SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant Check the appropriate box: [ ] Preliminary Proxy Statement Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2) [X] Definitive Proxy Statement Definitive Additional Materials Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 BEXY COMMUNICATIONS, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a- 6(i)(2) or Item 22(a)(2) of Schedule 14A. $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0- 11. (1) Title of each class of securities to which transaction applies: Common Stock - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: 625 Shares of Common Stock of the Acquiring Company - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): $120.00 per Share of Common Stock of the Acquiring Company - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: $75,000.00 - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- BEXY COMMUNICATIONS, INC. 16661 Ventura Boulevard, Suite 214 Encino, California 91436 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS To be Held Thursday, July 2, 1996 at 10:00 a.m. To the Stockholders: NOTICE is hereby given that a Special Meeting of Stockholders of BEXY COMMUNICATIONS, INC. (the "Company") will be held at Shutters On the Beach, One Pico Boulevard, Santa Monica, California 90405 (Tel.: 310-458-0030) at 10:00 a.m. local time, on Thursday, July 2, 1996 for the following purposes: 1. To approve a Plan of Reorganization (the "Reorganization") of the Company pursuant to which the Company will change its business to the exploration for and exploitation of oil and gas. 2. In connection with the Reorganization, in order to permit the issuance of shares of common stock of the Company (the "Common Stock") to stockholders of Cheniere Energy Operating Co., Inc. ("Cheniere"), to approve the amendment of the Company's certificate of incorporation to change the authorized capital stock of the Company to a total 21,000,000 shares, comprised of 20,000,000 shares of Common Stock, having a par value of $.003 per share, and 1,000,000 shares of preferred stock, the rights, powers and preferences of which shall be set by resolution of the Board of Directors of the Company. 3. In connection with the Reorganization, to approve the amendment of the Company's certificate of incorporation to change the name of the Company to "Cheniere Energy, Inc." 4. In connection with the Reorganization, to approve the distribution to the stockholders of the Company of the stock of the Company's wholly-owned subsidiary, Mar Ventures, Inc. ("Newco"), to which the Company has transferred the assets, subject to liabilities, of the Company's existing business (the "Divestiture"). 5. To approve the amendment of the certificate of incorporation of the Company to limit the liability of the Company's directors and to provide for indemnification of the officers and directors of the Company to the fullest extent permitted by Delaware law. 6. In connection with the Reorganization, to elect three (3) directors nominated by Cheniere to hold office during the ensuing year until their respective successors are elected and qualified. 7. To act upon such other matters as may properly come before the meeting or any adjournment thereof. Shares represented by properly executed proxies hereby solicited by the Board of Directors of the Company will be voted in accordance with instructions specified herein. It is the intention of the Board of Directors that shares represented by proxies which are not limited to the contrary will be voted in favor of the election as directors of the persons named in the accompanying Proxy Statement, for proposals 1, 2, 3, 5 and 6 and in favor of such other matters as recommended by the Board, as may properly come before the Special Meeting. If the amendment of the certificate of incorporation to change the authorized capital stock is approved by the stockholders, following the filing of the amended and restated certificate of incorporation with the Secretary of State of the State of Delaware, each outstanding share of the Company's Common Stock will be automatically converted into one-third of one share of newly authorized Common Stock of the Company. If the proposals in respect of the Reorganization and the changes in the Company's capitalization are approved, and the nominees of Cheniere elected to the Board, the Company and Cheniere may, but are not required to, proceed with the consummation of the transaction whereby Cheniere will become a wholly-owned subsidiary of the Company, regardless of whether the stockholders approve the other proposals set forth in the Proxy Statement for consideration by the stockholders. In addition, even if the stockholders approve the proposals relating to the Reorganization, the Board of Directors of the Company may determine not to distribute the stock of Newco to the stockholders of the Company if, in light of the circumstances then existing, the Board determines that the Divestiture would not be in the best interests of the Company and the stockholders. Information concerning the matters to be acted upon as the Special Meeting is set forth in the accompanying Proxy Statement. The Board of Directors has established the close of business on May 15, 1996 as the record date (the "Record Date") for the determination of stockholders entitled to notice of and to vote at the special Meeting or any adjournments thereof. STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. YOUR VOTE IS VERY IMPORTANT, AND WE WILL APPRECIATE A PROMPT RETURN OF YOUR SIGNED PROXY CARD. ANY STOCKHOLDER ATTENDING THE MEETING MAY REVOKE HIS OR HER PROXY AT THAT TIME AND MAY THEN VOTE HIS OR HER SHARES IN PERSON EVEN IF HE OR SHE HAS PREVIOUSLY RETURNED A PROXY. By Order of the Board of Directors David Leedy, Secretary Encino, California June 13, 1996 TABLE OF CONTENTS ----------------- PAGE ---- INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Revocability of Proxy . . . . . . . . . . . . . . . . . . . . . . . . 13 Person Making the Solicitation . . . . . . . . . . . . . . . . . . . . 14 Voting Shares and Vote Required . . . . . . . . . . . . . . . . . . . 14 INFORMATION CONCERNING CHENIERE . . . . . . . . . . . . . . . . . . . . . . 15 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 The Exploration Agreement . . . . . . . . . . . . . . . . . . . . . . 16 The Zydeco Seismic Survey in West Cameron Parish, Louisiana . . . . . 17 Zydeco Energy, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 20 INFORMATION CONCERNING THE COMPANY . . . . . . . . . . . . . . . . . . . . 21 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Current Activities . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Recent Business Developments . . . . . . . . . . . . . . . . . . . . . 23 The Health Information Market . . . . . . . . . . . . . . . . . . . . . . . 23 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 MARKET FOR COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION . . . . . . . . . 25 Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 25 Fiscal 1995 Compared to 1994 . . . . . . . . . . . . . . . . . . . . . 26 Fiscal 1994 Compared to 1993 . . . . . . . . . . . . . . . . . . . . . 27 Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . 27 Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 29 Security Ownership of Certain Beneficial Owners and Management . . . . 29 Board Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Director's Compensation . . . . . . . . . . . . . . . . . . . . . . . 31 Certain Relationships and Related Transactions . . . . . . . . . . . . 31 Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 31 THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Background of the Reorganization . . . . . . . . . . . . . . . . . . . 33 F-i Recommendation of the Board of Directors . . . . . . . . . . . . . . . 33 Cheniere's Purpose and Reasons For Participating in the Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . 34 The Reorganization Agreement . . . . . . . . . . . . . . . . . . . . . 34 Distribution of Newco Stock; Exchange of Shares . . . . . . . . . . . 35 Certain Terms of the Reorganization . . . . . . . . . . . . . . . . . 36 Securities Act Status of New Shares Received by Cheniere Stockholders 38 INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . 38 Significant Stock Ownership . . . . . . . . . . . . . . . . . . . . . 38 Consulting Agreement; Other Agreements . . . . . . . . . . . . . . . . 38 Operation of the Company After the Closing of the Exchange . . . . . . 39 Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . 39 Certain Federal Income Tax Consequences of the Exchange . . . . . . . 39 Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 THE DIVESTITURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Background and Reasons for the Divestiture . . . . . . . . . . . . . . 41 Manner of Divestiture . . . . . . . . . . . . . . . . . . . . . . . . 43 Certain Federal Income Tax Aspects of the Divestiture . . . . . . . . 43 Effects on the Company . . . . . . . . . . . . . . . . . . . . . . . . 44 Effect on Stockholders of the Company . . . . . . . . . . . . . . . . 44 Back-Up Withholding . . . . . . . . . . . . . . . . . . . . . . . . . 46 Listing and Trading of Newco Stock . . . . . . . . . . . . . . . . . . 46 Divestiture Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 47 PROPOSALS TO BE VOTED ON AT THE SPECIAL MEETING . . . . . . . . . . . 47 PROPOSAL 1. REORGANIZATION OF THE COMPANY . . . . . . . . . . . . . . . . 47 PROPOSAL 2. AMENDMENTS TO CERTIFICATE OF INCORPORATION RELATING TO CHANGE IN CAPITALIZATION . . . . . . . . . . . . . 48 Effect of the Proposed Amendment . . . . . . . . . . . . . . 49 PROPOSAL 3. AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY . . . . . . . . . . . . . . 49 PROPOSAL 4. DIVESTITURE OF THE EXISTING BUSINESS OF THE COMPANY. . . . . . 50 Effect of Divestiture . . . . . . . . . . . . . . . . . . . . . . 50 PROPOSAL 5. AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO LIMIT THE LIABILITY AND PROVIDE INDEMNIFICATION . . . . . . . 50 Effect of Adoption . . . . . . . . . . . . . . . . . . . . . . . 51 PROPOSAL 6. ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . 51 F-ii Nominees for Election . . . . . . . . . . . . . . . . . . . . . . 51 Background and Experience . . . . . . . . . . . . . . . . . . . . 51 DESCRIPTION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . 53 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 53 INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . 53 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AFTER GIVING EFFECT TO THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . 54 PRO FORMA CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . 54 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 EXHIBITS - -------- Exhibit A - Agreement of Reorganization . . . . . . . . . . . . . . . . . A-1 Exhibit B - Amended and Restated Certificate of Incorporation . . . . . . B-1 F-iii BEXY COMMUNICATIONS, INC. 16661 Ventura Boulevard, Suite 214 Encino, California 91436 __________ PROXY STATEMENT __________ SPECIAL MEETING OF STOCKHOLDERS To be Held on July 2, 1996 This proxy statement (this "Proxy Statement") and the enclosed proxy card ("Proxy") are furnished in connection with the solicitation of proxies on behalf of the Board of Directors of BEXY Communications, Inc. ("Company") to be voted at the special meeting of stockholders of the Company (the "Special Meeting") to be held at Shutters On the Beach, One Pico Boulevard, Santa Monica, California 91045 (Tel: 310-458-0030) at 10:00 a.m. local time on Tuesday, July 2, 1996 and at any adjournment thereof, for the purposes set forth in the accompanying Notice of Special Meeting. Only stockholders of record at the close of business on May 15, 1996 (the "Record Date") are entitled to notice of and to vote at the Special Meeting. This Proxy Statement and the enclosed Proxy, together with the accompanying Annual Report on Form 10-KSB for the year ended August 31, 1995, constituting the Company's annual report to stockholders, are being mailed on or about June 12, 1996. INTRODUCTION At the Special Meeting, stockholders will be asked to approve and adopt a Plan of Reorganization (the "Reorganization") as set forth in a certain Agreement and Plan of Reorganization dated as of April 16, 1996 (the "Reorganization Agreement") among Cheniere Energy Operating Co., Inc. ("Cheniere"), the stockholders of Cheniere (the "Cheniere Stockholders"), the Company and Buddy Young, the President & CEO and principal stockholder of the Company ("Young"). Pursuant to the Reorganization, the outstanding capital stock (the "Newco Stock") of Mar Ventures, Inc. ("Newco"), a newly-formed, wholly-owned subsidiary of the Company, which holds the assets, subject to liabilities, of the existing business of the Company, will be distributed to the stockholders of record as of the Record Date (the "Divestiture"). In consideration for the transfer of all of the issued and outstanding shares of common stock of Cheniere (the "Cheniere Shares"), the Company will issue to the Cheniere Stockholders shares of common stock (the "Common Stock") of the Company (after giving effect to the amendment of the capitalization of the Company and the Reverse Split described herein, the "New Shares") equal to approximately 93% of the then issued and outstanding New Shares (the "Exchange") causing the current stockholders' interest in the Company to be diluted to approximately 7%. Thereupon, Cheniere will become a wholly-owned subsidiary of the Company and the principal business of the Company will become the oil and gas exploration and exploitation business conducted by Cheniere. See "THE REORGANIZATION -- The Divestiture; The Background of the Reorganization; and The Reorganization Agreement; and INFORMATION CONCERNING CHENIERE." Cheniere is a Houston-based independent oil and gas exploration company formed in February 1996 to participate in a joint venture with Zydeco Exploration, Inc. ("Exploration"), a wholly-owned subsidiary of Zydeco Energy, Inc. ("Zydeco"), a publicly traded company, the common stock of which is listed on the Nasdaq SmallCap Market system. See "INFORMATION CONCERNING CHENIERE." In order to facilitate the Reorganization, the directors of the Company are asking the Company's stockholders to approve certain amendments to the certificate of incorporation of the Company to change the authorized capital stock of the Company to permit the issuance of shares of Common Stock of the Company to the Cheniere Stockholders in exchange for Cheniere Shares. The Board of Directors of the Company is also asking the stockholders to approve certain other amendments to the certificate of incorporation of the Company to authorize a new class of preferred stock, to change the name of the Company to "Cheniere Energy, Inc." and to add provisions to limit the liability of the Company's directors and to provide for the indemnification of the Company's officers and directors to the fullest extent permitted by Delaware law. In addition, in connection with the Reorganization, the stockholders are being asked to vote for the election of three nominees as directors designated by Cheniere. Young, the President & CEO of the Company and the holder of shares totalling approximately 57% of the issued and outstanding shares of Common Stock of the Company, has agreed with Cheniere to vote his shares of Common Stock in favor of each of the proposals set forth in this Proxy Statement. Following the closing of the Exchange and the Divestiture, Young will own approximately 4% of the then issued and outstanding New Shares and approximately 57% of the issued and outstanding shares of Newco Stock. At the closing of the Reorganization (the "Closing"), Young will resign as President & CEO and a member of the Board of Directors of the Company and will enter into a consulting agreement (the "Consulting Agreement") with the Company having a two-year term and providing for payments of $75,000 per annum, pursuant to which Young will provide the Company with advice and assistance regarding the transition of ownership and shareholder relations. In addition, at the Closing, pursuant to the Reorganization Agreement, Young and the Company will enter into agreements providing that Young will not sell more than 10,000 shares per month for a nine- month period after the Closing and that the Company will not engage in a reverse stock split, other than as contemplated by the Reorganization Agreement, for an eighteen-month period after the Closing. Pursuant to the Reorganization Agreement, at the Closing, Young and the Company will enter into an indemnification -2- agreement (the "Indemnification Agreement") pursuant to which Young will agree to indemnify the Company, Cheniere and the Cheniere Stockholders against any cost, expense or other liability that any of them may suffer arising as a result of or in connection with (i) the operation of the business of the Company prior to the Closing, (ii) any untrue statement or omission of material fact made by or with respect to the Company or Young in the Proxy Statement and other proxy materials or the registration statement under the Securities Exchange Act of 1934 (the "Exchange Act") registering the Newco Stock and (iii) any tax liability arising out of or in connection with the consummation of the transactions contemplated by the Divestiture. See "THE REORGANIZATION -- The Reorganization Agreement; -- Background of the Reorganization; -- The Divestiture; and -- Interests of Certain Persons in the Reorganization and Related Transactions." The Board of Directors of the Company has determined that the Reorganization is in the best interest of the stockholders and recommends that the stockholders approve the Reorganization and each of the proposals to be considered at the Meeting. In reaching this determination, the Board considered (i) the Company's chronic losses from its existing line of business and the potential earnings that may be obtained in the oil and gas business and (ii) the benefits that may be obtained from separating two different businesses with different management and operating requirements. The Board weighed these benefits against (i) the possibility that, as a result of the distribution of Newco Stock, stockholders may be deemed to receive taxable income without receiving any cash to pay such taxes, (ii) the loss of the Company's net loss carry forwards to shield future income, (iii) the possible inability to list Newco Stock on the Electronic Bulletin Board and (iv) the potential issuance of additional shares of Common Stock and shares of preferred stock that would further dilute the stockholders' ownership interest in the Company. All information in this Proxy Statement relating to Cheniere, Exploration, Zydeco and the Joint Venture has been supplied by Cheniere, and the management of the Company is relying upon the management of Cheniere for such information. SUMMARY The following is a brief summary of certain information contained elsewhere in this Proxy Statement and in Exhibit A (Agreement of Reorganization) and Exhibit B (Form of Amended and Restated Certificate of Incorporation) hereto. Certain capitalized terms used in this Summary are defined elsewhere in this Proxy Statement. All statements in the following Summary are qualified by and are made subject to the more detailed information contained in this Proxy Statement and the Exhibits attached hereto. Stockholders are urged to review this Proxy Statement and the Exhibits carefully and in their entirety. -3- Special Meeting of Stockholders ------- ------- -- ------------ DATE, TIME AND PLACE The Special Meeting will be held on Tuesday, July 2, 1996, at 10:00 a.m. local time at Shutters On the Beach, One Pico Boulevard, Santa Monica, California 90405 (Tel.: 310-458-0030). RECORD DATE Only holders of record of shares of Common Stock at the close of business on May 15, 1996 will be entitled to notice of and to vote at the Special Meeting. Holders of record of shares of Common Stock on the Record Date are entitled to one vote per share, exercisable in person or by proxy. The presence in person or by proxy of the holders of a majority of the outstanding shares of Common Stock entitled to vote is necessary to constitute a quorum at the Special Meeting. See "VOTING AT THE SPECIAL MEETING." -4- PURPOSE OF THE SPECIAL The purpose of the Special MEETING Meeting is to consider and vote upon the Reorganization pursuant to which (1) the Company will change its existing business to the oil and gas exploration business of Cheniere by the transfer by the Cheniere Stockholders of the Cheniere Shares, comprising all of the capital stock of Cheniere, to the Company in exchange for New Shares, and (2) the Company will distribute to its stockholders as of the Record Date all of the issued and outstanding shares of Newco Stock. See "THE REORGANIZATION -- Background of the Reorganization; and -- "The Divestiture and "PROPOSAL 1. REORGANIZATION OF THE COMPANY." Exchange, stockholders will be asked to consider and approve the amendment of the certificate of incorporation of the Company to change the authorized capital stock of the Company to a total of 21,000,000 shares, comprised of 20,000,000 shares of Common Stock, having a par value of $.003 per share, and 1,000,000 shares of preferred stock, the rights, powers and preferences of which may be set by the Board of Directors by resolution. -5- Upon approval by the stockholders of the amendment of the certificate of incorporation with respect to changes in the Company's capitalization and the filing of the Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, each three (3) outstanding shares of Common Stock will automatically be converted into one (1) New Share. See "PROPOSAL 2. AMENDMENTS TO CERTIFICATE OF INCORPORATION RELATING TO CHANGE IN CAPITALIZATION." In connection with the Exchange, stockholders will also be asked to approve an amendment to the certificate of incorporation to change the name of the Company to "Cheniere Energy, Inc.". See "PROPOSAL 3. AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY." In addition, in connection with the Exchange, the stockholders will vote upon the election of three (3) directors nominated by Cheniere. See "PROPOSAL 6. ELECTION OF DIRECTORS." -6- Under the Reorganization Agreement, the Company and Cheniere may waive any c o n d i t i o n a n d , notwithstanding the failure to satisfy the condition, agree to close the remaining a s p e c t s o f t h e Reorganization. Accordingly, it is possible that stockholders could vote t o a p p r o v e t h e Reorganization but against the Divestiture in which case the Company would not consummate the Divestiture but, notwithstanding, would elect to consummate the Exchange. It should be noted that the only amendment to the Certificate of Incorporation necessary to consummate the Reorganization is Proposal 2 relating to changes in the capitalization of the Company. It should also be noted that notwithstanding approval of the Divestiture by the stockholders, the Board of Directors may determine, at any time prior to the consummation of the Divestiture, to terminate the Divestiture and not distribute the Newco Stock to the stockholders of the Company, if in their judgment, the distribution of the Newco Stock would not be in the best interest of the Company and the stockholders. In the event that the Board determines not to consummate the Divestiture, it is anticipated that the business of Newco would be liquidated and the stockholders would no longer have an interest in a company engaged in the media business. Stockholders will be asked to separately consider and vote upon the Divestiture. See "PROPOSAL 4. DIVESTITURE OF THE EXISTING BUSINESS OF THE COMPANY." -7- The stockholders will also be asked to consider and vote upon the amendment of the certificate of incorporation to limit the liability of the Company's directors and to provide for the indemnification of the officers and directors of the Company to the fullest extent permitted under Delaware law. See "PROPOSAL 5. AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO LIMIT LIABILITY AND PROVIDE INDEMNIFICATION." SHARES OUTSTANDING ON THE 1,802,859 RECORD DATE VOTE REQUIRED The affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock represented at the meeting in person or by proxy is required to approve the Reorganization, including the Divestiture and all proposed amendments to the c e r t i f i c a t e o f incorporation. In addition, directors are elected by a plurality of the votes cast at the Special Meeting. Young owns approximately 57% of the outstanding shares of Common Stock and has agreed to vote his shares in favor of the Reorganization and each of the other proposals to be voted upon by the stockholders at the Meeting. -8- THE REORGANIZATION ------------------ BACKGROUND OF THE Pursuant to the Reorganization REORGANIZATION Agreement, the Company, Young, Cheniere and the Cheniere Stockholders agreed to effect a reorganization of the Company whereby the Company would (1) distribute to the stockholders of the Company as of the Record Date all of the outstanding Newco Stock and (2) issue to the Cheniere Stockholders approximately 93% of the then outstanding New Shares in consideration for all of the outstanding Cheniere Shares, effecting a change of control of the Company and changing the principal business of the Company to the exploration of oil and gas. Because of the significant operating losses of the Company, management of the Company has determined that the Reorganization is the best alternative available to the Company and its stockholders and offers the best available opportunity for increasing shareholder value by engaging in a potentially profitable business, notwithstanding the uncertainties of entering into a new line of business that is in its initial start-up stage and the dilution of the stockholders' interest to approximately 7% in the aggregate after consummation of the Exchange with the likelihood that additional dilution will occur as the result of additional equity financings. Cheniere is participating in the Reorganization in order to provide it with a relatively simple and inexpensive means by which to give it a presence in the public market. The Board of Directors of Cheniere believes that the Reorganization will better enable it to access capital for the growth of its business. See "REORGANIZATION -- Background of the Reorganization." -9- RECOMMENDATION OF THE BOARD OF The Board of Directors of the DIRECTORS Company believes that the Reorganization is in the best interest of the stockholders of the Company. Accordingly, the Board of Directors has unanimously recommended approval by the Company and the Stockholders of the Reorganization, including both the Exchange and the Divestiture, the related amendments to the Company's certificate of incorporation, the election of the nominees of Cheniere as directors and the other proposals set forth in the Proxy Statement. The current Board of Directors of the Company consists of three persons, one of which is the principal stockholder of the Company. See "THE REORGANIZATION -- Recommendation of the Board of Directors." CONDITIONS; TERMINATION The Reorganization is subject to certain conditions, which may be waived by the Company and/or Cheniere, as the case may be, including the approval of the stockholders of the Company and certain financial statement requirements applicable to Cheniere and the Company as of the Closing Date. In addition, the Company and Cheniere may terminate the Reorganization Agreement under certain specified circumstances, including the failure to satisfy certain conditions. See "THE REORGANIZATION -- The Reorganization Agreement." -10- INTERESTS OF CERTAIN PERSONS Pursuant to the Reorganization IN THE REORGANIZATION AND IN Agreement and the Consulting RELATED TRANSACTIONS Agreement, at the Closing, the Company and Young will enter into the Consulting Agreement which provides for the payment of $75,000 per annum to Young for a two-year period after Closing. In addition, at the Closing, Young and the Company will enter into agreements pursuant to which Young will agree not to sell more than 10,000 new shares per month for a nine-month period after the Closing Date and the Company will agree not to engage in a reverse stock split, other than as contemplated by the Reorganization Agreement and as described herein, for an eighteen-month period after the Closing Date. At the Closing, Young will agree to indemnify the Company, and Cheniere against certain liabilities in connection with the Reorganization, including liabilities relating to taxes arising in connection with the Divestiture. See "THE REORGANIZATION -- Interests of Certain Persons in the Reorganization and Related Transactions." -11- FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION - THE EXCHANGE The Cheniere Stockholders will not recognize gain or loss for federal income tax purposes upon their exchange of Cheniere Shares for New Shares. Each such stockholder will have a tax basis in his New Shares received in the Exchange equal to his basis in his exchanged Cheniere Shares, and will have a holding period for his New Shares received in the Exchange which will include his holding period for his exchanged Cheniere Shares. The Company will not recognize gain or loss in connection with its receipt of Cheniere Shares in exchange for the issuance of New Shares pursuant to the Exchange. The tax basis of the Company in the Cheniere Shares that it acquires pursuant to the Exchange will equal the tax basis of such shares in the hands of the exchanging Cheniere stockholders, and the Company will have a holding period for such shares that will include the holding period for such shares in the hands of the Cheniere Stockholders. As a result of the consummation of the transactions contemplated by the Exchange, the Company will cease to have available to it for federal income tax purposes certain net operating loss carry forwards. See "INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION AND RELATED TRANSACTIONS -- Certain Federal Income Tax Consequences of the Exchange." -12- - THE DIVESTITURE It is anticipated that the fair market value of Newco Stock received in the Divestiture will be treated for federal income tax purposes as a taxable distribution to the stockholders of the Company. The amount and character of the income, if any, to be recognized by the stockholders on such distribution will be dependent in large part upon the fair market value of the Newco Stock, which in turn is expected to be dependent upon the market valuation of the shares as of the date following the Divestiture, and the earnings and profits of the Company, as well as a stockholders' basis in his shares of Common Stock. See "THE DIVESTITURE - Certain Federal Income Tax Aspects of the Divestiture." The foregoing discussion is for general information only and is intended to be a summary of the principal income tax considerations of the Exchange and the Divestiture. It is not intended as an alternative for individual tax planning. Each stockholder should consult his own tax adviser concerning the federal, state, local, and other tax consequences to him of the Exchange and the Divestiture. -13- THE DIVESTITURE - REASONS FOR THE The Board of Directors of the DIVESTITURE Company believes that it would be in the best interest of the Company and its stockholders to separate those activities which involve television production from its oil and gas exploration business, because the inherently different costs, benefits, risks and rewards of these businesses involve different investment considerations. - SHARES TO BE The Company will distribute DISTRIBUTED all of the Newco Stock outstanding on the Divestiture Record Date, at a Distribution Rate of one (1) share of Newco Stock for each four (4) shares of Common Stock. - DIVESTITURE RECORD DATE Close of business on May 15, 1996. - NEWCO STOCK LISTING Application will be made to list the Newco Stock on the Electronic Bulletin Board under the symbol "MARV." Newco Stock is not currently eligible for inclusion on the "Electronic Bulletin Board." No assurance can be given that the Newco Stock will ever meet the standards for inclusion on the Electronic Bulletin Board. - NEWCO DIVIDEND POLICY The Board of Directors of Newco currently does not intend to declare regular periodic dividends on shares of Newco Stock. APPRAISAL RIGHTS OF The stockholders of the STOCKHOLDERS Company do not have any appraisal rights with respect to the Reorganization under Delaware law. See "REORGANIZATION -- Appraisal Rights." The Parties --- ------- -14- THE COMPANY The Company is currently engaged primarily in the production of traditional television programming but, prior to determining to effect the Reorganization, had determined to change its business to the creation, publishing and distribution of health-themed information for the general public through print and electronic media. CHENIERE Cheniere is a start-up company formed to engage in the exploration for and exploitation of oil and gas. NEWCO Newco is a newly-formed subsidiary of the Company that has been assigned the assets of the Company, subject to liabilities, relating to its television production business. VOTING AT THE SPECIAL MEETING REVOCABILITY OF PROXY Execution of the enclosed Proxy will not affect a stockholder's right to attend the Special Meeting and vote in person. If your Proxy is properly signed, received by the Company and not revoked by you, the shares to which it pertains will be voted at the Special Meeting in accordance with your instructions. If a stockholder does not return a signed Proxy, his or her shares cannot be voted by proxy. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by delivering to the Company a written notice of revocation or duly executed proxy bearing a latter date or by attending the meeting and voting in person. PERSON MAKING THE SOLICITATION The cost of soliciting Proxies will be borne by the Company. In addition to solicitation by mail, the Company will request banks, brokers and other custodians, nominees and fiduciaries to send proxy material to the beneficial owners and to secure their voting instructions if necessary. The Company, upon request, will reimburse them for their expenses in so doing. Officers and regular employees of the Company may solicit Proxies personally, by telephone or telegram from some stockholders if Proxies are not received promptly, for which no additional compensation will be paid. -15- VOTING SHARES AND VOTE REQUIRED On the Record Date, the Company had 1,802,859 shares of Common Stock outstanding. Each share of Common Stock is entitled to one vote on each matter presented at the Special Meeting. Directors are elected by the affirmative vote of a plurality of the shares present in person or by proxy. In all other matters other than the election of directors, the affirmative vote of a majority of shares present in person or by proxy is required to approve the matter under consideration. Under the law of Delaware, the Company's state of incorporation, "shares present" at a meeting of stockholders and entitled to vote are determinative of the outcome of the matters subject to vote. The affirmative vote of a majority of the outstanding shares of Common Stock entitled to vote thereon is required to approve the proposed amendment and restatement of the Company's certificate of incorporation, including the amendments with respect to changes relating to the Exchange, and to approve the Divestiture. An abstention from voting on a matter by a stockholder present in person or by proxy and entitled to vote has the same effect as a vote "AGAINST" the proposal. Broker non-votes will not be considered "shares present" based on the Company's understanding of state law requirements and the Company's certificate of incorporation and bylaws and will not affect the outcome of the vote. Unless specified otherwise, the Proxy will be voted (i) FOR the Reorganization, (ii) FOR the amendment and restatement of the Company's certificate of incorporation to (a) change the authorized capital stock of the Company by changing the number and par value of the Common Stock and creating a new class of preferred stock, (b) change the name of the Company, and (c) limit the liability of directors and provide for indemnification of the Company's officers and directors to the fullest extent permitted by Delaware law, (iii) FOR the election of the three (3) nominees of Cheniere to serve as directors of the Company until the next Annual Meeting and until their successors are duly elected and qualified, and (iv) FOR the Divestiture. In the discretion of the Proxy holders, the Proxies will also be voted for or against such other matters as may properly come before the Special Meeting. Management is not aware of any other matters to be presented for action at the Special Meeting. If the Proposals in respect of the Reorganization and the changes in the Company's capitalization are approved, the Company and Cheniere may, but are not required to, proceed to consummate the Exchange, regardless of whether the stockholders approve the other aspects of the Reorganization. It should also be noted that notwithstanding approval of the Divestiture by the stockholders, the Board of Directors may determine, at any time prior to the consummation of the Divestiture, to terminate the Divestiture and not distribute the Newco Stock to the -16- stockholders of the Company, if, in their judgment, the distribution of the Newco Stock would not be in the best interests of the Company and the stockholders. INFORMATION CONCERNING CHENIERE GENERAL Cheniere is a start-up company located in Houston, Texas, that plans to operate as an independent oil and gas exploration company. It plans to participate with industry partners utilizing focused geologic concepts and advanced 3-D seismic and computer aided exploration technology, including enhanced structural and stratigraphic imaging and attribute analysis. It is anticipated that Cheniere's initial activities will be in the Louisiana transition zone, an area covering up to 5 miles north and south of the coastline. The principal office of Cheniere is at 2 Allen Center, 1200 Smith Street, 17th Floor, Houston, Texas 77002 and its telephone number is (713) 659- 1361. BACKGROUND Cheniere was incorporated in Delaware in February 1996 for the purpose of entering the oil and gas exploration business, initially on the Louisiana Gulf Coast. The principal stockholders of Cheniere are William D. Forster ("Forster") and BSR Investments, Ltd., a British Virgin Island corporation ("BSR"). During the past two years, Forster and BSR have been active in providing financing to micro and small capitalization energy companies, including Fortune Petroleum Corporation ("Fortune"), Zydeco and Harken Energy Corporation. Forster and BSR organized Cheniere to capitalize on what they perceive to be a unique opportunity to combine the use of leading edge seismic exploration techniques and the specific knowledge of the geology of the coastline (sometimes called the "transition zone") area of Louisiana possessed by Cheniere's corporate partner, Zydeco, and apply it to what they consider an unusually large prospective area of under-explored acreage in West Cameron Parish, Louisiana. For additional information about Zydeco, see "Zydeco." Forster, President & CEO of Cheniere, was an investment banker with Lehman Brothers from 1975 to 1990 (11 years as a Managing Director), initially in the oil and gas department for 7 years, and then in various other areas. In 1990, he founded his own private investment bank. In 1994, he became active again in the oil and gas business when he began to work together with BSR, a Paris-based private investment company, to provide financing for small energy companies. Together, in the course of their financing activities with Zydeco, Forster and BSR concluded that the opportunities inherent in Zydeco's latest project in West Cameron Parish, Louisiana warranted the formation of a new company and a shift to functioning as principals. Accordingly, Cheniere was formed for this purpose. THE EXPLORATION AGREEMENT On April 4, 1996, Cheniere entered into a joint venture (the "Joint Venture") with Exploration, pursuant to an Exploration Agreement dated April 4, 1996 (the "Exploration Agreement") between Cheniere -17- and Exploration. Under the Exploration Agreement, Cheniere will pay 100% of the "Seismic Costs" (as defined below) up to $13.5 million, and 50% of the excess of any such costs, to earn a 50% working interest participation in the leasing and drilling of all prospects generated by Exploration in the Survey Area (as defined below). "Seismic Costs" are defined in the Exploration Agreement to include, among others, costs of acquiring and processing seismic data, and the costs of obtaining any seismic permits (permission to shoot seismic signals), including the Seismic Permit from Louisiana discussed below. Exploration will perform all of the planning, land, geologic and interpretative functions necessary to the project and will design and oversee the acquisition and processing of seismic data, interpret results, acquire leases and generate prospects. Cheniere has the right to review all data and may elect to generate its own prospects. However, based on its assessment of Exploration's management, it is Cheniere's current intention to have Exploration generate the prospects from the Survey data (defined below). Neither party to the Joint Venture is permitted to sell or license the data without the other's approval. Since the term of the Seismic Option is for 2 years (18 months with a 6 month option to extend), it is expected that the data will remain proprietary until Exploration and Cheniere have had ample opportunity to select their prospects. Cheniere is obligated to make payments for the Seismic Costs into a joint venture account (the "Joint Venture Account") pursuant to a schedule that provides for the initial installment of $3 million to be paid no later than May 15, 1996, extended by agreement of the parties to the close of business on June 14, 1996. Subsequent payments are due on the last day of each of the months of June 30, 1996 through February 28, 1997. Under the Exploration Agreement, each payment is required to be in the amount of $1 million, except for the two payments at the end of September 1996 and February 1997 which are required to be for $2 million and $1.5 million, respectively. There is a 30-day grace period for each payment after the initial payment. In the event that Cheniere fails to make all of the subsequent payments into the Joint Venture Account, the Exploration Agreement provides for Cheniere's participation to be reduced to a level which varies according to the amount of payments Cheniere has made at the time it discontinues its payments. After paying a total of $8 million into the Joint Venture Account, Cheniere will be entitled to not less than a 25% working interest participation in the leasing and drilling of all prospects generated by Exploration in the Survey Area. See "Financing." There can be no assurance that Cheniere will be able to timely obtain financing necessary to make the scheduled payments. The Zydeco Seismic Survey in West Cameron Parish, Louisiana A principal purpose of the Joint Venture is to provide a means by which Cheniere could participate with Exploration in the first 3-D seismic survey ever to be conducted across the most westerly 28 miles of the Louisiana coastline in West Cameron parish. See "Zydeco." -18- 262 Square Mile Survey Area The 3-D seismic survey (the "Survey") will employ state of the art technology over a 5 miles area on both sides of the Louisiana coastline and will cover a combined offshore and onshore area of approximately 262 square miles (the "Survey Area"). The Survey Area lies within an area which historically has been one of the most highly prolific oil and gas provinces in the lower 48 states. However, the "transition zone", defined as the area of a few miles either side of the coastline, has also been one of the most costly and technically difficult areas from which to gather seismic data. Offshore Area -- State Waters Exclusive Permit On February 14, 1996, the State of Louisiana awarded Exploration the exclusive right (the "Seismic Permit") to shoot and gather seismic data over the 51,000 net acres of Louisiana State waters (running out to a 3 mile limit) in the western half of West Cameron Parish (the "Survey Area"). The term of the Seismic Permit is for 18 months and may be extended for an additional 6 months at Exploration's option. During this term Exploration has the exclusive right to nominate for lease sale any acreage in the covered state waters. The Survey Area, which extends 5 miles northward onshore and 5 miles southward offshore, includes an area running southward over two miles of federal waters. Exploration's seismic contractor will apply for U.S. Government permits to shoot and receive seismic signals in the two mile area. Exploration's rights regarding leases in the federal waters are not exclusive, and there can be no assurance concerning the receipt, timing and scope of these permits. Onshore Area -- Prospective Permits, Lease Options, and Farmouts Exploration has commenced discussions for the purpose of obtaining farmouts, seismic permits or lease options, with certain of the large owners of the mineral interests under the onshore portion of the Survey Area ("Onshore Area"). Exploration is also in the process of seeking to obtain seismic or lease options from the other small mineral rights owners within the Onshore Area. There can be no assurance that Exploration will be successful in obtaining such farmouts, seismic permits or lease options. -19- West Cameron Parish The Survey Area has a rich history of oil and gas exploration. In the northeast quadrant of the Survey Area, the Mud Lake and Second Bayou Fields have cumulatively produced more that 1.3 trillion cubic feet ("tcf") of natural gas to date, with more than 250 billion cubic feet ("bcf") having been produced from one bore hole. In the southwestern quadrant of the Survey Area, the West Cameron Block 17 Field in the state waters has cumulatively produced more than 980 bcf to date. However, the Survey Area has not been previously covered by any 3-D seismic survey which crosses the coastline. Farther offshore, successful exploration has resulted from the acquisition of 3-D data from seismic surveys. In 1989, a 3-D seismic survey shot by Fairfield Industries along the shallow federal waters in the western part of the Western Cameron area led to 4 new field discoveries which have cumulatively produced in excess of 1/3 of a tcf and more than 3 million barrels of oil equivalent. These volumes do not include the additions discovered from existing field extensions. There can be no assurance that the Survey Area will yield comparable discoveries of oil and gas. Data Acquisition The 3-D Survey designed by Zydeco will employ state of the art technology. Consistent use of the same type of sound source (dynamite) and receivers (hydrophones) laid out in a symmetrical array are expected to yield the highest achievable level of data accuracy with substantially reduced acquisition costs compared to conventional transition zone surveys. The design of the 3-D Survey has been led by Edward R. (Rudy) Prince, Zydeco's Vice Chairman, who was formerly CEO and a founder of Digicon Geophysical Corp., a leading seismic services company. The 3-D Survey will employ technology which has been licensed on an exclusive basis for the Louisiana transition zone from Wavefield Imaging, Inc., an advanced seismic technology company. Data Processing and Interpretation The 3-D Survey will also employ state-of-the-art seismic processing technology to achieve high-quality results. Data will be transferred daily from the field crew to Exploration's headquarters in Houston, where it will undergo processing approximating real-time. This procedure will allow Exploration to closely monitor 3-D data quality and make adjustments to the acquisition parameters if necessary. The new technology also significantly reduces the delay time between the Survey itself and ultimate drilling decisions. Exploration will routinely employ another new technology, 3-D prestack migration, designed to obtain superior quality subsurface images in spite of its reduced cost design for field data acquisition. After completing seismic processing, Exploration will also employ state-of-the-art 3-D Computer Aided Exploration (CAEX) interpretation techniques to locate and define low-risk, high potential prospects. -20- Schedule for the Joint Venture Although the 18 month-term of the Seismic Permit may be extended beyond its August 1997 expiration date for an additional six months until February 1998, Exploration presently plans to adhere to the schedule summarized below: Dates Events ----- ------ April - May 1996 Onshore Permitting and Lease Optioning July - October 1996 Conduct Seismic Survey and Simultaneously Begin Processing & Interpretation of Data Received 4th Quarter 1996 Continue Processing and Interpretation 1st Quarter 1997 Complete Interpretation and Identify Prospects 2nd Quarter 1997 Nominate and Bid Offshore Leases, and Lease Onshore 3rd Quarter 1997 Define Prospects; Propose and Contract for Drilling 4th Quarter 1997 Commence Drilling of First Set of Prospects There can be no assurance that the schedule can be met. Failure to substantially adhere to the schedule, unless the term of the Seismic Permit is extended, would materially and adversely effect the value of Cheniere's interest in the Joint Venture. Other Terms of the Exploration Agreement Under the Exploration Agreement, Exploration and Cheniere have agreed that the entire Survey Area (onshore and offshore) is an Area of Mutual Interest ("AMI") for the five years ending May 15, 2001, during which the two companies together may continue to drill, test and develop prospects within the AMI. Financing Cheniere has privately placed 200 Cheniere Shares at a purchase price of $15,000 (obtaining aggregate gross proceeds of $3 million) with certain accredited investors in an offering exempt from registration under the Securities Act of 1933 (the "Securities Act") pursuant to the safe harbor provided by Regulation D thereunder. The purpose of the offering was to raise the $3 million necessary for the initial funding required under the Exploration Agreement and to obtain the capital that is a condition under the terms of the Reorganization Agreement. Pursuant to the exchange formula provided in the Reorganization Agreement, each of the newly issued Cheniere Shares will convert into 10,000 New Shares of the Company, resulting in an effective purchase price to purchasers in the private placement of $1.50 per New Share, assuming consummation of the Reorganization. -21- The Company has made its initial $3 million funding requirement under the Exploration Agreement. The current estimate of the amount of Cheniere's remaining obligations under the Exploration Agreement is approximately $12 million consisting of (i) the remaining $10.5 million required to be paid into the Joint Venture Account in monthly installments until February 28, 1997 and (ii) an estimated $1.5 million required to satisfy Cheniere's obligation to pay 50% of the Seismic Costs in incurred by the Joint Venture in excess of $13.5 million. In addition, additional funding will be necessary to fund the costs of acquiring leases and drilling on exploration and development prospects, both within the MOI area and elsewhere. Management of Cheniere anticipates raising additional capital to fund Cheniere's obligations under the Exploration Agreement and for working capital, either through the sale of additional equity and/or debt or by the sale of a portion of its participation interest in the Joint Venture to institutional investors or other companies engaged in the oil and gas industry. In connection with its efforts to raise additional capital, management of Cheniere has begun preliminary discussions with prospective investors and has engaged an investment banking firm, knowledgeable in the oil and gas industry, to assist it in raising the required capital. The issuance of additional equity by Cheniere or the Company will further dilute the interest of stockholders in the Company to less than the 7% aggregate interest that they will hold after the Exchange. No assurances can be given that Cheniere will be able to obtain timely and sufficient additional capital to fund its obligations under the Exploration Agreement. Failure to obtain timely and sufficient additional capital would have a material and adverse effect on the business and prospects of Cheniere. Zydeco Energy, Inc. Zydeco is a Houston-based, publicly traded (NASDAQ: ZNRG), independent oil and gas exploration and service company, utilizing focused geologic concepts and advanced 3-D seismic and computer-aided exploration technology, including enhanced structural and stratigraphic imaging and attribute analysis. Zydeco's efforts are focused primarily in the Louisiana transition zone and the Timbalier Trench (Louisiana offshore waters). The management of Cheniere believes that the caliber and breadth of the professional team assembled at Zydeco is uncommon for an independent operator. In addition to its President, Sam Myers, the team includes Edward R. (Rudy) Prince, Vice-Chairman, who was a founder and former Chairman and CEO of Digicon, a leading seismic services company; Steven W. Knecht, Executive Vice President, Exploration, who has spent the last 16 years with Zydeco or its predecessor company successfully exploring, with virtually sole focus on, the Louisiana transition zone; and John W. McTigue, Jr., Vice President, Technology, who has been involved with the development of 3-D technology since the early stages, first at Shell -22- Development Company and later with GeoQuest Systems, Inc. and INEXS, Inc. In addition, after Zydeco began publicly trading in December 1996, W. Kyle Willis joined the company as its CFO. Previously he had served as Chief Financial Officer of Reunion Resources. -23- INFORMATION CONCERNING THE COMPANY Background In 1983, in connection with a reorganization plan under the Bankruptcy Code, the Company, then called All American Burger, Inc. ("AAB"), was incorporated and acquired all of the assets, franchise agreements and leasehold estate of 986 South Vermont Corporation, a California corporation ("South Vermont"). For a time, AAB engaged in franchising "fast-food" restaurants and food outlets in California, Nevada and New York under the "All American Burger", "Wee Donuts" and "Pedro's" trade names. In 1988, AAB discontinued its franchising operations. In May 1987, AAB acquired all of the capital stock of Group S Films, Inc., a California corporation ("Group S") engaged in the production and distribution of theatrical motion pictures and other programming material, in exchange for the issuance to the shareholders of Group S shares of the Company's Common Stock. As a consequence of such transaction, the former shareholders of Group S became the beneficial owners of in excess of fifty percent of the Common Stock of the Company. AAB and Group S ceased all significant business activities in the latter part of 1989. In June 1993, the Company entered into an Agreement and Plan of Reorganization pursuant to which the Company acquired all of the capital stock of BEXY Communications, Inc., a California corporation ("BEXY"), in exchange for the issuance to the sole shareholder of BEXY and its designees of 1,116,666 shares of Common Stock. As a consequence of such transaction, the sole shareholder of BEXY became the beneficial owner of in excess of fifty percent of the Common Stock of the Company, and BEXY became a wholly-owned subsidiary of the Company. The Company is in the process of dissolving this inactive subsidiary. Current Activities The current core business of the Company is the production of traditional television programming. In 1993, the Company's management determined to enter the business of creating, publishing and distributing health-themed information for the general public through print and electronic media. However, to date, no significant revenues have been generated by this business. Television Programming The television programming currently being marketed by the Company include: (1) "FEELIN' GREAT," a weekly half hour television series hosted by former "Dynasty" star John James. This twenty-six episode magazine style series helps viewers make personal lifestyle choices with timely up-to-date information. -24- (2) "HEARTSTOPPERS -- HORROR AT THE MOVIES," a two hour made-for- television tribute to the horror film genre hosted by George Hamilton. "Heartstoppers" was produced in 1993 and showcases the best horror films from Hollywood and around the world, from the early days of motion pictures to the special effects of today's graphic and thrilling horror motion pictures. "Heartstoppers" is currently being distributed in the United States by MG Perin, Inc. and internationally by International Entertainment Incorporated ("IEI"). It is a seasonal program aimed at the October/Halloween season, and marketing efforts for "Heartstoppers" focus primarily on Japan, Australia, parts of Europe and Latin America. "Heartstoppers" aired in the United States and several foreign countries in October 1993, and was recently licensed to the Sci-Fi cable network. (3) "IT'S A WONDERFUL LIFE -- A PERSONAL REMEMBRANCE," a tribute by Frank Capra Jr. to his father. Mr. Capra's tribute is in color and is approximately 15 minutes in length. The black-and-white version of "It's A Wonderful Life" follows the tribute. In 1992 the program was licensed for a period of ten years to The Walt Disney Company's Disney Channel. The program is now being distributed throughout the world by IEI. IEI has licensed the program in approximately 17 countries, including Mexico, Spain, Sweden, England, Germany and Greece. Again, the film and tribute are also seasonal programming and are marketed accordingly. The Company recently licensed the home video rights for "It's A Wonderful Life -- A Personal Remembrance" to Republic Pictures. (4) "CHRISTMAS AT THE MOVIES," a one hour special/tribute to class Christmas films, co-owned and co-produced by the Company in 1990, hosted by Gene Kelly. All American Communications, Inc. ("AAC") is the co-producer and distributor for this program. This special incorporates clips from such classic Christmas motion pictures such as "It's A Wonderful Life," "Santa Claus, The Movie," "When Harry Met Sally," "The Bells of Saint Mary's," "Meet John Doe," and "A Christmas Carol," to name but a few. As with Heartstoppers and It's A Wonderful Life, this special is focused upon a particular season of the year and is marketed accordingly. In addition to distributing the special in the United States, AAC has also licensed the special in 18 foreign countries, including Canada, the United Kingdom, New Zealand and the Philippines, as well as parts of Europe and South East Asia. (5) "VICTIMS," a half hour television pilot for a first run strip series. The pilot show re-creates survivors' personal accounts of tragic, catastrophic and unexpected events that emotionally or physically altered their lives. Such events include being the victim or target of the "system," a criminal "scam," a natural disaster, a crime or some other life changing event. The Company co-financed the pilot with First Media Entertainment, Inc. ("FME"). As a result of its investment in the pilot, the Company acquired a one-half interest in the program, and the distribution rights to "Victims." The Company has been unsuccessful in its efforts to license the program. Although the Company continues to market its film library, management does not anticipate generating significant revenues as a result of this activity. -25- Recent Business Developments In August 1994, the Company and Hammond Productions ("Hammond") entered into an agreement for the purchase by the Company from Hammond of all rights and title to "Feelin' Great." Under the terms of the agreement, the Company acquired the twenty-six half-hour episodes produced in 1994. The "Feelin' Great" television series was licensed to cable television in Canada and started airing in January 1995 on the Life Network, a new Canadian cable network. In August 1995, the Company and Hammond amended the agreement to reassign the series to Hammond in consideration for the cancellation of amounts owed to Hammond by the Company for the purchase of the series. Under the terms of the amendment, the Company will continue to have the non-exclusive right to distribute the series throughout the world. During 1995, the Company reduced the carrying value of its program library by $235,500 in order to reflect a lower of cost or market valuation on certain program inventory. In addition, the Company wrote off its $10,000 investment in the "Victims" television series. The Company's current activity in the domestic and international television market place is the continued exploitation of its non-health related programming and the marketing, on a non-exclusive basis, of the 26-episode television series entitled "Feelin' Great," now owned by Hammond. The Health Information Market The health media marketplace is divided into three main segments: (1) "Wellness," which relates to everyone who is and seeks to remain in good health; (2) "Acute care," which includes people with a short-term illness possibly requiring a short hospital stay; and (3) "Chronically ill," which are people suffering from a disease from which there is no recovery. The largest part of the health information market is the "wellness" market. The Company plans to initially develop and market products to this segment of the market. In the future, as the Company gains recognition in the health information market, it plans to expand its efforts to include the marketing of products to other market segments. Competition In the development and marketing of its diversified health media services the Company expects to compete with larger and better financed companies seeking to enter an -26- emerging industry. Companies such as Krames Publishing, Hope Publishing, Crisp Publications and Great Performance, produce, publish and distribute health- themed videos, newsletters, magazines, books, CD-ROMs and other related products. Universities and hospitals, such as the Harvard Medical School, Cornell University, the Mayo Clinic and John Hopkins Hospital, have also established themselves as providers of health-themed information to the general public. The Company anticipates being able to compete in the health information market by delivering products that are entertaining as well as informative and by marketing these products to the general public in an innovative manner. Competition in the financing, development, production and distribution of television programming is highly intense. The Company's programming competes with other first-run programming, network re-runs and programs produced by local television stations. In addition, the Company competes for the creative services of producers, technical personnel, writers and performing artists. In both areas of competition, the Company competes with companies that have been acquiring, developing, producing and distributing programs for many years, many of which have greater financial resources than those of the Company. These competitors include large television and film studios such as Paramount, MCA, and 20th Century Fox, as well as other television distribution companies such as Republic Pictures and King World Entertainment. The Company's success is highly dependent on various unpredictable factors such as the viewing preferences of television audiences. The Company's programming competes not only with other television programming, including satellite and cable programming, but also with movie theaters, pre-recorded videocassette rentals, live performances and other forms of entertainment and leisure time activities. MARKET FOR COMMON STOCK From 1989 through December 1993, there was no public trading market for the Company's Common Stock. In December 1993, the Company's Common Stock began trading on the Electronic Bulletin Board "Electronic Bulletin Board" of the National Association of Securities Dealers, Inc. ("NASD"). The following table sets forth the high and low bid prices reported on the Electronic Bulletin Board. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. HIGH LOW ---- --- Fiscal year ended August 31, 1994: First Quarter N/A N/A Second Quarter $13.50 $2.625 Third Quarter 18.00 4.50 Fourth Quarter 6.00 3.00 -27- HIGH LOW ---- --- Fiscal year ended August 31, 1995: First Quarter $ 4.00 $ 2.00 Second Quarter 4.50 3.00 Third Quarter 5.00 4.00 Fourth Quarter 6.25 4.50 HIGH LOW ---- --- Fiscal Quarter ended November 30, 1995: $7.00 $6.00 Fiscal Quarter ended February 29, 1996: $6.00 $4.00 March 1 to April 19, $4.00 $1.50 1996: On April 19, 1996 the bid price for a share of Common Stock was $1.50. The prices for the second and third quarters of fiscal 1994 are stated as if a 1 for 6 reverse stock split which took place in the fourth quarter of 1994 had taken place during the first quarter of such year. As of April 30, 1996 there were 936 record holders of the Common Stock. The Company has never paid any cash dividends on the Common Stock. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements of the Company, including the notes thereto, which appear at pages F- 3 to F-15 of this Proxy Statement. -28- Results of Operations Six Months ended February 29, 1996 Compared to the Six Months Ended February 29, 1995. License revenues from the Company's film library for the six months ended February 29, 1996 decreased $13,920 or 25%, from $56,178 in the corresponding period ended February 28, 1995. This is due to a significant decrease in first quarter revenues from recurring customers and management's focus on other revenue-producing opportunities for the Company. The costs of programs and distribution fees during the six months ended February 29, 1996 decreased $59,417 or 70%, from $84,662 in the corresponding period ended February 28, 1995. This was due to the significant amortization costs incurred in 1995. At August 31, 1995, the Company accelerated the amortization ($122,630) of its film library to reflect its estimated reduced value. Expenses during the six months ended February 29, 1996 increased $104,162, or 165%, from $63,210 in the corresponding period ended February 28, 1995. This was due to consulting fees paid to the Company's President to supervise operations, raise equity capital and pursue other business opportunities for the Company. The Company is paying $3,500 per month in consulting fees to its President. In addition, the Company incurred significant expenses in funding the start-up costs of IQL, a company owned by the Company's President and majority shareholder. In exchange for funding the start-up costs, the Company was granted an option to purchase IQL for $50,000. Fiscal 1995 Compared to 1994 Revenues from the distribution of the Company's film library showed a slight decrease of $4,574 from $130,228 in 1994 to $125,654 in 1995. Based on the continued lower than forecasted revenues of its film library, the Company re-evaluated the future market value of its program library in the fourth quarter and recorded a write-down to reflect its value at the lower of cost or market. The adjustment totaled $235,500 and was recorded in "Amortization of Film Costs" in the statements of operations. Expenses increased $33,933 from $169,182 in 1994 to $203,156 in 1995 as a result of increased consulting fees incurred in connection with the Company's entry into the healthcare film industry and funding of certain start- up costs of a Company owned by the Company's majority shareholder. The net loss of $394,633 for the year ended August 31, 1995 includes non-cash expenses of amortization of program inventories of $249,044. Distribution and advertising costs related to programs amounted to $63,087. As of February 29, 1996, the Company had cash of $101,446 and shareholders' equity of $131,588. In their report on the Company's financial statements for the fiscal year ended August 31, 1995, the Company's independent auditors stated that the Company's recurring losses -29- from operation raised substantial doubt about the Company's ability to continue as a going concern. Management of the Company believes forecasted revenues and additional equity and debt financing will be adequate to finance the Company's cash flow requirements during the balance of fiscal 1996. Management has also formulated additional plans to address the cash flow requirements of the Company, including the sale or merger of the Company and obtaining additional financing sources. Fiscal 1994 Compared to 1993 In 1993, the Company determined to change its core business from the production of traditional television programming to the production, distribution and publishing of health-themed information for the general public, through print and electronic media. In fiscal 1993, the Company's revenues were $317,946. In fiscal 1994 the Company's revenues were $130,228, a decrease of $187,718. The primary reason for the decrease in revenues was that the Company did not produce and market any new programming during fiscal 1994. The revenues generated during fiscal 1994 were a result of the continued licensing of the Company's existing film library. No revenues were generated by its health-themed information business. The film amortization expense reported during the 1994 period relates to the Company's film library. The amortization of the film library is calculated based upon the estimated revenues to be received on the film library. Distribution costs remained relatively comparable at 40% of revenues in 1994 versus 42% in 1993. Total expenses decreased $96,691, or 36% from $265,873 in 1993 to $169,182 in 1994. The primary reason for the decrease relates to a reserve on advances to former employees recognized in 1993. The Company completed production of "Heartstoppers -- Horror at the Movies" during the year ended August 31, 1993. License revenues earned during fiscal 1994 from its film library amounted to $130,228. The net loss of $213,620 for the year ended August 31, 1994 includes non-cash expenses of $122,630 from the amortization of program inventories. Distribution and advertising costs related to programs amounted to $52,036. -30- The foregoing results of operations reflect the results obtained by the television production business. Since it is currently contemplated that the Company will divest itself of this business and enter the oil and gas exploration and exploitation business, historical results will not be indicative of or comparable to results that will be achieved by the Company in the future if the Reorganization is approved. Liquidity and Capital Resources At August 31, 1995, the Company had working capital of $128,772. Development costs and operating expenses were financed through borrowings from the Company's majority stockholder and the sale of Common Stock totalling $235,966 in net proceeds. Cash flows from operations for the year ended August 31, 1995 were negative in the amount of $94,250, primarily because of lower than anticipated license revenues from the Company's film library, cost incurred in connection with the Company's entry into the healthcare film business and certain other start-up costs. During 1995, the Company borrowed approximately $35,000 from its majority stockholder to fund current operations. In addition, the Company repaid approximately $155,000 in borrowings from its majority stockholder. During September 1995, the Company sold through a private placement 85,000 shares of Common Stock for total gross proceeds of $93,500. At February 29, 1996, the Company's working capital decreased to $70,287. The Company's cash and accounts receivable are insufficient to insure the Company's continued existence as a going concern. During the period ending February 29, 1996, the Company had a negative cash flow from operating activities of $148,823. Management expects to meet its current cash requirements through license revenues, borrowings from a related party as necessary and the sale of equity. In the event that the Reorganization is not consummated and the Company has additional cash requirements, there can be no assurances that the related party will advance funds in order to meet the Company's requirements, or that the Company will be successful in selling further equity. Plan of Operation Cheniere is a start-up company and has had no operations to date other than in connection with the negotiation and execution of the Exploration Agreement with Exploration and the negotiation and execution of the Reorganization Agreement, including related financing. Following the consummation of the Exchange and the Divestiture, the only business of the Company will be the business of Cheniere. -31- Cheniere plans to operate as an independent oil and gas exploration company acting in partnership with industry participants. Cheniere intends to form alliances to utilize focused geologic concepts and advanced 3-D seismic and computer aided exploration technology, including enhanced structural and stratigraphic imaging and attribute analysis. As its initial project Cheniere has entered into a Joint Venture with Exploration to generate, develop and exploit oil and gas exploration prospects in the coastal Louisiana area. For a discussion of the Joint Venture, including Cheniere's anticipated cash requirements, see "INFORMATION CONCERNING CHENIERE." Property In August 1995, the Company leased office space from an unaffiliated third-party under a one year lease, for $1,150 per month, located at 16661 Ventura Boulevard, Suite 214, Encino, CA 91436. Following the consummation of the Reorganization, the Company will relocate its offices to Cheniere's offices in Houston, Texas. Executive Compensation The Company has paid no salaries or bonuses to its officers or directors during the fiscal years ended August 31, 1995, 1994 and 1993. Young, President & CEO and Chief Financial Officer of the Company, assumed his offices on June 30, 1993. No options were issued to the CEO of the Company during 1995. Stock Option Plan In November 1993, the Company adopted a stock option plan that covers certain key employees, consultants and directors as determined by the Board of Directors. The aggregate number of shares of Common Stock that may be issued pursuant to options granted under the Plan may not exceed 416,666. In November 1993, the Board of Directors granted nonqualified options to the Company's President and principal stockholder for the purchase of 58,333 shares of Common Stock. All of the options are currently exercisable and expire on November 11, 2003. These options are all currently exercisable at an exercise price of $0.60 per share and expire on November 11, 2003. The value of the options to purchase 58,333 shares of Common Stock held by Young at April 19, 1996, based on the bid price of $1.50 per share on such date, was $52,500. Under the terms of the Plan, the number, exercise price and other terms of options issued under the Plan may be adjusted in certain circumstances. The Company, Cheniere and Young have agreed that following the consummation of the transactions contemplated by the Reorganization, the options held by Young shall be converted into options to purchase 19,444.33 New Shares at an exercise price of $1.80 per New Share. -32- Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information concerning the beneficial ownership of the Company's outstanding Common Stock as of April 30, 1996, by each person known by the Company to own beneficially more than 5% of the outstanding Common Stock, by each of the Company's directors and by all directors and officers of the Company as a group. Unless otherwise indicated below, to the knowledge of the Company, all persons listed below have sole voting and investment power with respect to their shares of Common Stock except to the extent that authority is shared by spouses under applicable law. Percentage of Name and Address Number of Shares Class - ---- --- ------- ------ -- ------ -------- Buddy Young(1) and Rebecca Young as Trustees of the Young Family Trust 16830 Ventura Blvd., Suite 206, Encino, California 91436 1,091,333(2)(3) 58.6%(4) Steve Katten(5) 7,500 * Hathaway Productions 535 Fifth Avenue New York, NY 10017 David Leedy(6) 4,167 * 7 White Oak Scroggins, Texas 75480 All Officers and Directors as a Group (3 persons) 1,103,000 59.3% ____________________ *Less than 1% (1) Young is the President and CEO and a director of the Company. (2) An aggregate of 83,333 additional shares are held by the son and daughter of Young and their spouses for themselves and as custodians for their children. Young disclaims any beneficial ownership in such shares. (3) Includes 58,333 shares that such stockholder has the right to acquire upon exercise of stock options. -33- (4) Based on 1,802,859 shares of Common Stock outstanding as of April 30, 1996. (5) Katten is a director of the Company. (6) Leedy is the Secretary and a director of the Company. Board Meetings The Board of Directors held 5 meetings in 1995. All directors attended 75% or more of all Board of Directors' meetings. Director's Compensation The Board of Directors of the Company is comprised of Young, David Leedy and Steven Katten. Board members do not receive any compensation for serving as directors. Certain Relationships and Related Transactions From inception in 1993 through April 19, 1996, Young, an officer, director and principal stockholder of the Company, advanced funds in incremental amounts as needed to the Company for operating expenses and film productions totaling $566,301 (before repayments), represented by promissory note(s) of the Company. The advanced funds accrue interest on outstanding amounts at a rate of 8% per annum. A portion of the funds raised through equity financing have been used to reduce the debt owed by the Company to Young. As of February 29, 1996, the Company owed Young $37,208 in accrued and unpaid interest. The liability has been assumed by Newco and will be paid by Newco from available funds. As of August 31, 1995 the Company had expended $9,000 to help develop the business of International Quote Link ("IQL"), a corporation that provides investor relations services to publicly held companies utilizing the worldwide Internet, and owned and controlled by Young, in return for an option to purchase IQL for $50,000 that expires on August 31, 1996. The Company does not intend to execute this option and does not intend to have any further relationship with IQL. -34- Executive Officers The following table sets forth names, ages and offices of the Company's executive officers. Name Age Offices ---- --- ------- Buddy Young 60 President & CEO; Chief Financial Officer David Leedy 55 Secretary Young established BEXY in January 1992. From June 1983 to December 1991 Young was President and Chief Executive Officer of CST Entertainment Imaging, Inc., which is involved in colorizing black and white motion pictures. Young has been involved in the entertainment industry for more than 25 years. Mr. Leedy, prior to his retirement in 1995, was Chief Financial Officer of ReelEfx, a special effects company, and prior thereto he was Controller of Games Animations, Inc., a wholly-owned subsidiary of Viacom International, Inc. He has been chief financial officer or controller of other companies in the entertainment industry for more than 20 years. THE REORGANIZATION Background of the Reorganization Because of the significant operating losses experienced by the Company, management of the Company has been exploring various alternatives, including merging with another company and obtaining additional financing from third parties. In March 1996, the Company and Young entered into discussions with the principals of Cheniere concerning a possible transaction whereby the Cheniere Stockholders would acquire control of the Company in consideration for the outstanding stock of Cheniere. As part of these discussions, the parties discussed either liquidating the existing business of the Company or distributing it to the stockholders of the Company. Following a series of negotiating sessions, the parties entered into a non-binding letter of intent dated as of April 1, 1996 which contemplated the merger of Cheniere with and into the Company, a reverse split of the Common Stock and the distribution to the stockholders of the Company of the existing business of the Company. Thereafter, the Company and Cheniere entered into negotiations regarding the definitive terms of the transaction. -35- Under these terms, as described in greater detail elsewhere in this Proxy Statement, it is contemplated that the Cheniere Stockholders will exchange their Cheniere Shares for New Shares and Cheniere will become a wholly-owned subsidiary of the Company. In addition, it is contemplated that the Newco Stock will be distributed to the stockholders of the Company as at the Record Date. The Company previously has transferred its existing business to Newco. At a telephonic meeting of the Board of Directors of the Company held on April 16, 1996, the Board of Directors unanimously approved the Reorganization, on the terms and subject to the conditions contained in the Reorganization Agreement. It should be noted that, notwithstanding the approval of Proposal 4 by the stockholders of the Company, the Board of Directors may determine, in light of the circumstances then existing, that it would not be in the best interests of the Company and the stockholders to consummate the Divestiture. In such event the Divestiture would not occur. Recommendation of the Board of Directors By unanimous vote of the Board of Directors at its telephonic meeting on April 16, 1996, the Board determined that the Reorganization, including, without limitation, the Exchange and the Divestiture, is fair to, and is in the best interests of, the Company and its stockholders. The Board of Directors is comprised of three members, one of whom is Young, the principal stockholder of the Company. The terms of the Reorganization Agreement are the result of arm's- length negotiations among Young and the other members of the Board of Directors and Cheniere. In reaching its decision to enter into the Reorganization Agreement and recommend that the stockholders of the Company approve the Reorganization, the Board of Directors of the Company considered a number of factors, including, without limitation, the following: the Board's familiarity with the Company's business, operations and prospects; the fact that the Company's other alternatives would provide no long term solution to the Company's chronic losses from operations; the fact that the transaction would not require the Company's stockholders to give up their investment in a company engaged in the Company's existing business since in the Divestiture they would receive without the payment of additional cash consideration the stock of a company engaged in the existing business of the Company; the fact that all stockholders will share equally, in proportion to their respective holdings of Common Stock, in the benefits of the Reorganization; and the favorable prospects of the business proposed to be conducted by the Company through Cheniere following the Closing. In addition, the Board of Directors considered the possible adverse consequences of the Reorganization to the Company and its stockholders, including, without limitation, the uncertainties of entering into a new line of business that is in its initial start-up stage and the dilution of the interest of the stockholders in the Company to approximately 7% in aggregate after the consummation of the Exchange with the likelihood that additional dilution will occur as the result of additional equity financings. -36- The Board of Directors does not attach any relative weight to any of the foregoing factors. THE COMPANY'S BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE REORGANIZATION ARE FAIR TO, AND ARE IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE APPROVAL OF THE REORGANIZATION BY THE COMPANY'S STOCKHOLDERS. Cheniere's Purpose and Reasons For Participating in the Reorganization The objective of Cheniere in discussing a transaction with the Company was to provide a relatively simple and inexpensive means for giving Cheniere a presence in the public market. The management of Cheniere believe that such a presence will aid it in accessing capital to fund the growth of Cheniere's business. The Reorganization Agreement General The terms of the reorganization are contained in the Reorganization Agreement, a copy of which is attached as Exhibit A to this Proxy Statement. ------- - The description in this Proxy Statement of the terms of the Reorganization is qualified in its entirety by reference to the Reorganization Agreement. Under the terms of the Reorganization Agreement, and subject to the approval of the stockholders of the Company, (1) the Company will distribute all of the outstanding shares of Newco Stock to the stockholders of record of the Company on the Record Date and (2) the Cheniere Stockholders will transfer to the Company all of the Cheniere Shares in exchange for shares of Common Stock equal to approximately 93% of the issued and outstanding shares of Common Stock. As the result of the Exchange, the former Cheniere Stockholders will control the Company, Cheniere will become the wholly-owned subsidiary of the Company, and the business of the Company will change to the exploration for and exploitation of oil and gas. As a result of the Divestiture, Newco will no longer be a subsidiary of the Company. It will exist as an independent operating entity owned by and in approximately the same proportion as the Company prior to the Closing, having the same assets, liabilities, and business as the Company, immediately prior to the Closing. See "THE DIVESTITURE." The obligations of the Company, Young, Cheniere and the Cheniere Stockholders to effect the Reorganization are subject to the satisfaction of the conditions described below. See "Certain Terms of the Reorganization -- Conditions." -37- The Company is not aware of any regulatory requirements that must be complied with or any regulatory approval that must be obtained in order to consummate the Reorganization, other than the filing of the Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. It should be noted that (i) if the stockholders of the Company fail to adopt Proposal 4 relating to the divestiture of Newco, the Board may, but is not obligated to, determine to consummate the Exchange and the other transactions contemplated by the Reorganization Agreement, and (ii) adoption of Proposals 1 and 2 by the stockholders is necessary to consummate the Exchange. In addition, it should be noted that, notwithstanding the approval of Proposal 4 by the stockholders of the Company, the Board of Directors may determine, in light of the circumstances then existing, that it would not be in the best interests of the Company and the stockholders to consummate the Divestiture. In such event the Divestiture would not occur. Distribution of Newco Stock; Exchange of Shares The distribution of the Newco Stock to the stockholders of the Company at the Record Date will occur at the Closing which immediately follows the Special Meeting, if the stockholders approve the Reorganization and the Divestiture and all of the other conditions to the Reorganization are satisfied or waived in accordance with the Reorganization Agreement. For a discussion of the procedures to be followed in connection with the Divestiture, see "DIVESTITURE." The transfer of the Cheniere Shares in exchange for the issuance of New Shares will occur at the Closing which immediately follows the Special Meeting, if the stockholders approve the Reorganization and the proposal relating to changes in the capitalization of the Company, and all of the other conditions to the Reorganization are satisfied or waived in accordance with the Reorganization Agreement. Certain Terms of the Reorganization Conditions The obligations of the Company and Cheniere to consummate the Reorganization are subject to the satisfaction or waiver of the general condition that the stockholders of the Company approve the Reorganization at the Special Meeting, including the Exchange and the Divestiture, and all other transactions contemplated by the Reorganization Agreement, and the satisfaction of all requirements prescribed by law necessary to the consummation of the Reorganization. The obligations of the Company to consummate the Reorganization are also subject to the satisfaction or waiver of the following additional conditions: (i) the approval by -38- the Securities and Exchange Commission (the "SEC") of the Proxy Statement and the other proxy materials; (ii) the continued truth as of Closing of the representations and warranties of Cheniere and the Cheniere Stockholders made in the Reorganization Agreement and the compliance by Cheniere with all of its agreements made under the Reorganization Agreement; (iii) confirmation that no legal, administrative, arbitral, investigatory or other proceeding is pending before any court which seeks to challenge or prevent the Exchange or any transaction contemplated by the Reorganization Agreement; (iv) the receipt by the Company of all state securities or "blue sky" law permits or other authorizations necessary to issue the New Shares in the Exchange in the manner contemplated by the Reorganization Agreement; (v) the delivery by Cheniere to the Company of the written agreement of any additional Cheniere Stockholders to sell all of their Cheniere Shares to the Company on the terms and conditions set forth in the Reorganization Agreement; (vi) the confirmation by Cheniere that it has not less than $3 million in total capital, including not less than $2 million in equity capital on the Closing Date; and (vii) delivery to the Company of the legal opinion of counsel to Cheniere. The obligations of the Cheniere to consummate the Reorganization are also subject to the satisfaction or waiver of the following additional conditions: (i) the approval by the SEC of the Proxy Statement and the other proxy materials; (ii) the continued truth as of Closing of the representations and warranties of the Company and Young made in the Reorganization Agreement and the compliance by the Company with all of its agreements made under the Reorganization Agreement; (iii) confirmation that no legal, administrative, arbitral, investigatory or other proceeding is pending before any court which seeks to challenge or prevent the Exchange or any transaction contemplated by the Reorganization Agreement; (iv) the receipt by Company of all state securities or "blue sky" law permits or other authorizations necessary to issue the New Shares in the Exchange in the manner contemplated by the Reorganization Agreement; (v) amendment of the certificate of incorporation of the Company, substantially in the form set forth in the Amended and Restated Certificate of Incorporation attached to this Proxy Statement as Exhibit B; (vi) the ------- - confirmation by the Company that, as of the Closing, the Company shall have a positive net worth, not more than $100,000 in liabilities and a positive working capital; and (vii) delivery to Cheniere of the legal opinion of counsel to Company and Young. It should be noted that (i) if the stockholders of the Company fail to adopt Proposal 4 relating to the divestiture of Newco, the Board may, but is not obligated to, determine to consummate the Exchange and the other transactions contemplated by the Reorganization Agreement, and (ii) adoption of Proposals 1 and 2 by the stockholders is necessary to consummate the Exchange. Representations and Warranties In the Reorganization Agreement, the Company has made certain representations and warranties to Cheniere and the Cheniere Stockholders with respect to, among other things, the Company's organization, capitalization and authorization to enter into the Reorganization and -39- with respect to the New Shares and Young has made certain representations and warranties with respect to authorization and validity of the Reorganization Agreement. In the Reorganization Agreement, Cheniere has made certain representations and warranties to the Company with respect to, among other things, their organization and authority to enter into the Reorganization Agreement, and the Cheniere Stockholders have made certain representations and warranties to the Company with respect to, among other things, the Cheniere Shares. Expenses The Reorganization Agreement provides that fees and out-of-pocket expenses in connection with the Reorganization Agreement and the transactions contemplated thereby will be paid as follows: (i) fees and disbursements of counsel, consultants and accountants shall be paid by the party employing such person; (ii) except as otherwise provided, expenses in connection with obtaining approval of the transactions contemplated by the Reorganization Agreement by the Company's stockholders, including proxy solicitation costs, shall be paid by the Company; (iii) expenses in connection with any necessary qualifications of the New Shares under state securities or blue sky laws shall be paid by the Company; (iv) expenses in connection with the printing of the Proxy Statement and the other proxy materials and any SEC filing fees and expenses shall be divided between Cheniere and the Company; and (v) all other fees and out-of-pocket expenses incurred in connection with the transactions contemplated by the Reorganization Agreement shall be paid by the party incurring such expense. See also "THE DIVESTITURE -- Divestiture Costs." Termination and Amendment The Reorganization Agreement may be terminated at any time prior to Closing (i) by the mutual consent of the parties; (ii) by the Company or Cheniere, if there has been a material misrepresentation or breach of any warranty on the part of the other party and there is no reasonable possibility of cure of such breach prior to the Closing Date; (iii) by the Company or Cheniere, if Cheniere shall not have obtained at least $3 million in total capital, including at least $2 million in equity capital, within a reasonable time after the date of the Reorganization Agreement; or (iv) by the Company or Cheniere, if the stockholders of the Company shall not have approved the Exchange and the other transactions contemplated by the Reorganization Agreement within a reasonable time after the date of the Reorganization Agreement. Securities Act Status of New Shares Received by Cheniere Stockholders The offer and sale by the Company of New Shares to the Cheniere Stockholders in connection with the Exchange will be exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act. The New Shares received by the Cheniere Stockholders will be "restricted securities" as defined in Rule 144 under the Securities Act and cannot be resold without registration under the Securities Act or an exemption therefrom. It is anticipated that promptly after Closing, the Company will prepare and file with the SEC a registration statement registering the New Shares issued to the Cheniere Stockholders for resale under the Securities Act. -40- In addition, it is anticipated that after Closing the Company will apply to the NASD to list the New Shares for quotation on the Nasdaq SmallCap Market system. INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION AND RELATED TRANSACTIONS SIGNIFICANT STOCK OWNERSHIP Young, the President & CEO and principal stockholder of the Company (approximately 57%), will become the owner of approximately 4% of the New Shares following the consummation of the Reorganization and will own approximately 57% of the shares of Newco Stock. CONSULTING AGREEMENT; OTHER AGREEMENTS Pursuant to the Reorganization Agreement, at the Closing, Young and the Company will enter into a Consulting Agreement providing for the payment to Young of $75,000 per annum for a two-year period, pursuant to which Young will provide the Company with advice and assistance regarding the transition of ownership and shareholder relations. In addition, at the Closing, Young and the Company will enter into agreements pursuant to which Young will agree not to sell more than 10,000 New Shares per month for a nine-month period after the Closing Date and the Company will agree not to engage in a reverse stock split, other than as contemplated by the Reorganization Agreement and described herein, for an eighteen-month period after the Closing Date. At the Closing, Young will also agree to indemnify the Company, Cheniere and the Cheniere Stockholders against certain liabilities in connection with the Reorganization, including liabilities relating to taxes arising in connection with the Divestiture. OPERATION OF THE COMPANY AFTER THE CLOSING OF THE EXCHANGE After the Closing, the Cheniere Stockholders will be the principal stockholders of the Company and, in particular, BSR and Forster will each own approximately 32% of the total outstanding New Shares. Following the Divestiture, the Company will no longer have any operations and its only assets will be the Cheniere Shares. At the Closing, Young will resign his offices as President & CEO and Chief Financial Officer and as a director of the Company. It is anticipated that Forster will be elected and serve as President & CEO of the Company and that Charif Souki, the Secretary and Chief Financial Officer of Cheniere, will be elected and serve as Secretary and Chief Financial Officer of the Company. Souki is the son of Samyr Souki, the beneficial owner of BSR. ACCOUNTING TREATMENT The Exchange will be accounted for as the recapitalization of Cheniere and the issuance of stock for the net assets of the Company. -41- CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE The following summary describes the material United States federal income tax considerations applicable to the Exchange as described in this Proxy Statement. This summary applies solely to investors who hold the Cheniere Shares as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). This summary is based upon the provisions of the Code and the regulations (the "Regulations"), administrative rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. There can be no assurance that the Internal Revenue Service (the "Service") will take a similar view as to any of the tax consequences described below. No ruling has been or will be requested from the Service on any tax matters relating to the Exchange. This summary does not purport to deal with all aspects of United States federal income taxation that may be relevant to a particular holder or to certain types of holders subject to special treatment under the federal income tax laws (for example, S corporations, banks, dealers in securities, life insurance companies, tax-exempt organizations, foreign taxpayers, debtors under the jurisdiction of a court case under Title 11 of the United States Code or in a receivership, foreclosure, or similar proceeding, or an investment company as defined in Section 351(c) of the Code) or to shareholders who acquired their Cheniere Shares pursuant to the exercise of employee stock options or otherwise as compensation. In addition, the following summary does not consider the potential effect of any applicable foreign, state, local or other tax laws, or estate or gift tax considerations. This discussion is provided for general information purposes only, and is not intended as tax advice. Section 351(a) Exchange Section 351(a) of the Code sets forth the general rule that no gain or loss will be recognized by one or more persons transferring assets to a corporation solely in exchange for the corporation's stock if, immediately after the exchange, the transferors are "in control" of the transferee corporation. "Control" for this purpose is defined as the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation. The Cheniere Stockholders will receive approximately 93% of the voting power and total number of the outstanding shares of stock of the Company in exchange for their Cheniere Shares. Such exchange should therefore be treated as a transfer of the Cheniere Shares to the Company in a transaction to which Section 351(a) of the Code applies. Tax Consequences to Cheniere Stockholders The Cheniere Stockholders will not recognize gain or loss for federal income tax purposes upon their exchange of Cheniere Shares for New Shares. Each Cheniere Stockholder will have a tax basis in his New Shares received in the Exchange equal to his basis in his -42- exchanged Cheniere Shares, and will have a holding period for his New Shares received in the Exchange which will include his holding period for his exchanged Cheniere Shares. Each Cheniere Stockholder who receives New Shares pursuant to the Exchange is required by Section 1.351-3(a) of the Regulations to file with his federal income tax return for 1996 a statement that provides details relating to the property transferred and the stock received in the transaction. The Company is unable to predict whether the filing of such a statement by any person will enhance the likelihood of an audit of his federal income tax return. If the Service were to audit the federal income tax return of a person who receives New Shares pursuant to the Exchange, the Service might propose adjustments that relate to the Exchange or that pertain to unrelated matters. Tax Consequences to the Company The Company will not recognize gain or loss in connection with its receipt of Cheniere Shares in exchange for the issuance of New Shares pursuant to the Exchange. The tax basis of the Company in the Cheniere Shares that it acquires pursuant to the Exchange will equal the tax basis of such shares in the hands of the exchanging Cheniere Stockholders, and the Company will have a holding period for such shares that will include the holding period for such shares in the hands of the Cheniere Stockholders. The consummation of the transactions contemplated by the Exchange should result in an "ownership change" of the Company for purposes of Section 382 of the Code. Under Section 382, a corporation's ability to utilize existing net operating losses (as well as certain unrealized "built-in losses") to offset its income following such an ownership change is generally limited on an annual basis to a certain specified amount. However, if, following such an ownership change, the corporation does not continue its business enterprise as in place at the time of the change for a period of at least two years, the net operating (and certain built-in) losses in place at the time of such change will be disallowed in their entirety. As of August 31, 1995, the Company had net operating losses available for carryforward for federal income tax purposes equal to approximately $740,000. Since, as a result of the Divestiture, the Company will not continue its historic business enterprise following the ownership change precipitated by the Exchange, it will not be able to utilize these existing net operating losses following the Exchange. -43- The foregoing discussion is for general information only and is intended to be a summary of the principal income tax considerations of the Exchange. It is not intended as an alternative for individual tax planning. Each Cheniere Stockholder should consult his own tax adviser concerning the federal, state, local, and other tax consequences to him of the Exchange. Appraisal Rights There are no appraisal rights available to any stockholder of the Company or Cheniere in connection with the consummation of the transactions contemplated by the Reorganization under applicable Delaware law. THE DIVESTITURE Background and Reasons for the Divestiture Prior to the Reorganization, the most significant activities of the Company have consisted of marketing health information through print and electronic media, principally television. The Board of Directors has recently determined that it would be in the best interests of the Company and its stockholders to separate the oil and gas exploration activities to be acquired upon consummation of the Exchange from the Company's health information business. In particular, the Board of Directors believes that the separation will give stockholders the flexibility to analyze and deal with their investments in those respective activities separately in accordance with their investment objectives and their views of the business prospects of those respective activities. In addition, the Board of Directors believes that the separation will enable the Company and Newco to separately pursue the strategies best suited to their individual markets, goals and needs, thereby maximizing their respective business opportunities and stockholder values. The Divestiture is being submitted to stockholders for approval. See "PROPOSAL 4. DIVESTITURE OF THE EXISTING BUSINESS OF THE COMPANY." It should be noted that notwithstanding approval of the Divestiture by the stockholders, the Board of Directors may determine, at any time prior to the consummation of the Divestiture, to terminate the Divestiture and not distribute the Newco Stock to the stockholders of the Company, if in their judgment, the distribution of the Newco Stock would not be in the best interest of the Company and its stockholders. It should be noted that (i) if the stockholders of the Company fail to adopt Proposal 4 relating to the divestiture of Newco, the Board may, but is not obligated to, determine to consummate the Exchange and the other transactions contemplated by the -44- Reorganization Agreement, and (ii) adoption of Proposals 1 and 2 by the stockholders is necessary to consummate the Exchange. The Divestiture may be abandoned at any time prior to its consummation. If abandoned prior to the date of the Meeting, the decision to abandon will be made by the existing Board of Directors. However, the newly- elected Board of Directors may also determine to abandon the Divestiture. To effectuate the separation, the health information activities of the Company (including the assets and liabilities associated therewith) have been contributed to Newco pursuant to an Asset Transfer Assignment and Assumption Agreement ("Assignment Agreement") in exchange for 100 percent of the issued and outstanding shares of Newco Stock. These assets include: furniture and fixtures of $1,222, accounts receivable of $43,920, program inventory of $54,566, cash of $2,500 and other assets of $6,722, or a total of approximately $108,920. Liabilities of $84,144 were assumed by Newco in connection with the Assignment Agreement. The Assignment Agreement provides for Newco to indemnify the Company for any liabilities relating to the assets transferred by the Company to Newco or the conduct of the business of the Company prior to the Closing Date. In addition, pursuant to the Reorganization Agreement, Young has agreed to indemnify the Company, Cheniere and the Cheniere Stockholders from, among other things, tax liabilities arising from or in connection with the Divestiture. It is expected that following the Divestiture Newco will become an independent, publicly-traded company that will operate on a stand alone and self-financing basis. The senior management of Newco following the Divestiture will consist solely of Young, who is currently the sole executive officer and a director of the Company. Young will resign from all positions with the Company on closing of the Exchange. See "INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION AND RELATED TRANSACTIONS -- Operation of the Company After the Closing of the Exchange." A principal purpose of the Divestiture is to position the separate entities so that they will be able to pursue the strategies best suited to their individual markets, goals and needs. In addition, Newco will become an independent, publicly-traded company by means of the Divestiture, and the effectuation of the Divestiture will enable it to raise capital on its own. The Divestiture is intended to place Newco in a position to seek additional capital for its activities independently. Manner of Divestiture The Divestiture was approved by the Board of Directors of the Company on April 16, 1996. If Proposal 6 is approved by the stockholders at the Special Meeting, the Company will distribute to its stockholders of record as of the Record Date (the "Divestiture Record Date"), one (1) share of Newco Stock for each four (4) shares of Common Stock held at the -45- Record Date (pre-reverse split). The Divestiture will be deemed to be effective as of the Closing Date. To effect the Divestiture, the Company will transfer to U.S. Stock Transfer Company (the "Divestiture Agent") for distribution to holders of record of shares of Common Stock on the Record Date, shares of Newco Stock in proportion to their ownership of shares of Common Stock on the Record Date. No certificates or scrip representing fractional shares of Newco Stock will be issued to such stockholders of the Company. In lieu of receiving fractional shares, each holder of Shares of Common Stock who would otherwise be entitled to receive a fractional share of Newco Stock will receive one whole share if the fraction is equal to or greater than one-half, otherwise the fractional shares shall be canceled. No holder of shares of Common Stock receiving shares of Newco Stock will be required to pay any cash or consideration for the shares of Newco Stock that he will receive in the Divestiture or to surrender or exchange New Shares in order to receive shares of Newco Stock. The Divestiture will not affect the number of outstanding New Shares. Certain Federal Income Tax Aspects of the Divestiture The following summary is a general discussion of certain of the expected federal income tax consequences of the Divestiture. The summary does not discuss all aspects of federal income taxation that may be relevant to a particular stockholder of the Company in light of his personal investment circumstances or to certain types of stockholders subject to special treatment under the federal income tax laws (for example, S corporations, banks, dealers in securities, life insurance companies, tax-exempt organizations and foreign taxpayers). This summary applies solely to investors who hold their shares of the New Shares as capital assets within the meaning of Section 1221 of the Code and does not discuss any aspects of state, local, or foreign tax laws. This discussion is provided for general information purposes only, and is not intended as tax advice. Each stockholder of the Company is advised to consult his own advisor as to the specific tax consequences to such stockholder of the proposed transaction, including the application and effect of state, local, and foreign income and other tax laws. The Company has received no written opinion on any of the following matters. No ruling has been or will be requested from the Service on any matters relating to the formation of Newco or the Divestiture. The following discussion is based upon existing law, decisions, regulations, and rulings, all of which are subject to change, perhaps with retroactive effect. There can be no assurance that the Service will agree with the following discussion. Effects on the Company Under Section 351 of the Code, the contribution of the Company's assets to Newco and the assumption by Newco of the Company's liabilities will not result in the recognition of gain or loss by the Company or Newco. -46- Under Section 311(b) of the Code, the Divestiture of Newco Stock by the Company will result in the recognition by the Company of taxable gain as if the Newco Stock had been sold to the stockholders of the Company at its fair market value. Accordingly, the Company will recognize taxable gain on the Divestiture equal to the excess of the fair market value of such common stock over its adjusted basis in such stock. For federal income tax purposes, fair market value generally means the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of all relevant facts. It is not possible to predict with any certainty the fair market value of the Newco Stock to be distributed by the Company on the date it is distributed. In analogous situations, where there has been a market for stock on an over-the- counter market, as is expected here, the Service has considered the quoted selling prices on the date of the distribution (or, on the date over-the-counter sales first occurred if such date is within a reasonable period of the date of the distribution) as important evidence in determining the fair market value per share. The Company's basis in the shares of Newco Stock to be distributed equals approximately $25,000. Assuming a range of $.25 to $.50 per share for the quoted selling price of the shares of Newco Stock immediately after the Divestiture and that fair market value equals the quoted selling price, the amount of taxable gain recognized by the Company (after adjustment of such basis for such contribution as reduced by estimated taxes, fees, costs and expenses estimated to be deducted therefrom as described above) is estimated to range from $75,000 to $175,000. The Company has a net operating loss carryforward of approximately $740,000 available to offset any taxable gain arising out of the Divestiture. Accordingly, based on the above-estimated range of taxable gain to be recognized by the Company on the Divestiture, no tax liability will be incurred by the Company as a result of the Divestiture. The net operating loss limitation discussed above under "INTEREST OF CERTAIN PERSONS IN THE ORGANIZATION AND RELATED TRANSACTIONS -- Certain Federal Income Tax Consequences of the Exchange," does not apply to any divestiture gain since this gain is "built-in gain" at the time of closing. The Company believes that the net operating loss carry forwards will be sufficient to offset any tax liability arising out of the Divestiture. Effect on Stockholders of the Company The distribution to the Company's stockholders of the Newco Stock will constitute a taxable distribution for federal income tax purposes. Under Section 301(b)(1) of the Code, the amount of the distribution to each stockholder of the Company will equal the fair market value of the Newco Stock received. Under Section 301(c)(1) of the Code, this amount will be taxable as a dividend to the extent paid from the Company's current and/or accumulated -47- earnings and profits. Under Sections 301(c)(2) and 301(c)(3) of the Code, to the extent that the amount of this distribution exceeds the Company's current and accumulated earnings and profits, the distribution will first be treated as a tax-free return of capital, causing a reduction (but not below zero) in the adjusted basis of the Common Stock held by a distributee (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by such distributee on a subsequent disposition of the Common Stock), and the balance in excess of such adjusted basis will be taxed as if it were capital gain recognized on a sale or exchange of such stock. For this purpose, the Company's current earnings and profits will be computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year, and without regard to the amount of the earnings and profits at the time the Divestiture was made. Since the Company's current taxable year ends on August 31, 1996, the amount of the Company's current earnings and profits, if any, will therefore not be ascertainable until after the Divestiture. Accordingly, there can be no assurance that earnings and profits will not be substantial and that stockholders of the Company who receive Newco Stock will not be deemed to have received dividend income. The portion of the Divestiture taxable as dividend income to a corporate stockholder of the Company may be eligible for the 70% (or, in certain cases 80%) dividends-received deduction available under Section 243 of the Code, subject to certain taxable-income and holding-period requirements. However, to the extent that the corporate shareholder incurs indebtedness that is directly attributable to an investment in the stock on which the dividend is paid, all or a portion of the dividends-received deduction may be disallowed. In addition, dividend income that is not subject to the regular federal income tax as a consequence of the dividends-received deduction may be subject to the federal alternative minimum tax. CORPORATE STOCKHOLDERS OF THE COMPANY SHOULD CONSULT THEIR TAX ADVISORS TO DETERMINE HOW THE DIVIDENDS-RECEIVED DEDUCTION AND ITS LIMITATIONS MIGHT APPLY TO THEM. Corporate stockholders of the Company should also consult their tax advisors to determine whether Section 1059 of the Code, which requires corporate stockholders to reduce the basis of the stock in the case of certain extraordinary dividends, is applicable to their receipt of the Newco Stock. Under Section 1059, if a corporate holder of shares of the Company receives an "extraordinary dividend" (as defined in Section 1059) from the Company with respect to any share of such stock and has not held the underlying stock for more than two years before the dividend announcement date (i.e., the date on ---- which the Company declared, announced, or agreed to the payment of such dividend, whichever is earliest), the basis of the underlying stock must be reduced (but not below zero) by the "nontaxed portion" of such dividends. The "nontaxed portion" generally is the excess of the amount of the dividend over the taxable portion (i.e., the taxable dividend less the applicable Section 243 ---- deduction). Such a reduction in basis, generally will occur immediately before any disposition of the shares of the Company, thereby increasing any gain realized by the holder on a sale redemption or other disposition of such stock. If the reduction exceeds such stock basis, the amount of such excess also will be taxable as gain from the sale or exchange of the shares of the Company. -48- On March 19, 1996, President Clinton released a set of legislative proposals as a part of his plan to balance the federal budget. These proposals include, among other things, proposals to (i) reduce the 70-percent dividends- received deduction to 50 percent, (ii) modify the holding period requirements for corporations claiming the dividends-received deduction, and (iii) require immediate gain recognition under Section 1059 of the Code for the non-taxed portion of certain extraordinary dividends (to the extent such non-taxed portion exceeds the shareholder's basis in the underlying stock). As currently proposed, the changes to the dividends-received deduction provisions would be effective for dividends paid or accrued more than 30 days after the enactment of final legislation, and the proposed changes to Section 1059 would generally apply to distributions occurring after September 13, 1995. The Company cannot predict which, if any, of the president's proposals will ultimately become law or, if enacted into law, what the effective dates of such provisions would be. Shareholders should consider the potential effect of the President's proposals in making their investment decision. Back-Up Withholding A holder of Common Stock may be subject to "back-up withholding" at a rate of 31% with respect to certain "reportable payments," which generally include dividend payments. These back-up withholding rules apply if such holder, among other things, (i) fails to furnish a social security number or other taxpayer identification number ("TIN") certified under penalties of perjury within a reasonable time after the request therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly interest or dividends, or (iv) under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN furnished is the correct number and that such holder is not subject to back-up withholding. Any amount withheld from a payment to such a holder under the back-up withholding rules is creditable against such holder's federal income tax liability, provided the required information is furnished to the Service. Back-up withholding will not apply, however, with respect to payments made to certain persons, including corporations, tax-exempt organizations and certain foreign persons, provided their exemption from back-up withholding is properly established. If the Company does not have a Form W-9 for the back-up withholding rules apply to a stockholder, the Newco stock distribution for such stockholder will be deferred until its value can be determined and 31% thereof withheld. Listing and Trading of Newco Stock There currently is no public market for the Newco Stock. A "when- issued" trading market may develop prior to the Divestiture Date and continue until the certificates have been mailed by the Divestiture Agent. The term "when-issued" means that shares can be traded prior to the time certificates actually are available or issued. Prices at which Newco Stock may trade cannot be predicted. Until Newco Stock is fully distributed and an orderly market develops, the prices at which such stock trades may fluctuate significantly. The prices at which Newco Stock trades will be determined by the marketplace and may be influenced by a number of factors, including, among others, the depth and liquidity of the market for the Newco Stock, investor perceptions of Newco, Newco's dividend policy and general economic and market conditions. -49- Newco expects to file a registration statement on Form 10-SB (the "Registration Statement") with the SEC to register the Newco Stock under the Exchange Act. The Registration Statement will become effective by operation of law 60 days after the filing thereof, unless accelerated. After such effectiveness, Newco will be required to file annual, quarterly and other reports under the Exchange Act and comply with the SEC's proxy rules thereunder. Assuming it can fulfill and complete any prerequisites, Newco intends to apply to the NASD to have its stock listed on the Electronic Bulletin Board under the symbol "MARV". However, Newco Stock is not currently eligible for inclusion on the Electronic Bulletin Board. No assurance can be given that the Newco Stock will ever meet the requirements for inclusion on the Electronic Bulletin Board. Based on the stockholders of record of the Company as of the Divestiture Record Date, Newco initially will have approximately 936 holders of record of its Common Stock. Shares of Newco Stock distributed to the stockholders of the Company in the Divestiture, generally, will be freely transferable, except for shares received by persons who may be deemed to be "affiliates" of Newco under the Securities Act. Persons who may be deemed to be affiliates of Newco after the Divestiture generally include individuals or entities that control, are controlled by, or are under common control with, Newco and may include certain officers and directors of Newco as well as principal stockholders of Newco. Persons who are affiliates of Newco will be permitted to sell their shares of Newco Stock only pursuant to an effective registration statement under the Securities Act or an exemption from registration thereunder, such as the exemption afforded by Section 4(1) of the Securities Act and Rule 144 thereunder. DIVESTITURE COSTS The Company estimates that the printing, legal, accounting, Divestiture Agent and other fees and expenses incurred in connection with the Divestiture will be approximately $20,000. Such fees and expenses are being paid by Newco. PROPOSALS TO BE VOTED ON AT THE SPECIAL MEETING PROPOSAL 1. REORGANIZATION OF THE COMPANY The Board of Directors has unanimously approved the Reorganization of the Company as set forth in the Reorganization Agreement, including the Exchange and the Divestiture. -50- EFFECT OF APPROVAL OF THE REORGANIZATION As described above, the Exchange will result in the issuance of New Shares to the Cheniere Stockholders in exchange for their Cheniere Shares, resulting in the issuance to the Cheniere Stockholders of approximately 93% of the New Shares, being the only class of capital stock of the Company outstanding. Following the Exchange, Cheniere will become the wholly-owned subsidiary of the Company. As described above, it is contemplated that the Divestiture will result in the distribution to the stockholders of the Company as at the Record Date of all of the outstanding shares of Newco Stock, resulting in the ownership of Newco by these stockholders in proportion to their ownership on the Divestiture Record Date of shares of Common Stock. The combined effect of the Exchange and the Divestiture will be to change the business of the Company from the film and health information businesses to the business of exploring for and exploiting oil and natural gas. It should be noted that, notwithstanding the ability of the Company and Cheniere to waive conditions to consummating the Closing of the Reorganization under the Reorganization Agreement, the approval of Proposal 2 by the stockholders of the Company with respect to the amendment to the certificate of incorporation is a necessary prerequisite to the consummation of the Exchange since without it the Company does not have sufficient authorized shares of Common Stock to effect the Exchange in accordance with the terms of the Reorganization Agreement. It should also be noted that it is necessary but not sufficient for the stockholders to approve this Proposal 1 in order to effect the Divestiture. It is also necessary that the stockholders approve Proposal 4. In the event that the stockholders adopt this Proposal 1 and Proposal 2 relating to certain changes in the capitalization of the Company, the Board of Directors may, but are not required to, proceed with the Exchange and not consummate the Divestiture. In addition, it should be noted that, notwithstanding the approval by the stockholders of this Proposal 1 and Proposal 4, the Board of Directors of the Company may determine not to consummate the Divestiture if they determine, in light of the circumstances then existing, that to do so would not be in the best interests of the Company and the stockholders. PROPOSAL 2. AMENDMENTS TO CERTIFICATE OF INCORPORATION RELATING TO CHANGE IN CAPITALIZATION The Company's Board of Directors has unanimously approved the following amendments to the Company's certificate of incorporation: to (a) change the aggregate number of authorized shares of capital stock of the Company from 25,000,000 shares of Common Stock, -51- $.01 par value per share (the "Old Shares"), to a total of 21,000,000 shares, comprised of 20,000,000 shares of Common Stock, $.003 value per share (the "New Shares") and 1,000,000 shares of preferred stock, the rights, powers and preferences of which will be set by resolution of the Board of Directors; and (b) provide that each three (3) outstanding Old Shares shall be automatically converted into one (1) New Share. For the reasons set forth below and elsewhere in this Proxy Statement, the Board of Directors has determined that it is in the best interests of the Company and its stockholders to amend the certificate of incorporation of the Company to effect those changes in the capitalization of the Company and recommends that shareholders vote for the proposal to amend the certificate of incorporation. EFFECT OF THE PROPOSED AMENDMENT If the stockholders adopt the proposed amendment to the certificate of incorporation, the aggregate number of New Shares held by existing shareholders will be one-third of the number of Common Shares currently held by them. Approval of this Proposal 2 is a necessary prerequisite to give effect to the Reorganization, including the Exchange. Fractional New Shares will be issued as necessary, rounded to the nearest hundredth of a share (.01) to give effect to the Reverse Split. Although the Company is not currently contemplating an offering of the preferred stock, it is the current intention of the Company that shares of the preferred stock will be issued in connection with corporate finance transactions. However, because of the ability of the Board of Directors of the Company to set by resolution of the Board, the rights, powers and preferences of the preferred stock, it should be noted that the preferred stock could be utilized as an antitakeover device, causing a potential purchasers of the Company's capital stock to incur additional costs and otherwise discourage a potential bidder for the Common Stock. Moreover, because of this antitakeover effect, the existence of the "blank check" preferred could negatively impact upon the value of the New Shares. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock as of the Record Date is required for adoption of the proposed Amended and Restated Certificate of Incorporation. Exhibit B to this ------- - Proxy Statement contains a complete copy of the proposed Amended and Restated Certificate of Incorporation, including the amendment with respect to the change in the capitalization. PROPOSAL 3. AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY The Board of Directors of the Company unanimously recommends approval by the stockholders of the amendment to the certificate of incorporation to change the name of the Company to "Cheniere Energy, Inc." -52- The Board of Directors believes that the change in the name of the Company will be consistent with the name identifying the Company's operating subsidiary and will provide the Company with greater recognition in the marketplace. Exhibit B to this Proxy Statement contains a complete copy of the ------- - proposed Amended and Restated Certificate of Incorporation, including the amendment with respect to the change of name of the Company. PROPOSAL 4. DIVESTITURE OF THE EXISTING BUSINESS OF THE COMPANY The Board of Directors of the Company unanimously recommends approval by the stockholders of the Divestiture of the existing business of the Company by distribution of the outstanding shares of Newco Stock to the stockholders of the Company as at the Divestiture Record Date. For the reasons set forth below and elsewhere in this Proxy Statement, the Board of Directors has determined that it is in the best interests of the Company and its stockholders to distribute to its stockholders the Newco Stock. Effect of Divestiture The effect of the Divestiture will be to separate the existing business of the Company from the new oil and gas exploration and exploitation business that will be acquired upon consummation of the Exchange. Each stockholder of the Company as of the Divestiture Record Date will receive one (1) share of Newco Stock for each four (4) shares of Common Stock. No fractional shares of NEWCO Stock will be issued. After the consummation of the Divestiture, Newco will be a separate entity owned by the stockholders of the Company as of the Divestiture Record Date and operated by Young, the current President and CEO of the Company. It should be noted that, notwithstanding the approval by the stockholders of Proposal 1 and this Proposal 4, the Board of Directors of the Company may determine not to consummate the Divestiture if they determine, in light of the circumstances then existing, that it would not be in the best interests of the Company and its stockholders to consummate the Divestiture. In such event, the Divestiture would not occur. PROPOSAL 5. AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO LIMIT THE LIABILITY AND PROVIDE INDEMNIFICATION The Company is a Delaware corporation. Section 145 of the Delaware General Corporation Law generally provides that a corporation is empowered to indemnify any person who is made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was a director, officer, employee or agent of the company or is or was serving, at the request of the company, in any of such capacities of another corporation or other enterprise, if such director, officer, employee or agent acted in good faith and in a manner he reasonable believed to be in or not opposed to the best interests of the company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct -53- was unlawful. This statute describes in detail the right of a Delaware company, such as the Company, to indemnify any such person. The Board of Directors of the Company unanimously recommends approval by the stockholders of the adoption of the amendment to the certificate of incorporation to limit the liability of the directors of the Company and to provide indemnification of the officers and directors of the Company to the fullest extent permitted under Delaware law. EFFECT OF ADOPTION The effect of adoption of this proposal will be to provide significant protection to individuals who serve as directors and officers of the Company and encourage individuals possessing the skills and abilities required by the Company in conducting its business to accept such offices. Exhibit B to this Proxy Statement contains a complete copy of the ------- - proposed Amended and Restated Certificate of Incorporation, including the amendment with respect to the limitation of liability of directors and the provision of indemnification for the officers and directors of the Company. PROPOSAL 6. ELECTION OF DIRECTORS NOMINEES FOR ELECTION Three (3) persons have been nominated by the Cheniere Stockholders to serve as directors until the 1997 Annual Meeting of Stockholders and until their successors have been elected and qualified. Following the consummation of the Exchange, all of the existing members of the Board of Directors will resign. Accordingly, the nominees named below, if elected, will constitute the entire Board of Directors of the Company. Unless otherwise directed by a stockholder in his Proxy, the persons named in the Proxy will vote for the election of the nominees named below. It is not anticipated that any of the nominees will be unable to serve on the Board of Directors, but if for any reason any nominee should not be able to serve, it is intended that the persons named in the Proxy will vote for a new nominee to be selected by the Board of Directors. The Board of Directors has no separate nominating committee. The Board of Directors will consider nominations by stockholders for persons to serve as directors, subject to the terms of the Company's by-laws and applicable state laws and rules and regulations of the Securities and Exchange Commission. Set forth below are the names, ages and background of each nominee: BACKGROUND AND EXPERIENCE William D. Forster, 49, is currently President and CEO of Cheniere. If the stockholders approve the Reorganization, it is contemplated that Cheniere will become a wholly- -54- owned subsidiary of the Company as more fully described below. Forster was an investment banker with Lehman Brothers from 1975 to 1990 (11 years as a Managing Director), 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. In 1994, he became active again in the oil and gas business when he began to work together with BSR, a Paris-based private investment company, to provide financing for small energy companies. He is a director of Equity Oil Company, a Nasdaq National Market System company. From July 1995 to March 1996, he was a director of Fortune, a small oil and gas company listed on the American Stock Exchange. He holds a Bachelor of Arts degree from Harvard College and a Master of Business Administration degree from Harvard Business School. Charif Souki, 43, is currently the Secretary and Chief Financial Officer of Cheniere and an independent investment banker and investor with twenty years of experience in the industry. In the past few years he has specialized in providing financing for promising microcap companies with an emphasis on companies in the oil and gas industry. From July 1995 to March 1996, he was a director of Fortune, a small oil and gas company listed on the American Stock Exchange. He holds a Bachelor of Arts degree from Colgate University and a Master of Business Administration from Columbia University. Efrem Zimbalist, III, 48, is president and chief executive officer of Times Mirror Magazines, a division of Times Mirror Co., and vice president of Times Mirror Co. He formerly served as vice president, strategic development for Times Mirror Co. from 1993 to 1995. Previously he served as chairman and chief executive officer of Correia Art Glass, Inc., a family-owned business. He also served five years as senior engagement manager at the management consulting firm of McKinsey and Co., Inc. in Los Angeles. Mr. Zimbalist received a bachelor of arts degree in economics from Harvard College and a master's degree in business administration (with distinction) from the Harvard University School of Business Administration. -55- DESCRIPTION OF COMMON STOCK Assuming approval by the stockholders of the Company of Proposal 2 relating to changes in the capitalization of the Company, the authorized capital stock of the Company will consist of 21,000,000 shares (20,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock) of which 8,843,375 shares of Common Stock will be issued and outstanding after giving effect to the transactions contemplated by the Reorganization. The holders of Common Stock are entitled to dividends after distributions if, as and when declared out of funds available therefor. Every share of Common Stock is entitled to one vote on any matter to be voted upon by the holders of Stock. There are no cumulative voting rights pertaining to shares of Common Stock. Upon liquidation, each share of Common Stock is entitled to share equally in any distribution available to holders of Common Stock. The Common Stock is not subject to any redemption provisions or preemptive rights. The outstanding shares of Common Stock are fully paid and nonassignable. The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer Company. ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files reports, proxy reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be inspected and copies made at the public reference facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and regional offices of the SEC located in the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New York 10278. Copies of this material may also be obtained by mail upon payment of the SEC's customary fees from the SEC's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. INDEPENDENT PUBLIC ACCOUNTANTS Farber & Hass examined the financial statements of the Company for the fiscal years ended August 31, 1994 and 1995. Merdinger, Fruchter, Rosen & Corso, P.C. examined the balance sheet of Cheniere as at April 15, 1996 and assisted in the preparation of the pro forma combined financial statements of the Company, including Cheniere, included herein. It is not anticipated that the accountants will be present at the ---------------------------------------------------------------------- Meeting. - -------- -56- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AFTER GIVING EFFECT TO THE REORGANIZATION Name No. of New Shares % Ownership (1) ---- ----------------- --------------- BSR Investment Ltd. 2,846,211 32.2% William D. Forster 2,846,211 32.2% Buddy Young 363,778(2) 4.1% (1) Based upon a total of 8,843,375 New Shares outstanding. (2) Includes 19,444 New Shares issuable upon the exercise of options held by Young. PRO FORMA CAPITALIZATION The following table sets forth the pro forma capitalization of the Company giving effect to all of the transactions contemplated by the Reorganization. This table should be read in conjunction with the Company's and Cheniere's statements and the pro forma combined financial statements and related notes appearing elsewhere in this Proxy Statement. Stockholders' equity: Common Stock, $.003 par value, 20,000,000 shares of Common Stock authorized; 8,843,375 shares outstanding (1) and Preferred Stock, 1,000,000 shares authorized; no shares outstanding . . . . . . . . . . . . . . . . . . $26,530 Additional paid-in capital . . . . . . . . . . . 48,743 Retained earnings . . . . . . . . . . . . . . . - - Total stockholders' equity . . . . . . . . 75,003 Total long-term debt and stockholders' equity (2) . . . . . . . . . . . . . . . . 300,000 ____________________ (1) Does not include 416,660 shares of Common Stock reserved for issuance pursuant to the Company's Plan, under which options for 19,444 shares were outstanding at April 22, 1996; or (2) The Company will have no short-term or long-term debt on a pro forma combined basis. -57- GENERAL The Company's Annual Report on Form 10-KSB for the year ended August 31, 1995 accompanies this Proxy Statement, together with a Letter to Stockholders from the Company President. These materials do not form any part of the material for the solicitation of Proxies. OTHER BUSINESS As of the date of this Proxy Statement, the Board of Directors is not aware of any business to be presented for action at the Special Meeting except as set forth herein. However, if any other matters properly come before the Special Meeting, the persons named in the enclosed Proxy will vote upon such matters in accordance with their best judgment. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY By Order of the Board of Directors David Leedy, Secretary -58- FINANCIAL STATEMENTS TABLE OF CONTENTS Page ---- THE COMPANY --- ------- AUDITED FINANCIAL STATEMENTS: Independent Auditors' Report F-3 Balance Sheet as at August 31, 1995 F-4 Statements of Operations for the Two Years Ended August 31, 1995 F-5 Statements of Shareholders' Equity for the Two Years Ended August 31, 1995 F-6 Statements of Cash Flows for the Two Years Ended August 31, 1995 F-7 Notes to Financial Statements F-9 UNAUDITED FINANCIAL STATEMENTS: Balance Sheet as at February 29, 1996 F-12 Statements of Operations for the Three and Six Month Periods Ended February 29, 1996 and February 28, 1995 F-13 Statements of Cash Flows for the Six Month Period Ended February 29, 1996 and February 28, 1995 F-14 Notes to Financial Statements F-15 F-1 CHENIERE -------- AUDITED FINANCIAL STATEMENTS: Independent Auditors' Report F-16 Balance Sheet as at April 22, 1996 F-17 STATEMENT OF INCOME (Inception) February 21, 1996 to April 22, 1996 F-18 STATEMENT OF CASH FLOWS (Inception) February 21, 1996 to April 22, 1996 F-19 STATEMENT OF SHAREHOLDERS' EQUITY (Inception) February 21, 1996 to April 22, 1996 F-20 NOTES TO FINANCIAL STATEMENTS F-21 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS: Pro Forma Condensed Combined Balance Sheet Unaudited F-23 Notes to Unaudited Pro Forma Condensed Combined Financial Information F-24 F-2 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Bexy Communications, Inc.: We have audited the accompanying balance sheet of Bexy Communications, Inc. (the "Company") as of August 31, 1995. We have also audited the statements of operations, shareholders' equity and of cash flows for the two years ended August 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at August 31, 1995, and the results of its operations and its cash flows for each of the two years ended August 31, 1995 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Farber & Hass November 9, 1995 F-3 BEXY COMMUNICATIONS, INC. BALANCE SHEET AUGUST 31, 1995 ASSETS CASH $ 114,134 ACCOUNTS RECEIVABLE 63,200 PROGRAM INVENTORY, Net 55,456 FURNITURE AND FIXTURES - Net of accumulated depreciation of $2,564 956 OTHER ASSETS 6,722 ---------- TOTAL ASSETS $ 240,468 =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Accounts payable and accrued expenses $ 36,310 Accrued interest expense to related party 42,189 Note payable to related party 7,519 Deposits 2,000 Deferred income 16,000 ----------- Total liabilities 104,018 ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, par value - $.01, 25,000,000 shares authorized, 1,558,947 issued and outstanding 133,654 Contributed capital 992,831 Accumulated deficit (943,361) Notes receivable from shareholders (46,674) ---------- Total shareholders' equity 136,450 ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 240,468 ========== See accompanying notes to financial statements. F-4 BEXY COMMUNICATIONS, INC. STATEMENTS OF OPERATIONS FOR THE TWO YEARS ENDED AUGUST 31, 1995 1995 1994 ---- ---- REVENUES $ 125,654 $ 130,228 --------- --------- COST OF PROGRAMS AND DISTRIBUTION FEES: Amortization of film costs 254,044 122,630 Distribution fees 63,087 52,036 --------- --------- Total cost of programs and distribution fees 317,131 174,666 --------- --------- EXPENSES: Advertising 2,300 22,552 General and administrative 65,227 54,227 Depreciation 1,208 850 Interest 9,593 10,167 Professional fees 108,315 60,105 Rent 16,513 21,281 --------- -------- Total expenses 203,156 169,182 --------- -------- NET LOSS $(394,633) $(213,620) ========= ========= NET LOSS PER SHARE $ (.27) $ (.17) ========= ========= See accompanying notes to financial statements. F-5 BEXY COMMUNICATIONS, INC. STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE TWO YEARS ENDED AUGUST 31, 1995