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As filed with the Securities and Exchange Commission on February 2, 2000
Registration No. 333-73457
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2 TO
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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (2) FEE
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Common Stock, par value 1,100,000 $1.21875 $1,340,625 $373 (3)
$0.01 per share shares
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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.
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(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) based on the average of the high and low prices reported on
the Nasdaq SmallCap Market(SM) on [January 24, 2000].
(3) The Registrant has previously paid a filing fee of $364.00 with respect to
the registration of 1,100,000 shares on this Registration Statement.
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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, nor is it a solicitation of 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 February 2, 2000 Common Stock by Owner
other than the Issuer
[Venus logo]
1,100,000 SHARES OF COMMON STOCK
This prospectus covers the resale of 1,100,000 shares of Venus Exploration
common stock owned by Stratum Group, L.P.
Stratum may offer these shares from time to time in various types of
transactions, including sales on the open market and in privately negotiated
transactions. These sales may be at fixed prices, at prevailing market prices,
varying prices and negotiated prices. Venus Exploration has no underwriting
arrangements with respect to this offering, and we will not receive any proceeds
from these resales of our common stock.
The common stock is traded on the Nasdaq SmallCap Market(SM) under the symbol
VENX.
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This investment involves a high degree of risk, and you should purchase shares
only if you can afford a complete loss of your investment. Please consider the
"Risk Factors" beginning on page 5 before you make an investment in the shares
covered by this prospectus.
Neither the U.S. Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities. None of those
agencies has determined whether this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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February 2, 2000.
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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 offers
to buy the 1,100,000 shares of common stock held by Stratum. However, in any
situation in which the circumstances would make an offer or a solicitation
unlawful, this prospectus will not be considered to cover that offer to sell or
that solicitation of an offer to buy.
You should remember that the information contained in this prospectus
is correct as of February 2, 2000. 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 February 2, 2000. If there are material
changes in Venus Exploration's affairs, we will disclose those changes to you by
filing a post-effective amendment updating the information in this prospectus.
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TABLE OF CONTENTS
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Page
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Summary .........................................................................................................3
Risk Factors......................................................................................................5
Forward-Looking Statements.......................................................................................16
Venus Exploration, Inc...........................................................................................17
Recent Developments..............................................................................................18
Description of Capital Stock.....................................................................................23
Use of Proceeds..................................................................................................23
Selling Stockholders.............................................................................................23
Plan of Distribution.............................................................................................25
Legal Matters....................................................................................................26
Experts ........................................................................................................26
Disclosure of SEC Position on Indemnification for Securities Act Liabilities.....................................27
Where You Can Find More Information..............................................................................28
Information Incorporated by Reference............................................................................28
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SUMMARY
In this prospectus, when we use the terms "Venus Exploration," "we,"
"us" or "our," we are referring to Venus Exploration, Inc., together with our
subsidiaries and predecessors, unless the context of the statement in which the
term is used indicates another meaning.
The Company
Venus Exploration has been engaged in the exploration, development and
acquisition of oil and gas properties since 1996. We presently have oil and gas
properties, acreage and production in nine states; however, we focus our primary
exploration and development activity in Texas, Oklahoma and Louisiana. Venus
Exploration is a Delaware corporation. Our principal executive offices are
located at 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209, and our
telephone number is (210) 930-4900.
Recent Developments
Sale of EXUS Energy Properties. On June 30, 1999, we acquired an
interest in some oil and gas properties in Jackson Parish, Louisiana. Apache
Corporation was the seller, and the buyer was EXUS Energy LLC, a limited
liability company that was owned equally by us and EXCO Resources, Inc. The
gross purchase price was $28.5 million, and the net purchase price was $27.6
million. The adjustments made to arrive at the net purchase price were mostly
adjustments for production between the effective date of March 1, 1999, and the
date of closing. We financed all of our 50% of the investment in the acquisition
through a combination of debt to EXCO Resources and a line of credit set up by
EXUS Energy.
On December 31, 1999, we sold our interest in the EXUS Energy
properties, as did EXCO Resources. The gross purchase price for our interest was
$18.7 million. We used the net proceeds to repay our portion of EXUS Energy's
bank debt, the convertible note to EXCO Resources, and substantially all of our
outstanding secured bank debt. We expect to report a gain on the sale of
approximately $4.3 million, but offsetting a part of that gain, we expect to
report a loss of approximately $200,000 on the early
extinguishment of debt. For a more detailed discussion of the EXUS Energy
transactions, please read the first section under "Recent Developments" on page
18.
Private Placements. In the second quarter of 1999 we completed the
private placement to six investors of six unsecured convertible subordinated
promissory notes totaling $1,000,000. We received net proceeds of $975,000 after
legal fees and other miscellaneous expenses. We used the net proceeds for
general working capital.
In the fourth quarter of 1999, we issued a subordinated promissory note
in the principal amount of $750,000 to Mr. E. L. Ames, Jr., our Chief Executive
Officer and the Chairman of our Board of Directors. We applied the net proceeds
of $730,000 to general working capital. For a more detailed discussion of this
private placement, please read the second section under "Recent Developments,"
which begins on page 19.
Property Sales. On January 27, 1999, we sold our oil and gas properties
in West Virginia to Allegheny Interests, Inc., and Meridian Exploration
Corporation for a gross purchase price of $1,170,000. On February 12, 1999, we
sold our interest in the H.E. White Unit in
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Freestone County, Texas to Petroleum Development Corporation and Warren
Resources, Inc. for a sales price of $1,150,000. We used $1,650,000 out of the
net proceeds from these sales to reduce our indebtedness; we used the rest for
general operating expenses. Both sales were of non-core properties, and we did
not operate the H.E. White Unit. For a more detailed discussion of these two
sales, please read the fourth section under "Recent Developments," which begins
on page 20.
Potential Financial Defaults. During 1998 our financial situation
deteriorated. Throughout 1999 we received a series of waivers from our principal
lender for defaults under our credit facility. Currently, we are in default
under two of the financial covenants in that credit facility. The lender waived
these covenant defaults until March 31, 2000. In addition, our independent
auditors raised a "going concern" question in the auditors' report on our 1998
financial statements.
During 1999 we began implementing a plan to solve the immediate
financial concerns. The private placements of the subordinated debt and the
sales of properties were parts of that plan. We are also working on a number of
other alternatives, including the possibility of a merger, the sale of other
assets, and the issuance of debt or equity capital. Our financial condition
improved significantly with the sale of the EXUS Energy properties. We have
repaid substantially all of our secured bank debt. We intend to renegotiate or
refinance our secured bank debt during the first quarter of 2000. For a more
detailed discussion of our financial condition, please read the risk factors
that address our present and future financial condition. Those risk factors
begin on page 5.
Threatened Delisting from Nasdaq SmallCap Market(SM). In April 1999 we
received letters from the Nasdaq SmallCap MarketSM regarding our auditors'
"going concern" question and stating that we did not meet all the Nasdaq listing
criteria due to the decline in our tangible net worth. Nasdaq granted us a
hearing on October 14, 1999 at which we requested more time to implement our
plan to achieve compliance with Nasdaq listing requirements. After the hearing
the Nasdaq Listing Qualifications Panel ruled that we could maintain our listing
on a conditional basis. The panel extended the listing until January 18, 2000,
on the condition that we completed a transaction in that interim that would
allow us to report net tangible assets of at least $3.6 million. We completed
the EXUS Energy sale transaction and have reported unaudited net tangible assets
of $3.3 million as of November 30, 1999, on a pro forma basis. This is $1.3
million over the minimum required to maintain a Nasdaq listing, and we asked the
panel to revise its requirement to $3.3 million of net tangible assets. On
January 28, 2000, the panel informed us that it deemed us to be in compliance
with Nasdaq listing requirements and that our listing would be free of the
conditional status as of February 1, 2000. For a more detailed discussion of our
listing with Nasdaq, please read the risk factor that addresses the delisting
concern. It begins on page 14.
RISK FACTORS
You should carefully consider the following factors before you purchase
shares of our common stock.
Our Auditors Have Raised a Going Concern Question That May Negatively
Impact Our Operations.
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In KPMG LLP's opinion on the results of its audit of our financial
statements for fiscal 1998, KPMG states that the financial statements had been
prepared assuming we would continue as a going concern. Our auditors state that
our recurring losses from operations and accumulated deficit raise substantial
doubt about our ability to continue as a going concern. This concern will
complicate our ability to raise new capital for our business due to the negative
connotations of this going concern question. As discussed in greater detail
below in "-- We May Be Delisted From the Nasdaq SmallCap Market," the Nasdaq
SmallCap Market has contacted us about the going concern matter raised by our
auditors. If we are unable to satisfy the officials at Nasdaq that we can
overcome this issue, the Nasdaq SmallCap Market could delist our common stock
from trading on that market. Also, as a result of the going concern issue raised
by our auditors, our vendors, suppliers, well operators and others with whom we
do business may become concerned and may be unwilling to conduct business with
us. Alternatively, they may demand cash deposits before supplying materials to
us, or they may take other actions that could hurt our day-to-day business
operations and strain our cash position.
Our Lenders May Foreclose on Our Oil and Gas Properties Due to Our
Defaults Under Financial Covenants.
We are in default on two of our financial covenants under our credit
agreement with our principal bank lender. We are required to maintain a ratio of
current assets to current liabilities, as defined in the credit agreement, of at
least 1:1 and a tangible net worth of at least $5,250,000. As of September 30,
1999, our current ratio was 0.5:1, which represents a current asset deficiency
of $1.1 million. As of the same date, our aggregate tangible net worth was a
negative $452,000.
Our bank lender has waived these defaults through March 31, 2000. After
the sale of the EXUS Energy properties, our financial condition has improved
significantly. We intend either to renegotiate our bank debt with our present
lender or to refinance the debt with another bank lender during the first
quarter of 2000. In either case, we expect to be in compliance, and to be able
to stay in compliance, with the terms of our credit facility by the end of the
first quarter of 2000.
However, if we are not successful, our bank lender may declare all
amounts borrowed under the credit agreement, together with accrued interest, to
be due and payable. If we do not repay the indebtedness promptly, our bank
lender could then foreclose against any collateral securing the payment of the
indebtedness. Substantially all of our oil and gas interests secure our bank
credit agreement.
In addition, bank lenders traditionally reserve complete discretion in
determining the amount that we can borrow under our credit agreement. If oil or
gas prices were to decline materially relative to the prices used by our bank
lender in establishing our credit limit, if the estimated proved oil and gas
reserves securing the credit agreement were to materially decline or if any
other development were to occur affecting our bank lender's determination, then
our bank lender could decide to lower our credit limit. If our credit limit is
reduced, our bank lender can require us to pay down our outstanding debt at a
time when we have not planned to do so. If we do not reduce our debt to a level
below our credit limit, our bank lender may declare a default. Even if our bank
lender does not declare a default before the debt matures, we may not be able to
pay the debt when it does mature.
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We Currently Do Not Have Sufficient Cash Reserves to Implement Our
Business Plan.
We do not have the cash reserves or available bank credit to carry out
our business plan. In order to complete more acquisitions of properties and to
explore and to develop prospects, we must arrange additional capital. The cash
flow generated by current operations is only sufficient to fund our general and
administrative expenses. We cannot borrow additional money under our current
bank credit agreement. Moreover, substantially all of our assets are pledged to
our bank lender under our credit agreement.
Our assets are predominately real property rights and intellectual
information that we have developed in our exploration and development efforts.
The market for these types of properties fluctuates and is generally very small.
Thus, our assets may be very illiquid and not easily converted to cash. If we
cannot raise more capital, we may reduce our office staff further, we may not be
able to pursue acquisition opportunities, we may engage in less exploratory and
development drilling, and we may default on our debt.
We Have Not Yet Established Profitable Operations.
Since commencing operations in 1996, Venus Exploration has not been
profitable. We incurred net losses of approximately $2,007,000 for the year
ended December 31, 1996, $4,168,000 for the year ended December 31, 1997, and
$8,670,000 for the year ended December 31, 1998. Our net losses were
approximately $5,306,000 for the nine months ended September 30, 1998, and
$1,500,000 for the nine months ended September 30, 1999.
We may never generate sufficient revenues to achieve profitability,
excluding gains that we may report from sales of assets. Even if we attain
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future. At September 30, 1999, we had an accumulated deficit
of approximately $17.7 million.
We May Use More Expensive or Non-Traditional Financing to Fund Our
Business Plan.
We may use non-traditional sources of financing to acquire properties
or to fund our capital expenditures, including the costs of drilling wells. For
example, if we find unencumbered properties to buy, we may use financing that is
secured only by those properties and the oil and gas production from those
properties. In an arrangement like that, the lender will have no recourse
against our other assets, and it may require us to pay a higher rate of interest
on the indebtedness.
In addition, we may issue short-term or bridge financing, including
indebtedness, or issue preferred stock or other securities in order to raise
capital. Given our recent financial condition, if we issue these securities, the
purchaser may require us to pay a premium or to agree to more onerous conversion
or other terms.
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We Are Significantly Affected by Changes in the Market Prices of Oil
and Gas.
Historically, the market prices for oil and gas have been volatile, and
they are likely to continue to be volatile in the future. We sell most of our
oil and gas at current market prices rather than through fixed-price contracts.
Thus, volatility in market prices can jeopardize our financial condition,
operating results and future growth. Sharply reduced oil and gas prices during
1998 and early 1999 hurt our results of operations, our access to capital and
the estimated value of our oil and gas reserves. They also increased our
operating losses. The price volatility is the result of factors beyond our
control including:
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,
o weather conditions,
o the price and availability of alternative fuels,
o overall economic conditions,
o exploration and drilling costs,
o pipeline availability and transportation costs, and
o federal and state regulatory and statutory developments.
On a pro forma basis for the nine months ended September 30, 1999,
taking into account the sales of non-core properties and the EXUS Energy
properties, our current production is about 64% crude oil and condensate;
however, our earnings and cash flow are sensitive to fluctuations in both oil
and gas prices. On a pro forma basis a $0.10 per Mcf change in gas prices would
have resulted in $21,500 difference in gross revenues for the nine months ended
September 30, 1999. Also on a pro forma basis, a $1.00 per Bbl change in oil
prices would have resulted in a $63,200 difference in gross revenue for the nine
months ended September 30, 1999. "Mcf" means 1000 cubic feet of natural gas at
standard atmospheric conditions, and "Bbl" means a standard 42-gallon barrel of
crude oil.
Our Use of Debt Financing Presents Various Limitations on Our
Operations.
We plan to incur significant indebtedness as we execute our
exploration, exploitation and acquisition strategy. Our current debt structure
requires us to pursue non-traditional and more expensive financing. The higher
level of indebtedness that we intend to maintain will have several important
effects on future operations, including:
o a substantial portion of our cash flow from operations will be used
to pay interest on the outstanding debt and will not be available
for other purposes,
o our bank credit agreement will likely limit the uses of capital,
o our ability to obtain additional financing in the future may be
impaired, and
o since the interest on our indebtedness is now, and likely will be,
calculated with a variable rate, increases in that rate could
further decrease our liquidity.
Our Future Success Depends on Our Ability to Expand Our Reserve Base.
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Our financial condition and results of operations depend substantially
upon our ability to find or acquire additional oil and gas reserves that are
economically viable and to successfully develop those reserves. If we are unable
to do so, our proved reserves will generally decline as those reserves are
produced. As used in this prospectus, the term "proved reserves" means the
estimated quantities of oil and gas that the geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions and current
regulatory practices.
The value of our company is directly related to our level of reserves.
We must replace our reserves, even during periods of low oil and gas prices when
it is difficult to raise the capital necessary to finance acquisitions or
development. Without successful exploration, development or acquisition
activities, our reserves, production and revenues will decline rapidly. We may
not be able to find or acquire new reserves or to profitably develop and produce
new reserves.
Exploration is a High-Risk Activity, and the 3-D Seismic and Other
Advanced Technologies We Use Are Expensive, Require Experienced
Personnel, and Cannot Eliminate Exploration Risk.
Our business strategy focuses in part on adding reserves through
exploration, where the risks are greater than in acquisitions and development
drilling. By definition, exploration involves operations in areas about which
little is actually known. We use 3-D seismic data and other advanced
technologies to identify possible new reserve locations and to reduce our
exploration risk, but exploratory drilling remains speculative. Even when
extensively used and properly interpreted, 3-D seismic data and other similar
visualization techniques only assist geoscientists in identifying subsurface
structures and hydrocarbon indicators. They do not conclusively allow an
interpreter to know if hydrocarbons in the form of oil or gas are present or if
they are economically producible. Our use of 3-D seismic data and other
technologies also requires greater pre-drilling expenditures than traditional
drilling strategies. We could incur losses as a result of these higher
expenditures. We may fail to increase our reserves through exploration.
We May Not Identify All Acquisition Risks.
Part of our business plan is to acquire properties already producing
oil and gas and to increase the reserves attributable to those properties
through development drilling. The successful acquisition of producing properties
requires an assessment of recoverable reserves, future oil and gas prices,
operating costs and potential environmental and contractual liabilities. Our
assessment, 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. We do not perform inspections on
every well or pipeline, and structural and environmental problems are not
necessarily observable even when an inspection is undertaken. Even when we
identify problems, the seller may not be willing, or financially able, to give
contractual protection against the problems, and we may decide to assume
environmental and other liabilities in connection with acquired properties.
After a property is acquired, we may discover environmental liabilities that may
exceed our total net worth. These factors and others can turn an apparently
beneficial acquisition into a financially disastrous liability.
We Will Encounter Risks Associated with Drilling and Operating Wells.
A large part of our business plan is to drill exploratory wells.
Exploratory wells are wells drilled into horizons with little or no history of
oil or gas production. Our business plan heightens many of the considerable
risks associated with drilling in general. We encounter unexpected
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circumstances more often when we drill exploratory wells versus other types of
wells, because we are often drilling at locations and into formations about
which there is little or no information because few or no wells have been
drilled at that location before. Moreover the probability that we will discover
and produce oil or gas from an exploratory well is lower than drilling a
development well where the chances of success are greater because of the
existence of nearby wells or other data. Therefore, these risks may pose more of
a danger to us than they would to a company that focuses primarily on drilling
development wells. Development wells are wells drilled into known producing oil
and gas fields and horizons. We anticipate drilling or participating in the
drilling of five (5) development wells and three (3) exploration wells during
2000. Depending on the success of those wells, we may drill additional wells in
2000. However, even if we drill and complete these wells as producing wells,
they may not produce sufficient net revenues to return a profit after our
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. We try to insure risks typical to companies in
our industry. Some risks just come with the business; others may not be within
the scope of traditional insurance policies. In our case, the following are
examples of the operating hazards against which we cannot or do not insure:
o land title problems
o compliance with governmental requirements
o shortages or delays in the delivery of equipment and services
o unexpected pressure or irregularities in underground formations
(other than those causing a well to flow out of control above or
below the surface of the ground)
o mechanical problems encountered in drilling a well
o the collapse of the well bore, whether due to loss of underground
formation support or failure of the well bore casing
The occurrence of an event that is not covered by our insurance, or not fully
covered by our insurance, could materially harm our financial condition and
results of operations.
Estimates of Our Reserves and Future Net Revenues May Not Prove To Be
Correct Because Assumptions May Turn Out To Be Wrong.
The reserve data set forth, or included by reference, in this
prospectus are only estimates, even when referred to as "proved." Petroleum
engineers consider many factors and make assumptions in estimating our oil and
gas reserves and future net cash flows. These estimates utilize assumptions the
Securities and Exchange Commission requires for all public companies, including
us. Estimates by definition are imprecise. Reservoir engineering is a subjective
process of estimating underground accumulations of oil and gas that cannot be
measured exactly and of making assumptions based on the process. Inherent
uncertainties exist in the projection of future rates of production and the
timing development expenditures. The timing of production may be considerably
different from the periods estimated. Assumptions are based on factors such as
historical production from the area as compared with production from other
areas, assumed effects of governmental regulation and assumptions regarding
future oil and gas prices, costs, taxes and capital expenditures. Although we
believe that our reserve estimates are reasonable, you should expect that actual
production, revenues and expenditures relating to our reserves will vary from
any estimates, and these variations may be material.
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We base the estimates of future net revenues from our proved reserves
and the present value of those revenues upon assumptions about future production
levels. These assumptions may be wrong. The SEC PV-10 values as reported in the
Annual Report on Form 10-K for the year ended December 31, 1998, which is
incorporated by reference into this prospectus, are based on a calculated
present value of assumed future revenues. Those calculations do not provide for
changes in oil and gas prices or for escalation of expenses and capital costs.
"SEC PV-10" refers to present value calculated using a 10% discount rate and
other conditions required by the Securities and Exchange Commission. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions and discount rate upon which they are based.
Our Use of the "Successful Efforts" Method of Accounting May Have a
Negative Effect on Our Earnings.
We use the "successful efforts" method of accounting for our investment
in oil and gas properties. This method of accounting can adversely affect our
reported earnings and thereby the market value of our stock because it can
result in us having to charge to expense many drilling and other costs earlier
than might be the case with "full cost" accounting, which is used by many oil
and gas companies. This charge to expense can result in reduced earnings or
larger losses than might be the case with the full cost accounting method.
Governmental and Environmental Regulation Could Hamper Our Oil and Gas
Operations.
Our business is subject to extensive federal rules and regulations. If
we fail to comply with these rules and regulations, we can incur substantial
penalties. In general, the regulatory burden on the oil and gas industry
increases our cost of doing business and decreases our profitability. Because
these rules and regulations are frequently amended or reinterpreted, we cannot
predict the future cost or impact of complying with these laws.
The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations. They also impose
other requirements relating to the exploration and production of oil and natural
gas. Many states 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 wells.
Our activities with regard to 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. These laws and regulations can increase the costs of planning,
designing, installing and operating oil and gas wells. Various governmental
entities can impose civil and criminal fines and penalties for noncompliance
with these environmental laws and regulations. Some environmental laws can
impose joint and several retroactive liability, without regard to fault or the
legality of the original conduct. In addition, a release of oil into water or
other areas can result in us being held responsible for the costs of cleaning up
the release. That liability can be extensive, depending on the nature of the
release. Other environmental regulations impose standards for the treatment,
storage and disposal of both hazardous and nonhazardous solid wastes. We
generate hazardous and nonhazardous solid waste in connection with our routine
operations. Additionally, these environmental laws and regulations require
operators like us to get permits or other governmental authorizations before
undertaking routine industry activities.
10
<PAGE> 13
Because any violation of environmental statutes could affect a large
area and because our exploration projects are drilled into horizons where little
is known about the conditions we will encounter, we could incur substantial
liability under these environmental statutes. If we incur a large environmental
liability, our costs would increase. Increased costs could reduce the
profitability and value of our properties. Given our dependence on debt
financing and the importance of our lender's valuation of our collateral, any
substantial decrease in the then-current estimates of total value could have
detrimental effects on our operations and business plan.
The Issuance of New Shares of Our Stock May Dilute Existing Owners'
Status and May Prevent a Takeover Attempt.
The Board of Directors has total discretion in the issuance of any
shares of common stock and preferred stock. The issuance of shares of common
stock or preferred stock could reduce 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 Venus Exploration. For
example, the issuance of a large block of common stock to a friendly purchaser
or the issuance of preferred stock with disproportionate voting rights 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. We currently are authorized to issue 30,000,000 shares of
common stock, and
the Board of Directors intends to ask the stockholders to approve an increase to
50,000,000 authorized shares. We had 11,055,285 shares of common stock issued
and outstanding as of December 31, 1999. We are authorized to issue 5,000,000
shares of preferred stock. We had no issued and outstanding preferred stock as
of December 31, 1999.
Third Party Sales of Our Common Stock Can Lower Our Stock Prices.
Sales of substantial amounts of our common stock in the public market,
pursuant to Rule 144 or otherwise, or the availability of shares for sale, could
lower the prevailing market price of our common stock and could impair our
ability to raise additional capital through the sale of equity securities.
As of December 31, 1999, Venus Exploration had outstanding 11,055,285
shares of common stock. In addition, 1,735,477 shares were subject to issuance
if all the outstanding warrants and vested options for our common stock are
exercised. Of the issued and outstanding shares of our common stock, the rough
breakdown on the marketability of those shares is as follows:
1 million - freely tradeable without restriction or further
registration under the Securities Act of 1933
2.4 million - tradeable under Rule 144 promulgated under the
Securities Act of 1933
2.1 million - owned by Range Resources Corporation and tradeable
under Rule 144
1.5 million - beneficially owned by J. Morton Davis and tradeable
under Rule 144
1.4 million - beneficially owned by E. L. Ames, Jr., the Chairman
of the Board and our Chief Executive Officer, and
tradeable under Rule 144
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<PAGE> 14
1.5 million - owned by other officers and directors and tradeable
under Rule 144
1.1 million - owned by Stratum Group, L.P. and being registered for
resale under this prospectus
The current market transactions involve only the 1 million shares in
the first category above and some of the shares in the second category. The rest
of the owners could sell, with some restrictions, all or part of their shares.
If substantial amounts of our common stock are sold, then the market price of
our common stock may decline making it more difficult for us to raise money by
issuing equity securities.
We May Issue Significant Amounts of Common Stock in the Future, and
That May Depress Our Stock Price and Dilute Existing Stockholders.
Under the terms of the 7% Convertible Notes described on page 19, we
could be required to issue up to 869,565 shares of our common stock upon
conversion of the full $1 million of indebtedness. Also, under the terms of
those notes, we may issue shares of our common stock in lieu of cash interest
payments. The issuance of common stock instead of cash is based upon the closing
market price of our common stock on the day before the interest payment date.
For example, if the closing market price was $1.00 per share the day before all
future interest payments were due until maturity, we might issue up to 297,500
additional shares of common stock if we so elected under all of those notes.
As described above, as of December 31, 1999, there are 1,735,477 shares
of our common stock currently issuable upon exercise of outstanding warrants or
vested options. The exercise prices and expiration dates for those warrants and
options are as follows:
<TABLE>
<CAPTION>
================================================================================
Number of Options Exercise Price Expiration Date
or Warrants
- --------------------------------------------------------------------------------
<S> <C> <C>
9,194 $1.00 March 2009
- --------------------------------------------------------------------------------
248,263 $1.1191 March 2009
- --------------------------------------------------------------------------------
20,000 $1.25 April 2003
- --------------------------------------------------------------------------------
100,000 $1.3125 July 2004
- --------------------------------------------------------------------------------
648 $1.375 March 2009
- --------------------------------------------------------------------------------
160,000 $1.50 June 2005
- --------------------------------------------------------------------------------
20,000 $1.875 January 2006
- --------------------------------------------------------------------------------
500,000 $2.00 October 2000
- --------------------------------------------------------------------------------
26,000 $2.00 - 2.125 various times in
2007 and 2008
- --------------------------------------------------------------------------------
544,706 $3.00 October 2000
- --------------------------------------------------------------------------------
106,666 $3.29 - 3.71 various times in
2004 and 2008
- --------------------------------------------------------------------------------
TOTAL - 1,735,477
================================================================================
</TABLE>
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<PAGE> 15
The issuance of any of these shares could be considered dilutive to
then-existing stockholders and could depress our stock price. In addition, the
possibility that so many shares could be issued; i.e., an "overhang effect,"
could further depress the price of our common stock.
We Could Be Delisted From the Nasdaq SmallCap Market.
In April of 1999, the Nasdaq SmallCap Market(SM) notified us about its
concern about our ability to sustain compliance with its continued listing
requirements. It also notified us about the possibility that we could be
delisted because our tangible net worth was below the minimum required by the
Nasdaq SmallCap Market. We resolved those issues, and a Nasdaq Listing
Qualifications Panel ruled that we were in compliance. However, we are still
subject to the same rules that created the concern in the first place. Those
rules include the possibility of delisting if our common stock trades below $1
per share. Our common stock has been trading close to the $1 range lately, and
so that possibility is a concern.
Additionally, a Nasdaq Listing and Hearing Review Council has the
authority through March 13, 2000, to review the ruling of the Nasdaq Listing
Qualification Panel that found us in compliance with the Nasdaq rules. That
council could modify or reverse the earlier decision and delist us.
If Nasdaq did delist us, our common stock would be traded on the OTC
Bulletin Board or the "pink sheets," or not traded at all. Many institutional
and other investors refuse to invest in stocks that are traded at levels below
the Nasdaq SmallCap Market, and that could make our effort to raise capital more
difficult. In addition, the firms that currently make a market for our common
stock could discontinue that role. OTC Bulletin Board and "pink sheet" stocks
are often lightly traded or not traded at all on any given day. Any reduction in
liquidity or active interest on the part of investors in our common stock could
hurt our holders either because of reduced market prices or a lack of a regular,
active trading market for our common stock.
A Few Stockholders Have Effective Control of Venus Exploration.
As of December 31, 1999, Range Resources Corporation and the current
officers and directors of Venus Exploration as a group beneficially own
forty-seven percent (47%) of the undiluted voting power of the voting equity.
One of our directors is the president of Range Resources Corporation.
Consequently, if our current officers and directors and Range Resources
Corporation act together, those stockholders are in a position to effectively
control the affairs of Venus Exploration, including the election of all of our
directors and the approval or prevention of certain corporate transactions that
require majority stockholder approval.
The following are signatories to a stockholders agreement among some of
our directors, their affiliates and other stockholders.
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<PAGE> 16
<TABLE>
<CAPTION>
Ames Group Blair Group Range Group
- ---------- ----------- -----------
<S> <C> <C>
E. L. Ames, Jr. D. H. Blair Investment Range Production I LP
Banking Corp.
Ellen R. Y. Ames Rivkalex Corp. Range Resources, LLC
John Y. Ames Rosalind Davidowitz
Elizabeth A. Jones Parliament Hill Corporation
Eugene L. Ames, III
Stephen J. Ames
George J. Ames
Robert Oliver
Patrick A. Garcia
Raymond Koger
Gloria Barrett
Venus Oil Company
James W. Gorman
Jere W. McKenny
</TABLE>
Pursuant to that agreement, in any election of directors held before May 27,
2000, the parties will vote their shares for the four nominees nominated by a
stockholder group led by the Chairman of the Board and for one nominee of Range
Resources Corporation. This stockholders agreement effectively increases the
control by those stockholders who are a party to it because their 62% of total
outstanding shares of common stock will, by agreement, be voted as a single
block in the election of our board of directors. That virtually ensures that
those stockholders will elect the controlling majority of the board of
directors. If the stockholders agreement was not in place, those stockholders
might not vote for the same candidates. Of course, the percentage of outstanding
shares owned by the group may change if some of those stockholders' shares are
sold, if members of the group acquire additional shares, or if Venus Exploration
issues new shares of common stock.
The stockholders agreement terminates on May 27, 2000, except that the
rights and obligations of any member of the three listed groups to the agreement
cease earlier when that group owns beneficially less than 250,000 shares of our
common stock.
Our Liquidity and Prices May Be Reduced by the Lack of an 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 a few larger stockholders. Many
of those shares are restricted
14
<PAGE> 17
from resale pursuant to the Securities Act of 1933. As a result, our common
stock is not actively traded, and a stockholder may not be able to sell his or
her stock when he or she wants to sell. On many days our common stock 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.
We Depend Heavily on Senior Management and An Experienced Technical
Staff.
We are dependent upon Eugene L. Ames, Jr., Chairman of the Board and
Chief Executive Officer, and John Y. Ames, President and Chief Operating
Officer. Mr. Eugene L. Ames, Jr. is our executive with the most extensive
contacts and relationships in the oil and gas industry. John Y. Ames has
extensive experience in land management and acquisition. We are also dependent
on Thomas E. Ewing and Bonnie Weise, both of whom are actively involved in the
technical application of the geoscience methods that are the basis for our
exploration activities. Dr. Ewing and Ms. Weise possess valuable experience and
knowledge with regard to oil and gas exploration, and their technical expertise
would be difficult to replace. We have employment agreements with Messrs. Ames,
Jr., and Ewing and Ms. Weise, all of which have non-competition clauses. We do
not carry key-man insurance on any of these individuals. Our business and
operations could be seriously harmed if Mr. Ames, Jr., Mr. J. Ames, Mr. Ewing or
Ms. Weise were to leave Venus Exploration.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference as
discussed under "Where You Can Find More Information" may contain
"forward-looking statements" within the meaning of federal securities laws. We
use words such as "may," "will," "believe," "expect," "intend," "plan," "seek,"
"anticipate," "estimate" or "continue" to identify many of our forward-looking
statements. Forward-looking statements may also be identified by the negative
form or other variations of these verbs. We may use many other comparable terms
that by their nature indicate forward-looking statements.
Examples of forward-looking statements we make in this prospectus
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 and our strategic plans, including our ability to acquire
oil and natural gas assets and to develop new reserves attributable to the
assets.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we do not know if they will prove to
be correct. When you consider any of these forward-looking statements, you
should keep in mind the factors and cautionary statements disclosed in this
prospectus. The risk factors noted throughout this prospectus provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from those contained in any forward-looking statement.
VENUS EXPLORATION, INC.
General
We have been engaged in the exploration, development and acquisition of
oil and gas properties since 1996. Our corporate predecessors started in the oil
and gas business in 1962, and our chief executive officer has been actively
involved in the industry since 1954. We presently have oil and gas properties,
acreage and production in nine states with our
15
<PAGE> 18
primary exploration and development activity focused in Texas, Oklahoma and
Louisiana. We are a Delaware corporation, and our principal executive offices
are located at 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209. Our
telephone number is (210) 930-4900.
Business Strategy
Venus Exploration uses a growth strategy of:
o exploring for oil and gas reserves,
o expanding reserves in existing oil and gas fields, and
o acquiring strategic producing properties with upside potential.
We explore for undiscovered onshore oil and gas reserves using advanced
geoscience technology. The primary geoscience technologies we use are 2-D and
3-D seismic surveys and the scientific techniques used to interpret the data
gathered by these seismic surveys. A seismic survey sends pulses of sound
from the surface down into the earth and records the echoes reflected back to
the surface. By calculating the speed at which sound travels through the various
layers of rock, we can estimate the depth to the reflecting surface. We use
computers to perform calculations. It then becomes possible to create a picture
of the possible rock structures deep below the earth's surface. A 2-D seismic
survey provides us with information on a slice through the underground
structure. A 3-D seismic survey provides us a three dimensional picture of these
rock structures. These pictures enable us to estimate the potential size of a
potential oil and gas reservoir and the best location for drilling an
exploratory well. Considerable computer resources and geophysical expertise are
required to process and to interpret the 3-D survey and to transform it into a
useable product.
In addition to exploring for new oil and gas reserves in previously
undiscovered fields, we also use advanced geoscience technology to exploit and
to develop oil and gas reserves in currently producing fields. The fields being
exploited or developed consist of fields discovered by us or others but that we
believe are not fully developed. We are conducting active exploitation and
development activities in 7 different fields in Texas, Oklahoma and Utah. Our
working interest in those fields varies in size from 2.5% to 100%, and we
operate the wells in 4 of the 7 active fields. During 1999, due to the
significant decline in oil and natural gas prices during 1998 and our shortage
of capital, we emphasized acquiring and expanding reserves in existing oil and
gas fields rather than exploring for new reserves in unestablished areas.
We will continue to seek strategic producing property acquisitions that
offer near- term production and longer-term development and exploration
opportunities that can be investigated through the application of advanced
technology by our exploration team. We also seek to accomplish strategic
acquisitions of producing assets with development and exploratory potential
through strategic alliances with other oil and gas companies. We may also sell
non-strategic properties as a part of our effort to concentrate on our focus
areas.
RECENT DEVELOPMENTS
1. During 1999, we formed a joint venture to acquire properties from
Apache Corporation. We sold those interests on December 31, 1999.
Purchase of Producing Properties by EXUS Energy. On June 30, 1999, EXUS
Energy, LLC, a Delaware limited liability company owned 50% by EXCO Resources,
Inc. and 50% by Venus Exploration, completed the acquisition from Apache
Corporation of certain oil and natural gas properties located in Jackson Parish,
Louisiana. EXCO Resources is a
16
<PAGE> 19
publicly-held oil and gas company based in Dallas, Texas. The properties
included 17 producing wells, and EXCO Resources operated them after the closing.
The properties included about 8,000 acres, of which about 80% was developed.
The purchase price, before closing adjustments, was $28.5 million, and
after adjustments, it was approximately $27.6 million. The adjustments
principally reflected production since March 1, 1999, the effective date of the
acquisition. EXUS Energy funded the purchase with $14 million drawn under its
credit facility and $14 million of equity capital.
Of the initial $14 million of EXUS Energy equity capital, EXCO
Resources provided $7 million from its cash on hand, and we provided $7 million
from borrowed funds. On June 30, 1999, we borrowed $7 million from EXCO
Resources under the terms of an $8 million convertible promissory note. All
borrowings under the note were secured by a first priority lien providing a
security interest in our membership interest in EXUS Energy and in our
distribution and income rights in EXUS Energy.
On June 30, 1999, EXUS Energy entered into a credit facility with
NationsBank, N.A. as administrative agent and lender. The credit facility
provided for borrowings up to $50 million. All borrowings under the credit
facility were secured by a first lien mortgage providing a security interest in
substantially all assets owned by EXUS Energy, including all mineral interests.
Sale of EXUS Energy Properties. On December 31, 1999, we sold our
interest in the EXUS Energy properties in Jackson Parish, Louisiana, as did EXCO
Resources. The gross purchase price for our interest was $18.7 million, and we
expect to report a gain on the sale of approximately $4.3 million.
To effect the sale, EXUS Energy distributed the properties to EXCO
Resources and us, as the owners of EXUS Energy, in equal portions. EXCO
Resources and we then sold our undivided interests effective December 31, 1999.
The instruments of conveyance were executed and delivered into escrow on
December 31, 1999, and the cash consideration was delivered to the escrow agent
on January 6, 2000. We agreed to the delay in the payment because of concerns
about the potential for a Y2K disruption to the banking system.
We used $7.1 million of the net proceeds to repay our share of the EXUS
Energy bank debt under the NationsBank credit facility, $7 million to repay our
convertible note to EXCO Resources, $250,000 to satisfy a prepayment penalty
under the EXCO Resources convertible note, and $3.7 million to reduce our bank
debt.
2. In the fourth quarter of 1999, we sold a subordinated promissory note
in the principal amount of $750,000 to Mr. E. L. Ames, Jr., our
Chairman of the Board and Chief Executive Officer.
During October 1999, we sold to Eugene L. Ames, Jr., our Chief
Executive Officer and the Chairman of the Board of Directors, a $750,000
subordinated note. We received net proceeds of approximately $730,000 after
legal and other costs associated with the transaction. We used the proceeds to
fund working capital. Our obligation to Mr. Ames is unsecured and subordinated
to the rights of our bank and other lenders unless those lenders agree
otherwise. The exceptions to the subordination are the holders of the 7%
convertible subordinated notes that are described below, and those parties have
equal priority. Interest on the note is payable monthly, in cash, at a rate
equal to Frost National Bank prime rate plus 1%. On December 31, 1999, the
interest rate was 9.5%.
If an event of default occurs, Mr. Ames may demand immediate repayment
of the principal amount and any accrued but unpaid interest. He will also have
all other rights generally allowed by contract and applicable law. Events of
default include, among other conditions, a default under other indebtedness or
securities.
17
<PAGE> 20
The note matures in 2004, at which time all the unpaid principal is due
and payable. The note was issued in a private placement exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933. As a result, its sale is
restricted.
3. In the first half of 1999, we sold convertible subordinated promissory
notes totaling $1,000,000 to six investors.
On April 14, 1999, we sold to James W. Gorman, a director of Venus
Exploration, a 7.0% convertible subordinated promissory note in the principal
amount of $100,000. On May 24, 1999, we sold to Michael E. Little, who is now a
director of Venus Exploration, a similar note in the principal amount of
$250,000. In addition to the subordinated notes issued to Messrs. Gorman and
Little, we sold subordinated notes to four other persons, none of whom are or
were affiliated with Venus Exploration. Those other notes totaled $650,000.
The subordinated notes bear interest at a rate of 7% per annum, or 10%
in the event of default. At our option, we may pay the interest in either cash
or our common stock. If we choose to pay interest in common stock, the number of
shares to be issued will be determined by dividing the interest payment due by
the market price of one share of Venus Exploration common stock on the last
trading day preceding the interest payment date. Interest is payable quarterly
beginning on June 30, 1999. We have paid all interest payments through December
31, 1999, with 37,105 shares of our common stock.
The subordinated notes mature on March 31, 2004, at which time all of
the unpaid principal is due and payable. The noteholders can convert the debt to
common stock at any time, and the conversion is based on a price of $1.15 per
share. The conversion price will be adjusted proportionately in cases where the
number of the outstanding shares of common stock is changed on a pro rata basis;
e.g., dividends of stock and stock splits.
Another cause of an adjustment to the conversion price is if we issue
common stock, or securities convertible into common stock, at a price lower than
the $1.15 conversion price, as adjusted. If that happens, the conversion price
will be reduced to the price as which those other securities are being sold.
If we issue convertible subordinated notes or other similar securities
with better terms, the holders of the six subordinated notes also have the right
to get replacement notes that have those better terms, at least with regard to a
higher stated interest rate, a higher premium upon early redemption, a lower
per-share conversion price, or a longer period before we can cause a mandatory
redemption.
We have a conditional option of converting the outstanding balance of
each subordinated note to shares of our common stock. That option does not
mature until thirty- six months after the original issuance of the note, and the
condition to our option to convert is that the closing market price for the
shares of our common stock must have exceeded $3.60 per share for at least 25
out of the preceding 30 trading days. The conversion is based on the same $1.15
price per share.
The subordinated notes allow us to redeem them for cash and the payment
of a redemption premium. That right begins on the second anniversary of the
original issuance. The redemption premium begins at 18% and decreases 1% per
month after that, and there is a credit against the premium for all accrued
interest on the subordinated notes to the date of the redemption. We also have a
preferential right to buy the subordinated notes if the holders decide to sell
them.
18
<PAGE> 21
If an event of default occurs, the noteholders may demand immediate
repayment of the principal amount and any accrued but unpaid interest. They will
also have all other rights generally allowed by contract and applicable law.
Events of default include:
o the continuation of our failure to pay the noteholders for more
than three days after any amount becomes due,
o our failure to perform material obligations under the subordinated
notes,
o a default under other indebtedness or securities,
o a materially false or misleading representation in the
subordinated notes or any of our filings with the SEC as of the
date of the subordinated notes,
o our bankruptcy, or
o an uninsured judgment against us of more than $25,000 that is not
promptly discharged.
4. During 1999, we sold oil and gas properties to reduce our indebtedness.
On January 27, 1999, we sold our oil and gas properties in West
Virginia to Allegheny Interests, Inc., and Meridian Exploration Corporation for
a gross purchase price of $1,170,000. We used $1 million of the net purchase
price to reduce our outstanding bank debt. The properties included interests in
58 wells and a pipeline system that serviced many of the wells. We also sold our
interest in a limited partnership that owned property rights in oil and gas
wells in West Virginia. During 1998, the production from these properties was
the equivalent of 145,385 thousand cubic feet of natural gas, or about 11.3% of
our total 1998 production. According to the estimates of the proved reserves
included in our Annual Report on Form 10-K for the year ended December 31, 1998,
the properties we sold were 10.9% of our total proved reserves as of December
31, 1998. We made this calculation before we recognized any production or
reserves from the EXUS Energy properties.
On February 12, 1999, we sold our interest in the H.E. White Unit in
Freestone County, Texas, to Petroleum Development Corporation and Warren
Resources, Inc. for a gross purchase price of $1,150,000. Out of the net
proceeds, we used $650,000 to reduce our outstanding bank debt. The properties
that we sold included interests in 3 existing wells with production of 41,841
thousand cubic feet of natural gas during 1998, or about 3.3% of our total 1998
production. According to the estimates of proved reserves included in our Annual
Report on Form 10-K for the year ended December 31, 1998, the properties we sold
were 17.5% of our total proved reserves as of December 31, 1998. We made this
calculation before we recognized any production or reserves from the EXUS Energy
properties.
5. We are potentially in default under our primary credit facility.
During 1998 our financial situation deteriorated in large part due to a
downturn in oil and gas prices, a lack of cash flow and an inability to raise
capital to finance new drilling projects or acquisitions of oil and gas
properties. Throughout 1999 we received a series of waivers from our lender for
defaults under our revolving credit agreement. Our first waiver was granted
effective August 18, 1998. Currently, we are in default under two of the
financial covenants in that revolving credit agreement with our principal
lender. We have failed to maintain (a) our ratio of current assets to current
liabilities at 1:1 or more, and (b) our tangible net worth at $5,250,000 or
more. As of September 30, 1999, our current ratio was 0.5:1.0, and our tangible
net worth was a negative $452,000. These covenant defaults have been waived by
our lender until March 31, 2000. In addition, our independent auditors raised a
"going concern" question in the auditors' report on our 1998 financial
statements.
19
<PAGE> 22
We have made some progress in addressing the situation, the result
being that our bank debt is down to approximately $152,000. Our actions began
during the first quarter of 1999 when we sold non-core properties for a gross
purchase price of $2,340,000 in cash. That allowed us to repay $1,670,000 of our
debt on the revolving credit facility. Our bank debt was $5.54 million before
that payment.
In the second quarter, we sold 7% convertible promissory notes in the
principal amount of $1,000,000, which provided net proceeds of about $975,000.
In the fourth quarter of 1999, we sold a subordinated note to Mr. Ames for
$750,000 to Mr. Ames. That transaction provided net proceeds of about $730,000.
We used the proceeds from those transactions for general working capital.
We also expect to report a gain of approximately $4.3 million from the
sale of the EXUS Energy properties. We applied the net proceeds from the sale to
reduce the outstanding bank debt.
The increase in oil and natural gas prices also helped by increasing
our cash flow. Oil prices averaged $19.25 per barrel in the third quarter of
1999, as compared to $11.51 per barrel in the third quarter of 1998. Natural gas
prices averaged $2.56 per thousand cubic feet in the third quarter of 1999, as
compared to $2.12 per thousand cubic feet in the third quarter of 1998. Although
natural gas prices have declined from their highs for 1999, they are
approximately at their two-year average. During January 2000, the market price
for oil has reached new highs and since approximately 60% of our current
production is crude oil, cash flows to our properties should improve further.
Based upon sales volumes for the nine-month period ended September 30, 1999, a
$1 increase in crude oil prices increases our revenues by approximately $63,400.
In summary, after the sale of the EXUS Energy properties, our financial
condition has improved significantly. We intend either to renegotiate our bank
debt with our present lender or to refinance the debt with another bank lender
during the first quarter of 2000. In either case, we expect to be in compliance,
and to be able to stay in compliance, with the terms of our credit facility by
the end of the first quarter of 2000. However, if we are not successful, our
bank lender may declare all amounts borrowed under the credit agreement,
together with accrued interest, to be due and payable. If we do not repay the
indebtedness promptly, our bank lender could then foreclose against any
collateral securing the payment of the indebtedness. Substantially all of our
oil and gas interests secure our bank credit agreement.
6. Threatened Delisting from Nasdaq SmallCap Market(SM)
On April 26, 1999, the Nasdaq SmallCap Market(SM) notified us
about its concern about our ability to sustain compliance with its continued
listing requirements. It also notified us about the possibility that we could be
delisted because our tangible net worth was below the minimum required by the
Nasdaq SmallCap Market. We sent Nasdaq a written response that supplied the
information that it requested. On August 30, 1999, Nasdaq advised us that it
intended to delist us effective with the close of business on September 8, 1999.
We asked for, and were granted, a hearing by a Nasdaq Listing Qualifications
Panel so that we could appeal the Nasdaq staff's determination and so that we
could request additional time to implement our plan to achieve compliance with
Nasdaq listing requirements. That hearing was held on October 14, 1999, and the
panel ruled that we could maintain our listing through the end of 1999 on the
condition that we complete a transaction in that interim that would allow us to
file with the SEC and Nasdaq a report of net tangible assets of at least
$3,600,000. The panel subsequently extended that deadline until January 18,
2000.
20
<PAGE> 23
As reported above, we sold the EXUS Energy properties on December 31,
1999, and on January 18, 2000, we sent the NASDAQ Listing Qualification Panel an
unaudited pro forma balance sheet that shows tangible net assets of $3,300,000
as of November 30, 1999. We requested that it accept that level of tangible net
assets as sufficient and remove the conditional status of our listing. On
January 28, 2000, the panel informed us that it had granted both of those
requests.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of (a) 30,000,000 shares of
common stock, and (b) 5,000,000 shares of preferred stock. At December 31, 1999,
we had (a) 11,055,285 shares of common stock outstanding, and (b) no issued or
outstanding shares of preferred stock. We have issued options and warrants to
purchase 1,735,477 shares of our common stock have been reserved for issuance
upon the possible exercise of currently outstanding options. Also, we have
reserved 1,167,065 shares of our common stock for issuance in connection with
outstanding debt and future interest premiums that are convertible into common
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 that
holder. The shares of common stock do not have cumulative voting rights.
Preferred Stock
At any time, the Board of Directors may allow the issuance of fully
authorized shares of preferred stock. Approval may not be needed from the
existing 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
Venus Exploration. That 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.
USE OF PROCEEDS
We will not receive any proceeds from any sale of shares of common
stock covered by this prospectus.
21
<PAGE> 24
SELLING STOCKHOLDER
The only selling stockholder who may offer common stock through this
prospectus is Stratum Group, L.P.
Our Relationship with Stratum: The Stratum Debt-for-Equity Exchange.
On December 3, 1998, we completed a debt-for-equity exchange with
Stratum Group, L.P. As a result, we converted our subsidiary's debt of $1.605
million into 1.1 million shares of common stock covered by this prospectus. Our
subsidiary had borrowed the $1.605 million under a credit facility created in
1996. Stratum Group Energy Partners, L.P. was the lender, and the credit
facility provided that the lender's only recourse was against our subsidiary and
the properties that it owned. In connection with the credit facility, our
subsidiary assigned Stratum some overriding royalty interests. These overriding
royalty interests were equal to 5% of the subsidiary's net revenue interest in
the properties that were subject to the Stratum deed of trust. Under the terms
of the credit agreement, Stratum could convert the overriding royalty interests
into equity and was given restricted warrants to buy our common stock. These
conversion rights and warrants were exercisable against 589,882 shares of common
stock that were owned by the entities that were the stockholders at the time the
credit facility was created. In connection with the debt-for- equity exchange,
we obtained (a) a full release from our other obligations to the Stratum Group,
L.P. and its affiliates, (b) the warrants to acquire up to 589,882 shares of our
common stock, and (c) the overriding royalties in our subsidiary's producing
properties.
"Overriding royalty interests" are real property interests that entitle
the owner to a part of the revenue stream from oil and gas production without
having to pay the costs of production and without being subject to most
liabilities related to drilling and production.
In connection with the debt-for equity exchange, Venus Exploration and
Stratum entered into a registration rights agreement. In that agreement, we
agreed to file this registration statement on Form S-3 on or before March 5,
1999, which we did. We must use our reasonable best efforts to keep the
registration statement continuously effective until two years after the
effective date of the registration statement unless all the covered shares may
be sold without restrictions under Rule 144(k).
The registration rights agreement also provides for piggyback
registration rights that allow the owners of the 1,100,000 shares to include
those shares in any registration statement that we file for our own behalf.
Exceptions are (a) Venus Exploration's registrations on Forms S-4 and S-8, and
(b) our right to limit the number of Stratum shares to be included to that
number which our managing underwriter believes can be included without
materially jeopardizing the successful marketing of shares to be registered.
Stratum must de-register under this registration statement any shares to be sold
under our other registration statements. These piggyback registration rights
expire two years after the effective date of the registration statement unless
all the covered shares may be sold without restrictions under Rule 144(k).
Under the registration rights agreement, we generally bear the expense
of any registration statement, while Stratum and any other selling stockholders
generally bear selling expenses, such as underwriting commissions and discounts.
The registration rights agreement also includes customary indemnification
provisions. The information below is as of the date of this prospectus and has
been furnished by Stratum. The ultimate beneficial owners of Stratum are
numerous individual investors who own, in the aggregate, a 5% beneficial
interest in Stratum, and The Beacon Group Energy Investment Fund, L.P., a New
York, New York based limited partnership that has the principal business purpose
of engaging in energy-related investments and which owns, in the aggregate, a
95% beneficial interest in Stratum. The sole
22
<PAGE> 25
general partner of the limited partnership is Beacon Energy Investors, LLC,
which is a Delaware limited liability company managed by numerous individual
investors. The Chief Executive Officer of Stratum has the full authority to vote
the shares of common stock that are being registered under this registration
statement. Stratum has not held any position or office, nor has it had any other
material relationship with us or any of our predecessors or affiliates in the
the last three years, other than as lender to our wholly-owned subsidiary.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES PERCENTAGE OF SHARES NUMBER OF
OWNED OUTSTANDING BEING SHARES
NAME OF BEFORE THIS COMMON REGISTERED OWNED AFTER
SELLING STOCKHOLDER OFFERING(1) STOCK(2) FOR-RESALE THE OFFERING(3)
-------------------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C>
Stratum Group, L.P 1,100,000 9.9% 1,100,000 -0-
TOTAL 1,100,000 9.9% 1,100,000 -0-
</TABLE>
- --------------
(1)Stratum does not own any shares of our common stock other than those
shares described in and covered by this prospectus.
(2)Assumes all shares of our common stock registered for resale pursuant
to this prospectus are outstanding.
(3)Assumes all shares of common stock registered for resale pursuant to
this prospectus are sold.
PLAN OF DISTRIBUTION
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 in the
debt-for-equity exchange with Venus Exploration.
It also covers offers and sales by other parties to which Stratum has
legally transferred any of those shares. Pursuant to Rule 416 under the
Securities Act of 1933, 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.
Stratum and their pledgees, donees, transferees or other
successors-in-interest may 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.
The selling stockholders may engage in short sales, short sales against
the box, puts and calls, and other transactions in our securities or derivatives
of our securities. They may sell and deliver the shares of common stock or
assign the shares in settlement of loans. 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.
23
<PAGE> 26
In effecting sales, the selling stockholders' brokers and dealers may
arrange for other brokers or dealers to participate in the transactions. Brokers
or dealers may get commissions or discounts from the selling stockholders. If
any broker-dealer acts as agent for the purchaser of shares, it may get a
commission or discount from that purchaser. Those commissions or discounts may
be in 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 shares of common stock at a stipulated price per share. If
the broker-dealer cannot do so, it may purchase for itself 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 a
principal may later resell those shares of common stock in transactions 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 those 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
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 Securities Act of
1933 in connection with those sales. In that case, any commissions received by
those 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 applicable states' securities laws, the shares
of common stock will be sold in jurisdictions so requiring only through
registered or licensed brokers or dealers. In addition, some states' laws
require that the common stock not be sold unless the common stock has been
registered or qualified for sale in that state or unless an exemption from
registration or qualification is available and is satisfied.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for Venus Exploration by our legal 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 in the "Risk Factors" section on page 14. Mrs.
Jones is the daughter of Eugene L. Ames, Jr., Chairman and Chief Executive
Officer, and she is the sister of John Y. Ames, President and Chief Operating
Officer, and of Eugene L. Ames, III, Vice President.
EXPERTS
The consolidated financial statements of Venus Exploration, Inc. and
subsidiaries as of December 31, 1997 and 1998, and for each of the years in the
three-year period ended December 31, 1998 appearing in our Annual Report on Form
10-K for the year ended December 31, 1998, 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 report of KPMG LLP
24
<PAGE> 27
covering the December 31, 1998 consolidated financial statements contains an
explanatory paragraph that states that Venus Exploration's recurring losses from
operations and accumulated deficit raise substantial doubt about the entity's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of that
uncertainty. The report of KPMG LLP also contains an explanatory paragraph that
states that the consolidated financial statements have been restated to reduce
the amount of impairment expense for the fiscal year ended December 31, 1998, to
give effect to escalating price assumptions in the impairment calculation.
The statements of revenues and direct operating expenses of the
Jackson Parish properties for the years ended December 31, 1998, 1997 and 1996
appearing in the Company's Current Report on Form 8-K dated June 30, 1999, as
amended by Current Report on Form 8-K/A-2 dated December 20, 1999, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements have been incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The estimates relating to our proved oil and gas reserves and future
net revenues of oil and gas reserves as of December 31, 1998, incorporated in
this prospectus by reference from the Annual Report on Form 10-K for the year
ended December 31, 1998, are based upon estimates of reserves prepared by
Pollard, Gore and Harrison Petroleum Engineers 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 Venus Exploration
and Stratum, 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 (a) 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 (b) the omission or alleged omission to
state in those documents a material fact required to be stated or necessary to
make the statements not misleading. There is an exception if those liabilities
arise solely out of, or are based upon, any information furnished in writing to
Venus Exploration 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 that 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 Securities and
Exchange Commission that it believes that such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
You can read and copy any of the reports, proxy statements and other
information that we file with the Securities and Exchange Commission as required
by the Securities Exchange Act of 1934. These are available at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can get
information about the Public Reference Room by
25
<PAGE> 28
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 Venus
Exploration 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 Venus Exploration 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://www.venusexploration.com).
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act of 1933, as amended. This prospectus, which is a part of that
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. This prospectus
summarizes parts of the documents contained in those schedules and exhibits. You
should not rely on the summaries in this 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.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
information we file with the SEC in other documents. This means that we can
disclose important information to you by referring you to other documents we
file with the SEC. The information incorporated by reference is considered to be
part of this prospectus, and information we file after the date of this
prospectus will update and supersede information you read in this prospectus. We
incorporate by reference the documents listed below, except to the extent
information in those documents is different from the information contained in
this prospectus, and all future filings we make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
until the offering of the shares offered by this prospectus is terminated:
o Annual Report on Form 10-K for the fiscal year ended December 31,
1998, as amended;
o Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
as amended;
o Quarterly Report on Form 10-Q for the quarter ended June 30, 1999,
as amended;
o Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, as amended;
o Current Report on Form 8-K dated January 27, 1999, and filed on
February 11, 1999, as amended;
o Current Report on Form 8-K dated February 12, 1999, and filed on
February 26, 1999, as amended;
o Current Report on Form 8-K dated June 30, 1999, and filed on July
15, 1999, as amended;
o Current Report on Form 8-K dated December 31, 1999, and filed on
January 18, 2000; and
26
<PAGE> 29
o Registration Statement on Form 8-A filed on March 12, 1986.
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 in this prospectus, or in any other
subsequently filed document that also is incorporated by reference, modifies or
supersedes that 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 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
27
<PAGE> 30
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $ 373
Nasdaq SmallCap Market(SM) Listing Fee 7,500
Transfer Agent Fees 100
Printing Expenses 250
Accounting Fees and Expenses 35,000
Legal Fees and Expenses 40,000
Engineer Fees and Expenses 1,000
Blue Sky Fees and Expenses 200
Miscellaneous Expenses 577
---------
Total $ 85,000
=========
</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 those expenses will be borne by Venus Exploration.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation, as amended, provides that no director
of Venus Exploration will be personally liable to us or any of our 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, nor does it apply with respect to any liability in which the
director (a) breached his duty of loyalty to us or our stockholders; (b) did not
act in good faith or, in failing to act, did not act in good faith; (c) 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 (d) 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 corporate code. Pursuant to the provisions of Section
145 of the Delaware corporate 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 Venus Exploration) by reason of the fact that he or she is or was
one of our directors, officers, employees or agents, against any and all
expenses, judgments, fines and amounts
II-1
<PAGE> 31
paid in settlement actually and reasonably incurred in connection with that
action, suit or proceeding. The power to indemnify applies only if that person
acted in good faith and in a manner he or she reasonably believed to be in the
best interest, or not opposed to the best interest, of Venus Exploration and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of
Venus Exploration 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 those actions, no
indemnification will 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 will not be deemed exclusive of any other rights to which any
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 1933 may be permitted to directors, officers or persons controlling Venus
Exploration pursuant to the foregoing provisions, we have been advised that in
the opinion of the SEC that indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NO.
- ------------------ ------------------------------------------------------------
<S> <C>
2.1 Purchase and Sale Agreement dated December 31, 1999, between
Anadarko Petroleum Corporation and Venus Exploration, Inc.,
filed as Exhibit 10.1 to Venus Exploration's Current Report
on Form 8-K dated December 31, 1999, which Exhibit is
incorporated by reference.
4.1 Certificate of Incorporation, filed as Exhibit 3.1 to Venus
Exploration'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 Venus Exploration'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.
4.5 Form of 7% Convertible Subordinated Notes, filed as Exhibit
10.4 to Venus Exploration's Quarterly Report on Form 10-Q for
the period ended June 30, 1999, which Exhibit is incorporated
by reference.
</TABLE>
II-2
<PAGE> 32
<TABLE>
<S> <C>
4.6 Form of Registration Rights Agreement between Venus
Exploration, Inc. and various holders of 7% Convertible
Subordinated Notes, filed as Exhibit 10.5 to Venus
Exploration's Quarterly Report on Form 10-Q for the period
ended June 30, 1999, which Exhibit is incorporated by
reference.
4.7 Ames Subordinated Note, filed as Exhibit 10.3 to Venus
Exploration's Quarterly Report on Form 10-Q for the period
ended September 30, 1999, which Exhibit is incorporated by
reference.
**5.1 Opinion of Haynes and Boone, LLP.
**23.1 Consent of KPMG LLP.
**23.2 Consent of Ernst & Young LLP.
**23.3 Consent of Haynes and Boone, LLP, contained in the opinion
filed as Exhibit 5.1.
*23.4 Consent of Pollard, Gore and Harrison Petroleum Engineers.
*24.1 Power of Attorney, included on signature page previously
filed.
</TABLE>
- --------------------
* Previously filed.
** Filed herewith.
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 that
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
II-3
<PAGE> 33
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 post-effective amendment will be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of those securities at that time will 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 will be deemed to be a new registration statement
relating to the securities offered therein, and the offering of those securities
at that time will 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 provisions, or otherwise, the issuer has
been advised that in the opinion of the Securities and Exchange Commission that
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event a claim for indemnification against
those liabilities is asserted by a 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 that
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of that 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 will 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
will be deemed to be a new registration statement relating to the securities
offered therein, and the offering of those securities at that time will be
deemed to be the initial bona fide offering thereof.
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 2nd day of
February, 2000.
II-4
<PAGE> 34
VENUS EXPLORATION, INC.
By: /s/ Eugene L. Ames, Jr.
------------------------
Name: Eugene L. Ames, Jr.
Title: Chairman of the Board and Chief
Executive Officer
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 February 2, 2000
- ------------------------- Executive Officer and
Eugene L. Ames, Jr. Director (principal executive
officer)
/s/ John Y. Ames President, Chief Operating February 2, 2000
- ------------------------- Officer and Director
John Y. Ames
* Patrick A. Garcia Treasurer and Chief February 2, 2000
- ------------------------- Financial Officer (principal
Patrick A. Garcia financial officer and
accounting officer)
* J.C. Anderson Director February 2, 2000
- -------------------------
J. C. Anderson
* Martin A. Bell Director February 2, 2000
- -------------------------
Martin A. Bell
* James W. Gorman Director February 2, 2000
- -------------------------
James W. Gorman
</TABLE>
II-5
<PAGE> 35
<TABLE>
<S> <C> <C>
* Jere W. McKenny Director February 2, 2000
- -------------------------
Jere W. McKenny
* John H. Pinkerton Director February 2, 2000
- -------------------------
John H. Pinkerton
* Michael E. Little Director February 2, 2000
- -------------------------
Michael E. Little
</TABLE>
Eugene L. Ames, Jr., by signing his name hereto, does sign and execute
this Pre- Effective Amendment No. 2 to Form S-3 on behalf of each of the
above-named officers and directors of the Registrant on this the 2nd day of
February, 2000, pursuant to powers of attorney executed on behalf of each of
such officers and directors, and previously filed with the Securities and
Exchange Commission.
*By: /s/ Eugene L. Ames, Jr.
------------------------
Eugene L. Ames, Jr.
Attorney-in-fact
II-6
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NO.
- ------------------ ------------------------------------------------------------
<S> <C>
2.1 Purchase and Sale Agreement dated December 31, 1999, between
Anadarko Petroleum Corporation and Venus Exploration, Inc.,
filed as Exhibit 10.1 to Venus Exploration's Current Report
on Form 8-K dated December 31, 1999, which Exhibit is
incorporated by reference.
4.1 Certificate of Incorporation, filed as Exhibit 3.1 to Venus
Exploration'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 Venus Exploration'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.
4.5 Form of 7% Convertible Subordinated Notes, filed as Exhibit
10.4 to Venus Exploration's Quarterly Report on Form 10-Q for
the period ended June 30, 1999, which Exhibit is incorporated
by reference.
4.6 Form of Registration Rights Agreement between Venus
Exploration, Inc. and various holders of 7% Convertible
Subordinated Notes, filed as Exhibit 10.5 to Venus
Exploration's Quarterly Report on Form 10-Q for the period
ended June 30, 1999, which Exhibit is incorporated by
reference.
4.7 Ames Subordinated Note, filed as Exhibit 10.3 to Venus
Exploration's Quarterly Report on Form 10-Q for the period
ended September 30, 1999, which Exhibit is incorporated by
reference.
**5.1 Opinion of Haynes and Boone, LLP.
**23.1 Consent of KPMG LLP
**23.2 Consent of Ernst & Young LLP.
**23.3 Consent of Haynes and Boone, LLP, contained in the opinion
filed as Exhibit 5.1.
*23.4 Consent of Pollard, Gore and Harrison Petroleum Engineers.
*24.1 Power of Attorney, included on signature page previously
filed.
</TABLE>
- -----------------------------
* Previously filed.
** Filed herewith.
II-7
<PAGE> 1
EXHIBIT 5.1
[H&B Letterhead]
January 28, 2000
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 and issuance of 1,100,000
shares of Common Stock (the "Shares"), plus an indeterminate number of
additional shares of Common Stock issuable as a result of stock splits, stock
dividends or similar events, to be sold by the Selling Stockholder named in the
Prospectus constituting a part of this Registration Statement (the "Selling
Stockholder").
We have examined such documents, records and matters of law as we deemed
necessary for purposes of this opinion. Based on the foregoing, we are of the
opinion that the Shares are duly authorized and 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, the Selling Stockholder 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 the
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 our firm under the caption "Legal Matters" in the Prospectus constituting a
part of such Registration Statement.
Very truly yours
/s/ Haynes and Boone, LLP
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Venus Exploration, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-73457) on Form S-3 of Venus Exploration, Inc. of our report dated April 7,
1999, except as to Note 3 which is as of December 20, 1999, relating to the
consolidated balance sheets of Venus Exploration, Inc. and subsidiaries as of
December 31, 1998, and 1997, and the related consolidated statements of
operations, shareholders' equity (deficit), and cash flows for each of the years
in the three-year period ended December 31, 1998, which report appears in the
December 31, 1998, annual report on Form 10-K as amended of Venus Exploration,
Inc.
Our report dated April 7, 1999, except as to Note 3 which is as of December 20,
1999, contains an explanatory paragraph that states that the Company has
suffered recurring losses from operations and has an accumulated deficit, which
raise substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty. Our report also contains an
explanatory paragraph that states that the consolidated financial statements
have been restated to reduce the amount of impairment expense for the year ended
December 31, 1998, to give effect to escalating price assumptions in the
impairment calculation.
/s/ KPMG LLP
San Antonio, Texas
February 1, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-73457) and related Prospectus of Venus
Exploration, Inc. (the "Company") for the registration of 1,100,000 shares of
its Common Stock and to the incorporation by reference therein of our report
dated August 17, 1999, with respect to the statements of revenues and direct
operating expenses of the Jackson Parish properties for the years ended December
31, 1998, 1997 and 1996 appearing in the Company's Current Report on Form 8-K
dated June 30, 1999, as amended by Current Report on Form 8-K/A-2 dated December
20, 1999 and filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Dallas, Texas
January 27, 2000
