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