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As filed with the Securities and Exchange Commission on March 5, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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VENUS EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3299127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 N.E. LOOP 410
SUITE 1000
SAN ANTONIO, TEXAS 78209
(210) 930-4900
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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JOHN Y. AMES
PRESIDENT & CHIEF OPERATING OFFICER
1250 N.E. LOOP 410, SUITE 1000
SAN ANTONIO, TEXAS 78209
TELEPHONE: (210) 930-4900
FAX: (210) 930-4901
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPY TO:
WILL C. JONES IV
HAYNES AND BOONE, LLP
SUITE 1600
112 E. PECAN STREET
SAN ANTONIO, TEXAS 78205
TELEPHONE: (210) 978-7000
FAX: (210) 978-7450
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share 1,100,000 shares $1.19 $1,309,000 $364
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(1) Pursuant to Rule 416, the Registration Statement also covers such
indeterminate additional shares of Common Stock as may become issuable to
prevent dilution resulting from stock splits, stock dividends or similar events.
(2) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) based on the average of the bid and asked prices
reported on the Nasdaq SmallCap Market(SM) on March 1, 1999.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and, it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, PROSPECTUS FOR THE SALE OF
Dated March 5, 1999 COMMON STOCK BY OWNERS
OTHER THAN THE ISSUER
[Venus logo]
Nasdaq SmallCap Market(SM): VENX
This Prospectus is filed by VENUS EXPLORATION, INC. for the resale by Stratum
Group, L.P. of the 1,100,000 SHARES OF COMMON STOCK that it acquired from Venus
Exploration in an unregistered transaction. It also covers: (a) the sale of any
of those shares that are owned by entities to which Stratum Group, L.P. has
conveyed its shares, and (b) any additional shares of Common Stock that are
issued to those owners to protect against dilution of interest from events like
stock splits or stock dividends. Venus Exploration will not receive any proceeds
from these resales of Common Stock.
The sellers covered by this Prospectus may sell the Common Stock:
o to or through one or more underwriters,
o directly to other purchasers or through agents,
o in ordinary brokerage transactions,
o in negotiated transactions,
o at market prices prevailing at the time of sale, or
o at prices related to the then prevailing market price or some
other negotiated price.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK, AND A COMPLETE LOSS OF
THE INVESTMENT IS A POSSIBILITY. PLEASE CONSIDER THE "RISK FACTORS" BEGINNING ON
PAGE 5 BEFORE MAKING AN INVESTMENT IN THE SHARES COVERED BY THIS PROSPECTUS.
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THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED OF THESE SECURITIES, NOR HAS ANY STATE SECURITIES COMMISSION. NONE
OF THESE AGENCIES HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1999.
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
ON INFORMATION TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE ELSE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS COVERS ONLY
OFFERS TO SELL AND SOLICITATIONS OF AN OFFER TO BUY THE 1,100,000 SHARES VENUS
EXPLORATION COMMON STOCK ISSUED TO STRATUM GROUP, L.P. HOWEVER, THIS PROSPECTUS
DOES NOT COVER ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THOSE
SHARES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
YOU SHOULD REMEMBER THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS
IS CORRECT AS OF , 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION WILL
REMAIN CORRECT AFTER THAT DATE. FOR EXAMPLE, JUST BECAUSE THIS PROSPECTUS IS
DELIVERED AFTER THAT DATE, YOU SHOULD NOT PRESUME THAT VENUS EXPLORATION'S
AFFAIRS ARE THE SAME AS THEY WERE ON , 1999.
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TABLE OF CONTENTS
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Page
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The Company ............................................................................................... 3
Risk Factors .............................................................................................. 5
Use of Proceeds ........................................................................................... 15
Selling Stockholders ...................................................................................... 16
Description of Capital Stock .............................................................................. 17
Plan of Distribution ...................................................................................... 18
Shares Eligible for Future Sale ........................................................................... 19
Legal Matters ............................................................................................. 20
Experts ................................................................................................... 20
Disclosure of SEC Position on Indemnification for Securities Act Liabilities .............................. 21
Available Information ..................................................................................... 21
Incorporation of Certain Documents by Reference ........................................................... 22
</TABLE>
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We will provide to each person to whom this Prospectus is delivered,
including any beneficial owner, any of the information that has been
incorporated into this Prospectus by reference but that is not delivered with
it. We will send that information without charge if you call or write us with
that request. You may ask for the information by calling Mr. John Y. Ames at
(210) 930-4900, or you can send written requests to our principal executive
offices at:
Venus Exploration, Inc.
1250 N.E. Loop 410, Suite 1000
San Antonio, Texas 78209
Attention: John Y. Ames, President
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THE COMPANY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes to those financial
statements) incorporated by reference in this Prospectus.
Venus Exploration, Inc. and its subsidiaries are in the business of
applying advanced geoscience technology to explore for undiscovered onshore oil
and gas reserves in the United States. We also develop existing oil and gas
fields that we already own and that we acquire. We presently have oil and gas
properties, acreage and production in ten states. Since we completed a large
acquisition of properties in May 1997, our emphasis has been on oil and gas
exploration and development projects and prospects in Texas, Oklahoma and
Kansas. As of January 31, 1999, the officers and directors of the Company owned
beneficial interests totaling approximately 30.4% of the Company's fully diluted
common stock; E. L. Ames, Jr., the Chairman of the Board and the Chief Executive
Officer, beneficially owns 15.2%. Range Resources Corporation owns 18.6%, and
Stratum Group, L.P. owns 8.8%.
The predecessor to Venus Exploration started business in May 1996, and
its primary assets were an inventory of exploration prospects and potential
prospects. It also had undeveloped producing oil and gas fields with very little
oil and gas production. As a result of internal growth and the large
acquisition, average daily net production increased by 333% in 1997. The total
Proved Reserves increased 343% in 1997. ("Proved Reserves" are the estimated
quantities of oil and gas that the geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years under existing
circumstances.)
BUSINESS STRATEGY
Venus Exploration's strategy is to pursue an aggressive growth strategy
of (i) exploring for oil and gas reserves, (ii) expanding reserves in existing
oil and gas fields, and (iii) acquiring strategic producing properties with
upside potential. Due to the significant decline in oil and natural gas prices
in 1998, the Company's emphasis in 1999 may be more on expanding reserves in
existing oil and gas fields rather than on exploring for new reserves in
unestablished areas.
STRATUM DEBT-FOR-EQUITY EXCHANGE
On December 3, 1998, we completed a debt-for-equity exchange with
Stratum Group, L.P. As a result, Venus Exploration converted $1.605 Million of
debt held by an affiliate of Stratum Group, L.P., into equity. Stratum Group,
L.P. was issued the 1.1. Million shares of Common Stock covered by this
Prospectus. We also obtained from Stratum overriding royalties in certain of our
producing properties and certain warrants to purchase shares of our Common
Stock. The overriding royalty interests and the warrants had been conveyed to
Stratum at the time the Stratum credit facility was created. See "SELLING
STOCKHOLDERS" for a more complete description of the prior lending relationship
and the debt-for-equity exchange.
RECENT PROPERTY SALES
On January 27, 1999, Venus Exploration completed the sale of its oil
and gas properties in the State of West Virginia to Allegheny Interests, Inc.
and Meridian Exploration Corporation. The properties included interests in 58
wells and a pipeline system that serviced many of those wells. Venus
Exploration also sold its interest in a limited partnership that owned property
rights in oil and gas wells in West Virginia. The average daily production from
these properties was the equivalent of 411,000 cubic feet of natural gas per
day during 1998. Pursuant to the estimates of proved reserves included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, the
properties sold were attributed with 13.26% of the Company's total proved
reserves as of December 31, 1997. The gross purchase price was $1,170,000, and
the effective date was December 1, 1998. $1 million of the net purchase price
was used to reduce the Company's outstanding bank debt.
On February 12, 1999, Venus Exploration completed the sale of its
interest in the H. E. White Unit in Freestone County, Texas. The buyers were
Petroleum Development Corporation and Warren Resources, Inc. The properties
included interests in 3 existing wells; a fourth well in the unit has been
proposed. The average daily production from these properties was 270,000 cubic
feet of natural gas during the fourth quarter of 1998. The gross purchase price
was $1,150,000, and the effective date was December 31, 1998. Out of the net
proceeds, $650,000 was used to reduce the Company's outstanding bank debt.
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FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934. Those forward-looking statements can be identified by the
use of terminology such as, "may," "believe," "expect," "intend," "plan,"
"seek," "anticipate," "estimate" or "continue." Forward-looking statements may
also be identified by the negative form of those verbs and other variations of
them. That list is not exhaustive, and there are many other comparable terms
that by their nature indicate forward-looking statements. All statements other
than statements of historical fact that are included or incorporated by
reference in this Prospectus are forward-looking statements.
Examples of these forward-looking statements include statements
regarding our financial position and liquidity, the volume or discounted present
value of our oil and natural gas reserves, our ability to service indebtedness,
our strategic plans, and our ability to locate and complete acquisitions of, and
to develop, oil and natural gas assets. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we
cannot give any assurance that such expectations will prove to be correct.
Important factors to remember when considering any such forward-looking
statements are disclosed in the Prospectus. Some of the important factors that
could cause actual results to differ materially from those in the
forward-looking statements include:
o the timing and extent of changes in commodity prices for oil
and gas,
o the need to develop and replace reserves,
o environmental risks,
o drilling and operating risks,
o risks related to exploitation and development,
o uncertainties about the estimates of reserves,
o competition,
o government regulation, and
o our ability to meet our stated business goals.
Investors are encouraged to read the section entitled "RISK FACTORS."
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RISK FACTORS
Prospective investors should carefully consider, among other things,
the following factors in evaluating Venus Exploration and its business before
purchasing shares of our Common Stock.
1. EFFECTS OF DEBT FINANCING
Venus Exploration already has incurred significant indebtedness, and we
plan to incur additional indebtedness as we execute our exploration,
exploitation and acquisition strategy. Our ability to meet our debt service
obligations will depend on our future performance, and that will be subject to
oil and gas prices, the level of production of oil and gas, general economic
conditions, and financial, business and other factors affecting our operations.
Many of those factors we have no control over. Our future performance could be
adversely affected by any of those factors.
Our level of indebtedness will have several important effects on future
operations, including:
o a substantial portion of our cash flow from operations must be
dedicated to the payment of interest on indebtedness and will
not be available for other purposes,
o covenants contained in our debt obligations will require us to
meet certain financial tests,
o other restrictions will limit our ability to borrow additional
funds or to dispose of assets and may affect our flexibility
in planning for, and reacting to, changes in the energy
industry, including possible acquisition activities,
o our ability to obtain additional financing in the future may
be impaired, and
o since the interest on our indebtedness is calculated with a
variable rate, increases in that rate could affect our
liquidity.
We have experienced financial covenant defaults under the Credit
Agreement with our principal lender. These defaults have been waived through
March 15, 1999. We are currently attempting to arrange additional subordinated
capital to achieve a longer term resolution of our defaults under the Credit
Agreement. There can be no assurance we will be successful in our efforts.
Events beyond our control may affect our ability to comply with the
provisions of the revised Credit Agreement or any other indebtedness. The breach
of any such provisions could result in a default under the Credit Agreement or
any other indebtedness. If that happens, our lenders could elect to declare all
amounts borrowed under the Credit Agreement or any other indebtedness, together
with accrued interest, to be due and payable. The lenders under the Credit
Agreement and any other secured indebtedness could then proceed to foreclose
against any
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collateral securing the payment of such indebtedness, which collateral would
constitute a significant portion, if not all, of our assets.
For example, lower oil and gas prices could result in a lower borrowing
base, and that could force us to pay down the outstanding debt at a time when we
had not planned to do so. If we do not make a sufficient payment to comply with
the Credit Agreement, the lender could declare a default. Even if the lender
does not declare a default before the debt matures, we can give no assurance
that the debt can be paid fully when it does mature. If that is the case, the
lenders would have the same remedies as if we do not comply with the financial
covenants.
2. LACK OF LIQUIDITY
The principal source for our capital has been our revolving Credit
Agreement with our commercial bank. At the end of the third quarter of 1998, we
were not in compliance with the tangible net worth requirement of the Credit
Agreement. That requirement was waived by the bank through January 15, 1999. We
believe that we will not be in compliance with either the tangible net worth
covenant or the current ratio covenant as of December 31, 1998. On February 16,
1999 the bank extended the waiver through March 15, 1999. Cash flow from
production and an increase in the borrowing base under the loan agreement have
not been sufficient for our current cash needs. There is no assurance that we
can obtain the level of cash flow needed to fund current operations. For the
medium and longer terms, we are working on a number of alternatives that we
believe will address our future liquidity and financing needs if we successfully
complete various combinations of those alternatives. The alternatives include
sales of assets, farmouts or other partnering arrangements on selected
properties, and issuances of indebtedness or equity capital. There can be no
assurance that we will be successful in any of our efforts.
Our assets are predominately real property rights and intellectual
information that we have developed regarding those properties and other
geographical areas that we are studying for exploration and development. The
market for those types of properties fluctuates and can be very small.
Therefore, our assets can be very illiquid and not easily converted to cash.
Even if a sale can be arranged, the price may be significantly less than what we
believe the properties are worth. That lack of liquidity can have materially
adverse effects on strategic plans, normal operations and credit facilities. In
addition, issuances of indebtedness or preferred stock in our current condition
could be very expensive. Furthermore, issuance of equity capital could be
dilutive to stockholders.
3. LACK OF PROFITABLE OPERATIONS
Since commencing operations in 1996, we have not been profitable. We
have incurred net losses of approximately $2,006,818 for the year ended December
31, 1996, and $4,167,723 for the year ended December 31, 1997. We have also
incurred net losses of approximately $2,156,000 for the nine months ended
September 30, 1997, and $5,306,000 for the nine months ended September 30, 1998.
We expect to report a loss for the year ended December 31, 1998. We expect
operating losses and negative cash flows to continue for the foreseeable future
as we continue to incur significant operating expenses and to make capital
expenditures. We may never
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generate sufficient revenues to achieve profitability. Even if we do, we may not
sustain or increase profitability on a quarterly or annual basis in the future.
At September 30, 1998, we had an accumulated deficit of approximately
$12,839,000.
Our business plan is based on the development of large reserves through
the application of advanced geoscience techniques. To implement that plan, it
takes several years and a significant capital investment, and even if the plan
is successful, profits are not expected until several years into the
implementation. Currently, we are reporting large annual losses since our net
revenue from production does not cover the large capital expenditures for new
wells. When or if that will change is unknown.
4. SUBSTANTIAL CAPITAL REQUIREMENTS
Venus Exploration's strategy of finding, developing and acquiring oil
and gas reserves depends on our ability to finance those expenditures. We plan
to address our long-term liquidity and capital needs through bank financing, the
issuance of debt and equity securities, when market conditions permit, and
through the use of non-recourse production-based financing. We also continue to
examine alternative sources of long-term capital. For example, the sale of net
profits interest, sales of non-strategic properties, prospects and technical
information, and joint venture financing are being considered.
The 1999 capital budget currently provides for $2.4 million for
exploitation and development projects. The Credit Agreement provides a credit
limit that is determined by the lender in its sole discretion. The credit limit
is based on projected net revenues from our oil and gas properties. As of
December 31, 1998, we have borrowed the full credit limit of $5,540,000 under
the Credit Agreement.
Any activity requiring financing that cannot be obtained under the
Credit Agreement will depend upon the Company's ability to raise additional
capital. Cash flow from current operations will not be sufficient to fund any
significant portion of the unfunded budget since most of the current cash flow
is used to pay general and administrative expenses and to service the payment
obligations under the Credit Agreement. We do not know if it will be possible to
raise the additional capital requirements or if we will agree to the terms
proposed by potential investors.
5. VOLATILITY OF OIL AND GAS PRICES
Our financial condition, operating results and future growth are
substantially dependent upon commodity prices and demand for oil and gas.
Historically, the markets for oil and gas have been volatile, and they are
likely to continue to be volatile in the future. Prices for oil and gas are
subject to wide fluctuation in response to market uncertainty, changes in supply
and demand and a variety of additional factors, all of which are beyond our
control. Examples are:
o domestic and foreign political conditions,
o the overall supply of, and demand for, oil and gas,
o the price of imports of oil and gas,
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o weather conditions,
o the price and availability of alternative fuels,
o overall economic conditions,
o exploration costs,
o drilling costs, and
o pipeline availability and transportation costs.
Our current production is slightly weighted toward oil, making earnings
and cash flow sensitive to fluctuations in both oil and gas prices. In fiscal
1998, we estimate that a $0.10 per Mcf change in gas prices would have resulted
in a $55,000 difference in our earnings before interest, taxes, depreciation and
amortization ("EBITDA"), and a $1.00 per Bbl change in oil prices would have
resulted in a $130,000 difference in our EBITDA.
As an example of the price declines we have seen in 1998 and especially
in the fourth quarter of 1998, the average prices that we received in January
1998 were $12.43 per Mcf and $16.35 per Bbl. Production sold in November of 1998
averaged $1.89 per Mcf and $10.55 per Bbl.
6. REPLACEMENT AND EXPANSION OF RESERVES
Our financial condition and results of operations depend substantially
upon our ability to acquire or find and to successfully develop additional oil
and gas reserves. Our proved reserves will generally decline as reserves are
produced, except to the extent that we acquire properties containing proved
reserves or we conduct successful exploration, development or exploitation
activities. The decline rate varies depending upon reservoir characteristics and
other factors. We cannot assure that we will be able to economically find,
develop or acquire additional reserves to replace current and future production.
7. ACQUISITION RISKS
We expect to continue to evaluate and pursue acquisition opportunities,
primarily in the southwest and Gulf Coast regions of the United States. The
successful acquisition of producing properties requires an assessment of
recoverable reserves, future oil and gas prices, operating costs, potential
environmental and other liabilities and other factors beyond our control. This
assessment is necessarily inexact, and its accuracy is inherently uncertain. In
connection with such an assessment, we perform a review that we believe is
generally consistent with industry practices.
This review, however, will not reveal all existing or potential
problems, nor will it permit us to become sufficiently familiar with the
properties to fully assess their deficiencies and capabilities. Inspections
generally are not performed on every well, and structural and environmental
problems are not necessarily observable even when an inspection is undertaken.
Even when problems are identified, the seller may not be willing or financially
able to give contractual protection against such problems, and we may decide to
assume environmental and other liabilities in connection with acquired
properties.
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There can be no assurance that our acquisitions will be financially
successful. Any unsuccessful acquisition could have a material adverse effect on
our financial condition and results of operations.
8. DRILLING AND OPERATING RISKS
Drilling exploratory wells accentuates many of the risks described
below. Exploratory wells by their nature are drilled into horizons about which
little is known. Therefore, unexpected circumstances are encountered more often,
and the probability of success is lower. Since a large part of our business plan
involves exploration projects, these risks may pose more of a danger to us than
they would to a company that focuses on drilling development wells and,
therefore, drills in more known producing oil and gas fields and horizons.
There are many operating risks associated with the drilling for, and
production of, oil and gas. Examples of those are uncontrollable flows of oil,
gas, brine or well fluids on the ground and into the air, surface water and
groundwater. Other examples are fires, explosions and pollution. Any of those
could result in substantial losses to the Company.
Drilling activities are subject to financial risks, including the risk
that no commercially productive oil or gas reservoirs will be encountered. We
anticipate drilling or participating in the drilling of six (6) wells during
1999. We do not know if the new wells will be productive or if we will recover
any of our investment. Even if they do produce, the new wells may not produce
sufficient net revenues to return a profit after drilling, operating and other
costs.
The cost of drilling, completing and operating wells is often
uncertain. Our drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, many of which are beyond our control. Those
include:
o general economic or financial conditions,
o mechanical problems,
o pressure or irregularities in formations,
o land title problems,
o weather conditions,
o compliance with governmental requirements, and
o shortages or delays in the delivery of equipment and services.
Other hazards are:
o unusual or unexpected geologic formations,
o unexpected pressures in underground formations,
o downhole fires,
o mechanical failures,
o blowouts,
o cratering,
o explosions,
o uncontrollable flows of oil, gas or wells fluids, and
o pollution and other environmental risks.
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Any of these hazards could result in substantial losses due to injury and loss
of life, severe damage to, and destruction of, property and equipment, pollution
and other environmental damage and suspension of operations. We carry insurance
that we believe is in accordance with customary industry practices, but, as is
common in the oil and gas industry, we do not fully insure against all risks
associated with our business, either because such insurance is not available or
because the cost is considered prohibitive. The occurrence of an event that is
not covered, or not fully covered, by insurance could have a material adverse
effect on our financial condition and results of operations.
9. MARKETS
The availability of a ready market for any oil and gas that we produce
depends upon numerous factors that are beyond our control. These factors
include:
o federal and state regulatory developments and statutory
enactments,
o the timing and extent of changes in commodity prices,
o exploratory and development drilling success,
o the amount of oil and gas available for sale,
o the availability of professional expertise and operating
personnel,
o crude oil imports,
o access to adequate capital,
o the availability of adequate pipeline and other transportation
facilities, and
o the marketing of competitive fuels and other matters affecting
the availability of a ready market, such as fluctuating supply
and demand.
10. LACK OF ACTIVE TRADING MARKET FOR OUR STOCK
A significant portion of our Common Stock is held by a small number of
stockholders, including directors, officers and certain larger stockholders and
affiliates, and many of those shares are restricted from resale pursuant to the
federal Securities Act of 1933. As a result, our Common Stock is not actively
traded. Some days it is not traded at all. A large block of shares of the Common
Stock may not be able to be sold in a short period of time. In addition, the
trading price of our Common Stock has been, and can be, volatile.
11. UNCERTAINTY OF ESTIMATES OF PROVED RESERVES AND FUTURE NET REVENUES
Estimates by definition are imprecise. Estimates of future oil and gas
production are more so. Estimates of proved reserves and future rates of
production are based on many factors beyond the control of the Company. The
reserve data set forth, or included by reference, in this Prospectus are only
estimates, even when referred to as proved, and they are all subject to those
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factors. Although we believe our estimates are reasonable, you should expect
that they will change as additional information becomes available.
Estimates of oil and gas reserves, of necessity, are projections based
on engineering data, and there are uncertainties inherent in the interpretation
of such data, as well as in the projection of future rates of production and the
timing of development expenditures. Reservoir engineering is a subjective
process of estimating underground accumulations of oil and gas that cannot be
exactly measured. Therefore, estimates of the economically recoverable
quantities of oil and gas attributable to any particular group of properties,
and the classifications of such reserves based on risk of recovery, are a
function of the quality of available data and of engineering and geological
interpretation and judgment and the future net cash flows. These estimates may
be prepared by different engineers or by the same engineers at different times
and may vary substantially.
We cannot assure that the reserve estimates shown in this Prospectus
will ever be produced or that the proved, undeveloped reserves will be developed
within the periods anticipated. Actual production, revenues and expenditures
related to our reserves will likely vary from estimates, and such variances may
be material. In addition, the estimates of future net revenues from our proved
reserves and the present value of the revenue are based upon certain assumptions
about future production levels, prices and costs that may not be correct. The
SEC PV-10 values as reported in the Annual Report on Form 10-K for 1997 which
is incorporated by reference into this Prospectus should not be
considered as representative of the fair market value of our proved oil and gas
properties. ("SEC PV-10" refers to present value calculated using a 10% discount
rate and other conditions required by the Securities and Exchange Commission)
The discounted future net cash flows upon which they are based do not provide
for changes in oil and gas prices or for escalation of expenses and capital
costs. The meaningfulness of such estimates is highly dependent upon the
accuracy of the assumptions upon which they are based. Actual future prices and
costs may differ materially from those estimated.
12. SALE AND ABANDONMENT OF UNDERLYING PROPERTIES.
The owners of an oil and gas property have the right to abandon any
well or working interest. This often happens if, in their opinion, such well or
property has ceased to produce or is not capable of producing in commercially
paying quantities. We may not control the timing of plugging and abandoning
wells in wells in which we do not own a majority working interest.
13. FINANCIAL REPORTING IMPACT OF SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
We use the successful efforts method of accounting for our investment
in oil and gas properties. Under that method of accounting, we capitalize (a)
the acquisition costs of mineral interests in oil and gas properties, and (b)
the drilling and equipment costs for development wells and for exploratory wells
that result in proved reserves. The successful efforts method also requires us
to expense the costs to drill exploratory wells that do not result in proved
reserves, along with the costs of geological, geophysical and seismic data and
analysis and the costs of carrying and retaining unproved properties. For
purposes of this discussion a "development well"
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is one that is drilled in a horizon known to be productive, and an "exploratory
well" is one drilled in an unproved area or horizon.
We depreciate capitalized costs of producing oil and gas properties,
after considering estimated abandonment costs and estimated salvage values, and
we account for the depletion of producing properties using the
unit-of-production method. For impairment of value purposes, we periodically
review our unproved oil and gas properties that are individually significant. We
recognize an impairment loss when the net carrying value of an oil and gas field
is greater than the estimated fair value of that field. Because of low period
end prices it is likely the Company will record an additional impairment in the
fourth quarter.
14. COMPETITION
The oil and gas industry is highly competitive in all of its phases and
in particular in the acquisition of unexplored acreage, undeveloped acreage and
existing production. There are a large number of operators engaged in oil and
gas property acquisition and development, and Venus's competitive position
depends on its geological, geophysical and engineering expertise, on its
financial resources and on its ability to find, to acquire and to prove new oil
and gas reserves. We encounter strong competition in acquiring economically
desirable properties and in obtaining equipment and labor to operate and to
maintain our properties. That competition is from major and independent oil and
gas companies, many of which possess greater financial resources and larger
staffs than we do. Labor and equipment markets have shown much volatility
recently, and we cannot be certain that they will be available at the prices we
have budgeted.
15. GOVERNMENT LAWS AND REGULATIONS
Political developments and federal and state laws and regulations
affect our operations. The significance of that effect varies, but it can be
substantial. For example, price controls, taxes and other laws relating to the
oil and gas industry can have large effects on our business. We cannot predict
how governmental agencies or the courts will interpret existing laws and
regulations. Neither can we predict whether additional laws and regulations will
be adopted or what their effect will be on our business or financial condition.
See "-- Regulations -- General Federal and State Regulation."
Our operations are subject to complex and constantly changing
environmental laws and regulations adopted by federal, state and local
governmental authorities. We believe that our compliance with such laws has not
had any material adverse effect upon our operations. We also believe that the
cost of our compliance has not been material. Nevertheless, the discharge of
oil, natural gas or other pollutants into the air, soil or water may give rise
to liabilities to the government and third parties and may require us to incur
considerable costs of remediation.
Additionally, from time to time we have agreed to indemnify both buyers
and sellers of oil and gas properties against certain liabilities for
environmental claims associated with those properties. Existing environmental
laws or regulations, as currently interpreted or reinterpreted in the future, or
future laws or regulations, could materially and adversely affect our operations
and
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<PAGE> 15
financial condition. Likewise, material indemnity claims may arise against us
from the properties we have previously acquired or sold. See "-- Regulations --
Environmental Regulation."
16. SIGNIFICANT NUMBER OF AUTHORIZED BUT UNISSUED SHARES
The Board of Directors has total discretion in the issuance of any
shares of Common Stock and Preferred Stock that may be issued in the future. The
Company is authorized to issue 30,000,000 shares of its Common Stock (10,971,325
shares were issued and outstanding as of December 31, 1998). The Company is
authorized to issue 5,000,000 shares of its Preferred Stock (no shares of
preferred stock were issued and outstanding as of December 31, 1998). The
issuance of shares of that Common Stock or Preferred Stock could adversely
affect the voting power of the purchasers of Common Stock covered by this
Prospectus, and it could have the effect of delaying, deferring or preventing a
change of control of the Company. For example, under certain circumstances, the
issuance of the Common Stock or the Preferred Stock could complicate or
discourage a merger, tender offer or proxy contest, the assumption of control by
a holder of a large block of Venus's securities, or the removal of incumbent
management.
17. FUTURE SALES OF COMMON STOCK
Of the issued and outstanding shares of Common Stock, only a portion
are freely tradeable without restriction or further registration under the
Securities Act. There are approximately 350,000 shares that may be issued upon
the exercise of outstanding stock options that have been registered on Form S-8
with the U.S. Securities and Exchange Commission; those shares (other than
shares issued to affiliates of the Company) will also be freely tradeable. Most
of the shares of Common Stock outstanding and another 1.4 million options and
warrants to buy shares of Common Stock are subject to restrictions on resale.
Certain stockholders who hold "restricted securities" have been granted
registration rights entitling them to demand, in certain circumstances, that we
register the shares of Common Stock held by them so that they can sell the
securities in compliance with the Securities Act. Sales of substantial amounts
of Common Stock in the public market, pursuant to Rule 144 or otherwise, or the
availability of such shares for sale, could adversely affect the prevailing
market price of the Common Stock and impair our ability to raise additional
capital through the sale of equity securities.
18. CONTROL BY CERTAIN STOCKHOLDERS
As of December 31, 1998, the current officers and directors of the
Company and Range Resources Corporation (of which one of our directors is the
President) as a group beneficially own forty-seven percent (47%) of the
undiluted voting power of the Company's voting equity. Consequently, if they act
together, these shareholders are in a position to effectively control the
affairs of the Company, including the election of all of our directors and the
approval or prevention of certain corporate transactions that require majority
stockholder approval.
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<PAGE> 16
There is a Stockholders Agreement among certain of the directors, their
affiliates and certain other stockholders. Pursuant to that agreement, in the
election of directors of the Company at the 1999 annual stockholder meeting and
subsequent annual stockholder meetings at which time the agreement is still in
effect with regard to those parties, the parties to that agreement will vote
their shares for the four nominees nominated by a stockholder group led by the
Chairman of the Board and one nominee nominated by Range Resources Corporation.
This agreement may be considered to increase the control by those stockholders.
19. DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon Eugene L. Ames, Jr., Chairman of the
Board and Chief Executive Officer, John Y. Ames, President and Chief Operating
Officer, Eugene L. Ames, III, Vice President, and Patrick A. Garcia, Treasurer
and Chief Financial Officer. It is also dependent on other key personnel,
including Thomas E. Ewing and Bonnie Weise, both of whom are actively involved
in the technical application of the geoscience methods that are one of the
strengths of the Company. The loss of any one of these individuals for any
reason may adversely affect the Company. The Company also has employment
agreements with Messrs. Ames, Jr. and Ewing and Ms. Weise.
20. REGULATIONS
General Federal and State Regulation
Our business is subject to extensive federal rules and regulations.
Failure to comply with such rules and regulations can result in substantial
penalties. The regulatory burden on the oil and gas industry increases our cost
of doing business and affects our profitability. Because such rules and
regulations are frequently amended or reinterpreted, we are unable to predict
the future cost or impact of complying with such laws.
The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and natural gas.
Many states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells, and the regulation
of spacing, plugging and abandonment of such wells. Many states restrict
production to the market demand for oil and gas. Some states have enacted
statutes prescribing ceiling prices for gas sold within their boundaries.
Also, from time to time regulatory agencies impose price controls and
limitations on production by restricting the rate of flow of oil and gas wells
below natural production capacity in order to conserve supplies of oil and gas.
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Environmental Regulation
The exploration, development and production of oil and gas, including
the operation of saltwater injection and disposal wells, are subject to various
federal, state and local environmental laws and regulations. Such laws and
regulations can increase the costs of planning, designing, installing and
operating oil and gas wells. Our domestic activities are subject to a variety of
environmental laws and regulations. A partial list of those are:
o Oil Pollution Act of 1990,
o Clean Water Act,
o Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"),
o Resource Conservation and Recovery Act ("RCRA"), and
o Clean Air Act.
Civil and criminal fines and penalties may be imposed for
non-compliance with these environmental laws and regulations. Additionally,
these laws and regulations require the acquisition of permits or other
governmental authorizations before undertaking certain activities.
Under the Oil Pollution Act, a release of oil into water or other areas
designated by the statute can result in us being held responsible for the costs
of remediating such a release, certain damages specified in the Act and the
damage to natural resources. That liability can be extensive, depending on the
nature of the release.
CERCLA and comparable state statutes, also known as "Superfund" laws,
can impose joint and several retroactive liability, without regard to fault or
the legality of the original conduct. In practice, cleanup costs are usually
allocated among various responsible parties. Although CERCLA currently exempts
most petroleum products like crude oil, gas and natural gas liquids from the
definition of "hazardous substance," our operations may involve the use or
handling of other materials that may be classified as hazardous substances under
CERCLA. Of course, we are unsure if the exemption will be preserved in future
amendments of the act.
RCRA and comparable state and local requirements impose standards for
the management, including treatment, storage and disposal, of both hazardous and
nonhazardous solid wastes. We generate hazardous and nonhazardous solid waste in
connection with routine operations. From time to time, proposals have been made
that would reclassify certain oil and gas wastes, including wastes generated
during pipeline, drilling, and production operations, as "hazardous wastes"
under RCRA. While state laws vary on this issue, state initiatives to further
regulate oil and gas wastes could have a similar impact.
USE OF PROCEEDS
Venus Exploration will not receive any proceeds from any sale of shares
of Common Stock covered by this Prospectus.
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<PAGE> 18
SELLING STOCKHOLDERS
This Prospectus covers offers and sales from time to time by Stratum
Group, L.P. of the 1,100,000 shares of the Common Stock that it received as a
part of a restructuring of indebtedness owed by one of our subsidiaries to an
affiliate of Stratum Group, L.P. It also covers offers and sales by other
parties to which Stratum Group, L.P. has legally transferred any of those
shares. Pursuant to Rule 416 under the Securities Act, the Selling Stockholders
may also offer and sell shares of Common Stock issued as a result of, among
other events, stock splits, stock dividends and similar events. The registration
of the shares of Common Stock offered for resale hereby is pursuant to a
Registration Rights Agreement dated November 30, 1998, entered into in
connection with the original issuance of the Common Stock (the "Registration
Rights Agreement").
In the Registration Rights Agreement we agreed to file a registration
statement on Form S-3 on or before February 28, 1999. That registration
statement is to cover the resale of all of the Common Stock issued to Stratum
Group, L.P. We are required to use our reasonable best efforts to cause such
registration statement to be declared effective. We are also required to use our
reasonable best efforts to keep the registration statement continuously
effective under the federal Securities Act of 1933 for 2 years after the
effective date of the registration statement or such earlier date when all the
covered shares have been sold or may be sold without restrictions under Rule
144(k) promulgated under the Securities Act.
The Registration Rights Agreement also provides for piggyback
registration rights. Those rights expire at the same time as the other rights
under the Registration Rights Agreement. There are certain limitations on the
selling shareholders' piggyback rights. Those limitations may be imposed by the
managing underwriter of our offering and would restrict the number of shares
that could be included in our registration if the inclusion would materially
jeopardize the successful marketing of our Common Stock to be sold as a result
of that registration.
We generally bear the expense of any registration statement, while
selling stockholders generally bear selling expenses such as underwriting
commissions and discounts. The Registration Rights Agreement also includes
customary indemnification provisions.
The Common Stock covered by the Prospectus was issued to Stratum Group,
L.P., pursuant to a Settlement Agreement dated November 19, 1998, between the
Company and Stratum Group Energy Partners, L.P. and certain of its affiliates.
In the exchange we received the release of our indebtedness to Stratum Group
Energy Partners, L.P., the assignment of certain assets, and a full release from
all other obligations arising out of the October 8, 1996 credit agreement
described below. In return, we issued 1,100,000 shares of Common Stock to
Stratum Group, L.P.
The indebtedness was approximately $1.60 million, and the other assets
we were assigned included (a) rights to acquire up to 589,882 shares of the
Company's common stock from certain members of management and other third
parties, and (b) overriding royalty interests that were assigned to Stratum
Group Energy Partners, L.P., at the time of the execution of the Credit
Agreement. Stratum Group, L.P., has not held any position or office, nor has it
had any other material relationship with the Company or any of its predecessors
or affiliates in the last three years, other than as lender to our wholly-owned
subsidiary. The loan to our subsidiary was without recourse to the Company.
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The Stratum credit facility was created effective October 8, 1996. It
provided a line of credit with a maximum limit of $20 million. The line of
credit limit varied with the value of the borrowing base, which was based on the
value of the properties subject to the underlying deed of trust. The interest
rate charged on outstanding advances was floating prime plus 1%. Prepayment was
not allowed until the earlier of (i) when the full line has been drawn down, or
(ii) October 8, 1999. The overriding royalty interests that were assigned to
Stratum were equal to 5% of our subsidiary's net revenue interest in the
properties subject to the Stratum Deed of Trust. Stratum could convert its
overriding royalty interest into equity, and it also had certain restricted
warrants. Those rights were exercisable only against a pool of Venus Exploration
shares (the "Conversion Share Pool") that are owned by certain of our
shareholders. (The Conversion Share Pool contains 589,882 shares of Venus
Exploration common stock, and those shares are held in an escrow account
maintained by the Frost National Bank.)
On certain of our subsidiary's properties, we used commodity derivative
contracts to protect and to ensure cash flow levels. That was a requirement of
the Stratum credit facility. These were terminated at the time of the
debt-for-equity exchange.
The information below is as of the date of this Prospectus and has been
furnished by Stratum Group, L.P.
<TABLE>
<CAPTION>
Number of Shares Number of Shares Number of Shares
Name of Owned Before Being Registered Owned After this
Selling Stockholder this Offering for Resale Offering
------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Stratum Group, L.P. 1,100,000 1,100,000 -0-*
--------- --------- ----
TOTAL 1,100,000 1,100,000 -0-
</TABLE>
* Assumes all shares of Common Stock registered for resale pursuant to
this Prospectus are sold.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital consists of (i) 30,000,000 shares of Common
Stock, and (ii) 5,000,000 shares of Preferred Stock. At January 15, 1999, we had
(i) 10,982,365 shares of Common Stock outstanding, and (ii) no issued or
outstanding shares of Preferred Stock.
COMMON STOCK
The holders of shares of Common Stock possess full voting power for the
election of directors and for all other purposes. Each holder of Common Stock is
entitled to one vote for each share of Common Stock held of record by such
holder. The shares of Common Stock do not have cumulative voting rights.
In connection with the change of control of the Company that occurred
in 1997, an agreement was entered into among the "Ames Group," the "Blair
Group," and Lomak Petroleum, Inc. (now Range Resources Corporation). The Ames
Group includes Messrs. E.L. Ames, Jr.,
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J.Y. Ames, E.L. Ames, III, Patrick A. Garcia, James W. Gorman, Jere W. McKenny,
other members of the Ames family and certain other stockholders. The Blair Group
includes D. H. Blair Investment Banking Corp. and certain other stockholders.
The stockholders agreement provides that, in the election of directors of the
Company at the 1999 annual shareholder meeting and subsequent annual shareholder
meeting at which time the agreement is still in effect with regard to those
parties, the Ames Group, the Blair Group and Lomak will vote their shares for
the four nominees designated by the Ames Group and the one nominee designated by
Lomak.
PREFERRED STOCK
At any time, the Board of Directors may allow the issuance of fully
authorized shares of Preferred Stock. This may be done without any further
action by the Company's stockholders. The Preferred Stock may be in classes or
series and may have various powers, rights, preferences and limitations. Any
dividend preferences given to Preferred Stock could reduce the funds available
for the payment of dividends on Common Stock. Also, holders of Preferred Stock
could be given a priority position over the Common Stockholders upon any
liquidation, dissolution or winding up of the Company. Under certain
circumstances, the issuance of such Preferred Stock could complicate or
discourage a merger, tender offer or proxy contest, the assumption of control by
a holder of a large block of our securities, or the removal of incumbent
management.
PLAN OF DISTRIBUTION
Stratum Group, L.P., its pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
shares of Common Stock being registered hereunder:
o to or through one or more underwriters,
o directly to other purchasers or through agents,
o in ordinary brokerage transactions,
o in negotiated transactions,
o at market prices prevailing at the time of sale, or
o at prices related to the then prevailing market price or some
other negotiated price.
From time to time the selling stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in our
securities or derivatives thereof. They may sell and deliver the shares of
Common Stock or assign the shares in settlement of securities loans. From time
to time the selling stockholders may pledge their shares of Common Stock
pursuant to the margin provisions of their customer agreements with their
brokers. Upon a default by the selling stockholders, the broker may offer and
sell the pledged shares of Common Stock from time to time.
In effecting sales, the selling stockholders' brokers and dealers may
arrange for other brokers or dealers to participate in such sales. Brokers or
dealers may receive commissions or discounts from the selling stockholders (or,
if any such broker-dealer acts as agent for the purchaser of such shares, from
such purchaser). Those commissions or discounts may be in
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<PAGE> 21
amounts to be negotiated, but they are not expected to exceed those customary in
the types of transactions involved.
Broker-dealers may agree with the selling stockholders to sell a
specified number of such shares of Common Stock at a stipulated price per share.
To the extent such broker-dealer is unable to do so acting as agent for a
selling stockholder, it may purchase as principal any unsold shares of Common
Stock at the price required to fulfill the broker-dealer commitment to the
selling stockholders. Broker-dealers who acquire shares of Common Stock as
principal may thereafter resell such shares of Common Stock from time to time in
transactions (which may involve block transactions and sales to and through
other broker-dealers, including transactions of the nature described above) in
the over-the-counter market or otherwise at similar prices and on terms like the
ones the selling stockholders are allowed to sell those shares. In connection
with such resales, the broker-dealers may pay commissions to the purchasers or
receive commissions from the purchasers. The selling stockholders may also sell
the shares of Common Stock in accordance with Rule 144 promulgated under the
federal Securities Act of 1933, rather than pursuant to this Prospectus.
The selling stockholders and any broker-dealers or agents that
participate with the selling stockholders in sales of the shares of Common Stock
may be deemed to be "underwriters" within the meaning of the federal Securities
Act of 1933 in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares of Common Stock purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
In order to comply with certain states' securities laws, if applicable,
the shares of Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless the Common Stock has been registered or
qualified for sale in such state or unless an exemption from registration or
qualification is available and is satisfied.
SHARES ELIGIBLE FOR FUTURE SALE
As of January 15, 1999, we had outstanding 10,982,365 shares of Common
Stock. In addition, 1,424,706 shares are subject to issuance if all the
outstanding warrants and vested options are exercised. Of the issued and
outstanding shares of Common Stock, approximately one million shares are
currently freely tradable without restriction or further registration under the
federal Securities Act of 1933. That number does not include the 1.1 million
shares covered by this Prospectus. Also, the shares of Common Stock issuable
upon exercise of approximately 350,000 options issued under the 1997 Incentive
Plan (other than shares issued to affiliates of the Company) would be freely
tradable. All of the remaining shares of Common Stock held by existing
stockholders are subject to restrictions on resale. The "restricted" securities
may not be resold unless they are registered under the Securities Act or are
sold pursuant to an available exemption from registration, including Rule 144
under the Securities Act. Certain stockholders, including holders of
"restricted" securities, have been granted certain rights with respect to
registration under the Securities Act of shares of Common Stock held by them.
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In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner except an "affiliate" (as
that term is defined in Rule 144)) is entitled to sell, within any three-month
period, a number of those shares that does not exceed the greater of (i) 1% of
the then outstanding shares of the Common Stock (1,098,236 shares immediately
after this Offering) or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date on which notice of the
sale is filed with the SEC. Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and requirements as to the
availability of current public information concerning the Company. At least 1.8
million shares of the Common Stock could now be sold under Rule 144. Rule 144
provides that a person (or persons whose shares are aggregated) who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale and who has beneficially owned shares for at least two years
(including, in certain circumstances, the holding period of any prior owner) is
entitled to sell those shares under Rule 144(k) without regard to the
limitations described above.
We can make no prediction as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by its counsel, Haynes and Boone, LLP, San Antonio,
Texas. Will C. Jones IV, Of Counsel to Haynes and Boone, LLP, is married to
Elizabeth Ames Jones. Mrs. Jones beneficially owns 262,373 shares of Common
Stock and is a member of the Ames Group, which is a signatory to the
Stockholders Agreement described under "Description of Capital Stock." Mrs.
Jones is the daughter of Eugene L. Ames, Jr., Chairman and Chief Executive
Officer of the Company, and she is the sister of John Y. Ames, President and
Chief Operating Officer of the Company, and of Eugene L.
Ames, III, Vice President of the Company.
EXPERTS
The consolidated financial statements of Venus Exploration, Inc. and
subsidiaries as of December 31, 1996 and 1997, and for each of the years in the
three year period ended December 31, 1997 appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, have been
incorporated herein by reference in reliance upon the report of KPMG LLP,
independent certified public accountants, incorporated herein by reference and
upon the authority of said firm as experts in accounting and auditing.
The estimates relating to the Company's proved oil and gas reserves and
future net revenues of oil and gas reserves as of December 31, 1997,
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997,
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<PAGE> 23
are based upon estimates of such reserves prepared by Williamson Petroleum
Consultants, Inc. in reliance upon its reports and upon the authority of that
firm as experts in petroleum engineering.
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Pursuant to the Registration Rights Agreement between the Company and
Stratum Group, L.P., we have agreed to indemnify each selling stockholder and
its officers, directors, agents, brokers, investment advisors and employees
against any losses, claims, damages, liabilities, costs and expenses arising out
of or relating to (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any Prospectus,
including any amendments or supplements thereto, or (ii) the omission or alleged
omission to state therein a material fact required to be stated or necessary to
make the statements not misleading. There is an exception if such liabilities
arise solely out of or are based upon, any information furnished in writing to
us by a selling stockholder for use in the Registration Statement or an
amendment or supplement thereto. In addition, each Stratum selling stockholder
has agreed to indemnify us and our officers, directors, employees and agents
against any losses, claims, damages, liabilities, costs or expenses arising
solely out of written information furnished by such selling stockholder for use
in the Registration Statement or any amendment or supplement. The selling
stockholder's liability is limited to the dollar amount that it receives from
the sale of the Common Stock.
If our directors and officers are indemnified for liabilities under the
Securities Act of 1933, and if that indemnification is based on the terms of the
Registration Rights Agreement, we have been advised by the SEC that it believes
that such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
AVAILABLE INFORMATION
You can read and copy any of the reports, proxy statements and other
information that Venus Exploration files with the Securities and Exchange
Commission (the "SEC"), as required by the Securities Exchange Act of 1934, as
amended. Those are available at the SEC's public reference rooms in New York,
New York, Chicago, Illinois and at 450 Fifth Street, N.W., Washington, D.C.
20549. You can get information about the public reference rooms by calling the
SEC at 1-800-SEC-0330, or 1-800-732-0330. The SEC also maintains a Website at (
http://www.sec.gov). At the SEC's Website, you can get reports, proxy and
information statements and other information regarding the Company and other
issuers that file electronically with the SEC.
In addition, our Common Stock is traded on the Nasdaq SmallCap
Market(SM) under the symbol "VENX." Reports, proxy statements and other
information concerning the Company can be inspected and copied at the offices
of the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. You may also contact us directly at our Website at
(HTTP://166.93.51.129/).
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We have filed with the SEC a registration statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended. This
Prospectus, which is a part of the Registration Statement, does not contain all
the information in the Registration Statement. Parts of the Registration
Statement are contained in schedules and exhibits to the Registration Statement
as permitted by the SEC. The Prospectus summarizes parts of the documents
contained in those schedules and exhibits. You should not rely on the summaries
in the Prospectus. Rather, you should read the exhibits and schedules for the
complete description. The Registration Statement, including its exhibits, can be
inspected and copied at the SEC's Public Reference Room, the SEC's regional
offices, and at the offices of the National Association of Securities Dealers,
Inc. referred to above in Washington, D.C., at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed the following documents with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, and they are hereby incorporated by
reference in this Prospectus:
o Annual Report on Form 10-K for the fiscal year ended
December 31, 1997,
o Quarterly Report on Form 10-Q for the quarter ended March 31,
1998,
o Quarterly Report on Form 10-Q for the quarter ended June 30,
1998,
o Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998,
o Current Report on Form 8-K dated January 27, 1999,
o Current Report on Form 8-K dated February 12, 1999, and
o Registration Statement on Form 8-A filed on March 12, 1986.
All documents that we file pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act after the date of this Prospectus and
before the end of the offering made by this Prospectus are also incorporated by
reference. Any statement contained in a document incorporated into this
Prospectus should be considered superseded or modified for purposes of this
Prospectus to the extent that a statement contained herein (or in any other
subsequently filed document that also is incorporated by reference) modifies or
supersedes such statement. Any modified or superseded statement, except as so
modified or superseded, will not be considered a part of this Prospectus.
We will provide to each person, including any beneficial owner, to whom
this Prospectus is delivered any of the information that has been incorporated
into this Prospectus by reference but is not delivered with it. We will send
that information without charge if you call or write us with that request. You
may ask for the information by calling Mr. John Y. Ames at (210) 930-4900, or
you can send written requests to:
Venus Exploration, Inc.
1250 N.E. Loop 410, Suite 1000
San Antonio, Texas 78209
Attention: John Y. Ames, President
22
<PAGE> 25
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee ............. $ 374
Nasdaq SmallCap Market(SM) Listing Fee........................... 7,500
Transfer Agent Fees ............................................. 100
Printing Expenses ............................................... 100
Accounting Fees and Expenses .................................... 5,000
Legal Fees and Expenses.......................................... 15,000
Engineer Fees and Expenses ...................................... 1,000
Blue Sky Fees and Expenses ...................................... 200
Miscellaneous Expenses .......................................... 226
-------
Total .................................................. $29,500
=======
</TABLE>
All of the above expenses, except the Securities and Exchange
Commission registration fee and the Nasdaq SmallCap Market(SM) listing fee, are
estimated. All of such expenses will be borne by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation, as amended, provides that
no director of the Company will be personally liable to the Company or any of
its stockholders for monetary damages arising from the director's breach of
fiduciary duty as a director. However, this does not apply with respect to any
action in which the director would be liable under Section 174 of the General
Corporation Law of the State of Delaware ("Delaware Code"), nor does it apply
with respect to any liability in which the director (i) breached his duty of
loyalty to the Company or its stockholders; (ii) did not act in good faith or,
in failing to act, did not act in good faith; (iii) acted in a manner involving
intentional misconduct or a knowing violation of law or, in failing to act, has
acted in a manner involving intentional misconduct or a knowing violation of
law; or (iv) derived an improper personal benefit.
Our Certificate of Incorporation provides that we will indemnify our
directors and officers and former directors and officers to the fullest extent
permitted by the Delaware Code. Pursuant to the provisions of Section 145 of the
Delaware Code, we have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding (other than an action by or in the right of the
Company) by reason of the fact that he is or was a director, officer, employee
or agent of the Company, against any and all expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
II-1
<PAGE> 26
such action, suit or proceeding. The power to indemnify applies only if such
person acted in good faith and in a manner he reasonably believed to be in the
best interest, or not opposed to the best interest, of the Company and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of
the Company as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself.
There is the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct unless the
court, in its discretion, believes that, in light of all the circumstances,
indemnification should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
Insofar as indemnification for liabilities arising under the Securities
Act of 1993 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been advised that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C>
4.1 Certificate of Incorporation, filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, which Exhibit is incorporated herein by reference.
4.2 Bylaws, filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, which Exhibit is incorporated herein by reference.
*4.3 Settlement Agreement dated November 19, 1998, between Stratum Group, L.P., and Venus Exploration, Inc.
*4.4 Registration Rights Agreement dated November 30, 1998, between Venus Exploration, Inc. and
Stratum Group, L.P.
*5.1 Opinion of Haynes and Boone, LLP.
*23.1 Consent of KPMG LLP.
*23.2 Consent of Haynes and Boone, LLP, contained in the opinion filed as Exhibit 5.1.
*23.3 Consent of Williamson Petroleum Consultants, Inc.
*24.1 Power of Attorney, included as part of signature page of this Registration Statement.
</TABLE>
- ----------
* Filed herewith.
II-2
<PAGE> 27
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) that, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the offering; and
(4) the undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the issuer pursuant to the foregoing
II-3
<PAGE> 28
provisions, or otherwise, the issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event a claim for indemnification against such liabilities is asserted by such
director, officer or controlling person in connection with the securities being
registered, the issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 29
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Antonio, State of Texas, on the 4th day of
March, 1999.
VENUS EXPLORATION, INC.
By: /s/ EUGENE L. AMES, JR.
----------------------------------
Name: Eugene L. Ames, Jr.
Title: Chairman of the Board and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Eugene L. Ames, Jr., and John Y.
Ames, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign, execute and file with the Securities and
Exchange Commission and any state securities regulatory board or commission any
documents relating to the proposed issuance and registration of the securities
offered pursuant to this Registration Statement on Form S-3 under the Securities
Act of 1933, including any amendment or amendments relating thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises in order
to effectuate the same as fully to all intents and purposes as he might or could
do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ EUGENE L. AMES, JR.
- -------------------------------- Chairman of the Board, Chief March 4, 1999
Eugene L. Ames, Jr. Executive Officer and director
(principal executive officer)
/s/ JOHN Y. AMES
- -------------------------------- President, Chief Operating March 4, 1999
John Y. Ames Officer and Director
</TABLE>
II-5
<PAGE> 30
<TABLE>
<S> <C> <C>
/s/ PATRICK A. GARCIA
- -------------------------------- Treasurer and Chief Financial March 4, 1999
Patrick A. Garcia Officer (principal financial
officer and accounting officer)
/s/ J. C. ANDERSON
- -------------------------------- Director March 4, 1999
J. C. Anderson
/s/ MARTIN A. BELL
- -------------------------------- Director March 4, 1999
Martin A. Bell
/s/ JAMES W. GORMAN
- -------------------------------- Director March 4, 1999
James W. Gorman
/s/ JERE W. MCKENNY
- -------------------------------- Director March 4, 1999
Jere W. McKenny
/s/ JOHN H. PINKERTON
- -------------------------------- Director March 4, 1999
John H. Pinkerton
</TABLE>
II-6
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C>
4.1 Certificate of Incorporation, filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, which Exhibit is incorporated herein by reference.
4.2 Bylaws, filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, which Exhibit is incorporated herein by reference.
*4.3 Settlement Agreement dated November 19, 1998, between Stratum Group, L.P., and Venus Exploration, Inc.
*4.4 Registration Rights Agreement dated November 30, 1998, between Venus Exploration, Inc. and
Stratum Group, L.P.
*5.1 Opinion of Haynes and Boone, LLP.
*23.1 Consent of KPMG LLP.
*23.2 Consent of Haynes and Boone, LLP, contained in the opinion filed as Exhibit 5.1.
*23.3 Consent of Williamson Petroleum Consultants, Inc.
*24.1 Power of Attorney, included as part of signature page of this Registration Statement.
</TABLE>
- ----------
* Filed herewith.
<PAGE> 1
EXHIBIT 4.3
November 19, 1998
VIA FACSIMILE: 212/262-0596
Joseph M. Rinaldi
Stratum Corp.
1330 Sixth Avenue, 33rd Floor
New York, NY 10019
Re: Stratum Group Energy Partners, L.P. Loan to
Venus Development, Inc.
Settlement of all Obligations
Dear Joe:
Here are the terms of the proposed settlement of all obligations of the Venus
companies and of the former Venus Energy Plc shareholders to the Stratum
companies that arose out of the Term Loan and Security Master Agreement between
Venus Development, Inc., and Stratum Group Energy Partners, L.P. dated October
8, 1996, and the other agreements executed concurrently with that agreement.
In return for a full and final release from those obligations from all of the
Stratum entities and their assigns and for a reassignment to Venus Development,
Inc., or its designee of all real and personal property interests conveyed, or
agreed to be conveyed, to any of the Stratum entities, Venus Exploration, Inc.,
will issue Stratum Corp. or its designee ("Stratum") One Million One Hundred
Thousand (1,100,000) shares of its Common Stock, par value $0.01.
Those securities will be issued without registration under the Securities Act of
1933 and will be restricted securities. As a condition of the settlement offer,
Stratum must agree that:
i) those securities will be acquired for its own account, for
investment purposes only, and without any intent to distribute the
shares; provided, however, that subject to compliance with applicable
securities laws, Stratum may transfer said shares to Stratum's existing
partners as a dividend or other similar distribution to partners;
<PAGE> 2
Mr. Joseph M. Rinaldi
November 19, 1998
Page 2
ii) none of the Venus entities is making any representations or
warranties with regard to the shares or the companies' businesses; and
iii) Stratum is relying solely on the representations and statements
made by Venus Exploration, Inc., in its publicly-filed reports made
under the Securities Exchange Act of 1934.
The effective date of the settlement is November 12, 1998, and in addition to
the return and cancellation of the promissory note, the documents that are
required to complete the settlement transaction include, without limitation, the
following:
a) Reassignment to Venus Development, Inc., of all overriding
royalty interests assigned to Stratum Group Energy Partners,
L.P.;
b) Cancellation of Hydrocarbon Purchase and Sale Option
Agreements
c) Release of Mortgage and Deed of Trust
d) Mutual releases by Stratum and the Venus companies of all
claims, causes of action and other liabilities against the
other under or related to the Term Loan and Security Master
Agreement and any related documents and/or transactions
e) UCC-3's for all states and counties
f) Letters in Lieu of Transfer Orders
g) Release of Assignment of Proceeds
h) Termination of Swap Agreements
<PAGE> 3
Mr. Joseph M. Rinaldi
November 19, 1998
Page 3
i) Assignment of Amended and Restated Equity Conversion Agreement
dated May 21, 1997, between The New Venus Exploration, Inc.,
and Stratum Group, L.P.
j) Assignment of Rights under Escrow Agreement dated May 21,
1997, among Frost National Bank, Stratum Group, L.P., The New
Venus Exploration, Inc., and Venus Oil Company
k) Cancellation of Stock Pledge and Security Agreement
l) Termination of Energy Risk Management Association Master
Energy Price Swap Agreement
m) Various filings and agreements necessary for compliance with
state and federal securities laws and regulations
n) Registration Rights Agreement containing customary terms and
conditions and including the following terms:
(i) Venus Exploration, Inc. will file a registration
statement covering the resale of the shares within 90
days following the consummation of the transaction
contemplated hereby and will use its reasonable best
efforts to cause the SEC to declare such registration
statement effective.
(ii) The Registration Rights Agreement will contain
provisions prohibiting sales of shares during certain
"blackout" periods as required by any underwriter
that Venus Exploration, Inc., may engage with regard
to any debt or equity transaction under
consideration. Those blackout periods will apply to
Stratum only if they also apply and are enforced
against the directors of Venus Exploration, Inc., and
its large shareholders; e.g., Range Resources
Corporation.
<PAGE> 4
Mr. Joseph M. Rinaldi
November 19, 1998
Page 4
(iii) Venus Exploration, Inc., will advise Stratum by
written notice at least two weeks prior to the filing
of any registration statement under the Securities
Act of 1933 that covers its Common Stock and, upon
Stratum's request, will include in any such
registration statement such information as may be
required to permit a public offering of these
settlement shares. If, in the good faith judgment of
the managing underwriter of such public offering, the
inclusion of all of the settlement shares covered by
a request for registration would reduce the number of
shares to be offered by Venus Exploration, Inc., or
would interfere with the successful marketing of the
shares of stock offered by Venus Exploration, Inc.,
the number of settlement shares otherwise to be
included in the underwritten public offering may be
reduced or may be excluded in their entirety if so
required by the underwriter, provided that such
reduction will be not greater than, on a proportional
basis, the reduction experienced by the directors of
Venus Exploration, Inc., and its large shareholders;
e.g., Range Resources Corporation. If only a portion
of the settlement shares is included in the
underwritten public offering, those settlement shares
that are thus excluded from the underwritten public
offering shall be withheld from the market by Stratum
for the period that the managing underwriter
reasonably determines is necessary in order to effect
the underwritten public offering. Stratum will be
required to withhold those shares from the market
only to the extent that the directors of Venus
Exploration, Inc., and its large shareholders; e.g.,
Range Resources Corporation, are equally affected, on
a proportional basis, by such direction to withhold.
Furthermore, if the managing underwriter requires a
shorter withholding period for the directors of Venus
Exploration, Inc., and its large shareholders, that
shorter period will also apply to Stratum.
<PAGE> 5
Mr. Joseph M. Rinaldi
November 19, 1998
Page 5
Venus Exploration, Inc., will bear the entire cost
and expense of any registration of securities
initiated by it under Subsection (n)(iii)
notwithstanding that the settlement shares may be
included in any such registration. Stratum will,
however, bear the fees of its own counsel and any
registration fees, transfer taxes or underwriting
discounts or commissions applicable to the settlement
shares.
(iv) If Stratum and its affiliates beneficially own less
than 5% of the outstanding shares of Common Stock of
Venus Exploration, Inc., the blackout period and
withhold-from-market requirements described in
Subsection (n)(ii) and Subsection (n)(iii) will be
waived by Venus Exploration, Inc.
It is agreed that Stratum and all of its affiliates and assigns will reassign to
Venus Development, Inc., or its designee all rights and property acquired as a
result of the Term Loan and Security Master Agreement, and nothing will be
retained by Stratum, its affiliates or assigns, provided that Stratum will
retain the rights to indemnification to which it is entitled under Section 10.5
of the Term Loan and Security Master Agreement.
If you agree with this settlement offer on the terms included, please
countersign this letter in the space provided below and return a copy to me as
evidence of your acceptance. Upon that acceptance, we will begin drafting the
various releases, assignments and other instruments necessary to document the
agreement. Unless such releases, assignments and other instruments are fully
executed and delivered on or before November 30, 1998, this settlement will be
of no force and effect, and the Venus companies and Stratum will be restored to
their respective positions that they occupied prior to this settlement.
This settlement offer will expire on November 19, 1998, at 5:00 P.M., Central
Standard Time, and may be withdrawn at any time before receipt of your
acceptance as required above.
<PAGE> 6
Mr. Joseph M. Rinaldi
November 19, 1998
Page 6
Very truly yours,
/s/ JOHN Y. AMES
John Y. Ames
President &
Chief Operating Officer
AGREED AND ACCEPTED:
STRATUM GROUP ENERGY PARTNERS, L.P.,
for itself and its affiliates
By: STRATUM CORP., its general partner
By: /s/ JOSEPH M. RINALDI
----------------------------------
Joseph M. Rinaldi, President & CEO
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of November 30, 1998, between Venus Exploration, Inc., a
Delaware corporation (the "Company"), and Stratum Group, L.P., a Delaware
limited partnership ("Stratum").
This Agreement is made pursuant to that certain settlement
agreement dated as of November 12, 1998, between the Company and an affiliate of
Stratum; i.e., Stratum Group Energy Partners, L.P. (the "Settlement Agreement").
The Company and Stratum hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Advice" shall have meaning set forth in Section 3(n).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Blackout Period" shall have the meaning set forth in Section
3(n).
"Business Day" means any day except Saturday, Sunday and any
day that shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to be closed.
"Closing Date" shall mean the date of this Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Shares" shall mean the One Million One Hundred
Thousand (1,100,000) shares of Common Stock issued to Stratum under the
Settlement Agreement.
"Common Stock" means the Company's common stock, par value
$.01 per share.
"Effectiveness Period" shall have the meaning set forth in
Section 2.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 90th day following the Closing Date.
<PAGE> 2
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities, excluding the Company.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the Common Shares and any
shares of Common Stock issued as adjustment for the stock splits and stock
dividends or similar events.
"Registration Statement" means the registration statement and
any additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
-2-
<PAGE> 3
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means one special counsel to the Holders
(initially __________________________).
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. Shelf Registration
On or prior to the Filing Date, the Company shall prepare and
file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (if the Company is
not then eligible to register for resale the Registrable Securities on Form S-3,
such registration shall be on another appropriate form in accordance herewith).
The Registration Statement shall state, to the extent permitted by Rule 416
under the Securities Act, that it also covers such indeterminate number of
shares of Common Stock as may be required in each case to prevent dilution
resulting from stock splits, stock dividends or similar events. The Company
shall use its reasonable best efforts to cause the Registration Statement to be
declared effective under the Securities Act and shall use its reasonable best
efforts to keep such Registration Statement continuously effective under the
Securities Act until the date which is two years after the date that such
Registration Statement is declared effective by the Commission or such earlier
date when all Registrable Securities covered by such Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent (the
"Effectiveness Period").
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
-3-
<PAGE> 4
(a) Not less than five (5) Business Days prior to the filing
of the Registration Statement described in Section 2 or any related Prospectus
or any amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall, (i) furnish to the Holders and their Special Counsel, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders and their Special Counsel, and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective counsel
to such Holders, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities and their Special Counsel shall
reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period; (ii) cause the
related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as reasonably possible to any comments received from
the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as reasonably possible provide the Special Counsel true
and complete copies of all correspondence from and to the Commission relating to
the Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the Special Counsel as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than five (5) days prior to
such filing) and (if requested by any such Person) confirm such notice in
writing no later than one (1) Business Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) when the Commission notifies
the Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement (the
Company shall provide true and complete copies thereof and all written responses
thereto to the Special Counsel); and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension
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<PAGE> 5
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (v) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its reasonable best efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of, (i) any order suspending the
effectiveness of the Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction.
(e) Make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; provided, however, that the Company
shall not be required to take any action pursuant to this Section 3(e) that
would, in the opinion of counsel for the Company, violate applicable law or be
materially detrimental to the business prospects of the Company.
(f) Furnish to the Special Counsel, without charge, at least
one conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference, and all exhibits to the extent
requested by such Person (including those previously furnished or incorporated
by reference) promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder and their Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its reasonable best efforts to register or qualify or cooperate with the
selling Holders and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
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<PAGE> 6
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by applicable law, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may request at
least two Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(v), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its reasonable best efforts to cause all Registrable
Securities relating to such Registration Statement to be listed on the Nasdaq
SmallCap Market ("NASDAQ") and any other Subsequent Market, if any, on which
similar securities issued by the Company are then listed.
(l) Make available for inspection by the selling Holders and
any representative of such Holders, and any attorney or accountant retained by
such selling Holders, at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
of the Company and its subsidiaries, and cause the officers, directors, agents
and employees of the Company and its subsidiaries to supply all information in
each case reasonably requested by any such Holder, representative, attorney or
accountant in connection with the Registration Statement; provided, however,
that any information that is determined in good faith by the Company in writing
to be of a confidential nature at the time of delivery of such information shall
be kept confidential by such Persons, unless (i) disclosure of such information
is required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities; (ii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iii) such information becomes available to such
Person from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
(m) Comply with all applicable rules and regulations of the
Commission.
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<PAGE> 7
(n) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration, without any penalty otherwise
provided by this Agreement, the Registrable Securities of any such Holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or
3(c)(v), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
If there is a significant business opportunity (including but
not limited to the acquisition or disposition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer or other
similar transaction) available to the Company or other material development in
respect of the Company that the Board reasonably determines not to be in the
Company's best interest to disclose, then the Company may suspend the right of
the Holders to sell Registrable Securities under a Registration Statement for a
period not to exceed 45 Business Days during the Effectiveness Period (the
"Blackout Period"); provided, however, that the suspension shall only be
enforced for the same period and under the same conditions as imposed upon
directors of the Company and its significant stockholders; i.e., greater than
10% stockholders.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company (but not the Holders), except as
and to the extent specified in Section 4(b), shall be borne by the Company. The
fees and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the
NASDAQ and any Subsequent
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<PAGE> 8
Market on which the Common Stock is then listed for trading, and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of its counsel in connection with Blue Sky
qualifications or exemptions of the Registrable Securities), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities), (iii) messenger, telephone and delivery expenses of the
Company, (iv) Securities Act liability insurance, if the Company so desires such
insurance, and (v) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) The Holders shall be responsible for all their costs, fees
and expenses in connection therewith (including registration fees, transfer
taxes and any commissions and discounts) and their legal counsel and
accountants.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and reasonable attorneys' fees) and expenses (collectively, "Losses"), as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in the Registration Statement, any Prospectus or
any form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein, or
to the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify
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<PAGE> 9
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement, such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus, or in any amendment or supplement
thereto. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party,
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<PAGE> 10
and such Indemnified Party shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense thereof and such counsel
shall be at the expense of the Indemnifying Party; provided, however, that the
Indemnifying Party shall be responsible for the fees and expenses of one counsel
for all such Indemnified Parties unless an Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent all such Indemnified Parties, in which case such
Indemnified Party shall be permitted, at the expense of the Indemnifying Party,
to employ separate counsel). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section 5 was available to
such party in accordance with its terms.
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<PAGE> 11
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
para graph. Notwithstanding the provisions of this Section 5(d), no Holder shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the proceeds actually received by such Holder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) Piggy-Back Registrations. If, at any time the Company
shall determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to each holder of Registrable Securities written notice of such
determination and, if within fourteen (14) days after receipt of such notice,
any such holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered; provided, however, that the Company shall not
be required to register any Registrable Securities pursuant to this Section 6(b)
that are eligible for sale pursuant to Rule 144(k) of the Commission. Any
registration statement referred to in this Section 6(b) may be withdrawn at any
time by the Company. The Holders acknowledge and agree that in connection with
any such underwritten sale of their shares, the Company will be compelled to
de-register such shares under any then-effective Registration Statement covering
the resale of such shares. The number of Registrable Securities to be included
in such a registration may be reduced or eliminated if and to the extent, in the
case of an underwritten offering, the managing
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<PAGE> 12
underwriter shall render to the Company its opinion that such inclusion would
materially jeopardize the successful marketing of the securities (including the
Registrable Securities) proposed to be sold therein; provided, however, that
such number of shares of Registrable Securities shall not be reduced by a
proportion greater than that enforced against all the shares included in the
registration pursuant to permitted requests by directors of the Company and its
significant stockholders; i.e., greater than 10% stockholders. In the event that
the number of Registrable Securities to be included in a registration is to be
reduced as provided above, within 10 Business Days after receipt by each Holder
proposing to sell Registrable Securities pursuant to the registered offering of
the opinion of such managing underwriter, all such Selling Holders may allocate
among themselves the number of shares of such Registrable Securities which such
opinion states may be distributed without adversely affecting the distribution
of the securities covered by the Registration Statement, and if such Holders are
unable to agree among themselves with respect to such allocation, such
allocation shall be made in proportion to the respective numbers of shares
specified in their respective written requests. Notwithstanding anything to the
contrary contained in Section 3 and this Section 6(b), in the event that there
is a firm underwriting commitment offer of securities of the Company pursuant to
a Registration Statement covering Registrable Securities, regardless whether the
Holder elects to participate in such offering, each Holder shall not offer for
sale, sell, grant any option for the sale of, or otherwise dispose of, directly
or indirectly, any shares of Common Stock, or any securities convertible into or
exchangeable into or exercisable for any shares of Common Stock during the
period of distribution of the Company's securities by such underwriters, which
period shall be specified in writing by the underwriters, shall not exceed any
period during which management of the Company and others are similarly
prohibited from disposing of shares of Common Stock, and shall not exceed 180
days following the date of effectiveness under the Securities Act of the
Registration Statement relating thereto. If Stratum and its Affiliates
beneficially own less than 5% of the outstanding shares of Common Stock of the
Company, the lockup period described in the immediately preceding sentence will
be waived by the Company and the obligation of the Company to maintain
effectiveness the Registration Statement as provided by Section 2 will
terminate. No Holder may participate in any Underwritten Offering hereunder
unless such Holder (i) agrees to sell its Registrable Securities on the basis
provided in any underwriting agreements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such arrangements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority
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<PAGE> 13
of the Registrable Securities to which such waiver or consent relates; provided,
however, that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(d) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 5:00 p.m. (Central time) on a Business
Day, (iii) the Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 5:00 p.m. (Central time) on any date and
earlier than 11:59 p.m. (Central time) on such date; or (iv) upon receipt, when
delivered by a reputable overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company: Venus Exploration, Inc.
1250 N.E. Loop 410
Suite 1000
San Antonio, Texas 78209
Facsimile: (210) 828-6016
Attention: John Y. Ames
With copies to: Haynes and Boone, LLP
112 E. Pecan Street
Suite 1600
San Antonio, Texas 78205
Facsimile: (210) 978-7450
Attention: Will C. Jones, IV
If to Stratum, to its address and facsimile number on the Schedule of
Stratum, with copies to Stratum's representatives as set forth on the Schedule
of Stratum attached to the Settlement Agreement.
Each party shall provide five days' prior written notice to the other
party of any change in address or facsimile number.
If to any other Person who is then the registered Holder:
To the address of such Holder as it
appears in the stock transfer books
of the Company or such other address
as may be designated in writing
hereafter, in the same manner, by
such Person.
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<PAGE> 14
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. Each Holder may
assign their respective rights hereunder in the manner and to the Persons as
permitted under this Agreement and the Settlement Agreement and in accordance
with the Securities Act.
(f) Assignment of Registration Rights. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (v) such transfer shall have been made in accordance with
the applicable requirements of the Settlement Agreement. The rights to
assignment shall apply to the Holders (and to subsequent) successors and
assigns.
(g) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(h) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Texas without regard to the principles of conflicts of law thereof.
(i) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(j) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(k) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(l) Shares Held by The Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
VENUS EXPLORATION, INC.
By: /s/ JOHN AMES
-----------------------------------------
Name: John Ames
Its: President
STRATUM GROUP, L.P.
By: Stratum Corp., its general partner
By: /s/ J.M. RINALDI
-----------------------------------------
Name: Joseph M. Rinaldi
Title: President and Chief
Executive Officer
-15-
<PAGE> 1
EXHIBIT 5.1
March 4, 1999 Direct Dial: [214] 651-5553
[email protected]
Venus Exploration, Inc.
1250 N.E. Loop 410
Suite 1000
San Antonio, Texas 78209
Re: Registration Statement on Form S-3 of 1,100,000 shares of common stock, par
value $.01 per share, of Venus Exploration, Inc. ("Common Stock")
Gentlemen:
We are securities counsel to Venus Exploration, Inc., a Delaware corporation
(the "Company"), in connection with the registration of approximately 1,100,000
shares of Common Stock (the "Shares") issued to Stratum Group, L.P. in an
unregistered transaction as described in the Prospectus.
We have examined such documents, records and matters of law as we have deemed
necessary for purposes of this opinion. Based on the foregoing, we are of the
opinion that the Shares are duly authorized and the Shares are validly issued,
fully paid and nonassessable.
In rendering the foregoing opinion, we have relied as to certain factual matters
upon certificates of officers of the Company and public officials, and we have
not independently checked or verified the accuracy of the statements contained
therein.
We hereby consent to the filing of this opinion as Exhibit 5.1 to this
Registration Statement on Form S-3 filed by the Company to effect registration
of the Shares under the Securities Act of 1933, as amended, and to the reference
to us under the caption "Legal Matters" in the Prospectus constituting a part of
such Registration Statement.
Very truly yours,
/s/ HAYNES AND BOONE, LLP
Haynes and Boone, LLP
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Venus Exploration, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG LLP
San Antonio, Texas
March 5, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ENGINEERS
Williamson Petroleum Consultants, Inc. ("Williamson") hereby consents to use in
the Prospectus (the "Prospectus") constituting a part of the Registration
Statement on Form S-3 and the Registration Statement on Form S-3 filed by Venus
Exploration, Inc., a Delaware corporation (the "Company"), under the Securities
Act of 1933 (the "Act"), of information contained in our reserves reports
entitled "Evaluation of Oil and Gas Reserves to the Interests of Venus
Exploration, Inc. in Certain Properties Located in Texas and Oklahoma, Effective
December 31, 1996, for Disclosure to the Securities and Exchange Commission,
Williamson Project 7.8482" and "Evaluation of Oil and Gas Reserves to the
Interests of Venus Exploration, Inc. in Certain Properties, Effective December
31, 1997, for Disclosure to the Securities and Exchange Commission, Williamson
Project 8.8572" relating to the oil and gas reserves and revenue, of and from
certain interests of the Company and of information depicted in the Company's
Annual Report on Form 10- K for the year ended December 31, 1997, that was
derived from our reserves reports and/or to this firm in such Prospectus and to
our being named as an expert in the Prospectus.
WILLIAMSON PETROLEUM CONSULTANTS, INC.
Houston, Texas
February 8, 1999
