10-K for the fiscal year ended
December 31, 1999; and
- Our Amendment No. 1 to Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1999.
We will provide you, without charge, a copy of the documents incorporated by
reference in this prospectus. We will not provide a copy of the exhibits to
documents incorporated by reference, unless those exhibits are specifically
incorporated by reference into those documents. You may obtain documents
incorporated by reference in this prospectus by requesting them in writing or by
telephone from:
Cheniere Energy, Inc.
1200 Smith Street, Suite 1740
11
<PAGE>
Houston, Texas 77002-4312
Attn: Don A. Turkleson, Chief Financial Officer
(713) 659-1361
You should rely only on the information provided or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of the shares 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.
CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements made by us or on our behalf. We and our
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 our stockholders.
All statements, other than statements of historical facts, included in this
prospectus that address activities, events or developments that we intend,
expect, project, believe or anticipate will or may occur in the future are
forward-looking statements. These statements include, among others:
- statements regarding our business strategy, plans and objectives;
- statements expressing beliefs and expectations regarding our ability to
successfully raise the additional capital necessary to meet our
obligations under our current exploration agreements;
- statements expressing beliefs and expectations regarding our ability to
secure the leases necessary to facilitate anticipated drilling
activities;
- statements expressing beliefs and expectations regarding our ability to
attract additional working interest owners to participate in the
exploration and development of our exploration areas; 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.
Actual results could differ materially from estimates and other forward-looking
statements. Important factors that could affect us and cause materially
different results are discussed under the heading "Risk Factors."
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares offered by this
prospectus. Warrants for which the underlying common stock is being registered
in this registration statement are exercisable at various prices ranging from
$0.875 to $2.875 per share. The detailed terms of our warrants are set forth
under "Description of Securities - Warrants." We expect to use any proceeds we
receive from the exercise of warrants for oil and gas exploration activities,
working capital and/or general corporate purposes.
12
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of April 14, 2000 by each selling
stockholder. Beneficial ownership is determined in accordance with the rules
and regulations of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Information with respect
to beneficial ownership is based on information as of April 14, 2000 and assumes
that there is outstanding an aggregate of 42,989,572 shares of common stock.
Warrants to purchase shares of common stock which are currently exercisable or
will become exercisable within 60 days of April 14, 2000 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, Cheniere believes based on information furnished by the
selling stockholders that the persons named in the table below have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them. The table assumes the sale of all shares offered
hereby and no other purchases or sales of Cheniere's common stock. All warrants
shown in the applicable column are immediately exercisable.
<TABLE>
<CAPTION>
Shares of
Number Common Stock
Beneficially of Shares Underlying Shares Beneficially
Owned Prior of Common Warrants to Owned After
Name of Selling Stockholder to Offering Stock Purchase Common Stock the Offering
- ------------------------------------------------------------------------------------------------------------------------------------
Number Percent Number Percent
<S> <C> <C> <C> <C> <C> <C>
Adams, Dennis L. 341,600 * 194,400 97,200 50,000 *
Alba Limited 205,000 * 160,000 - 45,000 *
APEX Investment Fund Ltd. 1,600,000 3.7% 1,200,000 400,000 - *
Arabella SA 2,545,000 5.8% 1,690,000 - 855,000 2.0%
Argentiere Holdings, Inc. 300,000 * - 300,000 - *
Azure Energy fund, Inc. 3,000,030 7.0% 3,000,030 - - *
Bank Insinger de Beaufort, N.V. 1,920,000 4.4% 1,260,000 660,000 - *
Banque SCS Alliance S.A. 818,000 1.9% 712,000 106,000 - *
Batler, Emanuel 81,000 * 54,000 27,000 - *
Bemel & Ross Profit Sharing Plan 20,000 * 10,000 - 10,000 *
Bisgeier, Mark David 6,000 * 6,000 - - *
Borenstein, Richard N. 138,399 * 11,579 50,987 75,833 *
Bradner, Martin 34,286 * 20,000 - 14,286 *
Brown, Hart 13,000 * 13,000 _ _ *
BSR Investments, Ltd. 4,124,645 9.5% 118,800 59,400 3,946,445 9.1%
Connaught Global Ltd. 300,000 * 75,000 75,000 150,000 *
Cullman, Joseph F., 3rd 73,660 * 24,662 12,331 36,667 *
Davidson, Ronald 10,000 * 10,000 _ _ *
Epic Geophysical 66,667 * 66,667 _ _ *
Forster, Gail Daly 131,765 * 17,368 76,480 37,917 *
Freedman, Gary E., Trustee of the
Freedman Family Trust u/t/d 5/25/82 10,000 * 10,000 - - *
Gardner, David A. 324,000 * 216,000 108,000 - *
Gisborne Capital Limited 300,000 * 300,000 - - *
The Glenn Golenberg Intervivos
Trust Dtd. 4/27/93 150,000 * 150,000 - - *
Guildford Manor, Ltd. 200,000 * 150,000 - 50,000 *
Hellmold, Ralph O. 263,833 * 6,250 _ 256,583 *
Israel, Robert I. 69,199 * 5,789 25,493 37,917 *
Kessler, Douglas W., P.C. 54,973 * 12,204 6,102 36,667 *
Koutsoubos, Ted 80,000 * 50,000 - 30,000 *
Lathbury Investments Ltd. 300,000 * 75,000 75,000 150,000 *
Leeds, Don & Gail Leeds 200,000 * 200,000 - - *
Leff, David M., TTEE of the
David Leff Family Trust
u/t/d/ 2/3/88 10,000 * 10,000 - - *
Lessman, Andrew 1,347,149 3.1% 1,100,000 - 247,149 *
Lloyds TSB Bank plc 60,000 * 60,000 _ _ *
Marcus, Michael P. 600,000 1.4% 600,000 - - *
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Shares of
Number Common Stock
Beneficially of Shares Underlying Shares Beneficially
Owned Prior of Common Warrants to Owned After
Name of Selling Stockholder to Offering Stock Purchase Common Stock the Offering
- ------------------------------------------------------------------------------------------------------------------------------------
Number Percent Number Percent
<S> <C> <C> <C> <C> <C> <C>
Massabni, Antoine 267,000 * 213,000 54,000 _ *
Massabni, Antoine Michel 282,000 * 228,000 54,000 _ *
MDC Group, Inc. 200,000 * - 200,000 _ *
Merback, Arden 32,571 * 15,000 - 17,571 *
Merback, Joe 150,000 * - 150,000 - *
MM & B Holdings, LLC 1,383,834 3.1% 188,001 - 1,195,833 2.7%
Moshen, Eli 139,571 * 120,000 - 19,571 *
Neel, John S. Jr. 143,399 * 11,579 50,987 80,833 *
Offshore Energy Services, Inc. 800,000 1.9% 800,000 - - *
Rehme, Robert G. & Phyllis K. Rehme 30,000 * 30,000 - - *
Robinson, Joe Sam, Jr., M.D. 597,823 1.4% 320,263 89,227 188,333 *
Robinson, Dr. Mixon 221,429 * 100,000 - 121,429 *
Schley, Evander D. 5,000 * 5,000 - - *
Silver Creek Investments Ltd., BVI 750,000 1.7% 750,000 - - *
Smisson Family Interests LLP 180,000 * 180,000 _ - *
Smisson, Hugh F. III, M.D. 507,333 1.2% 335,473 63,734 108,126 *
Smisson, La Wahna Rigdon 99,000 * 99,000 - - *
St. Cloud Investments, Ltd BVI 750,000 1.7% 750,000 - - *
Sturm, Alan 81,000 * 54,000 27,000 - *
Three D Holdings Ltd. 150,000 * 150,000 - - *
Union Finance International Corporation 1,613,500 3.7% 510,000 1,103,500 - *
Vivaldi, L.L.C. 100,000 * 100,000 - - *
Wagstaff, Michael J. 67,949 * 5,789 25,493 36,667 *
Williams, Betty Brown 20,000 * 20,000 - - *
------------ ------------ ----------------- -----------
TOTALS 28,268,615 16,573,854 3,869,934 7,797,827
============ ============ ================= ===========
</TABLE>
* Less than 1%
ISSUANCE OF SECURITIES TO SELLING STOCKHOLDERS
The shares of common stock being registered pursuant to the registration
statement of which this prospectus is a part include:
- 15,576,097 shares issued in private placements during the period from
June 1999 to March 2000
- 866,667 shares issued in consideration for oil and gas well services to
be provided in the future
- 131,090 shares issued in connection with extensions of the maturity dates
of short-term senior notes payable
- 2,219,533 shares issuable upon the exercise of warrants issued in private
placements
- 382,401 shares issuable upon the exercise of warrants issued in
connection with extensions of the maturity dates of short-term senior
notes payable
- 1,295,000 shares issuable upon the exercise of warrants issued in
consideration for consulting services
On June 30, 1999, we sold 2,296,000 shares to twenty investors at a price of
$1.00 per share pursuant to Regulation D adopted by the Securities and Exchange
Commission. On July 6, 1999, we issued 150,000 shares to two investors pursuant
to a price adjustment provision of their April 1999 purchase of 300,000 shares
bringing the effective
14
<PAGE>
purchase price from $1.00 to $0.67 per share. The sale was made pursuant to
Regulation D adopted by the Securities and Exchange Commission.
In the period from September 30, 1999 to October 10, 1999, we sold 1,074,134
units to ten investors at a price of $1.10 per unit. Each unit was comprised of
one share of common stock and one half warrant to purchase one share of common
stock, adding up to 1,074,134 shares of common stock and warrants to purchase
537,067 shares of common stock. In April 2000, we issued an additional 80,932
units, representing 80,932 shares of common stock and warrants to purchase
40,466 shares of common stock, to these investors pursuant to a price adjustment
provision included in the original offering. Warrants issued in connection with
these sales of units are exercisable on or before the third anniversary date of
the date the units were sold at an exercise price of $1.50 per share.
In November and December 1999, we sold 10,483,031 shares of common stock to
twenty-two investors at a price of $0.33 1/3 per share pursuant to Regulation D
adopted by the Securities and Exchange Commission.
In March 2000, we sold 1,492,000 units to four investors at a price of
$0.75 per unit. Each unit was comprised of one share of common stock and one
warrant to purchase one share of common stock, adding up to 1,492,000 shares of
common stock and warrants to purchase 1,492,000 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.
On August 10, 1999, in consideration for oil and gas well services to be
provided in the future, we issued 800,000 shares to one investor at a price of
$1.50 per share pursuant to Regulation D adopted by the Securities and Exchange
Commission. On March 23, 2000, in consideration for geophysical consulting and
processing services, we issued 66,667 shares to one investor at a price of $0.75
per share pursuant to Regulation D adopted by the Securities and Exchange
Commission.
In October 1999, in consideration of the extension of the maturity dates on
certain senior short-term notes payable, we issued 81,750 shares to nine
investors at a price of $1.00 per share pursuant to Regulation D adopted by the
Securities and Exchange Commission. In December 1999, in consideration of the
extension of the maturity dates on certain senior short-term notes payable, we
issued to seven investors 49,340 shares of common stock at a price of $0.33 1/3
per share and warrants to purchase 382,401 shares of common stock at a price to
be determined in the future, between $0.75 and $1.00 per share, on or before
December 16, 2004 pursuant to Regulation D adopted by the Securities and
Exchange Commission.
In July 1999, in connection with a price adjustment provision for units
previously issued, we issued to two investors warrants to purchase 150,000
shares of common stock at a price of $1.00 per share on or before
April 12, 2004.
Effective in July 1999, as consideration for assistance in the private
placement of our securities, we issued to a consultant warrants to purchase
150,000 shares of common stock at a price of $1.50 per share prior to June 30,
2002. In September 1999, in consideration for consulting services, we issued to
a consultant warrants to acquire 200,000 shares of our common stock at prices of
$1.375, $1.875, $2.375 and $2.875 per share for each of four blocks of 50,000
shares, exercisable within five years of the date of issuance. In December
1999, as consideration for assistance in the private placement of our
securities, we issued to two consultants warrants to purchase 945,000 shares of
common stock at a price of $1.00 prior to the third anniversary of the issuance.
DESCRIPTION OF SECURITIES
We have 65,000,000 authorized shares of stock, consisting of 60,000,000
shares of common stock, having a par value of $.003 per share, and 5,000,000
shares of preferred stock, having a par value of $.0001 per share.
15
<PAGE>
COMMON STOCK
As of April 25, 2000, there were 42,989,572 shares of 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 out of
assets legally available therefor and subject to dividend obligations to the
holders of any preferred stock then outstanding.
In the event of a liquidation, dissolution or winding up of Cheniere, the
holders of common stock are entitled to share equally and ratably in the assets
available for distribution after payment of all liabilities, and subject to any
prior rights of any holders of preferred stock that at the time may be
outstanding.
The holders of common stock have no preemptive, subscription, conversion or
redemption rights, and are not subject to further calls or assessments of
Cheniere. There are no sinking fund provisions applicable to the common stock.
Each share of common stock is entitled to one vote in the election of directors
and on all other matters submitted to a vote of stockholders. Holders of common
stock have no right to cumulate their votes in the election of directors.
PREFERRED STOCK
There are 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 some circumstances, make it more difficult
for a third party to gain control of Cheniere.
WARRANTS
We have issued and outstanding warrants to purchase 9,162,769 shares of
common stock.
We have issued and outstanding 41,667 warrants, each of which entitles the
registered holder thereof to purchase one share of common stock. These warrants
are exercisable at any time on or before June 14, 2000, at an exercise price of
$3.00 per share and are subject to customary anti-dilution adjustments. These
warrants were originally issued by Cheniere Energy Operating Co., Inc. (now a
wholly owned subsidiary of Cheniere) and were converted to warrants of Cheniere
following the 1996 reorganization of the company. These warrants were issued to
two investors in connection with a private placement of unsecured promissory
notes of Cheniere Operating. 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 common stock on the same terms
as the other warrants, in accordance with the terms of the original note
agreement, which expires on June 14, 2000.
In consideration of investment advisory and other services to Cheniere,
pursuant to warrant agreements each dated as of August 21, 1996, we 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. These warrants are exercisable
at any time on or before May 15, 2000 at an exercise price of $3.00 per share
and are subject to customary anti-dilution adjustments.
In connection with the December 1997 bridge financing, we 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. We issued additional warrants to purchase
1,600,000 shares of common stock on September 15, 1998 in consideration for the
extension to that date. We extended the notes again in September 1998 to a
maturity date of December 15, 1998, which date was further extended to January
15, 1999 at our option. In connection with the extension to December 15, 1998,
we 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
16
<PAGE>
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. On March
15, 1999, we decreased the exercise price by $0.25 per share on all warrants
issued in connection with the bridge financing. In connection with extensions of
the maturity dates from October 1999 to December 1999 and then to March 2000, we
issued 131,090 shares of common stock and warrants to purchase 382,401 shares of
common stock at a price to be determined in the future, between $0.75 and $1.00
per share, and extended the term of all warrants related to then outstanding
notes payable to December 16, 2004.
In conjunction with the issuance of $180,000 senior term notes payable in
June 1998, we 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 and are subject to
customary anti-dilution adjustments.
In the period from August 31, 1998 through December 15, 1998, we 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 aggregate, 1,950,000
shares of common stock and warrants to purchase 975,000 shares of common stock.
Warrants to purchase 487,500 shares of common stock were exercised in March
2000, leaving warrants on 487,500 shares still outstanding. 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 and are subject to customary anti-
dilution adjustments. In April 2000, we issued an additional 80,932 units,
representing 80,932 shares of common stock and warrants to purchase 40,466
shares of common stock, to these investors pursuant to a price adjustment
provision included in the original offering.
In June 1999, we issued 1,000,000 warrants to our president and chief
executive officer and 200,000 warrants to another member of our board of
directors, both of whom were instrumental in negotiating our license of 8,700
square miles of 3D 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.
Effective in July 1999, we issued 150,000 warrants exercisable at $1.50 per
share on or before June 30, 2004 as consideration for assistance in the private
placement of securities. We also issued 150,000 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.
In September and October 1999, we sold 1,074,134 units to ten investors at a
price of $1.10 per unit pursuant to Regulation D adopted by the Securities and
Exchange Commission. Each unit was comprised of one share of common stock and
one half warrant to purchase one share of common stock, adding up to 1,074,134
shares of common stock and warrants to purchase 537,067 shares of common stock.
Warrants issued in connection with these sales of units are exercisable at an
exercise price of $1.50 per share on or before the third anniversary of the date
the units were sold. Also in September 1999, we issued to a consultant warrants
to purchase 200,000 shares of common stock on or before September 27, 2004 at
exercise prices per share of $1.375 for 50,000 shares, $1.875 for 50,000 shares,
$2.375 for 50,000 shares and $2.875 for 50,000 shares. In November and December
1999, as consideration for assistance in the private placement of securities, we
issued 945,000 warrants exercisable at $1.00 per share on or before the third
anniversary of the issuances.
In March 2000, we sold 1,492,000 units to four investors at a price of
$0.75 per unit pursuant to Regulation D adopted by the Securities and Exchange
Commission. Each unit was comprised of one share of common stock and one warrant
to purchase one share of common stock, adding up to 1,492,000 shares of common
stock and warrants to purchase 1,492,000 shares of common stock. Warrants issued
in connection with these sales of units are exercisable at an exercise price of
$1.00 per share on or before the second anniversary of the date the units were
sold.
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 contains
provisions that might be characterized as anti-takeover provisions. Such
provisions may render more difficult possible takeover proposals to acquire
control of Cheniere and make removal of management of Cheniere more difficult.
17
<PAGE>
As described above, the certificate of incorporation 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 some
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 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 at least one of the following conditions is met:
- the corporation's board of directors had earlier approved either the
business combination or the transaction by which the stockholder became
an interested stockholder,
- 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
- 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.
The Delaware General Corporation Law defines an interested stockholder as a
stockholder owning 15 percent or more of a corporation's voting stock. Cheniere
is currently subject to Section 203.
In addition, William D. Forster, a director, and BSR Investments, Ltd., an
entity controlled by the mother of Charif Souki, chairman of our board of
directors, own in the aggregate approximately 16% of the outstanding shares of
the common stock. Accordingly, it is likely that Mr. Forster and BSR
Investments will have the ability to effectively prevent or cause a change in
control of Cheniere.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock Transfer
Corporation.
PLAN OF DISTRIBUTION
We have agreed to bear some expenses of registration of the shares offered
by this prospectus under federal and state securities laws.
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 Cheniere in making decisions with respect to the timing, manner
and size of each sale. The selling stockholders may sell the shares being
offered by this prospectus:
- 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
- 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 federal securities act, and any discount, commission or
concession
18
<PAGE>
received by such persons might be deemed to be an underwriting discount or
commission under the Securities Act. Cheniere has agreed to indemnify the
selling stockholders against some liabilities arising under the federal
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 in the over-the-
counter market, in negotiated transactions or by a combination of such methods
of sale or otherwise. These transactions would be at market prices prevailing
at the time of sale or at negotiated prices. These transactions may involve
crosses and block transactions and may involve sales to and through other
broker-dealers, including transactions of the nature described above. In
connection with such resales the broker-dealers may pay to or receive from the
purchasers of the shares commissions computed as described above.
Under the rules and regulations under the Securities Exchange Act of 1934,
the selling stockholders may be persons engaged in the distribution of the
common stock and may not simultaneously engage in market making activities with
respect to Cheniere for a period of five business days prior to the commencement
of the distribution. In addition, the selling stockholders will be subject to
applicable provisions, rules and regulations under the Securities Exchange Act
of 1934, including Regulation M, which may limit the timing of purchases and
sales of shares of common stock by the selling stockholders.
The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against some 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 some states, if applicable,
the common stock will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in some 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.
Cheniere will keep this registration statement or a similar registration
statement effective until the earlier to occur of
- the date that all securities registered under this registration statement
have been disposed of in accordance with the plan of disposition
indicated above or
- the date that all securities registered under this registration statement
have become eligible for sale under Rule 144(k) under the Securities Act.
No sales may be made pursuant to this prospectus after the earlier of these
two dates unless Cheniere amends or supplements this prospectus to indicate that
it has agreed to extend such period of effectiveness.
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
Cheniere.
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EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,
1999, have been so incorporated in reliance on the report, which contains an
explanatory paragraph relating to Cheniere'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.
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