ITEM 1. BUSINESS
GENERAL
Transmedia Network Inc., through its operating subsidiaries (collectively, the "Company"), owns and markets a charge card ("The Transmedia Card") offering savings to the Company's cardmembers on dining costs for restaurants both within and outside the United States from which the Company, its franchisees and its licensees have purchased food and beverage credits. The Company also offers to holders of The Transmedia Card savings on lodging costs at selected hotels, resorts, golf courses and ski lifts around the country and on purchases of merchandise from selected retailers. The Company's cardholders also have access to discount long distance telephone services through a program the Company operates jointly with a subsidiary of General Electric Company. The Company derives its income principally from retaining the difference between the amounts paid in advance by the Company to restaurants and amounts paid by cardmembers to the Company (through their credit card companies) for the related meals and from cardmember membership fees. The Company also enters into contracts with companies which own hotels, golf courses and ski lifts as well as merchandise retailers. In exchange for listing in the Company's directory, the Company receives commissions when Transmedia cardholders frequent these establishments. The Company also receives commissions when cardholders use their Transmedia/GE Capital telephone cards. The Company derives income from franchising and licensing The Transmedia Card and related proprietary rights and know-how, including rights to solicit restaurants, hotels, resorts and motels and acquire food, beverage and lodging credits, in the United States. The Company also receives revenue from licensing The Transmedia Card and related proprietary rights and know-how outside the United States.
CORPORATE STRUCTURE
The Company commenced operations in 1984 and was reincorporated as a Delaware corporation in 1987. Currently, it has the following principal operating subsidiaries:
/bullet/ Transmedia Service Company Inc. which is responsible for soliciting and servicing all cardmembers in the United States and for all domestic franchising of The Transmedia Card and related property rights and know- how.
/bullet/ Transmedia Restaurant Company Inc. which is responsible for obtaining and servicing restaurants and obtaining other locations
such as hotels, golf courses and ski lifts and retailers where the Transmedia Card may be used.
/bullet/ TMNI International Incorporated which licenses the Transmedia Card, service marks, proprietary software and know-how outside the United States and has licensed rights to Europe, Turkey, the countries comprising the former Union of Soviet Socialist Republics, Australia, New Zealand and the Asia-Pacific region to date.
DESCRIPTION OF RIGHTS TO RECEIVE AND THE TRANSMEDIA CARD
The Company's primary business is the acquisition of Rights to Receive from participating establishments which are then sold for cash to holders of The Transmedia Card. "Rights to Receive" are rights to receive goods and services, principally food and beverages, which are acquired and purchased from participating restaurants, for an amount equal to approximately fifty percent (50%) of the food and beverage credits or by financing the purchase of other goods or services as well as for having provided advertising and media placement services to the participating establishments. Approximately ninety percent (90%) of Rights to Receive are purchased for cash. The Company typically purchases that amount of food and beverage credits which will be consumed in a period of no more than six months; however, it has not always been possible for the Company to predict with accuracy the amount of time in which such credits will be consumed, especially when the Company begins operating in new areas, as evidenced by the 1996 turn on Rights to Receive of 1.42 times, or 257 days.
The Transmedia Card is only issued to applicants who are determined to be creditworthy by virtue of their having a current, valid MasterCard, Visa, Discover or American Express credit card or who are otherwise deemed creditworthy by Company management. The Transmedia Cardmembers have a choice of programs, including a "Free for Life" Transmedia Card which affords them 20% savings at participating establishments, an account which offers mileage credits with Continental Airlines, Delta Airlines and United Airlines of 10 miles for each dollar spent on food and beverage at participating establishments for a one-time fee of $9.95, and a card which offers a 25% savings at participating establishments, for which there is a $50 annual fee. Each account may have more than one user and, accordingly, more than one cardmember.
In presenting The Transmedia Card, cardmembers sign for the goods or services rendered, as well as for the taxes and tips as they would with any other charge card. The Company, upon obtaining the receipt (directly or via electronic point of sale transmission) from the appropriate establishment, gives the establishment credit against Rights to Receive which are owned by the Company. The Company then (i) processes the receipt through the cardmember's MasterCard, Visa, Discover or American Express card
account, which remits to the Company the full amount of the bill, and (ii) credits to the cardmember's MasterCard, Visa, Discover or American Express account the appropriate discount or credits to the cardmember's airline account the appropriate mileage. Taxes and tips are not discounted and such sums are remitted to the various establishments.
DOMESTIC FRANCHISING
In 1990, the Company commenced franchising The Transmedia Card (then known as The Restaurant Card) and related proprietary rights and know-how, including rights to solicit restaurants and acquire Rights to Receive, in the United States. At September 30, 1996, the Company had franchises in the following territories: a large part of New Jersey, California, the Washington, D.C./Baltimore, Maryland Metropolitan area, Dallas, Ft. Worth and Houston, Texas, the States of Virginia, North Carolina, South Carolina, Washington and Oregon and Atlanta, Georgia, eastern Tennessee, Reno, Nevada and the Nevada side of Lake Tahoe. The Company has also granted a certain third party an option to acquire a franchise for the State of Hawaii. The Company has determined that it will no longer offer franchises at various locations throughout the United States. In November 1996, the Company entered into an agreement to terminate the franchise and to purchase certain of the assets of The Western Transmedia Company, Inc., the Company's franchisee in the States of California, Nevada, Oregon and Washington. After the completion of this transaction (which is expected to occur in January 1997), the Company will operate in these States directly.
Each franchise sold by the Company is operated under a ten year franchise agreement that is renewable for one additional ten-year term for all locations. Each agreement provides that the Company will assist the franchisee with marketing, advertising, training and other administrative support; relates to a territory that contains 625 or more full-service restaurants that accept MasterCard, Visa, Discover or American Express credit cards; and licenses the franchisee to use the Company's trademarks in connection with the solicitation of new cardmembers (which is not restricted to the franchisee's territory) and the purchase of Rights to Receive from restaurants in the territory granted to the franchisee. The franchisee is responsible for, among other things, soliciting cardmembers and participating establishments, purchasing Rights to Receive from participating establishments in its territory, and maintaining adequate insurance. In consideration for the grant of the franchise, the franchisee (i) paid to the Company a franchise fee which varies based upon the number of full-service restaurants located within the territory granted to the franchisee, and (ii) pays the following continuing fees during the term of the franchise agreement: (A) 7 1/2% of the total meal credits used within the franchisee's territory; (B) 2 1/2% of the total meal credits sold within the franchisee's territory into the Company's advertising and development fund; (C) a processing fee of $.20 per sales transaction from the franchisee's territory; and (D) a monthly service charge of $1.00 per participating establishment in the
franchisee's territory. The franchisee receives a commission from the Company equal to forty percent (40%) of the membership fees paid by all new cardmembers solicited by the franchisee, with a minimum of $5.00 per account.
U.S. LICENSING
In November, 1995, the Company entered into a license arrangement under which the licensee was authorized to solicit Rights to Receive from various types of resorts, hotels and other entities. The territory covered by the license agreement is the continental United States, excluding the State of Minnesota. The term of this arrangement is ten years, with a potential renewal period of ten years. Under this arrangement, the Company compensates the licensee through a commission.
NON-U.S. LICENSING
In 1993, the Company commenced licensing The Transmedia Card and related proprietary rights and know-how outside the United States. The Company's non-U.S. operations are conducted by its subsidiary, TMNI International Incorporated. In 1993, the Company granted an exclusive, perpetual license to Transmedia Europe, Inc. to establish the Company's business in Europe, Turkey and the countries that formerly comprised the Union of Soviet Socialist Republics. The license is governed by a Master License Agreement which provides that, among other things, (i) the licensee has the right to sublicense the rights granted under the Master License Agreement to others within the territory, provided that each such sublicense is approved by the Company, (ii) the Company will assist the licensee with training relating to sales, administration, technical and operations of the business, and (iii) the licensee is solely responsible for developing its own market, paying its own expenses for advertising and soliciting cardmembers and participating establishments in its territory. In consideration for the license, the licensee (i) paid the Company a non-refundable purchase price of One Million One Hundred Twenty-Five Thousand ($1,125,000) Dollars, (ii) will pay to the Company two percent (2%) of the gross volume with respect to the United Kingdom sublicense, (iii) will pay to the Company twenty-five percent (25%) of initial sublicense fees (with a minimum of $250,000) paid for each country licensed in the territory, (iv) will pay to the Company twenty-five percent (25%) of royalties paid by sublicensees to the licensee, and (v) granted to the Company a five percent (5%) equity interest in the licenses. Melvin Chasen, the Chairman and Chief Executive Officer of the Company, served as a director of the licensee until March 1, 1995. In December 1996, Transmedia Europe Inc. amended the sublicense it had granted for France and expanded the sublicensee's territory to include Belgium and Luxemborg, Italy, Spain and Switzerland (other than the German speaking area).
In 1994, the Company granted an exclusive perpetual license to Transmedia Asia Pacific Inc. to establish the Company's business in Australia, New Zealand and the Asia-Pacific region (such region covering approximately 16 major countries and areas including, among others, Japan, Hong Kong, Taiwan, Korea, the Philippines and India). The licensee also took an option to purchase a franchise for the State of Hawaii. The license granted by the Company is governed by a Master License Agreement which provides, among other things, that (i) the Company will assist the licensee with training relating to sales, administration, technical and operations of the business, and (ii) the licensee is solely responsible for developing its own market, paying its own expenses for advertising and soliciting cardmembers and restaurants in its territory. In consideration for the license, the licensee paid the Company $1,250,000, and (ii) granted to the Company a five percent (5%) equity interest in the licensee. The license also provides for the following payments to the Company: (i) With respect to sublicenses granted in all territories other than Australia and New Zealand, the licensee will pay to the Company twenty-five percent (25%) of all initial sublicense fees (in no event less than $500,000 in the People's Republic of China and Japan, and not less than $250,000 in all other territories), as well as twenty-five percent (25%) of all royalties, transfer fee payments and any other monies received; and (ii) with respect to sublicenses granted in Australia and New Zealand, the licensee will pay to the Company two percent (2%) of gross sales within such territories. Mr. Chasen served as a director of Transmedia Asia Pacific Inc. until March 1, 1995.
In December 1996, the Company entered into an agreement with Transmedia Europe, Inc. and Transmedia Asia Pacific Inc. amending both of the licenses, among other things, to permit the companies to be reorganized under one entity and to allow them to acquire and operate worldwide the business of Countdown plc., which conducts a restaurant discount program in Europe and, to a lesser extent, in the United States.
AREAS OF OPERATION
The Company's principal areas of operation, through its subsidiaries and its domestic franchising operations, include the New York Metropolitan area (consisting of New York City and the counties of Nassau, Suffolk, Westchester, Rockland, Putnam and Orange in New York State, Northern New Jersey and Connecticut); Central, Southwest and Southeast Florida; Massachusetts; the Chicago, Illinois Metropolitan area; Rhode Island; New Hampshire; Maine; Vermont; Philadelphia, Pennsylvania; Phoenix, Arizona; Denver, Colorado; Milwaukee, Wisconsin; Indianapolis, Indiana; California; Delaware; Georgia; the Washington, D.C. Metropolitan area; the Baltimore, Maryland Metropolitan area; North and South Carolina; the Dallas,/Ft. Worth and Houston, Texas Metropolitan areas; Atlanta, Georgia, eastern Tennessee; and Virginia.
PARTICIPATING RESTAURANTS AND CARDMEMBERS
As of September 30, 1996, directories published by the Company, which are distributed to cardmembers six times a year, listed 6,974 restaurants available to cardmembers, and The Transmedia Card was held by an aggregate of 924,418 cardmembers, comprised of 634,761 accounts with an average of 1.46 cardmembers per account. The following table sets forth (i) the number of restaurants listed in directories published by the Company and (ii) the number of cardmembers, as of the fiscal years ended September 30, 1992 though 1996:
1996 1995 1994 1993 1992 ---------- ---------- --------- --------- -------- Restaurants 6,974 5,330 3,628 2,328 1,449 - ------------------------ ---------- --------- --------- -------- Cardmembers 924,418 593,161 395,968 197,166 112,029
As the table indicates, the number of restaurants listed in directories published by the Company has risen nearly three hundred eighty-one percent (381%) during the fiscal years ended September 30, 1992 through September 30, 1996, and the number of cardmembers has risen nearly seven hundred twenty-five percent (725%) for the same period. In fiscal 1996, between fifty-five and sixty percent (55-60%) of all cardmembers renewed their memberships, and approximately ninety percent (90%) of all restaurants listed in the directories published by the Company whose initial amount of Rights to Receive were expended in 1996 renewed their contracts with the Company. In addition, eighty percent (80%) of all restaurants eligible for their second year of renewals in fiscal 1996 renewed their contracts. The Company generally experiences a sharp decline in renewals among restaurants eligible for a third year of renewals. It has been the Company's experience, however, that the addition of new restaurants generally offsets the drop-off in renewing restaurants, and the Company believes that its service areas are not close to cardmember saturation.
MARKETING
The Company markets The Transmedia Card through the use of advertising, direct mail and through promotion with co-marketing partners such as banks and affinity groups.
EMPLOYEES
As of December 20, 1996, the Company employed 145 persons. The Company believes that its relationships with its employees are good.
COMPETITION
The charge card business is highly competitive and the Company competes for both cardmembers and participating restaurants, hotels and other applicable services. Competitors include discount programs offered by major credit card companies, such as American Express, Visa, MasterCard and Diners Club and
other companies that offer different kinds of discount marketing programs and numerous small companies which offer services which may compete with the services offered or to be offered by the Company. Certain of the Company's competitors may have substantially greater financial resources and expend considerably larger sums than does the Company for new product development and marketing. Further, the Company must compete with many larger and better established companies for the hiring and retaining of qualified marketing personnel. The Company believes that the unique features of its program -- that The Transmedia Card can be used by cardmembers at participating establishments with very few restrictions, that The Transmedia Card provides substantial savings without the need for a cardmember to present discount coupons when paying for a meal, and that participating establishments are provided with cash in advance of customer charges -- contribute to the Company's competitiveness and allow the Company to offer better value and service to its cardmembers.
ITEM 2.

ITEM 2. PROPERTIES
The Company's present executive office consists of 8,303 square feet, located in Miami, Florida, which the Company occupies pursuant to a lease expiring on February 28, 1997 and which provides for an annual base rental of $148,860. The Company's Miami office also houses the Company's cardmember service center. The Company has entered into a new lease, which commences on March 1, 1997, for 13,096 square feet, thus adding an additional 4,793 square feet of contiguous space to its current office. The lease will expire on February 28, 2002 and provides for an annual base rent of $270,825. The Company leases offices in New York City for 5,710 square feet of office space pursuant to a lease entered into in May 1996. The lease, which expires on June 30, 2001, provides for minimum annual rentals of $199,850. In addition, the Company has a four and one-half year office lease in Philadelphia, Pennsylvania for approximately 1,641 square feet, which commenced April 1, 1994. The lease provides for a base annual rental of approximately $24,500 in the first year, which will increase by approximately $800 each year thereafter. In Boston, Massachusetts, the Company has a sixty-four month lease for approximately 1,500 square feet, which commenced May 1, 1995. The lease provides for base annual rentals of $29,400. The Company has an option for one three-year renewal. In Chicago, the Company has a thirty-nine month lease for approximately 1,183 square feet, which commenced October 1, 1995. The lease provides for an initial annual lease rental of $26,730 increasing by approximately $600 each year thereafter. In Detroit, the Company leases an executive office for a twelve-month period which began on May 1, 1995 at an annual fee of $6,840. In Tampa, the Company leases an executive office for a thirteen-month period which began on June 1, 1995. The total rental for the thirteen month period is $9,795. In Phoenix, the Company leases an executive office for a thirteen-month period which began on March 6, 1996 for a total rent of $9,620 for the thirteen months. In Denver, the Company leases on a month-to-month basis, an executive office for $450 per month.
In connection with the termination of the franchise granted to The Western Transmedia Company Inc. and the acquisition of certain of its assets, the Company will be assuming ongoing leases for two office properties in San Francisco, California and Los Angeles, California. In San Francisco, California, the Company would be assuming a lease for approximately 3,000 square feet, at an annual rent of $54,686.04 from August 1, 1996 to July 31, 1997, $57,642.00 from August 1, 1997 to July 31, 1998 and $60,597.96 from August 1, 1998 to August 31, 1999. The lease expires on August 31, 1999. In Los Angeles, California, the Company would be assuming a lease for approximately 2,000 square feet at a monthly base rent of approximately $4,200. The lease expires on January 31, 1997, however, the Company intends to exercise an option to extend the lease for two years at a rental equal to market value.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
As of September 30, 1996, there were no material legal proceedings pending involving the Company.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1996, no matters were submitted to a vote of the security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME POSITION AGE - ---- -------- --- Melvin Chasen Director, Chairman of the 68 Board, President and Chief Executive Officer James M. Callaghan Director and Vice President; 57 President of Transmedia Restaurant Company Inc. Barry S. Kaplan Director and Vice President; President of Transmedia Service Company Inc. 38 David L. Weinberg Vice President and Chief 51 Financial Officer; President of TMNI International Inc. Paul A. Ficalora Executive Vice President 45 of Transmedia Restaurant Company Inc. Gregory Borges Treasurer 60 Kathryn Ferara Secretary 40
Mr. Chasen has been a director and the Chairman of the Board, President and Chief Executive Officer of the Company since 1983. From 1984 through 1987, he was a director, Chairman of the Board, President and Chief Executive Officer of Transmedia Network Inc., a Colorado corporation, which was the predecessor of the Company.
Mr. Callaghan, a director of the Company since 1991, was elected Vice President of the Company and President of Transmedia Restaurant Company Inc., a subsidiary, in 1994. He joined the Company in 1989 and served as its Executive Vice President, Vice President, Sales and Marketing and Treasurer.
Mr. Kaplan was elected a Vice President of the Company and President of Transmedia Service Company Inc., a subsidiary, in September 1995 and was elected a Director of the Company in March 1996. From 1986 until joining the Company, he served in various positions including Executive Vice President, Chief Operating Officer of Liberty Travel, Inc., a chain of full-service travel agencies.
Mr. Weinberg was elected Vice President and Chief Financial Officer of the Company in 1992 and in 1994 was also elected President of TMNI International Incorporated, a subsidiary. He joined the Company as Vice President Finance in 1991. From 1987 to 1991, Mr. Weinberg served as Vice President Finance and Administration, Chief Financial Officer, Treasurer and Secretary of Columbia Laboratories, Inc., a health care products company.
Mr. Ficalora was elected Executive Vice President of the Restaurant Company in 1994, having served as Vice President, Operations of the Company from 1992 until 1994, and Director of Franchise Sales from 1991 to 1992.
Mr. Borges was elected Treasurer of the Company in 1992. He joined the Company in 1985 as Controller.
Mrs. Ferara was elected Secretary of the Company in 1992. She joined the Company in 1989 as Office Manager and Assistant Secretary.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under the symbol "TMN". Prior to June 28, 1995, the Company's Common Stock was included in the Nasdaq National Market . The following table sets forth the high and low sale prices for the common stock for each fiscal quarter ended from December 31, 1994 (adjusted for the three-for-two stock split effected on April 22, 1994 and applied retroactively where appropriate) as reported on the New York Stock Exchange or the Nasdaq National Market, as well as the dividends paid during each such fiscal quarter.
The payment of dividends, if any, in the future, will depend upon, among other things, the Company's earnings and financial requirements, as well as general business conditions.
QUARTER ENDED LOW HIGH DIVIDENDS PAID - ------------- --- ---- -------------- December 31, 1994 $8.313 $13.750 $.02 March 31, 1995 8.500 13.250 -- June 30, 1995 8.000 13.250 .02 September 30, 1995 8.375 11.375 -- December 31, 1995 8.750 11.000 .02 March 31, 1996 7.125 9.750 -- June 30, 1996 7.125 9.000 .02 September 30, 1996 5.500 8.625 --
The aggregate number of holders of record of the Company's Common Stock on December 20, 1996 was approximately 2,400.
The payment of dividends, if any, in the future, will depend upon, among other things, the Company's earnings and financial requirements, as well as general and business conditions.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Omitted in accordance with Rule 12b-25(d).
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Omitted in accordance with Rule 12b-25(d).
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS
Omitted in accordance with Rule 12b-25(d).
ITEM 9.

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
* None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 is set forth under the heading "Executive Officers of the Registrant" in Part I hereof and in "Election of Directors" in the Company's 1997 Proxy Statement, which is incorporated herein by this reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 is set forth under the heading "Executive Compensation" in the Company's 1997 Proxy Statement, which is incorporated herein by this reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for in Item 12 is set forth under the heading "Security Ownership of Certain Beneficial Owners and Management" in the Company's 1997 Proxy Statement, which is incorporated herein by this reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for in Item 13 is set forth under the heading "Certain Relationships and Related Transactions" in the Company's 1997 Proxy Statement, which is incorporated herein by this reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are being filed as part of this Report:
(a)(1) Financial Statements: Transmedia Network Inc.
See "Index to Financial Statements" contained in Part II, Item 8.
(a)(2) Financial Statement Schedules
No schedules have been included because they are not applicable or the required information is shown in the Financial Statements or the Notes thereto.
(a)(3) Exhibits
DESIGNATION DESCRIPTION - ----------- -----------
2.1 Assignment and Assumption of Franchise Agreements dated September 30, 1994 between Transmedia Network Inc. and the Service Company.(1)
2.2 Capital Contribution dated September 30, 1994 by Transmedia Network Inc. to the Service Company.(1)
2.3 Trademark Contribution dated September 30, 1994 from Transmedia Network to the Service Company.(1)
2.4 Capital Contribution dated September 30, 1994 from Transmedia Network Inc. to the Restaurant Company.(1)
2.5 Administrative Services Agreement dated as of September 30, 1994 between Transmedia Service Company Inc. and Transmedia Restaurant Company Inc.(1)
2.6 Franchise Agreement dated September 30, 1994 between Transmedia Service Company Inc. and Transmedia Restaurant Company Inc.(1)
3.1 Certificate of Incorporation of the Company, as amended.(2)
3.2 Certificate of Amendment to the Certificate of Incorporation of the Company.(9)
3.3 Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on March 22, 1994.(1)
3.4 By-Laws of the Company.(3)
10.2 1987 Stock Option and Rights Plan, as amended.(1)(10)
10.3 Form of Stock Option Agreement (as modified) between the Company and certain Directors and Schedule of Options granted and outstanding (as of September 30, 1995) to such Directors pursuant to the respective Stock Option Agreements with such Directors.(10) (11)
10.4 Amended and Restated Employment Agreement dated as of November 15, 1996 between the Company and Melvin Chasen.(12)
10.5 Amended and Restated Consulting Agreement dated as of November 15, 1996 between the Company and Melvin Chasen.(12)
10.6 Employment Agreement effective April 1, 1992 between the Company and James Callaghan.(9) (10)
10.7 Amendment dated October 1, 1994, to Employment Agreement between the Company and James Callaghan.(1)(10)
10.8 Employment Agreement dated as of October 1, 1995 between the Company and Barry Kaplan. (10)(12)
10.9 Master License Agreement dated December 14, 1992 between the Company and Conestoga Partners, Inc.(8)
10.10 First Amendment to Master License Agreement dated April 12, 1993, between the Company and Conestoga Partners, Inc.(9)
10.11 Second Amendment to Master License Agreement -- Assignment and Assumption Agreement dated August 11, 1993 among the Company, TMNI International Incorporated and Transmedia Europe, Inc.(9)
10.12 Master License Agreement Amendment No. 3 dated November 22, 1993 between TMNI International Incorporated and Transmedia Europe, Inc.(9)
10.13 Master License Agreement dated March 21, 1994 between TMNI International Incorporated and Conestoga Partners II, Inc. licensing rights in the Asia Pacific region.(1)
10.14 Agreement, dated as of December 6, 1996, among the Company, TMNI International Incorporated, Transmedia Europe Inc. and Transmedia Asia Pacific Inc.(12)
10.15 Agreement, dated as of November 15, 1996 between the Company and The Western Transmedia Company Inc.(12)
21.1 Subsidiaries of Transmedia Network Inc.(1)
23.1 Consent of Independent Auditors.(13)
99.1 Prospectus of the Company dated July 10, 1992 filed pursuant to the Securities Act of 1933.(5)
99.2 Prospectus of the Company dated August 12, 1992 filed pursuant to the Securities Act of 1933.(6)
99.3 Form of Subscription Agreement.(7)
99.4 Agency Agreement dated April 9, 1992 between the Company and Janney Montgomery Scott Inc.(8)
99.5 Warrant Purchase Agreement dated June 15, 1992 between the Company and Janney Montgomery Scott.(8)
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994 and incorporated by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1988, and incorporated by reference thereto.
(3) Filed as an exhibit to the Post Effective Amendment to the Registration Statement on Form S-1 (Registration No. 33-5036), and incorporated by reference thereto.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1990, and incorporated by reference thereto.
(5) Filed as an exhibit to the Company's Registration Statement on Form S-8 (Registration No. 33-494460), and incorporated by reference thereto.
(6) Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 33-49374), and incorporated by reference thereto.
(7) Filed as an exhibit to the Company's Form 8-K Current Report dated June 15, 1992, and incorporated by reference thereto.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992, and incorporated by reference thereto.
(9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993, and incorporated by reference thereto.
(10) Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) hereof.
(11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 and incorporated by reference.
(12) Filed as an exhibit hereto.
(13) To be filed by amendment.
(b) The Company did not file any Form 8-K Current Reports during the fiscal year ended September 30, 1995.
(c) Exhibits:
See paragraph (a) (3) above for items filed as exhibits to this Annual Report on Form 10-K as required by Item 601 of Regulation S-K.
(d) Financial Statement Schedules:
See paragraphs (a)(1) and (a)(2) above for financial statement schedules and supplemental financial statements filed as part of this Annual Report on Form 10-K.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRANSMEDIA NETWORK INC.
By: /S/MELVIN CHASEN ------------------------ Melvin Chasen, President
Dated: December 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
NAME TITLE DATE ---- ----- ----
/S/MELVIN CHASEN Director, Chairman December 30, 1996 - ----------------------- of the Board, President Melvin Chasen and Chief Executive Officer
/S/JAMES M. CALLAGHAN Director, December 30, 1996 - ----------------------- James M. Callaghan Vice President
/S/JACK AFRICK Director December 30, 1996 - ----------------------- Jack Africk
/S/HERBERT M. GARDNER Director December 30, 1996 - ----------------------- Herbert M. Gardner
/S/IRWIN HOCHBERG Director December 30, 1996 - ----------------------- Irwin Hochberg
/S/A. BARRY MERKIN Director - ----------------------- A. Barry Merkin
/S/HENRY SEIDEN Director December 30, 1996 - ----------------------- Henry Seiden
/S/BARRY S. KAPLAN Director Vice President - ----------------------- Barry S. Kaplan
/S/DAVID L. WEINBERG Vice President and December 30, 1996 - ----------------------- David L. Weinberg Chief Financial Officer (Principal Financial and Accounting Officer)
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994 and incorporated by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1988, and incorporated by reference thereto.
(3) Filed as an exhibit to the Post Effective Amendment to the Registration Statement on Form S-1 (Registration No. 33-5036), and incorporated by reference thereto.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1990, and incorporated by reference thereto.
(5) Filed as an exhibit to the Company's Registration Statement on Form S-8 (Registration No. 33-494460), and incorporated by reference thereto.
(6) Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 33-49374), and incorporated by reference thereto.
(7) Filed as an exhibit to the Company's Form 8-K Current Report dated June 15, 1992, and incorporated by reference thereto.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992, and incorporated by reference thereto.
(9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993, and incorporated by reference thereto.
(10) Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) hereof.
(11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 and incorporated by reference.
(12) Filed as an exhibit hereto.
(13) To be filed by amendment.


ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART 2
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
From 1989 through December 1993, there was no public trading market for the Bexy Common Stock. In December 1993, the common stock of Bexy began trading on the Bulletin Board. In connection with the Reorganization, the Company divested itself of the assets relating to the business of Bexy prior to the Reorganization and has shifted its focus to oil and gas exploration. Simultaneously with the Reorganization, each three outstanding shares of common stock of Bexy was converted to one share of Common Stock and the stockholders of Cheniere Operating were issued shares of Common Stock equaling approximately 93% of the then issued and outstanding shares of Bexy causing the existing stockholders of Bexy to be diluted to approximately 7%. On July 8, 1996, the Common Stock began trading on the Bulletin Board (ticker symbol "CHEX"). As the nature of the business and the Common Stock has changed as a result of the Reorganization, this section describes the market price of the Common Stock following the Reorganization on July 3, 1996.
The high ask and low bid prices of the Common Stock reported on the Bulletin Board for the period from July 8, 1996 through August 7, 1996 were $6.00 and $3.00, respectively. The corresponding high and low prices for the period from August 8, 1996 through November 22, 1996 were $3.875 and $2.125. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not reflect actual transactions.
As of September 27, 1996 there were 766 record holders of the Common Stock which does not include holders who hold their shares of the Common Stock in "street name".
The Company has not paid any dividends since its inception and presently anticipates that all earnings, if any, will be retained for development of the Company's business and that no dividends on its Common Stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, the operating and financial condition of the Company, its capital requirements and general business conditions.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following income statement data and balance sheet data have been derived from the financial statements prepared in accordance with generally accepted accounting principles. The financial statements of Cheniere Energy, Inc. and Subsidiary as of August 31, 1996 and for the year then ended have been audited by Merdinger, Fruchter, Rosen & Corso, P.C. This information should be read in conjunction with the financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
SEPTEMBER 1, 1995 TO AUGUST 31, ------------ Net operating revenues............................. $ -- (Loss) from continuing operations.................. (79,097) (Loss) from continuing operations per share of common stock...................................... (0.008) (Loss) from discontinued operations................ (207,722) Net (loss) per share of common stock............... (0.03) Total Assets....................................... 5,145,310 Long-term obligations.............................. -- Total Liabilities.................................. 718,855 Total Shareholders' Equity......................... 4,426,455 Cash dividends declared per share of common stock.. --
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cheniere Operating was incorporated in Delaware in February of 1996 for the purpose of entering the oil and gas exploration and exploitation business, initially on the Louisiana Gulf Coast.
In March of 1996, Cheniere Operating entered into discussion with Bexy Communications, Inc. ("Bexy") for a reorganization in order to give it a presence in the public market.
On April 16, 1996, the Reorganization Agreement was entered into whereby the Cheniere Operating stockholders would acquire control of Bexy in consideration for the outstanding stock of Cheniere Operating.
Under the terms of the Reorganization Agreement, Bexy transferred its existing assets of approximately $224,000 and its liabilities of approximately $111,000 to Mar Ventures, Inc. ("Mar Ventures"), Bexy received 100% of the outstanding shares of Cheniere Operating and the former shareholders of Cheniere Operating received approximately 8.3 million newly issued shares of Bexy common stock, representing 93% of the then issued and outstanding Bexy shares. Cheniere Operating became a wholly-owned subsidiary of Bexy and the principal business became oil and gas exploration. Bexy then changed its name to Cheniere Energy, Inc. The Company distributed the outstanding capital stock of Mar Ventures to the original holders of Bexy common stock.
The reorganization was accounted for as the recapitalization of Cheniere Operating and the issuance of stock for the net assets of Bexy.
RESULTS OF OPERATIONS--AUDITED STATEMENTS YEAR ENDED AUGUST 31, 1996
The Company's operating results reflected a loss of $79,097, as there were no revenues from continuing operations. General and Administrative expenses of $73,814 comprised most of the loss.
The Company incurred one time losses of $207,722 from the discontinuance of its former business in the television production and health information field. Total losses were $286,819.
The Company's balance sheet reflected current assets of $1,097,980 with liabilities of $718,855. Other assets reflect an investment of $4 million in the 3-D Joint Venture. After fiscal year end, in early September 1996, and in late October 1996, the Company made an additional payments of $1 million each to the 3-D Joint Venture, such that an aggregate of $6 million has been paid by the Company to the 3-D Joint Venture to date.
The Company's capital reflects sales of shares net of offering expenses of $609,451 and distribution of net assets of $112,902.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1996, the Company had working capital of $379,125. Operating expenses and capitalized costs were financed by the sale of common stock and Bridge Loan (as defined below) funding as revenues have yet to be generated. It is anticipated that future liquidity requirements, including the commitment to the 3-D Joint Venture which will amount to, at least, an additional $8 million, will be met by sale of equity, further borrowings and/or sales of portions of the Company's interest in the 3-D Joint Venture. At this time, no assurance can be given that such sale of equity, further borrowings or sales of portions of the Company's interest in the 3-D Joint Venture will prove to be successful. The Company has in the past failed to timely make certain payments due to the 3-D Joint Venture. While the Company has in such instances succeeded in obtaining waivers under, and amendments to, the Exploration Agreement extending the due dates for such required payments, there can be no assurance that the Company will successfully obtain similar amendments should it fail to timely make required payments to the 3-D Joint Venture in the future. The Company currently does not have sufficient capital to meet its future payment requirements and there can be no assurance that the Company will successfully secure the necessary funds. See "Business and Properties--3- D Joint Venture Exploration Agreement."
Since its inception, the Company's primary source of financing for operating expenses and payments to the 3-D Joint Venture has been the sale of its equity securities.
In May and June 1996, Cheniere Operating raised $2,883,000, net of offering costs, from the sale of shares of its common stock (which were exchanged for 2,000,000 shares of the Common Stock following the Reorganization) to "accredited investors" (as defined in Rule 501(a) promulgated under the Securities Act of 1933, as amended (the "Securities Act")) pursuant to Rule 506 of Regulation D promulgated under the Securities Act ("Regulation D"). The proceeds were used to fund the majority of Cheniere Operating's initial $3 million payment to the 3-D Joint Venture.
In order to finance a $1 million payment made to the 3-D Joint Venture on August 9, 1996, the Company sold Common Stock pursuant to Regulation D and Regulation S promulgated under the Securities Act ("Regulation S"). In July 1996, the Company sold 50,000 shares of the Common Stock to an "accredited investor" pursuant to Rule 506 of Regulation D and the Company received proceeds of $100,000 from such sale. In July and August 1996, the Company conducted an offering of Common Stock pursuant to Regulation S. The Company sold 508,400 shares of the Common Stock and received proceeds of $915,000, net of placement fees, from such sale.
In late August 1996, the Company raised $1,000,000 from the sale of 100,000 units, each consisting of five shares of the Common Stock and a warrant to purchase one share of the Common Stock, pursuant to Regulation S. The proceeds were used to fund a $1 million payment to the 3-D Joint Venture made on September 4, 1996.
Between fiscal year end at August 31, 1996 and October 31, 1996, the Company raised $1,237,500 net proceeds from the sale of 588,027 shares of Common Stock to accredited investors pursuant to Regulation D and certain other investors pursuant to Regulation S. Proceeds received through October 31, 1996 were used to fund a $1 million payment to the 3-D Joint Venture on that date.
In June 1996, Cheniere Operating borrowed $425,000 (the "Bridge Loan") through a private placement of short term promissory notes with an initial interest rate of 8% (the "Notes"). The Notes were due on September 14, 1996. In connection with the placement of the Notes, Cheniere Operating issued warrants, which following the Reorganization, were exchanged for an aggregate of 141,666 and 2/3 warrants to purchase shares of the Common Stock, to the holders of the Notes (the "Noteholders"), each of which warrants entitles the holder to purchase one share of the Common Stock at an exercise price of $3.00 per share at any time on or before June 14, 1999. The Company has satisfied all of its obligations under Notes in the aggregate principal amount of $210,000 by paying the accrued interest on such Notes and by agreeing to issue 105,000 shares of the Common Stock at a price of $2.00 per share to the holders of such Notes pursuant to Regulation D. In addition, prior to the maturity of the Notes, an individual Noteholder (the "Remaining Noteholder") purchased several outstanding Notes following which such Noteholder held Notes in the aggregate principal amount of $215,000. In connection with a modification of the Bridge Loan arrangements as between the Remaining Noteholder and the Company, Cheniere Operating has issued a new promissory note to the Remaining Noteholder with an interest rate of 13% per annum in exchange for the Notes held by him. Such new promissory note is due on January 14, 1997. The Remaining Noteholder is also entitled to receive up to 21,500 additional warrants to purchase shares of the Common Stock for each month, or partial month, any amounts remain due and payable after September 14, 1996, up to a maximum aggregate number of 86,000 such additional warrants. Such additional warrants will have an exercise price of $3.00 per share and will be exercisable for 3 years from the date of issuance.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONTENTS
CHENIERE ENERGY, INC. AND SUBSIDIARY
Independent Auditors' Report.............................................. 19
Consolidated Balance Sheet................................................ 20
Consolidated Statement of Operations...................................... 21
Consolidated Statement of Stockholders' Equity............................ 22
Consolidated Statement of Cash Flows...................................... 23-24
Notes to Consolidated Financial Statements................................ 25-29
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CHENIERE ENERGY, INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheet of CHENIERE ENERGY, INC. AND SUBSIDIARY as of August 31, 1996 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CHENIERE ENERGY, INC. AND SUBSIDIARY as of August 31, 1996 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C Certified Public Accountants
New York, New York September 16, 1996
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1996
The accompanying notes are an integral part of the financial statements.
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
The accompanying notes are an integral part of the financial statements.
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED AUGUST 31, 1996
The accompanying notes are an integral part of this report.
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1996
The accompanying notes are an integral part of the financial statements.
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1996
During the year, the Company distributed the assets and liabilities of its discontinued operations. The net noncash distribution was $61,945.
The accompanying notes are an integral part of the financial statements.
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1--NATURE OF OPERATIONS
Cheniere Energy, Inc., a holding company ("Cheniere," together with Cheniere Operating (as defined below), the "Company"), is the owner of 100% of the outstanding common stock of Cheniere Energy Operating Co., Inc. ("Cheniere Operating"). Cheniere Operating is a Houston-based company formed for the purpose of oil and gas exploration and exploitation. The Company is currently involved in a joint exploration program which is engaged in the exploration for oil and natural gas along the Gulf Coast of Louisiana, onshore and in the shallow waters of the Gulf of Mexico. The Company commenced its oil and gas activities through such joint program in April 1996.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of Cheniere Energy, Inc. and its 100% owned subsidiary, Cheniere Energy Operating Co., Inc. Accordingly, all references herein to Cheniere Energy, Inc. or the "Company" include the consolidated results of its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Property and Equipment
Property and equipment are recorded at cost. Repairs and maintenance costs are charged to operations as incurred. Depreciation is computed using the straight line method calculated to amortize the cost of assets over their estimated useful lives, generally seven years. Upon retirement or other disposition of property and equipment the cost and related depreciation will be removed from the accounts and the resulting gains or losses recorded.
Concentration of Credit Risk
The Company places its cash in what it believes to be credit-worthy financial institutions. However, cash balances exceed FDIC insured levels at various times during the year.
Cash Equivalents
The Company classifies all investments with original maturities of three months or less as cash equivalents.
Income Taxes
Income taxes are provided for based on the liability method of accounting pursuant to Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1996 consist of the following:
NOTE 4--REORGANIZATION
On July 3, 1996 Cheniere Operating consummated the transactions (the "Reorganization") contemplated in the Agreement and Plan or Reorganization (the "Reorganization Agreement") dated April 16, 1996 between Cheniere Operating and Bexy Communications, Inc., a publicly held Delaware corporation ("Bexy"). Under the terms of the Reorganization Agreement, Bexy transferred its existing assets and liabilities to Mar Ventures, Inc., its wholly-owned subsidiary ("Mar Ventures"), Bexy received 100% of the outstanding shares of Cheniere Operating and the former shareholders of Cheniere Operating received approximately 8.3 million newly issued shares of Bexy common stock, representing 93% of the then issued and outstanding Bexy shares. Immediately following the Reorganization, the Original Bexy Stockholders held the remaining 7% of the outstanding Bexy stock. In accordance with the terms of the Reorganization Agreement, Bexy changed its name to Cheniere Energy, Inc. Subsequently, the Company distributed the outstanding capital stock of Mar Ventures to the original holders of Bexy common stock.
NOTE 5--INVESTMENT IN JOINT VENTURE
The Company has entered into a joint exploration program pursuant to an Exploration Agreement between the Company and Zydeco Exploration, Inc. ("Zydeco"), an operating subsidiary of Zydeco Energy, Inc. (the "Exploration Agreement"), with regard to a new proprietary 3-D seismic exploration project in southern Louisiana (the "3-D Joint Venture"). The Company has the right to earn up to a 50% participation in the 3-D Joint Venture. The Company believes that the 3-D seismic survey (the "Survey") is the first of its size within the Transition Zone of Louisiana, an area extending a few miles on either side of the Louisiana State coastline.
The Survey is to be conducted over certain areas located within a total area of approximately 255 square miles running 5 miles south and generally 3 to 5 miles north of the coastline in the most westerly 28 miles of West Cameron Parish, Louisiana (the "Survey AMI"). The 3-D Joint Venture does not currently have rights to survey the entire Survey AMI and the extent of the Survey AMI which the 3-D Joint Venture will be entitled to survey is dependent upon its ability to obtain survey permits and similar rights. Currently, the 3-D Joint Venture has permits and similar rights to survey approximately 67% of the Survey AMI and is attempting to acquire rights to Survey additional portions of the Survey AMI. There is no assurance that the 3-D Joint Venture will successfully obtain rights to survey additional portions of the Survey AMI, nor that it will be successful in acquiring farmouts, lease options (other than those already obtained), leases, or other rights to explore or recover oil and gas.
Under the terms of the Exploration Agreement, the Company is required to make monthly payments to the 3-D Joint Venture aggregating, at least, $13 million. The Company's potential participation in the 3-D Joint Venture could be significantly reduced in the event of a failure by the Company to make such required monthly payments when due.
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996
NOTE 6--NOTES PAYABLE
In June 1996, Cheniere Operating borrowed $425,000 through a private placement of short term promissory notes with an initial interest rate of 8% (the "Notes"). The Notes are due on September 14, 1996 (the "Maturity Date"). In connection with the placement of the Notes, Cheniere Operating issued warrants, which, following the Reorganization, were exchanged for an aggregate of 141,666 and 2/3 warrants to purchase shares of the Common Stock, to the holders of the Notes (the "Noteholders"), each of which warrants entitles the holder to purchase one share of the Common Stock at an exercise price of $3.00 per share at any time on or before June 14, 1999. A failure by the Company to pay all amounts due and payable under the Notes by the Maturity date constitutes an event of default thereunder. In such an event of default, the interest rate applicable to any outstanding Notes would increase to 13%. In addition, the holders of such outstanding Notes would be entitled to receive up to an aggregate of 42,500 additional warrants (on similar terms) for each month, or partial month, any amounts remain due and payable following the Maturity date, up to a maximum aggregate number of 170,000 such additional warrants. The proceeds from the placement of the Notes were applied toward professional expenses and used for working capital.
NOTE 7--INCOME TAXES
At August 31, 1996, the Company had net carryforward losses of approximately $1,020,000. A valuation allowance equal to the tax benefit for deferred taxes has been established due to the uncertainty of realizing the benefit of the tax carryforward.
Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at August 31, 1996 are as follows:
Net operating loss carryforwards expire starting in 2006 through 2011. Per year availability is subject to change of ownership limitations under Internal Revenue Code Section 382.
NOTE 8--WARRANTS
The Company has issued and outstanding certain warrants described herein.
The Company has issued and outstanding 141,666 and 2/3 warrants (collectively, the "June Warrants"), each of which entitles the registered holder thereof to purchase one share of Common Stock. The June Warrants are exercisable at any time on or before June 14, 1999, at an exercise price of $3.00 per share (subject to customary anti-dilution adjustments). The June Warrants were originally issued by Cheniere Operating and were converted to warrants of Cheniere following the Reorganization. The June Warrants were issued to a group of 11 investors in connection with a private placement of unsecured promissory notes of Cheniere Operating in the aggregate principal amount of $425,000. The notes mature on September 14, 1996 (the "Maturity Date"). In the event that the Company fails to pay all amounts due and payable under the Notes by the Maturity Date, in addition to an increase in the applicable interest rate, the holders of any outstanding Notes would be entitled to
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996
receive up to an aggregate of 42,500 additional warrants (on similar terms) for each month, or partial month, any amounts remain due and payable following the Maturity Date, up to a maximum aggregate number of 170,000 such additional warrants.
In consideration of certain investment advisory and other services to the Company, pursuant to warrant agreements each dated as of August 21, 1996, the Company issued warrants to purchase 13,600 and 54,400 shares of Common Stock, (collectively the "Adviser Warrants"). The Adviser Warrants are exercisable at any time on or before May 15, 1999 at an exercise price of $3.00 per share (subject to customary anti-dilution adjustments).
In connection with the July and August 1996 placement of 508,400 shares of Common Stock, the Company agreed to issue warrants to purchase 12,500 shares of Common Stock to one of two distributors who placed the shares. Such warrants are exercisable on or before the second anniversary of the sale of the shares of Common Stock at an exercise price of $3.125 per share (subject to customary anti-dilution adjustments).
In late August 1996, the Company sold 100,000 units, each such unit consisting of 5 shares of Common Stock and a warrant to purchase one share of Common Stock. Each such warrant is exercisable on or before September 1, 1999 at an exercise price of $3.125 per share (subject to customary anti-dilution adjustments).
The Warrants do not confer upon the holders thereof any voting or other rights of a stockholder of the Company.
NOTE 9--STOCK OPTIONS
The Company has granted certain options to purchase shares of Common Stock to 2 executives. Such options aggregate 300,000 shares at an exercise price of $3.00 per share. The options vest and are exercisable as follows:
1) 75,000 options vest and become exercisable on June 1, 1997 and expire June 1, 2001.
2) 75,000 options vest and become exercisable on June 1, 1998 and expire June 1, 2001.
3) 150,000 options vest and become exercisable in equal annual installments of 25% each on the first through fourth anniversary of July 16, 1996 and expire July 16, 2001.
In addition, the Company has granted options to the former President of the Company. The holder has the option to acquire 19,444 and 2/3 shares of Common Stock at an exercise price of $1.80 per share. The options expire November 11, 2003.
NOTE 10--COMMON STOCK RESERVED
The Company has reserved 322,166 and 2/3 share of Common Stock for insurance upon the exercise of outstanding warrants (See Note 8).
The Company has reserved 319,444 and 2/3 shares of Common Shares for insurance upon the exercise of outstanding options (See Note 9).
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996
NOTE 11--DISCONTINUED OPERATIONS
As of March 1, 1996, the Company decided to discontinue its then present operations in the television productions and health information business. The assets and liabilities relating to the discontinued operations were distributed on July 3, 1996. No assets or liabilities from the discontinued operations are included in the consolidated balance sheet as of August 31, 1996.
Revenues, related losses and income tax benefit associated with the discontinued business are as follows:
For the period September 1, 1995 to February 29, 1996:
The Loss on Disposal consists of the loss from operations during the period of disposal.
NOTE 12--COMMITMENTS AND CONTINGENCIES
1) The Company subleases its Houston, Texas headquarters from Zydeco under a month-to-month sublease.
2) On July 26, 1996, the Company signed a Letter of Intent with Poseidon Petroleum, LLC ("Poseidon") to purchase Poseidon's 47% working interest in undeveloped reserves in the Bonito unit of the Pacific Outer Continental Shelf, offshore Santa Barbara County, California. The parties are conducting due diligence and are negotiating a definitive purchase and sale agreement and related documentation. The transactions contemplated in the Letter of Intent may be terminated by either party upon the occurrence of certain events and there can be no assurance that the Company will successfully consummate such transactions. Moreover, if such transactions are consummated, the Company expects that development of the reserves will not occur for at least five years. There can be no assurance that the Company will successfully develop the reserves or that the reserves will yield sufficient quantities of oil and gas to be economically viable.
NOTE 13--SUBSEQUENT EVENTS
Effective as of September 14, 1996, certain of the note holders described in Note 6 converted their notes into common stock at a price of $2 per share. As a result, 105,000 shares were issued to retire $210,000 of notes.
In addition, an individual note holder has purchased the promissory notes of the remaining note holders. The holder thus holds notes totaling $215,000. As per the terms of the notes, the interest rate on these outstanding notes has increased to 13% per annum, effective September 14, 1996. The holder of the notes is also entitled to receive up to an aggregate of 21,500 additional warrants (as described in Note 6) for each month, or partial month, any amounts remain due and payable after September 14, 1996, up to a maximum aggregate number of 86,000 such additional warrants.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company are as follows:
William D. Forster, 50, is currently President and Chief Executive Officer of Cheniere. Mr. 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, W. Forster & Co. Inc. In 1994, he became active again in the oil and gas business when he began to work together with BSR Investments, Ltd., a Paris-based private investment company, to provide financing for small energy companies. Mr. Forster is a director of Equity Oil Company, a Nasdaq National Market company, and he serves on the Board of Trustees of Mystic Seaport Museum. He holds a Bachelor of Arts degree in economics from Harvard College and a Master of Business Administration degree from Harvard Business School.
Walter L. Williams, 68, is currently Vice-Chairman of Cheniere. Prior to joining Cheniere, Mr. Williams spent 32 years as a founder and later Chairman and Chief Executive Officer of Texoil, Inc., a publicly held Gulf Coast exploration and production company. Prior to that time he was an independent petroleum consultant. He received a Bachelor of Science degree in petroleum engineering from Texas A&M University in 1949 and is a Registered Engineer in both the states of Louisiana and Texas. He serves on the board of directors of Texoil, Inc. and has served as a Director and Member of the Executive Committee of the Board of the Houston Museum of Natural Science.
Keith F. Carney, 40, is currently Chief Financial Officer and Treasurer of Cheniere. Prior to joining Cheniere, Mr. Carney was a securities analyst in the oil & gas exploration/production sector with Smith Barney, Inc. from 1992- 1996. From 1982-1990 he was employed by Shell Oil as an exploration geologist, with assignments in the Gulf of Mexico, the Middle East and other areas. He received a Master of Science degree in geology from Lehigh University in 1982 and a Master of Business Administration/Finance degree from the University of Denver in 1992.
Charif Souki, 43, is currently the Secretary and a Director of Cheniere. Mr. Souki is an independent investment banker with twenty years of experience in the industry. In the past few years he has specialized in providing financing for promising microcap and small capitalization companies with an emphasis on the oil and gas industry. He holds a Bachelor of Arts degree from Colgate University and a Master of Business Administration from Columbia University.
Efrem Zimbalist III, 49, a director of Cheniere, is President and Chief Executive Officer of Times Mirror Magazines, a division of Times Mirror Co., and a Vice President of Times Mirror Co. He formerly served as vice president, strategic development for Times Mirror Co. from 1993 to 1995. Previously he served as Chairman and Chief Executive Officer of Correia Art Glass, Inc., a family owned business. He also served five years as a senior engagement manager at the management consulting firm of McKinsey and Co., Inc. in Los Angeles. Mr. Zimbalist received a Bachelor of Arts degree in economics from Harvard College and a Master's degree in business administration from Harvard Business School.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Simultaneously with the reorganization of Bexy with Cheniere Operating (the "Reorganization"), all of the officers of Bexy resigned from their respective offices and were replaced by the current officers of the Company. As the Company has divested itself of the assets relating to the business of Bexy prior to the Reorganization and has shifted to a new business, this section describes the compensation to be received by the executive officers of the Company following the Reorganization on July 3, 1996. The Company presently has no employment agreement with any of the Executive Officers.
William D. Forster, President and Chief Executive Officer of the Company, and Charif Souki, Secretary of the Company, have not received any compensation in the form of salary or options and the Company does not currently intend to pay any such compensation to such officers until the Company has raised significant additional capital. In addition, Mr. Forster and Mr. Souki have not been reimbursed for any travel or entertainment expense incurred on behalf of Cheniere, nor has any such expense been accrued. The Company provides an apartment for the use of Mr. Forster and Mr. Souki during times they are in Houston at a total cost of $4,800 per month. Directors receive no remuneration for serving on the board of directors of the Company.
Walter L. Williams, Vice Chairman of the Company, began receiving a salary of $120,000 per year on September 1, 1996. By resolution of the Board of Directors of the Company dated July 3, 1996, the Company granted to Mr. Williams certain options to purchase shares of the Common Stock as described below. In addition, the Company granted 30,000 shares of the Common Stock to Mr. Williams on July 3, 1996, which shares have not yet been issued. Keith F. Carney, Chief Financial Officer and Treasurer of the Company, began receiving a salary of $90,000 per year on July 16, 1996, the date of his appointment as an officer of the Company. By resolution of the Board of Directors of the Company dated July 23, 1996, the Company granted to Mr. Carney certain options to purchase shares of Common Stock as described below.
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth certain information with respect to individual grants of stock options made during the fiscal year ended August 31, 1996 to each of the named executive officers.
- -------- (1) The indicated dollar amounts are the result of calculations based on the exercise price of each option and assume five and ten percent annual appreciation rates set by the Securities and Exchange Commission over the term of the option and, therefore, are not intended to forecast possible future appreciation, if any, of the Company's stock price. (2) Each of these stock options vest and become exercisable on June 1, 1997 and expire five years from the date of grant. (3) Each of these stock options vest and become exercisable on June 1, 1998 and expire five years from the date of grant. (4) The Company granted Mr. Carney 150,000 stock options on July 23, 1996. The options vest and become exercisable in equal annual installments of 25% each on the first through fourth anniversaries of July 16, 1996, and expire on the fifth anniversary of the date of grant.
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
The following table sets forth certain information with respect to the outstanding stock options as of August 31, 1996 for each of the named executive officers.
- -------- (1) Market value of underlying securities at fiscal year-end 8/31/96 ($3.25), minus the exercise price.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of the Common Stock, of: (i) each person known by the Company to own beneficially five percent or more of the outstanding Common Stock at November 22, 1996; (ii) each of the Company's directors; (iii) each of the executive officers of the Company; and (iv) all directors and executive officers of the Company as a group.
- -------- (1) Does not include 100,000 shares held by a trust for the benefit of Mr. Forster's mother of which trust Mr. Forster is a 20% remainderman and of which shares he disclaims beneficial ownership. (2) Does not include 2,602,000 shares held by BSR Investments, Ltd., an entity under the control of a member of Mr. Souki's immediate family, of which shares Mr. Souki disclaims beneficial ownership. (3) Does not include 150,000 shares of the Common Stock issuable upon the exercise of options, not exercisable within 60 days of the date of this Prospectus, held by each of Mr. Williams and Mr. Carney. (4) The 30,000 shares of the Common Stock held by Mr. Williams have been granted by the Company, but have not yet been issued.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BSR Investments, Ltd. ("BSR"), an entity holding approximately 24.5% of the outstanding shares of the Common Stock, is under the control of a member of the immediate family of Charif Souki, Secretary and a director of the Company. Mr. Souki has been engaged, from time to time, as a consultant to BSR. In addition, BSR has in the past provided certain financial advisory and other services to the Company on an arm's length basis. Mr. Souki disclaims beneficial ownership of all shares held by BSR.
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. Financial Statements and Supplementary Data, Financial Statement Schedules and Exhibits
PAGE ---- 1. Consolidated Financial Statements
Independent Auditors' Report........................................ 19 Consolidated Balance Sheet.......................................... 20 Consolidated Statement of Operations................................ 21 Consolidated Statement of Stockholders' Equity...................... 22 Consolidated Statement of Cash Flows................................ 23-24 Notes to Consolidated Financial Statements.......................... 25-29
2. Consolidated Financial Statement Schedules
All consolidated financial statement schedules have been omitted because they are not required, are not applicable or the information required has been included elsewhere herein.
3. Exhibits and Financial Statement Schedules
EXHIBITS -------- 3.1 --Amended and Restated Certificate of Incorporation of Cheniere Energy, Inc. ("Cheniere")* 3.2 --By-laws of Cheniere* 4.1 --Specimen Common Stock Certificate of Cheniere* 5.1 --Opinion of Dewey Ballantine* 10.1 --Exploration Agreement between FX Energy, Inc. (now known as Cheniere Energy Operating Co., Inc. ("Cheniere Operating")) and Zydeco Exploration, Inc.* 10.2 --First Amendment to the Exploration Agreement between FX Energy, Inc. (now known as Cheniere Operating) and Zydeco Exploration, Inc.* 10.3 --Second Amendment to the Exploration Agreement between FX Energy, Inc. (now known as Cheniere Operating) and Zydeco Exploration, Inc.* 10.4 --Third Amendment to the Exploration Agreement between FX Energy, Inc. (now known as Cheniere Operating) and Zydeco Exploration, Inc. 10.5 --Form of Regulation D Subscription Agreement between Cheniere Operating and certain "accredited investors" 10.6 --Form of Noteholders' Agreement ("Noteholders Agreement") between Cheniere Operating and the holders of promissory notes in the aggregate principal amount of $425,000.00* 10.7 --Form of Warrant Agreement governing warrants of Cheniere issued in exchange for warrants of Cheniere Operating (which were issued pursuant to the Noteholders Agreement)* 10.8 --Asset Transfer, Assignment and Assumption Agreement between Bexy Communications, Inc. and Mars Ventures Inc.* 10.9 --Indemnification Agreement among Buddy Young, Cheniere, Cheniere Energy Operating Co., Inc. and the Stockholders of Cheniere Energy Operating Co., Inc. named therein* 10.10 --Form of Warrant Agreement between Cheniere and each of C.M. Blair, W.M. Forster & Co., Inc. and Redliw Corp.* 10.11 --Consulting Agreement between Cheniere and Buddy Young regarding reverse splits of the Common Stock* 21.1 --Subsidiaries of Cheniere* 23.1 --Consent of Dewey Ballantine (included in Exhibit 5.1)* 23.2 --Consent of Merdinger, Fruchter, Rosen & Corso, P.C.* - -------- * Filed previously.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
CHENIERE ENERGY, INC.
/s/ William D. Forster By:__________________________________ President and Chief Executive Officer
Date: November 26, 1996
EXHIBIT INDEX