FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002 _
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to _
Commission file number 0-14334 _
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 205, San Antonio, Texas 78209
- ------------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
(210) 930-4900
-------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 6, 2002
-------------------------------------- ---------------------------------
Common Stock $0.01 par value 12,448,730
1
VENUS EXPLORATION, INC. AND SUBSIDIARY
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements (Unaudited)
(a) Consolidated Balance Sheets as of 3
June 30, 2002 and December 31, 2001
(b) Consolidated Statements of Operations for 4
the three-month periods ended June 30,
2002 and 2001
(c) Consolidated Statements of Operations for 5
the six-month periods ended June 30,
2002 and 2001
(d) Consolidated Statements of Cash Flows 6
for the six-month periods ended
June 30, 2002 and 2001
(e) Notes to Consolidated Financial Statements 7
Item 2. - Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3. - Quantitative and Qualitative Disclosures About 16
Market Risk
PART II. - OTHER INFORMATION
Item 2. - Changes in Securities and Use of Proceeds 16
Item 6. - Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibits Index 20
2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
VENUS EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30,
2002 December 31,
(Unaudited) 2001
-------------------- ---------------------
(in thousands)
ASSETS
Current assets:
Cash and equivalents $ 70 $ 431
Trade accounts receivable 639 1,861
Prepaid expenses and other 188 83
-------------------- ---------------------
Total current assets 897 2,375
Oil and gas properties and equipment, at cost
under the successful efforts method, net 5,878 6,686
Other property and equipment, net 120 151
Deferred financing costs, at cost less accumulated amortization 140 147
Other assets, at cost less accumulated amortization 15 33
-------------------- ---------------------
$ 7,050 $ 9,392
==================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 6,420 $ 8,038
Other liabilities 274 934
Current notes payable 2,000 1,254
-------------------- ---------------------
Total current liabilities 8,694 10,226
Other long-term liabilities 18 28
-------------------- ---------------------
Total liabilities 8,712 10,254
Shareholders' equity:
Preferred stock; par value of $0.01; 5,000,000 shares
authorized; none issued and outstanding
Common stock; par value of $.01; 50,000,000 shares
authorized; 12,475,610 and 12,393,045 shares issued,
and 12,448,730 and 12,366,165 outstanding in 2002 and 125 124
2001, respectively
Additional paid-in capital 18,940 18,815
Accumulated deficit (20,687) (19,761)
Less cost of treasury stock (26,880 shares) (40) (40)
-------------------- ---------------------
Total shareholders' equity (1,662) (862)
Commitments and contingencies
-------------------- ---------------------
$ 7,050 $ 9,392
==================== =====================
See accompanying notes to consolidated financial statements.
3
VENUS EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30,
(in thousands except per share data)
------------------------------------------
2002 2001
------------------- -------------------
Oil and gas revenues $ 550 $ 623
------------------- -------------------
Costs of operations:
Production expense 158 245
Impairment of oil and gas properties - 93
Exploration expenses, including dry holes 185 203
Depreciation, depletion and amortization 150 197
General and administrative 467 501
------------------- -------------------
Total expenses 960 1,239
------------------- -------------------
Operating loss (410) (616)
------------------- -------------------
Other income (expense):
Interest expense (83) (38)
Gain on sale of assets 6 -
Interest and other income (expense), net - 1
------------------- -------------------
(77) (37)
------------------- -------------------
Loss from continuing operations before income taxes (487) (653)
Income tax expense - -
------------------- -------------------
Loss from continuing operations (487) (653)
Sale of properties:
Income from operations of properties sold
(including net gain on sale of $14 in 2002) 7 35
------------------- -------------------
Net loss $ (480) $ (618)
=================== ===================
Basis and diluted earnings (loss) per share:
Loss from continuing operations $ (.04) $ (.05)
Income from operations of properties sold - -
------------------- -- -------------------
Net loss $ (.04) $ (.05)
=================== ===================
Common shares and equivalents outstanding,
Basic and diluted 12,449 12,361
=================== ===================
See accompanying notes to consolidated financial statements.
4
VENUS EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30,
(in thousands except per share data)
------------------------------------------
2002 2001
------------------- -------------------
Oil and gas revenues $ 951 $ 1,328
------------------- -------------------
Costs of operations:
Production expense 366 505
Exploration expenses, including dry holes 358 342
Impairment of oil and gas properties - 93
Depreciation, depletion and amortization 269 343
General and administrative 961 990
------------------- -------------------
Total expenses 1,954 2,273
------------------- -------------------
Operating loss (1,003) (945)
------------------- -------------------
Other income (expense):
Interest expense (292) (93)
Gain on sale of assets 6 -
Interest and other income (expense), net 5 136
------------------- -------------------
(281) 43
------------------- -------------------
Loss from continuing operations before income tax (1,284) (902)
Income tax expense - -
------------------- -------------------
Loss from continuing operations (1,284) (902)
Sale of properties:
Income from operations of properties sold
(including net gain on sale of $316 in 2002) 358 146
------------------- -------------------
Net loss $ (926) $ (756)
=================== ===================
-
Basic and diluted earnings (loss) per share:
Loss from continuing operations $ (.10) $ (.07)
Income from operations of properties sold .03 .01
------------------- -------------------
Net loss $ (.07) $ (.06)
=================== ===================
Common shares and equivalents outstanding:
Basic and diluted 12,447 12,351
=================== ===================
See accompanying notes to consolidated financial statements.
5
VENUS EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
(in thousands)
---------------------------------------------
2002 2001
-------------------- ---------------------
Operating Activities:
Net earnings (loss) $ (926) $ (756)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization of oil and gas properties 282 399
Other depreciation and amortization 244 405
Impairment, abandoned leases, and dry hole costs 93
Gain on sale of property and equipment (322) -
Compensation expense for stock and stock options 25 64
Changes in operating assets and liabilities:
Trade accounts receivable 1,223 236
Prepaid expenses and other (88) (35)
Trade accounts payable (1,617) 604
Other liabilities (659) (602)
---- --------------- --- -----------------
Net cash provided by (used in) operating activities (1,838) 408
---- --------------- --- -----------------
Investing Activities:
Capital expenditures (135) (1,455)
Proceeds from sales of property and equipment 982 -
---- --------------- --- -----------------
Net cash provided by (used in) investing activities 847 (1,455)
---- --------------- --- -----------------
Financing Activities:
Net proceeds from issuance of long-term debt and notes payable 5,389 -
Principal payments on long-term debt and notes payable (4,654) (3)
Deferred financing costs (105) (24)
---- --------------- --- -----------------
Net cash provided by (used in) financing activities 630 (27)
---- --------------- --- -----------------
Increase (decrease) in cash and equivalents (361) (1,074)
Cash and equivalents, beginning of period 431 1,086
---- --------------- --- -----------------
Cash and equivalents, end of period $ 70 $ 12
==== =============== === =================
See accompanying notes to consolidated financial statements.
6
VENUS EXPLORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months and Six Months Ended June 30, 2002 and 2001
1. Organization
Venus Exploration, Inc. (the "Company") is a Delaware corporation primarily
engaged in the business of exploring for, acquiring, developing and operating
on-shore oil and gas properties in the United States. The Company presently has
oil and gas properties and production in eight states.
2. Basis of Presentation
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The consolidated financial statements presented
should be read in connection with the audited financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2001.
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company as
of June 30, 2002 and the results of its operations for the three and six month
periods ended June 30, 2002 and 2001.
The results of operations for the three and six month periods ended June 30,
2002 are not necessarily indicative of the results to be expected for the full
year.
3. Summary of Significant Accounting Policies
For a description of the accounting policies followed by the Company, refer to
note 4 below and to the notes to the 2001 consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001.
4. Accounting for Derivative Investments and Hedging Activities
Effective January 1, 2001 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 provides guidance on accounting and financial
reporting for derivative instruments and hedging activities. SFAS No. 133
requires the recognition of all derivatives as either assets or liabilities on
the consolidated balance sheet, and the periodic measurement of those
instruments at fair value. The Company determined that hedge accounting would
not be elected for derivatives existing at January 1, 2001, which consisted of
commodity collar agreements covering at least fifty percent (50%) of its monthly
oil and gas production. Future changes in the fair value of those derivatives
were recorded in income. The adoption of SFAS No. 133 as of January 1, 2001,
resulted in a cumulative-effect-type expense to other comprehensive income of
$334,000 which was recognized as a reduction of oil and gas revenues over the
remaining five month term of the commodity collar agreements. As of June 30,
2001, the fair value of the commodity collar agreements was nil. During the
second quarter of 2001, the Company recognized a reduction of oil and gas
revenues of $135,000 relating to the transition adjustment and recorded other
expense of $1,000 related to the change in the fair value of the commodity
collar agreements. On September 28, 2001, the Company entered into a new
commodity collar agreement and has not elected hedge accounting for these
derivative instruments. The agreement expired April 30, 2002 and as of June 30,
2002, there was no value or liability associated with a commodity collar
agreement.
7
5. Earnings (loss) Per Share
Basic net loss per common share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted income (loss)
per share is computed by assuming the issuance of common shares for all dilutive
potential common shares outstanding.
Loss per share for the three months ended June 30, 2002 and 2001 are calculated
based on 12,448,730 and 12,361,369 weighted average shares outstanding,
respectively. Loss per share for the six month periods ended June 30, 2002 and
2001 are calculated based on 12,447,217 and 12,351,051 weighted average shares
outstanding, respectively. In the three months and six months ended June 30,
2002 and June 30, 2001, the company reported net losses; therefore, diluted
earnings per share is not presented.
6. Comprehensive Income
The following are the components of comprehensive income (loss):
Three Months Ended June 30,
(in thousands)
2002 2001
-------------------- ---------------------
Net loss $ (480) $ (618)
Unrealized loss on derivative instruments:
Reclassification adjustment for loss recognized as reduction of oil
and gas income - 135
--- ---------------- --- -----------------
$ (480) $ (483)
=== ================ === =================
Six Months Ended June 30,
(in thousands)
2002 2001
-------------------- ---------------------
Net loss $ (926) $ (756)
Unrealized loss on derivative instruments:
Initial loss upon adoption of SFAS No. 133 - (334)
Reclassification adjustment for loss recognized as reduction of oil
and gas income - 334
--- ---------------- --- -----------------
$ (926) $ (756)
=== ================ === =================
7. Notes Payable
Notes payable consists of the following at June 30, 2002 and December 31, 2001:
June 30, 2002 December 31, 2001
---------------------- -----------------------
Revolving Credit $ 2,000,000 $ 1,254,351
======= ============== ======= ===============
Credit Facility
On July 6, 2001 (the "Loan Closing Date"), we entered into a Loan Agreement with
a bank that was initially for a two year, $5,000,000 revolving line of credit.
The line of credit was subject to a borrowing base based on oil and gas
reserves. The initial borrowing base under this Loan Agreement was $2,000,000,
with reductions of $50,000 per month during the term of the facility. The
facility was secured by all of our oil and gas properties, and contained
certain financial covenants. As of May 31, 2002, this credit facility was paid
off using the proceeds from our new credit facility.
Other Note Payable
As of March 1, 2002, we entered into a note payable with one of our largest
creditors in replacement of our then existing indebtedness to that creditor.
This note was secured by the personal guarantee of E.L. Ames, Jr., our Chairman
and CEO. The note carried an interest rate of seven percent (7%) and had an
original term of April 30, 2002. We subsequently entered into an amendment to
the note that extended the term of the note to June 1, 2002. The note was paid
off using the proceeds from our new credit facility.
8
New Credit Facility
We entered into a loan agreement for a new $2,000,000 revolving credit facility
provided by a San Antonio-based lender as of May 30, 2002. The one-year facility
will mature on May 30, 2003, and is secured by a first lien mortgage on all of
the Company's presently producing oil and gas properties, as well as limited
personal guaranties provided by certain individuals acceptable to Frost,
including certain directors of the Company. The Company used the proceeds from
the facility primarily to pay off outstanding loans from a creditor and the
Company's prior bank lender. The facility bears interest at the bank's prime
rate plus 200 basis points. The facility contains usual and standard covenants
such as debt and lien restrictions, dividend and distribution prohibitions and
financial statement reporting requirements. As of June 30, 2002, we were not in
compliance with certain of our loan covenants; however, we sought and received
from our lender waivers for our non-compliance with those covenants, which
waiver is conditioned on our cure of such non-compliance on or before September
30, 2002. In order for us to achieve future compliance with our loan covenants,
we will need to raise additional capital, improve our liquidity position and/or
obtain amendments of certain loan covenants.
Seven individuals (the "Guarantors"), including Company directors Eugene L.
Ames, Jr., John Y. Ames, James W. Gorman and Michael E. Little who provided
guaranties for an aggregate of 35% of the loan amount, agreed to provide limited
personal guaranties to support the loan to the Company. As required by Frost,
each individual was required to guarantee up to 125% of his individual share of
the total loan amount. In consideration of their agreement to provide the
guaranties, the Company granted to the Guarantors, proportionately in accordance
with the amount of their respective guaranties, (i) warrants to acquire an
aggregate of 1,000,000 shares of the Company's Common Stock, and (ii) interests
in an overriding royalty pool, ranging from 0.25% to 1.00%, on certain prospects
being developed by the Company. The exercise price for the warrants was based
upon the average closing price of the Company's Common Stock for the 30-day
period prior to the closing date, which resulted in an exercise price of $0.40
per share. Guarantors were also provided with a second lien mortgage in the
properties pledged to the lender and first lien mortgages in other properties of
the Company as security in the event that they are required to perform pursuant
to the guaranties provided to the lender. The fair value of the warrants and
overriding royalties have been included in deferred financing costs to be
amortized over the term of the loan.
8. Sale of Properties
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
issued in August 2001, addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supercedes SFAS No.
121, "Accounting for the Impairment of Long Lived Assets to Be Disposed Of".
However, it retains the fundamental provisions of Statement 121 for (a)
recognition and measurement of the impairment of long-lived assets to be held
and used and (b) measurement of long-lived assets to be disposed of by sale. The
Company adopted the provisions of SFAS No. 144 beginning January 1, 2002.
During the period ended June 30, 2002, the Company sold oil and gas properties
that meet the definition of a "component of an entity". Accordingly, the results
of operations of these properties have been reported in discontinued operations
in the accompanying Consolidated Statements of Operations for the periods ended
June 30, 2002 and 2001, in accordance with SFAS No. 144.
Certain reclassifications have been made to the prior year financial statements
to conform to the current year presentation.
9. Accounting for Income Taxes
No provision for income taxes has been recorded for the period ended June 30,
2002 and June 30, 2001 due to the losses recorded for these periods.
10. Commitments and Contingencies
From time to time, the Company is involved in litigation relating to claims
arising out of our operations in the normal course of business. As of June 30,
2002, the Company was not engaged in any legal proceedings that are expected,
individually or in the aggregate, to have a material adverse effect on our
financial condition or results of operations.
9
11. Liquidity and Capital Resources
At June 30, 2002, the Company had a working capital deficit of $ 7,797,000
compared with working capital deficit of $7,851,000 at December 31, 2001, a
$54,000 reduction of our working capital deficit.
Our current financing will not be sufficient to allow us to execute the drilling
and property acquisition activities that are a part of our business plan.
Accordingly, to continue operations, such as drilling additional development and
exploration wells, as well as acquiring additional acreage, we will have to
raise capital and/or liquidate assets. We have engaged a financial advisor to
assist us in exploring all financial alternatives ranging from a
recapitalization of the Company to a merger or sale of the Company or certain of
its properties. There can be no assurances, however, that these events will
occur and their timing may be uncertain.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company's recurring losses, net working
capital deficit and net capital deficiency raise substantial doubt about the
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Notwithstanding the foregoing, we are continually seeking methods and
alternatives of financing in order to provide us with the capital to refinance
our working capital deficit and to improve our financial position. In addition,
we are reviewing our asset base so as to monetize assets that are
underperforming. Further, a portion of our business entails selling working
interest participations in oil and gas projects in order to finance certain
exploration drilling activities.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and the related notes thereto included
elsewhere and with Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001. Certain statements contained herein are
"Forward Looking Statements" and are thus prospective. As discussed in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001, such
forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements.
Overview
The Company applies advanced geoscience technology to the exploration for and
exploitation of undiscovered onshore oil and gas reserves in the United States.
In addition, the Company's business plan includes the acquisition of producing
properties. The Company presently has oil and gas properties, acreage and
production in eight states. The Company's emphasis is on oil and gas exploration
and development projects and prospects in Texas, Louisiana, Oklahoma and Utah,
with a current primary focus being in the Expanded Yegua Trend of the Upper
Texas Gulf Coast and the Cotton Valley Trend of East Texas and Western
Louisiana. The Company's management team has been responsible for the discovery,
development and exploitation of relatively significant reserves of oil and gas
for privately held predecessor companies over the past 30 years.
The Company's strategy consists of:
o Exploration for oil and natural gas reserves in geographic areas where we
have expertise
o Exploitation and development drilling in existing oil and gas fields
o Strategic acquisitions of producing properties with upside potential
In light of the Company's restricted working capital situation (see "Liquidity
and Capital Resources" below), it has presently discontinued its primary
business activities to focus on reducing its deficit. In order to continue
operations, such as drilling additional development and exploration wells or
acquiring additional acreage, the Company must either raise additional capital
and/or liquidate some of its existing assets. While the Company has retained a
financial advisor to assist it in evaluating such opportunities, there can be no
assurance that these events will occur and the timing of these events may be
uncertain.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES - Our discussion and analysis of our
financial condition and results of operation are based upon consolidated
financial statements, which have been prepared in accordance with accounting
principles generally adopted in the United States. The preparation of these
financial statements requires that we make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses. We analyze
these estimates, including those related to oil and gas revenues, bad debts, oil
and gas properties, derivative instruments, income taxes and contingencies. We
base these estimates on historical experience and various other assumptions that
we believe to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions. We believe the
following critical accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements. We
recognize revenues from the sale of products and services in the period
delivered. We provide an allowance for doubtful accounts for specific
receivables we judge unlikely to be collected. Oil and gas properties are
accounted for under the successful efforts method of accounting and are
periodically evaluated for possible impairment. Impairments are recorded when
our management believes that a property's net book value is not recoverable
based on current estimates of expected future cash flows. Our reserve estimates
are prepared by engineers knowledgeable of and following the guidelines for
reserves as established by the SEC. The estimation of reserves requires the
engineers to make a significant number of assumptions based on professional
judgment. Estimated reserves are, therefore, often subject to future revision,
certain of which could be substantial, based on the availability of additional
information, including: reservoir performance, new geological and geophysical
data, additional drilling, technological advancements, price changes and other
economic factors. Changes in oil and natural gas prices can lead to a decision
to start-up or shut-in production, which can lead to revisions to reserve
quantities. Reserve revisions inherently lead to adjustments of depletion rates
that we utilize. We cannot predict the types of reserve revisions that will be
required in future periods. To the extent that we have investments in derivative
instruments, we have analyzed our accounting treatment of them on a case by case
basis and have typically not elected to treat those investments as hedges under
FAS 133.
11
Liquidity and Capital Resources
(a) Liquidity
At June 30, 2002, we had a working capital deficit of $ 7,797,000 compared with
a deficit of $7,851,000 at December 31, 2001, a $54,000 reduction in our working
capital deficit.
Net cash used in operating activities during the six month period ended June 30,
2002, was $1,838,000, whereas $408,000 was provided by operating activities for
the same period in 2001. Net changes in operating assets and liabilities
accounted for $1,141,000 of the cash flow used in operating activities. During
the six-month period ended June 30, 2002, the Company realized a net loss of
$926,000. This compares with a net loss of $756,000 for the same period in 2001.
During the first six months of 2002 the Company incurred capital expenditures of
$135,000. During the same period in 2001 the Company had capital expenditures of
$1,455,000.
For the six month ended June 30, 2002, $630,000 was provided by financing
activities. This compares with $27,000 used in financing activities for the same
period in 2001.
In May 2002, the Company entered into a one-year $2 million revolving credit
facility with a new lender that allowed the Company to pay off outstanding loans
to its existing lender and another creditor of the Company. The facility bears
interest at the lender's prime rate plus 200 basis points. As of June 30, 2002
and August 9, 2002, the Company's borrowings outstanding under the facility
totaled $2 million, the entire amount available under the facility. As of June
30, 2002, the Company was not in compliance with certain of its loan covenants;
however, it sought and received from its lender waivers for its non-compliance
with those covenants, which waiver is conditioned on the Company's cure of such
non-compliance on or before September 30, 2002. In order for the Company to
achieve future compliance with its loan covenants, it will need to raise
additional funds, improve its liquidity position and/or obtain amendments of
certain loan covenants.
(b) Capital Resources
The Company's capital expenditure budget is continually reviewed and revised as
necessary, based on perceived opportunities and business conditions. In light of
our current working capital situation, we are discontinuing our drilling and
exploration activities and do not anticipate making any further material capital
expenditures until such time as we have significantly reduced our deficit.
Our current financing will not be sufficient to allow us to execute the drilling
and property acquisition activities that are a part of our business plan.
Accordingly, to continue operations, such as drilling additional development and
exploration wells, as well as acquiring additional acreage, we will have to
raise capital and/or liquidate assets. We have engaged a financial advisor to
assist us in exploring all financial alternatives ranging from a
recapitalization of the Company to a merger or sale of the Company or certain of
its properties. While the Company has been in discussions with a number of
companies regarding a variety of possible transactions, there can be no
assurances that these events will occur, and their timing may be uncertain.
Notwithstanding the foregoing, we are continually seeking methods and
alternatives of financing in order to provide us with the capital to refinance
our working capital deficit and to improve our financial position. In addition,
we are reviewing our asset base so as to monetize assets that are
underperforming. Further, a portion of our business entails selling working
interest participations in oil and gas projects in order to finance certain
exploration drilling activities.
12
Results of Operations
(a) Production
Revenues have been lower during 2002 due to decreased equivalent unit volumes
and price per unit. The decrease in volumes is mainly due to the sale of
producing properties during 2002. During the first six months of 2001, a hedge
was in effect which accounted for a decrease in revenue of $334,000. During
2002, no reduction in revenue was recorded as a result of a hedge. As shown
below, oil volumes decreased by 15% while natural gas volumes decreased by 23%
during the six-month period ended June 30. Oil volumes decreased 25% and gas
volumes decreased 30% for the three-month period ended June 30.
2002 2001
--------------------------------------- ------------------------------------
Sales Average Sales Average
Volume Prices Volume Prices
-------------- -------------------- -------------- ------------------
-------------- ---- --------------- -------------- ---- -------------
Six Months Ended June 30,
Gas (MCF) 123,753 $ 3.14 160,989 $ 6.23
Oil (BBLS) 34,075 $ 22.31 40,159 $ 26.42
Three Months Ended June 30,
Gas (MCF) 58,820 $ 3.41 83,614 $ 4.70
Oil (BBLS) 15,562 $ 25.33 20,864 $ 25.33
Average daily production of oil was 171 barrels for the three-month period ended
June 30, 2002, and 229 for the same period in 2001. Average daily production of
natural gas was 646 mcf for the three month period ended June 30, 2002, and 919
for the same period in 2001. On May 12, 2000, the Company entered into hedge
contracts for 125 barrels of oil per day for twelve months and 500 mmbtu per day
for twelve months. The hedged volumes represent approximately 50% of estimated
production for the twelve month period ended May 2001. The Company entered into
the hedge contracts to comply with the terms of its then existing bank credit
facility. These hedges expired on May 31, 2001. Under terms set forth under the
Company's succeeding Loan Agreement, the Company was required to enter into
hedges in amounts that represent 25% of the estimated production for periods up
to twelve months.
On September 28, 2001, the Company entered into commodity collar agreements for
112 barrels of oil per day for six months with a floor price of $22.20 per
barrel and a ceiling of $24.50. The contracted volumes represent approximately
50% of estimated oil production for the six month period beginning in November
2001 and ending April 2002. Since the Company's oil production was approximately
the same in proportion as gas is to its overall production, the Company
satisfied its obligation to hedge 25% of its overall production by hedging 50%
of its oil production. Transaction gains and losses were determined monthly and
are included in oil and gas revenues in the period the hedged production is
sold. We have determined that hedge accounting will not be elected for our
derivative positions. We entered into this costless collar with Enron North
America Corp ("Enron"). Since we have a receivable from Enron in the amount of
$18,209, we have elected to record a provision for bad debt in the same amount.
In order to enter into this costless collar we had to give Enron a letter of
credit ("L/C") in the amount of $100,000 with them as the beneficiary of the
L/C. The L/C expired on April 1, 2002.
Three Months Ended June 30, 2002 and 2001
The Company reported a net loss of $480,000 for the quarter ended June 30, 2002,
compared to a net loss of $618,000 in the same quarter in 2001. Exploration
expense decreased $18,000, depreciation, depletion, and amortization decreased
$75,000, general and administrative expense decreased $34,000, and production
expenses decreased $136,000. An impairment expense of $93,000 for oil and gas
properties was recorded in 2001, and none was recorded in the same period of
2002. Also, there was a gain on sale of assets in 2002 of $20,000 and none in
2001. These were partially offset by a increase in interest expense of $44,000
and a decrease in oil and gas revenues of $192,000.
Oil and gas revenues decreased by $192,000 as compared to the same period in
2001 (before the effect of SFAS No. 144 the implementation of which required
that revenue of $45,000 and $164,000 in 2002 and 2001 respectively, be reported
as part of income from operations sold - see note 8 to the consolidated
financial statements). In 2001 revenues were reduced by hedging losses of
$135,000; a decrease in unit prices accounted for a $76,000 decrease, and a
decrease in production accounted for a $251,000 decrease. Gas production
decreased 25,000 mcf, and oil production decreased 5,000 bbls.
13
Production expense decreased by $136,000 as compared to the same period in 2001
(also before the effects of SFAS No. 144 which resulted in $52,000 and $101,000
in 2002 and 2001 respectively, being reported as part of income from operations
of properties sold - see note 8 to the consolidated financial statements).
Approximately 44% of the decrease is due to lower severance taxes as a result of
decreased revenue and a refund of taxes paid in 2001. The balance of the
decrease is due to decreased operating cost due to lower volumes produced during
2002 and a decrease in workover costs (stimulations, adding perforations and
recompletions). Production expense averaged $1.38 per mcfe during the three
month period ended June 30, 2002, compared to $1.66 per mcfe for the same period
in 2001.
Exploration expense decreased by $18,000 due to decreased exploration activity
during the quarter as compared to the same quarter in the prior year.
Depreciation, depletion and amortization (DDA) decreased by $75,000 (also before
the effects of SFAS No. 144 which resulted in none and $28,000 in 2002 and 2001
respectively, being reported as part of income from operations of properties
sold - see note 8 to the consolidated financial statements). A decrease of
approximately $61,000 is due to lower volumes, and a decrease of $14,000 is due
to a lower DDA rate. Depreciation, depletion and amortization averaged $.99 per
mcfe in 2002 as compared to $1.08 per mcfe for the same period in 2001.
Interest expense, including amortization of loan costs, increased by $45,000,
from $38,000 in 2001 to $83,000 in 2002. The increase is due to higher
outstanding interest bearing balances. The average outstanding balance in 2001
was $1.1 million as compared to an average outstanding balance of $1.8 million
in the current period. Amortization of loan costs increased $40,000.
Six Months Ended June 30, 2002 and 2001
The Company reported a net loss of $926,000 for the six month period ended June
30, 2002, compared to a net loss of $756,000 in the same period in 2001.
Production expenses decreased $196,000, depreciation, depletion, and
amortization decreased $117,000, and general and administrative expense
decreased $29,000. Also, an impairment expense for oil and gas properties of
$93,000 was recorded in 2001 and there was no impairment expense for the same
period in 2002. These were partially offset with a decrease in oil and gas
revenues of $581,000, an increase in exploration expenses of $16,000 and an
increase in interest expense of $199,000. There was also a decrease in other
income of $131,000 primarily because of the recognition of income caused by
adjusting the derivative liability account to fair value as of March 31, 2001,
pursuant to SFAS No. 133. Also there was a gain on sale of assets in 2002 of
$322,000 and none in 2001 ($316,000 of the gain on sale of properties was
reported as part of Income from operations of properties sold pursuant to SFAS
No. 144. - see note 8 to the consolidated financial statements).
Oil and gas revenues decreased by $581,000 as compared to the same period in
2001 (before the effect of SFAS No. 144, the implementation of which required
that revenue of $197,000 and $402,000 in 2002 and 2001, respectively, be
reported as part of income from operations sold - see note 8 to the consolidated
financial statements). An increase in product prices created an increase of
approximated $522,000, a decrease in production accounted for a decrease of
$393,000 and losses on hedging transactions in 2001 were $334,000 more than
2002.
Production expense decreased by $196,000 as compared to the same period in 2001.
(also before the effects of SFAS No. 144 which resulted in $143,000 and
$200,000 in 2002 and 2001 respectively, being reported as part of income from
operations of properties sold - see note 8 to the consolidated financial
statements).The decrease was a combination of a decrease in workover costs of
$16,000, a decrease of other production costs of $64,000 and a decrease of
severance taxes of $116,000 which are a result of decreased prices. Of the
increase in other production cost of $64,000, a decrease in volume accounted for
a decrease of $95,000 and an increase in unit cost accounted for an increase of
$31,000. Production expense for other production costs (excluding severance
taxes and workover costs) averaged $1.38 per mcfe during the six month period
ended June 30, 2002, compared to $1.29 per mcfe for the same period in 2001.
Exploration expense increased by $16,000 because of abandonment costs recorded
in 2002.
Depreciation, depletion and amortization decreased by $117,000. (also before the
effects of SFAS No. 144 which resulted in $13,000 and $ 56,000 in 2002 and 2001
respectively, being reported as part of Income from operations of properties
sold - see note 8 to the consolidated financial statements) Approximately
$73,000 is a decrease due to lower volumes, and $44,000 is a decrease due to a
lower DDA rate. Depreciation, depletion and amortization averaged $0.86 per mcfe
in 2002 as compared to $0.99 per mcfe for the same period in 2001.
14
Interest expense increased by $199,000, from $93,000 in 2001 to $292,000 in
2002. The amortization of loan costs were $178,000 more in 2002 than 2001. The
average outstanding balance in 2001 was $1.1 million as compared to an average
outstanding balance of $1.6 million in the current period.
Recent Accounting Pronouncements
SFAS No. 143, "Accounting for Asset Retirement Obligations," issued in June
2001, significantly changes the method of accruing for costs associated with the
retirement of fixed assets (e.g. oil and gas production facilities, etc.) for
which an entity is legally obligated to incur. The Company will evaluate the
impact and timing of implementing SFAS No. 143. Implementation of this standard
is required no later than January 1, 2003, with earlier adoption encouraged.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
issued in August 2001, addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supercedes SFAS No.
121, "Accounting for the Impairment of Long Lived Assets to Be Disposed Of".
However, it retains the fundamental provisions of Statement 121 for (a)
recognition and measurement of the impairment of the impairment of long-lived
assets to be held and used and (b) measurement of long-lived assets to be
disposed of by sale. The Company adopted the provisions of SFAS No. 144 on
January 1, 2002. We believe the adoption of SFAS No. 144 did not have a material
impact on the Company's financial statements other than presentation of the
operations of properties disposed of.
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections". SFAS No. 145 rescinds SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt", and an amendment of that
Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements". This Statement also rescinds SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers". This Statement amends SFAS No. 13,
"Accounting for Leases", to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. SFAS No. 145
is effective for transactions occurring after May 15, 2002. The Company adopted
SFAS No. 145 on May 16, 2002 with no material impact on its financial
statements.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities", issued in July 2002, addresses financial accounting and reporting
for costs associated with exit or disposal activities. SFAS No. 146 requires
that a liability be recognized for those costs only when the liability is
incurred and can be measured at fair value. This statement nullifies Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity", which required
liability recognition for an exit cost when a company committed to an exit plan.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002. The Company will adopt SFAS No. 146 as of January 1,
2003. At this time we do not believe that the adoption of SFAS No. 146 will have
a material impact on its financial statements.
15
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The information contained in this Form 10-Q includes certain forward-looking
statements. When used in this document, such words as "expect", "believes",
"potential", and similar expressions are intended to identify forward-looking
statements. Although the Company believes that its expectations are based on
reasonable assumptions, it is important to note that actual results could differ
materially from those projected by such forward-looking statements. Important
factors that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, the Company's
ability to consummate one or more strategic transactions providing the Company
liquidity relief, the timing and extent of changes in commodity prices for oil
and gas, the need to develop and replace reserves, environmental risk, the
substantial capital expenditures required to fund its operations, drilling and
operating risks, risks related to exploration and development, uncertainties
about the estimates of reserves, competition, government regulation and the
ability of the Company to implement its business strategy and to raise the
necessary capital for such implementation. Also see "FORWARD-LOOKING STATEMENTS"
under "Item 1. BUSINESS" of the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information regarding the Company's quantitative and qualitative disclosures
about market risk is contained in "Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT THE MARKET RISK" in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001 and reference is made to the information
contained there. On May 12, 2000, the Company entered into hedge contracts for
125 barrels of oil per day for twelve months and 500 mmbtu per day for twelve
months. The hedged volumes represent approximately 50% of estimated production
for the twelve month period ended May 2001. The Company entered into the hedge
contracts to comply with the terms of its then existing bank credit facility.
These hedges expired on May 31, 2001. Under terms of a succeeding credit
facility, the company was required to enter into a second hedge agreement. On
September 28, 2001, the Company entered into commodity collar agreements for
112 barrels of oil per day for six months with a floor price of $22.20 per
barrel and a ceiling of $24.50. The contracted volumes represent approximately
50% of estimated oil production for the six month period beginning in November
2001 and ending April 2002. Since the Company's oil production was approximately
the same in proportion as gas is to its overall production, the Company
satisfied its obligation to hedge 25% of its overall production by hedging 50%
of its oil production. This agreement is now expired.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The Company entered into a loan agreement for a new $2,000,000 revolving credit
facility provided by a San Antonio-based lender as of May 30, 2002. As a
condition to the extension of credit to the Company, the lender required that
the Company obtain guarantees of the indebtedness in favor of the lender from
individuals acceptable to the lender. Seven individuals (the "Guarantors"),
including Company directors Eugene L. Ames, Jr., John Y. Ames, James W. Gorman
and Michael E. Little who provided guaranties for an aggregate of 35% of the
loan amount, agreed to provide limited personal guaranties to support the loan
to the Company. As required by Frost, each individual Guarantor was required to
guarantee up to 125% of his individual share of the total loan amount. In
consideration of their agreement to provide the guaranties, the Company granted
to the Guarantors, proportionately in accordance with the amount of their
respective guaranties, (i) warrants to acquire an aggregate of 1,000,000 shares
of the Company's Common Stock, and (ii) interests in an overriding royalty pool,
ranging from 0.25% to 1.00%, on certain prospects being developed by the
Company. The exercise price for the warrants was based upon the average closing
price of the Company's Common Stock for the 30-day period prior to the closing
date, which resulted in an exercise price of $0.40 per share. The warrants
expire on May 30, 2007. With respect to the issuance of the warrants, an
exemption from registration under the Securities Act of 1933, as amended, was
claimed based upon Section 4(2) as a sale by an issuer not involving a public
offering.
16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Form of Guarantor Warrant (incorporated by reference to Exhibit 4.1 to the
Company's Form 8-K filed June 19, 2002).
10.1 Third Waiver and Second Amendment to Loan Agreement and to Note dated as of
April 10, 2002, by and between the Company and Hibernia National Bank.
10.2 Third Amendment to Loan Agreement and to Note dated as of April 30, 2002,
by and between the Company and Hibernia National Bank.
10.3 Amendment and Restatement of Loan Agreement dated as of May 30, 2002
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed
June 19, 2002).
10.4 Guarantors Cooperation Agreement dated as of May 30, 2002.
10.5 Assignment of Overriding Royalty Interests dated as of May 30, 2002.
10.6 First Lien (On Un-Recorded, Non-Producing Leases) Deed of Trust, Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated
as of May 30, 2002.
10.7 First Lien (On Recorded, Non-Producing Leases) Deed of Trust, Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated
as of May 30, 2002.
10.8 Second Lien (On Producing Leases) Deed of Trust, Mortgage, Assignment of
Production, Security Agreement and Financing Statement dated as of May 30,
2002.
99.1 Chief Executive Officer and Chief Accounting Officer Certification Pursuant
to Section 906 of Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
Form 8-K filed June 19, 2002.
17
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VENUS EXPLORATION, INC.
Dated: August 19, 2002 BY: /S/ JOHN Y. AMES
John Y. Ames
(President and Chief Operating Officer)
Dated: August 19, 2002 BY: /S/ TERRY F. HARDEMAN
Terry F. Hardeman
(Principal Accounting Officer)
EXHIBIT INDEX
(a) Exhibits
4.1 Form of Guarantor Warrant (incorporated by reference to Exhibit 4.1 to the
Company's Form 8-K filed June 19, 2002).
10.1 Third Waiver and Second Amendment to Loan Agreement and to Note dated as of
April 10, 2002, by and between the Company and Hibernia National Bank.
10.2 Third Amendment to Loan Agreement and to Note dated as of April 30, 2002,
by and between the Company and Hibernia National Bank.
10.3 Amendment and Restatement of Loan Agreement dated as of May 30, 2002
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed
June 19, 2002).
10.4 Guarantors Cooperation Agreement dated as of May 30, 2002.
10.5 Assignment of Overriding Royalty Interests dated as of May 30, 2002.
10.6 First Lien (On Un-Recorded, Non-Producing Leases) Deed of Trust, Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated
as of May 30, 2002.
10.7 First Lien (On Recorded, Non-Producing Leases) Deed of Trust, Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated
as of May 30, 2002.
10.8 Second Lien (On Producing Leases) Deed of Trust, Mortgage, Assignment of
Production, Security Agreement and Financing Statement dated as of May 30,
2002.
99.1 Chief Executive Officer and Chief Accounting Officer Certification Pursuant
to Section 906 of Sarbanes-Oxley Act of 2002.
18
- 1 -
Exhibit 10.1
THIRD WAIVER AND SECOND AMENDMENT
TO LOAN AGREEMENT AND TO NOTE
THIS THIRD WAIVER AND SECOND AMENDMENT TO LOAN AGREEMENT AND TO NOTE (this
"Amendment") dated as of April 10, 2002, is made between VENUS EXPLORATION, a
Delaware corporation ("Borrower"), and HIBERNIA NATIONAL BANK, a national
banking association ("Lender") who agree as follows:
RECITALS
A. The Borrower and the Lender entered into that certain Loan Agreement
dated as of July 6, 2001, as amended by the Waiver and Amendment dated effective
as of December 11, 2001, the Amendment to Loan Agreement and to Note dated as of
January 29, 2002, and the Waiver and Amendment dated effective as of March 18,
2002 (as previously amended, the "Loan Agreement"). Unless otherwise specified
herein, capitalized terms used in this Amendment shall have the meanings
indicated in the Loan Agreement.
B. The Borrower has requested that the Lender waive an Event of Default
resulting from the Borrower's incurrence of additional Debt, and the Lender is
willing to accept the Borrower's request on the terms and conditions set forth
below.
C. The Borrower and the Lender further desire to alter the Maturity Date of
the Loan, to alter the interest rate on the Loan, and otherwise to provide with
respect to the Loan.
AGREEMENT
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and the loans and extensions of credit heretofore, now or hereafter made
to the Borrower by the Lender, the parties hereto hereby agree as follows:
ARTICLE 1.
WAIVER
1.1 The Borrower has advised the Lender that notwithstanding the provisions
of Loan Agreement Section 6.1, which provides that the Borrower will not incur,
create, assume or any in manner become or be liable in respect of any Debt
direct or contingent, except for permitted Debt specifically set forth therein,
in fact the Borrower has executed that certain promissory note dated March 1,
2002, in the original principal amount of $1,139,215.00 payable to the order of
St. Mary Land & Exploration Company, due and payable on May 1, 2002 (the "St.
Mary Note"). At the Borrower's request, the Lender hereby grants a one-time
waiver of the Debt covenant in Loan Agreement Section 6.1 such that the creation
and continued existence of the St. Mary Note shall not constitute an Event of
Default. Such waiver shall not constitute a precedent for any subsequent
requested waiver of this or any covenant or other provision of the Loan
Agreement. Without limiting the preceding sentence, the Borrower specifically
acknowledges that this waiver pertains only to the existing terms of the St.
Mary Note, and not to any amendments, modifications or renewals thereof.
2
ARTICLE 2.
AMENDMENTS
2.1 In consideration of the granting of the waiver set forth above, the
Borrower and the Lender hereby amend and restate the definition of "Maturity
Date" in Section 1.2 of the Loan Agreement (as previously amended) to read in
its entirety as follows:
"Maturity Date" shall mean April 30, 2002, or such earlier date on which
the Loan is accelerated pursuant to Section 8.2 hereof.
2.2 The Borrower and the Lender hereby amend the Line of Credit Note (as
previously amended) to change the maturity date of the Line of Credit Note in
the caption to be April 30, 2002.
2.3 In further consideration of the granting of the waiver set forth above,
and notwithstanding any provisions of the Loan Agreement or the Note to the
contrary (and including without limitation notwithstanding the provisions of
paragraph 3.1 of the Waiver and Amendment dated as of December 11, 2001),
effective on and after April 5, 2002, the entire Loan shall bear interest at the
rate per annum equal to the Prime Rate in effect from time to time plus two and
one quarter (2.25%) percent per annum (the Base Rate equaling the Prime Rate
plus 2.25%).
2.4 In further consideration of the granting of the waiver set forth above,
the Borrower and the Lender agree that Loan Agreement Section 3.1 is hereby
amended to add additional paragraphs (iii) and (iv), to read in their entirety
as follows:
(iii) Guaranty Agreement executed by Eugene L. Ames, Jr.
(iv) Deposit Accounts Control Agreement executed by the Borrower, the
Lender and Frost Bank in San Antonio.
2.5 In further consideration of the granting of the waiver set forth above,
the Borrower agrees that if the Borrower sells any asset (whether or not such
asset is Collateral) with proceeds in excess of $20,000.00, then in each such
sale the Borrower shall cause all of the net sales proceeds from such sale to be
paid directly to the Lender by the buyer, to be applied to a reduction of the
outstanding Loan, and causing a permanent reduction of the Commitment Limit in a
like amount, whether or not the Lender has a Lien on such sold asset. If the
Borrower sells any Collateral, then in each such sale (regardless of the amount
of sale proceeds) the Borrower shall cause all of the net sales proceeds from
such sale to be paid directly to the Lender by the buyer, to be applied to a
reduction of the outstanding Loan, and causing a permanent reduction of the
Commitment Limit in a like amount. For purposes of this paragraph, the term
"assets" does not include current sales of production in the ordinary course of
business. In addition, the Amount and the Borrowing Base are continuing to be
automatically reduced by the Monthly Borrowing Base Reduction as provided in the
Loan Agreement.
3
ARTICLE 3.
ACKNOWLEDGMENT OF COLLATERAL
3.1 The Borrower hereby specifically reaffirms all of the Collateral
Documents.
ARTICLE 4.
MISCELLANEOUS
4.1 The provisions of paragraph 1.1 of this Amendment shall become
effective if and when, and only when:
(a) the Lender has received, in form and substance satisfactory to the
Lender in its sole discretion, (i) a Guaranty Agreement executed by E. L. Ames,
Jr., and (ii) a Deposit Accounts Control Agreement executed by the Borrower and
Frost National Bank in San Antonio;
(b) the Borrower has paid all reasonable fees of the Lender's law firms in
connection with this Amendment or earlier work associated with the Loan
Agreement;
(c) no event exists which constitutes a Default or Event of Default (taking
into account the specific waiver set forth in paragraph 1.1 in this Amendment);
and
(d) there shall not have occurred any material adverse change (in the
Lender's sole determination) in the Collateral or other assets, liabilities,
financial condition, business operations, affairs or circumstances of the
Borrower or any other facts, circumstances or conditions (financial or
otherwise) upon which the Lender has relied or utilized in making its decision
to enter into this Amendment.
4.2 The Borrower represents and warrants to the Lender (which
representations and warranties will survive the execution of this Amendment)
that (i) all representations and warranties contained in the Loan Agreement and
the Collateral Documents are true and correct on and as of the date hereof as
though made on and as of such date, (ii) no event has occurred and is continuing
as of the date hereof which constitutes a Default or Event of Default (taking
into account the specific waiver set forth in paragraph 1.1 in this Amendment),
(iii) condition (d) of paragraph 4.1 of this Amendment is satisfied and is true
and correct to the best of the Borrower's knowledge, and (iv) there is no
defense, offset, compensation, counterclaim or reconventional demand with
respect to amounts due under, or performance of, the terms of the Note. To the
extent any such defense, offset, compensation, counterclaim or reconventional
demand or other causes of action by the Borrower against the Lender might exist,
whether known or unknown, such items are hereby waived by the Borrower.
4
4.3 The Borrower hereby and forever settles, compromises, transacts,
satisfies, waives, releases, acquits, discharges, surrenders and cancels any and
all Claims (as defined hereinafter) against the Lender, its insurers or
insureds, subrogors or subrogees, assignors or assignees, nominees,
representatives, joint venturers, directors, officers, agents, employees,
attorneys, shareholders, principals, parent companies, subsidiary companies,
other affiliates, and any other person or entity which has or might have
derivative, secondary or vicarious liability for their acts or omissions whose
rights are derived from them (all of such released parties being collectively
referred to as the "Released Parties"), it being hereby specifically agreed and
understood that the execution of this Amendment is not to be construed as an
acknowledgment or admission of any fact of any liability or responsibility by
the Lender, and the Lender hereby expressly denies any liability to the
Borrower. For the purpose of this Amendment, "Claims" shall mean (i) any and all
claims, demands, losses, damages, causes of action, and rights of action
whatsoever, liquidated or unliquidated, choate or inchoate, matured or
unmatured, contingent or exigible, asserted or unasserted, direct or indirect,
known or unknown, anticipated or unanticipated, arising before or on the date of
the Borrower's execution hereof whether based upon tort, negligence, intentional
conduct, contract, equity, bankruptcy, indemnity, contribution, reimbursement,
unjust enrichment, and/or any other legal theory, which any party may be
entitled to in any way, and (ii) arising out of or relating to the Loan
Agreement, the Note and the Collateral Documents from time to time executed in
connection therewith (collectively the "Loan Documents"), but (iii) excluding
any Claims (as defined in preceding clauses (i) and (ii)) against the Released
Parties based upon fraudulent or dishonest acts of the Lender, and Claims to
require the Released Parties to perform any contractual undertakings under the
Loan Documents.
4.4 Subject to the specific waiver set forth in paragraph 1.1 of this
Amendment and the other provisions contained in this Amendment, all terms and
provisions of the Loan Agreement and of the Note are hereby ratified and
confirmed, and shall be and remain in full force and effect, enforceable in
accordance with their terms.
5
4.5 The Borrower agrees to pay on demand all reasonable expenses of Lender
in connection with the preparation, reproduction, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder
(including the reasonable fees and expenses of counsel for Lender). In addition,
the Borrower shall pay any and all stamp or other taxes, recordation fees and
other fees payable in connection with the execution, delivery, filing or
recording of this Amendment and the other instruments and documents to be
delivered hereunder and agrees to hold the Lender harmless from and against any
and all liabilities with respect to or resulting from any delay or omission in
paying such taxes or fees. Without limiting the foregoing, all fees and expenses
owing to Lender's counsel in Louisiana or other states shall be paid through the
closing date of this Amendment.
4.6 THIS AMENDMENT, AND THE NOTE AS AMENDED, ARE CONTRACTS MADE UNDER AND
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE UNITED
STATES OF AMERICA AND THE STATE OF LOUISIANA.
4.7 The Borrower and the Lender agree that this Amendment may be executed
in multiple separate counterparts, and each party's signature may appear on a
separate counterpart, but all such counterparts taken together shall constitute
one and the same instrument. The parties specifically confirm their intent to be
bound by delivery of such signed counterparts by telecopier.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.
BORROWER: VENUS EXPLORATION, INC.
By: /s/ John Y. Ames
Name:John Y. Ames
Title:President
LENDER: HIBERNIA NATIONAL BANK
By: /s/ Tammy Angelety
Name:Tammy Angelety
Title:Vice President
Exhibit 10.2
THIRD AMENDMENT TO LOAN AGREEMENT
AND TO NOTE
THIS THIRD AMENDMENT TO LOAN AGREEMENT AND TO NOTE (this "Amendment") dated
as of April 30, 2002, is made between VENUS EXPLORATION, a Delaware corporation
("Borrower"), and HIBERNIA NATIONAL BANK, a national banking association
("Lender") who agree as follows:
RECITALS
A. The Borrower and the Lender entered into that certain Loan Agreement
dated as of July 6, 2001, as amended by the Waiver and Amendment dated effective
as of December 11, 2001, the Amendment to Loan Agreement and to Note dated as of
January 29, 2002, the Waiver and Amendment dated effective as of March 18, 2002,
and the Third Waiver and Second Amendment to Loan Agreement and to Note dated as
of April 10, 2002 (as previously amended, the "Loan Agreement"). Unless
otherwise specified herein, capitalized terms used in this Amendment shall have
the meanings indicated in the Loan Agreement.
B. The Borrower and the Lender desire to alter the Maturity Date of the
Loan, and otherwise to provide revised terms with respect to the Loan.
AGREEMENT
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and the loans and extensions of credit heretofore, now or hereafter made
to the Borrower by the Lender, the parties hereto hereby agree as follows:
1. The Borrower and the Lender hereby amend and restate the definition of
"Maturity Date" in Section 1.2 of the Loan Agreement (as previously amended) to
read in its entirety as follows:
"Maturity Date" shall mean May 30, 2002, or such earlier date on which the
Loan is accelerated pursuant to Section 8.2 hereof.
2. The Borrower and the Lender hereby amend the Line of Credit Note (as
previously amended) to change the maturity date of the Line of Credit Note in
the caption to be May 30, 2002.
3. In consideration of the granting of this extension set forth above, the
Borrower shall pay to the Lender an extension fee in the amount equal to one
thousand ($1,000) dollars immediately upon execution of this Amendment by the
Lender.
4. The Commitment Limit, the Amount and the Borrowing Base shall continue
to be automatically reduced by the Monthly Borrowing Base Reductions on April 30
and on the last day of each successive month as provided in the Loan Agreement.
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5. Except as expressly modified in this Amendment, all terms and provisions
of the Loan Agreement and all terms and provisions of the Note are hereby
ratified and confirmed, and shall be and remain in full force and effect,
enforceable in accordance with their terms. The Borrower hereby specifically
reaffirms all of the Collateral Documents.
6. The Borrower represents and warrants to the Lender (which
representations and warranties will survive the execution of this Agreement)
that (i) all representations and warranties contained in the Loan Agreement and
the Collateral Documents are true and correct on and as of the date hereof as
though made on and as of such date, (ii) no event has occurred and is continuing
as of the date hereof which constitutes a Default or Event of Default (taking
into account any specific waiver set forth in writing by the Lender), and (iii)
there is no defense, offset, compensation, counterclaim or reconventional demand
with respect to amounts due under, or performance of the terms of the Note. To
the extent any such defense, offset, compensation, counterclaim or
reconventional demand or other causes of action might exist, whether known or
unknown, such items are hereby waived by the Borrower.
7. The Borrower hereby and forever settles, compromises, transacts,
satisfies, waives, releases, acquits, discharges, surrenders and cancels any and
all Claims (as defined hereinafter) against the Lender, its insurers or
insureds, subrogors or subrogees, assignors or assignees, nominees,
representatives, joint venturers, directors, officers, agents, employees,
attorneys, shareholders, principals, parent companies, subsidiary companies,
other affiliates, and any other person or entity which has or might have
derivative, secondary or vicarious liability for their acts or omissions whose
rights are derived from them (all of such released parties being collectively
referred to as the "Released Parties"), it being hereby specifically agreed and
understood that the execution of this Amendment is not to be construed as an
acknowledgment or admission of any fact of any liability or responsibility by
the Lender, and the Lender hereby expressly denies any liability to the
Borrower. For the purpose of this Amendment, "Claims" shall mean (i) any and all
claims, demands, losses, damages, causes of action, and rights of action
whatsoever, liquidated or unliquidated, choate or inchoate, matured or
unmatured, contingent or exigible, asserted or unasserted, direct or indirect,
known or unknown, anticipated or unanticipated, arising before or on the date of
the Borrower's execution hereof whether based upon tort, negligence, intentional
conduct, contract, equity, bankruptcy, indemnity, contribution, reimbursement,
unjust enrichment, and/or any other legal theory, which any party may be
entitled to in any way, and (ii) arising out of or relating to the Loan
Agreement, the Note and the Collateral Documents from time to time executed in
connection therewith (collectively the "Loan Documents"), but (iii) excluding
any Claims (as defined in preceding clauses (i) and (ii)) against the Released
Parties based upon fraudulent or dishonest acts of the Lender, and Claims to
require the Released Parties to perform any contractual undertakings under the
Loan Documents.
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8. The Borrower agrees to pay on demand all reasonable expenses of Lender
in connection with the preparation, reproduction, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder
(including the reasonable fees and expenses of counsel for Lender). In addition,
the Borrower shall pay any and all stamp or other taxes, recordation fees and
other fees payable in connection with the execution, delivery, filing or
recording of this Amendment and the other instruments and documents to be
delivered hereunder and agrees to hold the Lender harmless from and against any
and all liabilities with respect to or resulting from any delay or omission in
paying such taxes or fees.
9. THIS AMENDMENT, AND THE NOTE AS AMENDED, ARE CONTRACTS MADE UNDER AND
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE UNITED
STATES OF AMERICA AND THE STATE OF LOUISIANA.
10. The Borrower and the Lender agree that this Amendment may be executed
in multiple separate counterparts, and each party's signature may appear on a
separate counterpart, but all such counterparts taken together shall constitute
one and the same instrument. The parties specifically confirm their intent to be
bound by delivery of such signed counterparts by telecopier.
11. The undersigned Guarantor, Eugene L. Ames, Jr., hereby intervenes in
this Amendment and (i) consents to the terms and conditions of this Amendment,
(ii) nonetheless acknowledges and agrees that his consent to the terms of this
Amendment is not necessary pursuant to his Guaranty Agreement dated as of April
10, 2002 (the "Guaranty"), and (iii) ratifies and confirms his Guaranty, and
agrees that his Guaranty is and shall remain in full force and effect,
enforceable in accordance with its terms, after the execution of this Amendment
and the extension of the Maturity Date for the Loan.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.
BORROWER: VENUS EXPLORATION, INC.
By: /s/ John Y. Ames
Name:_John Y. Ames
Title:__President
LENDER: HIBERNIA NATIONAL BANK
By: /s/ Tammy Angelety
Name:_Tammy Angelety
Title:_Vice President
GUARANTOR: /s/ Eugene L. Ames, Jr.
Joining as provided EUGENE L. AMES, JR.
in Paragraph 11
Exhibit 10.4
GUARANTORS' COOPERATION AGREEMENT
THIS AGREEMENT is made and entered into effective the 30th day of May, 2002, by
and among L. Lowry Mays, James W. Gorman, Robert Scott, Robert Buschman, Michael
E. Little, E.L. Ames, Jr., and John Y. Ames (each of whom may be referred to
herein as a "Guarantor" and all of whom may be collectively referred to herein
as the "Guarantors"), Venus Exploration, Inc. ("Venus Exploration"), and Carl R.
Oliver, Trustee under that Second Lien Deed of Trust, Mortgage, Assignment of
Production, Security Agreement, and Financing Statement (the "Second Lien Deed
of Trust") and under those Prospect Deeds of Trust, Mortgage, Assignment of
Production, Security Agreement, and Financing Statement (the "Prospect Deeds of
Trust") executed contemporaneously herewith and securing the obligations of
Venus Exploration to the Guarantors. This Agreement provides the terms of
supplemental agreements among the parties in connection with the Guarantors'
various separate, limited guaranties made of parts of the $2,000,000 promissory
note dated May 30, 2002 (the "Promissory Note"), from Venus Exploration to the
Frost National Bank. The form of the Promissory Note is attached as Exhibit A,
and the form of the Guaranty Agreement is attached as Exhibit A-1. The addresses
of each of the Guarantors and their respective amounts and percentages of the
overall guaranty are shown on Exhibit B.
Venus Exploration is a Delaware corporation whose principal place of
business is 1250 N.E. Loop 410, Suite 205, San Antonio, Texas 78209. It is
borrowing $2,000,000 from the Frost National Bank pursuant to the Promissory
Note. That debt is secured by those deeds of trust dated from Venus Exploration
to various trustees for the benefit of Hibernia National Bank (the "First Lien
Deed of Trust"), as amended, which will be assigned to Frost National Bank and
which covers substantially all of Venus Exploration's producing oil and gas
properties. The First Lien Deed of Trust has been recorded in multiple versions
in various locations, and each of those versions are more particularly described
on Exhibit C. Venus Exploration's obligations to the Guarantors in connection
with any payments they may make as a result of the Bank's exercise of its rights
under the Guarantors' guaranty agreements are secured by the Second Lien Deed of
Trust, a copy of which is attached as Exhibit D, and by first lien deeds of
trust on some of Venus Exploration's non-producing properties, copies of which
are attached as Exhibit E and Exhibit F. For ease of reference only, the liens
created by Exhibits E and F will also be considered as part of the Second Lien
Deed of Trust.
I. Guarantors' Cooperation Regarding Duties to Bank
If (i) Venus Exploration commits, or allows to occur, an event of default
pursuant to the Promissory Note, (ii) the event of default has not matured into
a default under the Promissory Note, and (iii) the outstanding indebtedness
under the Promissory Note is less than or equal to the total of the Guarantors'
guaranties, the Guarantors agree to purchase the Promissory Note by paying to
the Frost National Bank or its successor or assigns (the "Bank") the amount of
the outstanding indebtedness. In that regard or in any other circumstance in
which the Guarantors agree to purchase the Promissory Note from the Bank, each
Guarantor will pay its proportionate part of the total outstanding indebtedness
based on the proportions shown on Exhibit B. The Guarantors will attempt to
structure the transaction with the Bank as a purchase of the secured note, and
as such, they will be the successor beneficiaries of the First Lien Deed of
Trust securing the Bank's Promissory Note.
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II. Guarantors' Cooperation Regarding Promissory Note & Deeds of Trust
If the Bank assigns the Promissory Note and the First Lien Deed of Trust to
the Guarantors and with regard to the Second Lien Deed of Trust, the Guarantors
agree to the following terms:
A. The trustee under the Second Lien Deed of Trust will be the
initial successor trustee under the First Lien Deed of Trust, unless
a majority in interest in the collective guaranty ("Percentage
Majority"), which majority will be determined by the percentages
shown on Exhibit B, agree in writing to another trustee.
B. As long as a Guarantor is in compliance with its obligations under
its Guaranty Agreement and this Agreement, the trustee and all
successor trustees under both the First Lien Deed of Trust and the
Second Lien Deed of Trust (the "Trustee") will distribute all net
proceeds received pursuant to their rights under the Promissory Note,
the First Lien Deed of Trust and the Second Lien Deed of Trust to
that Guarantor in the proportion shown on Exhibit B.
C. Except as specified herein, all actions under the Promissory Note,
the First Lien Deed of Trust and the Second Lien Deed of Trust will
be taken as directed in writing by a Percentage Majority.
D. The Guarantors agree that the Trustee will be expected to maintain
adequate records of all expenditures for the account of the
Guarantors in connection with the liquidation of the Promissory Note
and the foreclosure of the deed of trust liens. Those duties will
include furnishing to the Guarantors detailed monthly statements
showing an itemized statement of credits and charges to the joint
account.
E. The Trustee will perform its duties in good faith and in
conformity with all applicable laws, but it will not be liable for
any action or inaction on its part unless such action or inaction
will be proved to constitute gross negligence or malfeasance.
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III. Venus Exploration's Contingent Liability in the Event of Payment under the
Guaranties
If the Bank does not assign the Promissory Note and the First Lien Deed of
Trust to the Guarantors and if the Guarantors pay the Bank the outstanding
indebtedness pursuant to the Promissory Note and the First Lien Deed of Trust as
a result of their obligations under the guaranty agreements, Venus Exploration
agrees to pay the Guarantors that same amount they paid to the Bank, and that
payment will be made within ten days of the Guarantors' payment to the Bank.
That indebtedness to the Guarantors will accrue interest and be subject to terms
of the Contingent Promissory Note, a copy of which is attached as Exhibit G.
That contingent indebtedness will be secured by the Second Lien Deed of Trust.
IV. Guarantors' Cooperation regarding Redistribution of Consideration
If the Guarantors either purchase the Promissory Note from the Bank or the
Bank calls the guaranties of the Guarantors and if each Guarantor does not pay
its proportionate part of the total outstanding indebtedness based on the
proportions shown on Exhibit B, those Guarantors who did not pay their
proportionate part of the total will reassign to the Trustee all or part of the
overriding royalty interest and the warrants to purchase Venus Exploration
common stock that they acquired concurrently with their execution of the
guaranty agreements. The amount to be reassigned will be determined based on the
percentage of those Guarantors' proportionate parts of the total payable to the
Bank that were not actually paid to the Bank. For example, if a Guarantor's
proportionate part of the $2.5 million is 50% and if it pays only 25% of the
total amount paid to the Bank either for the purchase of the Note or as a result
of the Bank's exercise of the Guaranties, that Guarantor will assign to the
Trustee one-half (25%/50%) of the overriding royalty interests and warrants it
acquired from Venus Exploration. The Trustee will subsequently redistribute
those interests to the Guarantors who paid more than their proportionate part of
the total, and the redistribution will be made so that all Guarantors receive
the overriding royalty interests and warrants in proportion to the percentage of
the amounts actually paid to the Bank.
V. Trustee's Agreement to Comply
The Trustee hereby agrees to comply with the terms of this Agreement and to
act in conformance with the intent expressed herein.
VI. Miscellaneous
A. Negation of Partnership Status. This Agreement is not intended and will
not be construed to create a partnership within the meaning of the Texas Revised
Partnership Act nor under the laws of the state in which any party hereto is
incorporated, organized or conducting business. The parties expressly agree that
no other party hereto will be responsible for obligations of any other party,
each party being severally responsible only for its obligations arising
hereunder.
3
B. Internal Revenue Code Election. Notwithstanding any provisions herein
that rights and liabilities hereunder are several and not joint or collective,
or that this Agreement and operations hereunder will not constitute a
partnership, if, for federal income tax purposes, this Agreement and the
operations hereunder are regarded as a partnership, each party elects to be
excluded from the application of all of the provisions of Subchapter "K,"
Chapter 1, Subtitle "A," of the Internal Revenue Code of 1986, as amended (the
"Code"), as permitted and authorized by Section 761 of the Code and the
regulations promulgated thereunder. The trustee is hereby authorized and
directed to execute on behalf of each Guarantor such evidence of this election
as may be required by the Secretary of the Treasury of the United States or the
federal Internal Revenue Service ("IRS"), including specifically, but not by way
of limitation, all of the returns, statements and data required by IRS
Regulation Section 1.761. Should there be any requirement that each party give
further evidence of this election, each party will execute such documents and
furnish such other evidence as may be required by the IRS or as may be necessary
to evidence this election. No party will give any notices or take any other
action inconsistent with the election made hereby. If any present or future
income tax laws of any state within an interest herein or any future income tax
laws of the United States contain provisions similar to those in Subchapter "K,"
Chapter 1, Subtitle "A," of the Code under which an election similar to that
provided by Section 761 of the Code is permitted, each party will make such
election as may be permitted or required by such laws. In making the foregoing
election, each party states that the income derived from operations hereunder
can be adequately determined without the computation of partnership taxable
income.
C. Governing Law and Forum. This Agreement will be governed by the laws of
the State of Texas, both as to interpretation and performance.
D. Binding on Successors and Assigns. This Agreement will be binding upon
and inure to the benefits of the parties hereto and their respective successors
and assigns.
E. Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity will not affect the validity of the
remainder of the Agreement.
F. Exhibits. All exhibits referenced herein are incorporated herein and
made a part hereof for all purposes.
G. Multiple Counterparts. This Agreement may be signed in multiple
counterparts, each party being bound upon its execution of same regardless of
whether all other parties execute same. All copies will be considered as one
document.
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H. Notice. All notices, requests or consents under this Agreement shall be
(a) in writing, (b) delivered to a principal officer or managing entity of the
recipient in person, by courier or mail or by facsimile, telegram, telex,
cablegram or similar transmission, and (c) effective only upon actual receipt by
such person during normal business hours. If received after normal business
hours, the notice will be considered to have been received on the next business
day after such delivery. Whenever any notice is required to be given by
applicable law or this Agreement, a written waiver thereof, signed by the entity
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice. For purposes of notices, the
mailing addresses of the parties shall, until changed by giving notice to the
other parties, be as stated above.
I. Arbitration. The parties agree that any controversy arising between
them, including, but not limited to, common law, statutory, tort or contract
claims or any other claim in any manner whatsoever pertaining to this agreement
or otherwise, will be submitted first to mediation, and failing settlement, to
binding arbitration. The mediation and/or arbitration proceedings will be
conducted in San Antonio, Texas, under the then current Mediation and
Arbitration Procedures for business disputes of CPR-Institute for Dispute
Resolution of New York, New York.
Notwithstanding anything to the contrary in this document, this arbitration
provision will be governed by the provisions of the Federal Arbitration Act, 9
U.S.C. Section 1 et. seq., and judgment upon the award rendered by the
arbitrator(s) may be entered by any court having jurisdiction thereover.
J. Release of Lien. The First Lien Deed of Trust and the Second Lien Deed
of Trust require the consents of the Guarantors before Venus Exploration can
sell any of the property subject to those deeds of trust, and they provide that
such consent cannot be unreasonably withheld. For purposes of obtaining any such
release of lien from the Guarantors for the purpose of selling that property to
a third party, Venus Exploration agrees that the requirement that any net
proceeds from the sale be used to reduce the outstanding debt that the
Guarantors are guarantying is a reasonable condition of giving such consent.
VENUS EXPLORATION, INC.
By: /s/ E. L. Ames, Jr.
E.L. Ames, Jr.,
Chief Executive Officer
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GUARANTORS:
- --------------------------- ---------------------------
L. Lowry Mays James W. Gorman
- --------------------------- ---------------------------
Robert Scott Robert Buschman
- --------------------------- ---------------------------
Michael E. Little E. L. Ames, Jr.
- ---------------------------
John Y. Ames
TRUSTEE:
- ---------------------------
Carl R. Oliver, Trustee
Exhibits:
Exhibit A - Form of Frost Bank Promissory Note
Exhibit A-1 - Form of Guaranty Agreement
Exhibit B - Guarantor Group
Exhibit C - Hibernia Deed of Trust
Exhibit D - Second Lien Deed of Trust on Producing Properties
Exhibit E - First Lien Deed of Trust on Recorded, Non-Producing Leases
Exhibit F - First Lien Deed of Trust on Unrecoreded, Non-Producing Leases
Exhibit G - Contingent Promissory Note
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Exhibit 10.5
ASSIGNMENT OF OVERRIDING ROYALTY INTEREST
STATE OF TEXAS ss.
ss. KNOW ALL MEN BY THESE PRESENTS THAT:
COUNTY OF ________ ss.
THIS ASSIGNMENT OF OVERRIDING ROYALTY INTEREST is from VENUS EXPLORATION,
INC. ("Venus Exploration") to L.LOWRY MAYS, JAMES W. GORMAN,ROBERT SCOTT, ROBERT
BUSCHMAN, MICHAEL E. LITTLE, E.L. AMES, JR., and JOHN Y. AMES (each
individually, an "Assignee"), whose addresses are shown on Exhibit A.
WHEREAS, Venus Exploration owns at least the overriding royalty interests
in various oil, gas and mineral leases that are listed on Exhibit A as "Venus
Exploration's Override";
WHEREAS, the oil, gas and mineral leases that are subject to those
overriding royalty interests are more particularly described on Exhibit B;
WHEREAS, Venus Exploration desires and intends to transfer to each Assignee
a separate part of Venus Exploration's Override;
NOW, THEREFORE, for TEN DOLLARS ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Venus Exploration hereby TRANSFERS, GRANTS, CONVEYS AND ASSIGNS unto each of the
Assignees in separate conveyances the parts of Venus Exploration's Override
specified on Exhibit A, which separate parts total, but do not exceed, Venus
Exploration's Override, as described on Exhibit A. It is the intent of Venus
Exploration that each of the Assignees receive separate, wholly-owned parts of
Venus Exploration's Override; i.e., no Assignee will own an undivided part of
any other Assignee's part of the total Venus Exploration's Override.
2
This Assignment is made and accepted subject to all documents of record in
_________ County, Texas, and the terms of the joint operating agreement under
which operations and production are conducted on the property that is subject to
Venus Exploration's Override.
The real property hereby sold and transferred to Assignee is sold with only
a Special Warranty of Title; i.e., Venus Exploration binds itself and its
successors and assigns to Assignee and its successors and assigns against every
person whomsoever lawfully claiming its interest in the overriding royalty
interest conveyed hereby by, through or under Venus Exploration, but not
otherwise.
Executed this 31st day of May, 2002.
VENUS EXPLORATION, INC.
By: /s/ John Y. Ames
John Y. Ames, President
STATE OF TEXAS
ss.
COUNTY OF BEXAR ss.
This instrument was acknowledged before me on this _______ day of April,
2002, by John Y. Ames, President of VENUS EXPLORATION, INC., a Delaware
corporation, on behalf of that corporation.
-----------------------------
[personalized seal] Notary Public, State of Texas
After recording, please return to:
Exhibit 10.6
FIRST LIEN
(ON UNRECORDED, NON-PRODUCING LEASES)
DEED OF TRUST, MORTGAGE, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT, AND FINANCING STATEMENT
VENUS EXPLORATION, INC., a Delaware corporation (herein called
"Grantor"),1250 N. E. Loop 410, Suite 810, San Antonio, Texas 78209, to secure
payment and performance of the Obligation (hereinafter defined), and for and in
consideration of the sum of Ten and No/100 Dollars ($10.00) cash and other
valuable consideration in hand paid to Grantor, the receipt and adequacy of
which are hereby acknowledged, and for and in consideration of the debt and
trusts hereinafter mentioned, has GRANTED, BARGAINED, SOLD, ASSIGNED,
TRANSFERRED, and CONVEYED, and by these presents does GRANT, BARGAIN, SELL,
ASSIGN, TRANSFER and CONVEY, unto Carl R. Oliver, Trustee(herein called
"Trustee"), whose address is 4040 Broadway, Suite 690, San Antonio, Texas,
78209, and to Trustee's successor or successors or substitutes in this trust,
with power of sale, all of the record and/or beneficial interest of Grantor in
and to the real and personal properties, rights, titles, interests and estates
described or to which reference is made in Paragraphs I through VI, inclusive,
below, whether now owned by Grantor or hereafter acquired by Grantor (herein
collectively called the "Mortgaged Property"):
Paragraph I. Oil and Gas Leases and Other Properties. All of those certain
oil and gas and/or oil, gas and mineral leases, lands, interests and other
properties (all such leases being herein called the "Subject Leases," and all
such leases, lands, interests and other properties being herein called the
"Subject Interests") that are described and/or to which reference may be made on
Exhibit A attached to and made a part of this Deed of Trust for all purposes and
incorporated herein by reference as fully as if copied verbatim in the body of
this Deed of Trust at this point.
Paragraph II. Pooled Interests. All rights, titles, interests and estates
now owned or hereafter acquired by Grantor in and to (i) any and all properties
now or hereafter pooled or unitized with any of the Subject Interests, and (ii)
all presently existing or future unitization, communitization and pooling
agreements, and the units created thereby, that include all or any part of the
Subject Interests, including, without limitation, all units formed under or
pursuant to any Laws. The rights, titles, interests and estates described in
this Paragraph II shall also be included within the term "Subject Interests" as
used herein.
Paragraph III. Hydrocarbons. All oil, gas, casinghead, gas, drip gasoline,
natural gasoline and condensate, all other liquid and gaseous hydrocarbons, and
all other minerals, whether similar to the foregoing or not (herein collectively
called "Hydrocarbons"), now or hereafter accruing to or produced from the
Subject Interests and/or to which Grantor now or hereafter may be entitled as a
result of or by virtue of its record and/or beneficial ownership of any one or
more of the Subject Interests.
Paragraph IV. Contracts. All present and future rights of Grantor
(including, without limitation, all rights to receive payments under or by
virtue of all present and future operating agreements, contracts for the
purchase, exchange, processing, transportation or sale of Hydrocarbons, and
other contracts and agreements relating in any way to all or any part of the
Mortgaged Property as the same may be amended or supplemented from time to time
(the "Subject Contracts").
Paragraph V. Other Property. All tenements, hereditaments, appurtenances
and properties in anywise appertaining, belonging, affixed or incidental to the
Subject Leases, in which Grantor now owns or hereafter acquires an interest,
including, without limitation, any and all property, real or personal, in which
Grantor now owns or hereafter acquires an interest that is situated upon and/or
used or useful in connection with all or any part of the Subject Leases and
including all pipelines; gathering lines; trunk lines; lateral lines; pipeline
easements and rights-of-way; compressor, dehydration and pumping equipment,
sites and leases; pumps; compressors; dehydration units; separators; heater
treaters; valves; flow lines; gauge meters; alarms; supplies; machinery;
derricks; building; tanks; casings; Christmas trees; tubing; rods; liquid
extractors; engines; boilers; tools; appliances; cables; wires; surface leases;
rights-of-way; easements; servitudes; and franchises; and all accessions,
additions, substitutes and replacements to or for, and all accessories and
attachments to, any of the foregoing (all such surface leases, easements,
licenses, rights-of-way and franchises being herein called the "Subject
Easements," and all such tangible property described in this Paragraph V being
herein called the "Personal Property").
Paragraph VI. Other Rights to Hydrocarbons. Any and all other rights,
titles, estates, royalties and interests (whether or not presently included
within the Subject Interests) now owned or hereafter acquired by Grantor (i) in
and to all Hydrocarbons in and under and that may be produced and saved from the
lands described or to which reference is made on Exhibit A (the "Land") and (ii)
in and to all reversions, remainders, tolls, rents, revenues, issues, proceeds,
earnings, income and profits from the Land.
TO HAVE AND TO HOLD the Mortgaged Property, together with all and singular
the rights, privileges, contracts and appurtenances now or hereafter at any time
before the foreclosure or release hereof in anywise appertaining or belonging
thereto, unto Trustee and to his successors or substitutes hereunder and to
their successors and assigns forever; and Grantor hereby binds and obligates
Grantor and Grantor's Successors to warrant and forever defend, all and
singular, the Mortgaged Property unto Trustee and to his successors or
substitutes hereunder and to their successors and assigns, against the lawful
claims of any and all Persons whomsoever claiming or to claim the same, or any
part thereof, SUBJECT, HOWEVER, ONLY to Permitted Liens.
REFERENCE IS MADE TO SECTION 4.13 FOR THE DEFINITIONS OF SEVERAL OF THE
TERMS USED HEREIN.
This conveyance is made in trust, however, upon the terms and provisions
hereinafter set out to secure the full and final payment and performance of the
Obligation, as defined in Article I below.
To further secure the Obligation, Grantor hereby grants to L. Lowry Mays,
James W. Gorman, Robert Scott, Robert Buschman, Michael E. Little, E.L. Ames,
Jr. and John Y. Ames (collectively, herein called "Beneficiary"), whose address
is in care of the Trustee at the Trustee's address, a security interest in the
Mortgaged Property insofar as such Mortgaged Property consists of equipment,
general intangibles, accounts, inventory, fixtures and any and all other
personal property of any kind or character defined in and subject to the
provisions of the Code, including the proceeds and products from any and all of
such Mortgaged Property [all of such Mortgaged Property (and the proceeds and
products thereof) being herein called the "Collateral"]. Upon the happenings of
any Default, Beneficiary is and shall be entitled to all of the Rights afforded
a secured party by the Code with reference to the Collateral, or Trustee or
Beneficiary may proceed as to both the real and personal property covered hereby
in accordance with the Rights granted under this Deed of Trust in respect to the
real property covered hereby. Such Rights shall be cumulative and in addition to
those granted to Trustee or Beneficiary under any other provision of this Deed
of Trust or under any other instrument executed in connection with or as
security for all or any part of the Obligation.
ARTICLE ONE
SECURED OBLIGATION.
This Deed of Trust, Mortgage, Assignment of Production, Security Agreement,
and Financing Statement (herein called the "Deed of Trust") is made to secure
and enforce the following, obligations, indebtedness, covenants, conditions,
agreements, loans, advances, debts and liabilities (herein collectively called
the "Obligation"):
Section 1.1 Guaranty The obligation to repay each Beneficiary for any
amounts paid by the Beneficiary to the Frost National Bank or its assigns (the
"Bank") as a direct result of the Bank's exercise of its rights under that
Guaranty Agreement dated May 30, 2002, from Beneficiary to the Bank (the
"Guaranty Agreement") securing Grantor's indebtedness to the Bank in the amount
of $2,000,000 as referenced in that Guaranty Agreement (the "Note"). The
obligation to repay Beneficiary is more particularly described in that
Guarantors' Cooperation Agreement dated May ___, 2002, among Venus Exploration,
Inc., Trustee and Beneficiaries.
Section 1.2 Other Indebtedness. Any and all other additional indebtedness
or liabilities for which Grantor is now or may hereafter become liable to
Beneficiary at any time and from time to time, in any manner, either primarily
or secondarily, absolutely or contingently, directly or indirectly, jointly,
severally, or jointly and severally, and whether matured or unmatured, including
all indebtedness and liabilities now or hereafter arising directly out of
transactions between Grantor and Beneficiary or acquired by Beneficiary
outright, conditionally, or as collateral security from another Person and
whether or not created after payment in full of the Note if this Deed of Trust
shall not have been released of record by Beneficiary.
Section 1.3 Indebtedness Arising Under Security Instruments. All
indebtedness, obligations, covenants, conditions, agreements and liabilities
arising pursuant to the provisions of this Deed of Trust and/or any other
security agreement, mortgage, deed of trust, collateral pledge agreement,
contract, assignment or loan agreement of any kind now or hereafter existing as
security for, executed in connection with, or related to the Obligation and/or
any part thereof (each such agreement being herein called "other security
instrument").
Section 1.4 Costs and Expenses. All sums advanced and costs and expenses
incurred by Beneficiary, including without limitation, all legal, accounting,
engineering, management, consulting or like fees, made and incurred in
connection with the foregoing Sections 1.1, 1.2, and 1.3 or any part thereof, or
in connection with the acquisition, perfection, realization, maintenance or
preservation of the security therefor, or in connection with the following
Section 1.5, or any part thereof, whether such advances, costs or expenses shall
have been made and incurred at the request of Grantor or Beneficiary.
Section 1.5 Renewals, Extensions, and Rearrangements. Any and all
renewals, extensions and/or rearrangements of all or any part of the Note,
indebtedness, obligations, debts, loans, advances, covenants, agreements and
liabilities described or to which reference is made in the foregoing Sections
1.1, 1.2, 1.3, and 1.4.
ARTICLE TWO
CERTAIN REPRESENTATIONS, WARRANTIES, AND COVENANTS OF GRANTOR
Section 2.1 Representations and Warranties. Grantor represents and warrants
to Beneficiary that in all material respects:
(a) Authority. Grantor has authority to execute this Deed of Trust, to
grant, bargain, sell, mortgage, assign, transfer, and convey the Mortgaged
Property to the Trustee pursuant to this Deed of Trust, and to make the
covenants, representations, warranties, and assignments contained in this Deed
of Trust;
(b) Title. Grantor (i) has good title to, (ii) is the lawful owner and
holder of, and (iii) is possessed of the Mortgaged Property free and clear of
any and all Liens except Permitted Liens;
(c) Percentage Interests. The percentage interests of Grantor's
participation in the total costs incurred in connection with the Mortgaged
Property described on Exhibit A attached hereto is not greater than as
represented on said Exhibit, and the percentage interests of Grantor's
participation in the total production of Hydrocarbons produced and saved from
the Mortgaged Property described on Exhibit A is not less than as represented on
said Exhibit; and
(d) Advance Payment Contract. Grantor is not a party to any Advance Payment
Contract affecting or relating to any of the Subject Interests not heretofore
disclosed to Beneficiary in writing.
Section 2.2 Covenants of Grantor. Grantor, for Grantor and Grantor's
Successors, covenants and agrees to:
(a) Additional Documents. At any time, and from time to time, upon request
by Beneficiary, forthwith execute and deliver to Beneficiary any and all
additional instruments and further assurances, and do all other acts and things,
as may be necessary or proper to effect the intent of these presents and to
evidence and perfect more fully the Rights and Liens herein created or intended
to be created and to protect the Rights of Beneficiary hereunder.
(b) Existence and Authority. Continuously maintain Grantor's existence as a
corporation in good standing under the laws of the state of its corporation and
in all jurisdictions in which it is conducting business.
(c) Cure of Defects. If the validity or priority of this Deed of Trust or
of any Rights or Liens created or evidenced hereby with respect to the Mortgaged
Property or any material part thereof shall be endangered or questioned or shall
be attacked directly or indirectly or if any legal proceedings are instituted
against Grantor with respect thereto, give written notice thereof to Beneficiary
promptly and, at Grantor's own cost and expense, diligently endeavor to cure any
defect that may be developed or claimed, and take all necessary and proper steps
for the defense of such legal proceedings, including, but not limited to, the
employment of counsel acceptable to Beneficiary, the prosecution or defense of
litigation and the release or discharge of all adverse claims, and Trustee and
Beneficiary, or either of them (whether or not named as parties to legal
proceedings with respect thereto), are hereby authorized and empowered to take
such additional steps as in their judgment and discretion may be necessary or
proper for the defense of any such legal proceedings, including, but not limited
to, the prosecution or defense of litigation, and the compromise or discharge of
any adverse claims made with respect to the Mortgaged Property, and all expense
so incurred of every kind and character shall be a demand obligation owing by
Grantor to Beneficiary.
(d) Payment of Taxes. Pay, or cause to be paid, before delinquent, all
lawful Taxes in respect to the Mortgaged Property, or any part thereof, and from
time to time, upon request of Beneficiary, to furnish to Beneficiary evidence
satisfactory to Beneficiary of the timely payment of such Taxes.
(e) Compliance with Subject Leases, Interests, Contracts, and Easements.
Timely perform all obligations under, and not violate any of, the Subject
Leases, Subject Interests, Subject Contracts or Subject Easements.
(f) Maintenance of Mortgaged Property. At all times maintain, preserve and
keep the Mortgaged Property in good repair and condition, and from time to time
to make all necessary and proper repairs, replacements and renewals; and not to
commit or permit any waste on or of the Mortgaged Property.
(g) Mortgage Taxes. At any time any Law shall be enacted imposing or
authorizing the imposition of any Tax upon this Deed of Trust, or upon any Lien
created hereby, immediately pay all such taxes; provided that, in the
alternative, Grantor may, in the event of the enactment of such a Law, and must,
if it is unlawful for Grantor to pay such Taxes, prepay that portion of the
Obligation that Beneficiary in good faith determines is secured by property
covered by such Law within 30 days after demand therefor by Beneficiary.
(h) Performance of Covenants. Punctually and properly perform all of
Grantor's covenants, duties, and liabilities under this Deed of Trust and any
other security instrument.
(i) Inspection of Mortgaged Property. Allow Beneficiary to inspect the
Mortgaged Property and all records relating thereto, and to make and take away
copies of such records.
(j) Operation of Mortgaged Property. Operate the Mortgaged Property, or
cause it to be operated, in a careful and efficient manner in accordance with
the practices of the industry and in compliance with all Subject Leases, Subject
Contracts, Subject Easements and Laws.
(k) Development Work. Do, or cause to be done, such development and other
work as would be conducted by a reasonably prudent operator to protect from
material diminution the production capacity of the Mortgaged Property and each
producing well thereon.
(l) Maintenance of Subject Leases, Contract, and Easements. Maintain all
Subject Leases, Subject Contracts, and Subject Easements in full force and
effect and not permit to occur the surrender, abandonment, release or
termination of any Subject Leases, Subject Contracts or Subject Easements, so
long as the Subject Interests covered thereby or relating thereto are capable of
producing Hydrocarbons in commercially paying quantities.
(m) Insurance. Carry insurance with respect to the Mortgaged Property with
such insurers, in such amounts, and covering such risks as shall be customary in
the industry, including, but not limited to, workmen's compensation insurance
and insurance against loss or damage by fire, lightning, hail, windstorm,
explosion, hazards, casualties and other contingencies; deliver evidence of the
policies of insurance to Beneficiary and pay or cause to be paid all premiums
for such insurance at least 15 days before such premiums become due; furnish to
Beneficiary satisfactory proof of the timely making of such payments; and
deliver evidence of all renewal policies to Beneficiary at least 15 days before
the expiration date of each expiring policy.
(n) Compliance with Laws. Comply with all Laws applicable to the Mortgaged
Property and its ownership, use and operation, including, without limitation,
Environmental Laws.
(o) Sales of Mortgaged Property. Not, without the prior written consent of
Beneficiary, which will not be unreasonably withheld, sell, trade, transfer,
convey, assign, exchange, pledge, encumber, create any Lien (except a Permitted
Lien) with respect to or otherwise dispose of the Mortgaged Property, or any
part thereof, or any interest therein, except items of Personal Property that
have become obsolete or worn beyond practical use and that have been replaced by
adequate substitutes having a value equal to or greater than the replaced items
when new.
(p) Title Opinions. Furnish to Beneficiary copies of any title opinions and
any abstracts of title requested by Beneficiary from time to time that Grantor
has or may hereafter obtain affecting any part of the Mortgaged Property.
(q) Advance Payment Contract. Not enter into or agree to any Advance
Payment Contract with any person affecting any of the Mortgaged Property.
(r) Transactions with Affiliates. Not, directly or indirectly, enter into
any sale, lease or exchange of any property or any contract for the rendering of
goods or services with respect to any of the Mortgaged Property (including,
without limitation, operating agreements under which Grantor or an affiliate of
Grantor serves as operator) with any affiliate of Grantor other than upon fair
and reasonable terms no less favorable than could be obtained in an arm's length
transaction with a Person not an affiliate of Grantor.
(s) Properties Not Operated by Grantor. Anything in this Section 2.2 to the
contrary notwithstanding, Grantor, with respect to those Subject Interests that
are operated by operators other than Grantor, shall not be obligated himself to
perform undertakings performable only by such operators and that are beyond the
control of Grantor. In each such case, however, Grantor will promptly take all
actions available to him, under applicable operating arrangements or otherwise,
to bring about the performance of any such undertakings required to be performed
by such operators.
ARTICLE THREE
DEFAULTS AND REMEDIES
Section 3.1 Defaults. The term "Default," as used herein, shall mean (i)
the failure of Grantor, within 30 days after written notice thereof from
Beneficiary, to cure a default in the due performance or observance of any
covenant or agreement contained in this Deed of Trust and not constituting a
default in the payment of principal of or interest on the Obligation, or (ii)
the failure of Grantor within 10 business days after written notice thereof from
Beneficiary to pay when due the principal of or interest on the Obligation, or
any part thereof, after the same shall have become due and payable (whether at
stated maturity, by acceleration, or otherwise).
Section 3.2 Remedies. If a Default shall occur and be continuing,
Beneficiary may, at its option, do any one or more of the following to the
extent permitted by applicable Law:
(a) Payment or Performance by Beneficiary. If Grantor has failed to keep or
perform any covenant whatsoever contained in this Deed of Trust or any other
security instrument, Beneficiary may, but shall not be obligated to any Person
to do so, perform or attempt to perform such covenant, and any payment made or
expense incurred in the performance or attempted performance of any such
covenant shall be a part of the Obligation, and Grantor promises, upon demand,
to pay to Beneficiary, at the place where the Note is payable, or at such other
place as Beneficiary may direct by written notice, all sums so advanced or paid
by Beneficiary until paid by Grantor. No such payment by Beneficiary shall
constitute a waiver of any Default.
(b) Acceleration. Beneficiary may, at its option, declare the aggregate
unpaid principal amount of and interest on the Note and all other parts of the
Obligation to be, and the same shall thereupon become, immediately due and
payable without presentment, demand, protest, notice of acceleration, notice of
intent to accelerate, notice of protest or notice of dishonor, or any other
notice of any kind, all of which are expressly waived by Grantor.
(c) Foreclosure. Beneficiary may request Trustee to proceed with
foreclosure, and in such event Trustee is hereby authorized and empowered, and
it shall be his duty, upon such request of Beneficiary, and to the extent
permitted by applicable Law, to sell all or any part of the Mortgaged Property
at one or more sales, as an entirety or in parcels, at such place or places and
otherwise in such manner and upon such notice as may be required by applicable
Law, or in the absence of any such requirement, as Trustee and/or Beneficiary
may deem appropriate, and to make conveyance to the purchaser or purchasers
thereof. Any sale of any part of the Mortgaged Property shall be made to the
highest bidder or bidders for cash, at the courthouse door of, or at such other
place as may be required or permitted by applicable Law in, the county wherein
the Land included within the Mortgaged Property to be sold is situated; provided
that if the Land is situated in more than one county, such sale of the Mortgaged
Property, or any part thereof, may be made in any county wherein any part of the
Land included within the Mortgaged Property to be sold is situated. Any such
sale shall be made at public outcry, on the day of any month, during the hours
of such day and after written notices thereof have been publicly posted in such
places and for such time periods and after all Persons entitled to notice
thereof have been sent such notice, all as required by applicable Law in effect
at the time of such sale; and nothing herein shall be deemed to require
Beneficiary or Trustee to do, and Beneficiary and Trustee shall not be required
to do, any act other than as required by applicable Law in effect at the time of
such sale. Any such sale may be as a whole or in such parcels as Trustee may
select. After such sale, Trustee shall make to the purchaser or purchasers
thereunder good and sufficient deeds and assignments, in the name of Grantor,
conveying the Mortgaged Property, or part thereof, so sold to the purchaser or
purchasers with special warranty of title (subject to Permitted Liens) by
Grantor. Sale of a part of the Mortgaged Property shall not exhaust the power of
sale, but sales may be made from time to time until the Obligation is paid and
performed in full. It shall not be necessary to have present or to exhibit at
any such sale any of the Collateral. It is intended by each of the foregoing
provisions of this Subsection 3.2(c) that Trustee may, after any request or
direction by Beneficiary, sell, not only the Subject Interests included within,
but also, all other items constituting a part of, the Mortgaged Property, or any
part thereof, along with the Land, or any part thereof, included within the
Mortgaged Property all as a unit and as a part of a single sale, or may sell any
part of the Mortgaged Property separately from the remainder of the Mortgaged
Property. It is agreed that, in any deed or assignment given by Trustee, any and
all statements of fact or other recitals therein made as to the identity of
Beneficiary or as to the occurrence or existence of any Default, or as to the
acceleration of the maturity of the Obligation, or as to the request to sell,
notice of sale, time, place, terms and manner of sale, and the receipt,
distribution and application of the money realized therefrom, or as to the due
and proper appointment of a substitute trustee, and, without being limited by
the foregoing, as to any other act or thing having been duly done by Beneficiary
or by Trustee, shall be evidence that the said statements or recitals state
facts and are without further question to be so accepted, and Grantor does
hereby ratify and confirm any and all acts that Trustee may lawfully do in the
premises by virtue hereof. In the event of the resignation (such resignation
being hereby authorized for any reason) or death of Trustee, or his removal from
his county of residence stated on the first page hereof, or his failure, refusal
or inability, for any reason, to make any such sale or to perform any of the
trusts herein declared, or, at the option of Beneficiary, without cause,
Beneficiary may appoint, in writing, a substitute trustee, who shall thereupon
succeed to all the estates, titles, rights, powers and trusts herein granted to
and vested in Trustee. Such appointment may be made on behalf of Beneficiary by
any person who is then the president, or any vice president or any other
authorized officer or agent of Beneficiary. In the event of the resignation
(such resignation being hereby authorized for any reason) or death of any such
substitute trustee, or his failure, refusal or inability to make such sale or
perform such trusts, or, at the option of Beneficiary, without cause, successive
substitute trustees may thereafter, from time to time, be appointed by
Beneficiary in the same manner. Trustee may appoint, in writing, any one or more
Persons as Trustee's agent and attorney-in-fact to act as Trustee under him and
in his name, place and stead, to perform any one or more acts necessary or
incident to any sale under the power of sale granted under the preceding
provisions of this Subsection 3.2(c), including, without limitation, the posting
and filing of any notices, the conduct of such sale and the execution and
delivery of any instruments conveying the Mortgaged Property so sold, but in the
name and on behalf of Trustee. All acts done or performed by any such agent and
attorney-in-fact shall be valid, lawful and binding as if done or performed by
Trustee. Wherever herein the word "Trustee" is used, the same shall mean the
Person who is the duly appointed trustee or substitute trustee hereunder at the
time in question.
(d) Suit. Beneficiary may, or Trustee may upon written request of
Beneficiary, proceed by suit or suits, at law or in equity, to enforce the
payment and performance of the Obligation in accordance with the terms hereof
and of the Note or the other security instruments, or other documents and/or
writings securing and/or evidencing the Obligation, to foreclose the Liens of
this Deed of Trust as against all or any part of the Mortgaged Property and to
have all or any part of the Mortgaged Property sold under the judgment or decree
of a court of competent jurisdiction.
(e) Assemble Collateral. Beneficiary may require Grantor to assemble the
Collateral included within the Mortgaged Property, or any part thereof, and make
it available to Beneficiary, at a place to be designated by Beneficiary that is
reasonably convenient to Grantor and Beneficiary.
(f) Disposition of Collateral. After notification, if any, as hereafter
provided in this Subsection 3.2(f), Beneficiary may sell, lease or otherwise
dispose of, at the office of Beneficiary, or on the Land, or elsewhere, as
chosen by Beneficiary, all or any part of the Collateral included within the
Mortgaged Property, in its then condition, or following any commercially
reasonable preparation or processing, and each Sale [as used in this Subsection
3.2(f), the term "Sale" means any such sale, lease, or other disposition made
pursuant to this Subsection 3.2(f)] may be as a unit or in parcels, by public or
in private proceedings, and by way of one or more contracts, and, at any Sale,
it shall not be necessary to exhibit the Collateral, or any part thereof, being
sold, leased or otherwise disposed of. The Sale of all or any part of the
Collateral shall not exhaust Beneficiary's power of Sale, but Sales may be made
from time to time until the Obligation is paid and performed in full. Reasonable
notification of the time and place of any public Sale pursuant to this
Subsection 3.2(f), or reasonable notification of the time after which any
private Sale is to be made pursuant to this Subsection 3.2(f), shall be sent to
Grantor and to any other persons entitled under the Code to notice. It is agreed
that notice sent or given not less than 21calendar days prior to the taking of
the action to which the notice relates, is reasonable notification and notice
for such purposes of this Subsection 3.2(f).
(g) Surrender of Insurance Policies. Beneficiary may surrender the
insurance policies maintained pursuant to Subsection 2.2(m) hereof, or any part
thereof, and receive and apply the unearned premiums as a credit on the
Obligation, and, in connection therewith, Grantor hereby appoints Beneficiary as
the agent and attorney-in-fact for Grantor to collect such premiums.
Section 3.3 Purchase of Mortgaged Property by Beneficiary. If Beneficiary
is the purchaser of the Mortgaged Property, or any part thereof (and it is
specifically agreed that Beneficiary may be the purchaser of the Mortgaged
Property, or any part thereof, if permitted by applicable Law), at any sale
thereof, whether such sale be under the power of sale hereinabove vested in
Trustee, or upon any other foreclosure of the Liens hereof, or otherwise,
Beneficiary shall, upon any such purchase, acquire good title to the Mortgaged
Property so purchased, free of the Liens of these presents.
Section 3.4 Possession of Property After Foreclosure. In case the Liens
hereof shall be foreclosed by Trustee's sale, or by other judicial or
non-judicial action, the purchaser at any such sale shall receive, as an
incident to his ownership, immediate possession of the Mortgaged Property, or
any part thereof so conveyed, and, subsequent to foreclosure, Grantor and
Grantor's Successors shall be considered as tenants at sufferance of the
purchaser at foreclosure sale, and anyone occupying the property after demand
made for possession thereof shall be guilty of forcible detainer and shall be
subject to eviction and removal, forcible, or otherwise, with or without process
of Law, and all damages by reason thereof are hereby expressly waived.
Section 3.5 Application of Proceeds. The proceeds from any sale, lease or
other disposition made pursuant to this Article Three, the proceeds from
surrendering any insurance policies pursuant to Subsection 3.2(g), any proceeds
of Hydrocarbons collected by Beneficiary pursuant to Article Four, and sums
received pursuant to Section 4.5 shall be applied by Trustee, or by Beneficiary,
as the case may be, to the payment of the Obligation, whether or not matured, as
may be determined by Beneficiary in its sole discretion until the Obligation is
paid in full.
Section 3.6 Abandonment of Sale. In the event a foreclosure hereunder
should be commenced by Trustee in accordance with Subsection 3.2(c), Beneficiary
may at any time before the sale direct Trustee to abandon the sale, and may then
institute suit for the collection of the Obligation, and/or for the foreclosure
of the Liens hereof. If Beneficiary should institute a suit for the collection
of the Obligation, and/or for the foreclosure of the Liens hereof, it may at any
time before the entry of a final judgment in said suit sell and/or require
Trustee to sell (and Trustee is hereby expressly authorized to sell) the
Mortgaged Property, or any part thereof, in accordance with the provisions of
this Deed of Trust.
Section 3.7 Waiver of Appraisement and Redemption. To the full extent
Grantor may lawfully do so, Grantor agrees that Grantor will not at any time
insist upon, plead, claim or take the benefit or advantage of any appraisement,
valuation, stay, extension or redemption Law, now or hereafter in force, in
order to prevent or hinder the enforcement of this Deed of Trust or the absolute
sale of the Mortgaged Property, or any part thereof, or the possession thereof
by any purchaser at any such sale, but Grantor, insofar as Grantor now or
hereafter may lawfully do so, hereby waives the benefit of all such Laws;
provided, however, that the appraisement of any of the Mortgaged Property is
hereby expressly waived or not waived at the option of Trustee and/or
Beneficiary, such option to be exercised prior to or at the time judgment is
rendered in any foreclosure of this Deed of Trust. Grantor also expressly
waives, to the extent Grantor may lawfully do so, all Rights to have the
Mortgaged Property marshaled upon any foreclosure of this Deed of Trust.
ARTICLE FOUR
MISCELLANEOUS
Section 4.1 Release. If the Obligation is paid and performed in full in
accordance with the terms of this Deed of Trust and the Note and other security
instruments and documents and writings evidencing or securing all or any part of
the Obligation, then this conveyance shall be released at Grantor's request and
expense; provided, however, Grantor's warranties and indemnities contained in
this Deed of Trust shall survive the payment and performance of the Obligation
and the release of this Deed of Trust.
Section 4.2 Rights Cumulative. All Rights and Liens herein expressly
conferred are cumulative of all other Rights and Liens herein, or by Law or in
equity provided, or provided in any other security instrument, and shall not be
deemed to deprive Beneficiary or Trustee of any such other legal or equitable
Rights and Liens by judicial proceedings, or otherwise, appropriate to enforce
the conditions, covenants and terms of this Deed of Trust and other security
instruments, and the employment or enforcement of any Rights hereunder, or
otherwise, shall not prevent the concurrent or subsequent employment or
enforcement of any other Rights.
Section 4.3 Waivers. Any and all covenants in this Deed of Trust may from
time to time, by instrument in writing signed by Beneficiary and delivered to
Grantor, be waived to such extent and in such manner as Beneficiary may desire,
but no such waiver shall ever affect or impair Beneficiary's Rights or Liens
hereunder, except to the extent specifically stated in such written instruments.
Section 4.4 Sale of Mortgaged Property. In the event Grantor or any of
Grantor's Successors conveys any interest in the Mortgaged Property, or in any
part thereof, to any other Person, Beneficiary may, without notice to Grantor or
Grantor's successors, deal with any owner of any part of the Mortgaged Property
with reference to this Deed of Trust and the Obligation, either by way of
forbearance on the part of Beneficiary, or extension of time of payment of the
Obligation, or release of all of any part of the Mortgaged Property, or any
other property securing payment and performance of the Obligation, without in
any way modifying or affecting Beneficiary's Rights and Liens hereunder or the
liability of Grantor or any other party liable for payment and performance of
the Obligation, in whole or in part, provided, that no action taken or omitted
to be taken by Beneficiary under this Section 4.4 shall be deemed a waiver of
any Default occurring by reason of any such conveyance.
Section 4.5 Condemnation Sale. Beneficiary shall be entitled to receive any
and all sums that may be awarded or become payable to Grantor for the
condemnation of the Mortgaged Property, or any portion thereof, for public or
quasi-public use, or by virtue of private sale in lieu thereof, and any sums
that may be awarded or become payable to Grantor for damages caused by public
works or construction on or near the Mortgaged Property. Grantor shall, upon
request of Beneficiary, make, execute, acknowledge and deliver any and all
additional assignments and documents as may be necessary from time to time to
enable Beneficiary to collect and receive any such sums. Beneficiary shall not
be, under any circumstances, liable or responsible for failure to collect, or
exercise diligence in the collection of, any of such sums.
Section 4.6 Renewals of Indebtedness. It is understood and agreed that the
proceeds advanced by Guarantor to the Bank pursuant to the Guaranty Agreement or
for the purchase of the Bank's Note, have been advanced by Beneficiary at
Grantor's request and upon Grantor's representation that such amounts are due
and payable. Beneficiary shall be subrogated to any and all Rights and Liens
owned or claimed by any owner or holder of such outstanding Rights and Liens,
however remote, regardless of whether such Rights and Liens are acquired by
assignment or are released by the holder thereof upon payment.
Section 4.7 Waiver of Marshaling. Grantor hereby waives all rights of
marshaling in event of any foreclosure of the Liens hereby created.
Section 4.8 Number and Gender of Words, Etc. Whenever herein the singular
number is used, the same shall include the plural where appropriate, and vice
versa, and words such as "herein," "hereof," "hereinafter" and other words of
similar import shall refer to this Deed of Trust and not to any particular
section or portion hereof, and words of any gender shall include each other
gender where appropriate.
Section 4.9 Headings. The captions, headings, and arrangements used in this
Deed of Trust are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
Section 4.10 Notices. Whenever this Deed of Trust requires or permits any
consent, approval, notice, request or demand from one party to another, it shall
be (a) in writing, (b) delivered to a principal officer or managing entity of
the recipient in person, by courier or mail or by facsimile, telegram, telex,
cablegram or similar transmission, and (c) effective only upon actual receipt by
such person during normal business hours. If received after normal business
hours, the notice will be considered to have been received on the next business
day after such delivery. Whenever any notice is required to be given by
applicable law or this Contract, a written waiver thereof, signed by the Person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice. For purposes of notices, the
mailing addresses of the parties shall, until changed as hereinafter provided,
be as follows:
If to Grantor: Venus Exploration, Inc.
1250 N. E. Loop 410, Suite 810
San Antonio, Texas 78205
If to Beneficiary: Carl R. Oliver
4040 Broadway, Suite 690
San Antonio, Texas 78209
Each party shall have the right from time to time and at any time to change
its address by giving at least 15 days' written notice to the other party.
Section 4.11 Governing Law. THIS DEED OF TRUST IS INTENDED TO BE PERFORMED
IN THE STATE OF TEXAS OR THE STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED
AND THE SUBSTANTIVE LAWS OF SUCH STATE AND OF THE UNITED STATES OF AMERICA SHALL
GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS DEED
OF TRUST. HOWEVER, ANYTHING IN THIS DEED OF TRUST TO THE CONTRARY
NOTWITHSTANDING, THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS RELATING TO THE
VALIDITY, CONSTRUCTION, AND INTERPRETATION OF THE OBLIGATION AND TO USURY AND
PERMISSIBLE INTEREST AND SIMILAR CHARGES AND AMOUNTS SHALL GOVERN ALL ASPECTS OF
THIS DEED OF TRUST.
Section 4.12 Invalid Provisions. If any provision of this Deed of Trust is
invalid or unenforceable, then, to the extent permitted by Law, the other
provisions hereof shall remain in full force and effect and shall be liberally
construed in favor of Beneficiary in order to carry out the intentions of the
parties hereto as nearly as may be possible. If the Rights and Liens created by
this Deed of Trust shall be invalid or unenforceable as to any part of the
Obligation, the unsecured portion of the Obligation shall be completely paid
prior to the payment of the remaining and secured portion of the Obligation, and
all payments made on the Obligation shall be considered to have been paid on and
applied first to the complete payment of the unsecured portion of the
Obligation.
Section 4.13 Definitions. As used herein, the following terms shall have
the meanings indicated:
"Advance Payment Contract" means any contract with another Person or party
(the "Other Party") whereby Grantor either (i) receives or becomes entitled to
receive (either directly or to a third party for Grantor's account or benefit)
any payment (an "Advance Payment") that the Other Party may require to be
applied toward payment of the purchase price of Hydrocarbons and which Advance
Payment is paid or to be paid in advance of actual delivery of such production
to or for the account of the other Party regardless of such production or (ii)
grants an option or right of refusal to such Other Party to purchase and take
delivery of such production, and, in either of the foregoing instances,
regardless of whether the Advance Payment may be applied as payment for a
portion only of the purchase price thereof or of a percentage or share of such
production. Inclusion of the standard "take or pay" provision in any gas sales
or purchase contract shall not, in and of itself, constitute such contract an
"Advance Payment Contract" for the purposes hereof.
"Beneficiary" means L. Lowry Mays, James W. Gorman, Robert Scott, Robert
Buschman, Michael E. Little, E.L. Ames, Jr. and John Y. Ames and any future
holder.
"Code" means the Texas Uniform Commercial Code, TEX. BUS. & COM. CODE
ANN.ss.ss.1.101-11.108, as the same may be amended from time to time.
"Collateral" has the meaning given such term on page 2 hereof.
"Deed of Trust" has the meaning given such term in Article One hereof.
"Default" has the meaning given such term in Section 3.1 hereof.
"Environmental Laws" means the following: the Resource Conservation and
Recovery Act of 1976, 42 U.S.C.ss.ss.6901 et seq., as amended ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C.ss.ss.9601 et seq. ("CERCLA"), the Toxic Substance Control
U.S.C.ss.ss.2601 et seq., the Clean Air Act, 42 U.S.C.ss.ss.7401 et seq., the
Clean Water Act, 33 U.S.C.ss.ss.1251 et seq., and any other Law regulating or
imposing liability for or standards of conduct concerning the release or
disposal of any Hazardous Material or relating to pollution or the protection of
the environment, including, without limitation, Laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or other Hazardous Materials into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), health, industrial hygiene, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, removal, cleanup, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or other Hazardous Materials.
"Grantor" means Venus Exploration, Inc., a Delaware corporation.
"Grantor's Successors" means each and all the immediate and remote
successors, assigns, heirs, executors, administrators, and legal representatives
of Grantor.
"Hazardous Material" shall mean any flammable, explosive, radioactive
material, hazardous waste, toxic substance or related material and any other
substance or material defined or designated as a hazardous or toxic substance,
material or waste by any Law presently in effect or as amended or promulgated in
the future and shall include, without limitation:
(i) those substances included within the definitions of "hazardous
substances," "hazardous materials," "toxic substances," or "solid waste" in
CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49
U.S.C.ss.ss.1801 et seq., and in the regulations promulgated pursuant
thereto;
(ii) those substances defined as "hazardous wastes" or as "hazardous
substances" in applicable state Law and in the regulations promulgated
pursuant thereto;
(iii) those substances listed by the Environmental Protection Agency as
hazardous substances;
(iv) such other substances, materials and wastes that are or become
regulated under applicable Law or that are classified as hazardous or toxic
under Laws; and
(v) any material, waste or substance that is (A) petroleum, (B) asbestos,
(C) polychlorinated biphenyls or (D) designated as a "hazardous substance"
pursuant to Section 311 of the Clean Water Act, 33 U.S.C.ss.ss.1251 et seq.
(33 U.S.C. ss.ss.1321), or listed pursuant to Section 307 of the Clean
Water Act (33 U.S.C.ss.ss.1317).
"Highest Lawful Rate" means the maximum nonusurious interest rate, if any,
that at any time or from time to time may be contracted for, taken, reserved,
charged or received on the Note or on other indebtedness owed to Beneficiary, as
the case may be, under Laws applicable to such Note or other indebtedness that
are presently in effect or, to the extent allowed by applicable Law, under such
applicable Laws that may hereafter be in effect and that allow a higher maximum
nonusurious interest rate than applicable Laws now allow.
"Holder" means any present or future holder of the Obligation or any part
thereof.
"Hydrocarbons" has the meaning given such term in Paragraph III hereof.
"Land" has the meaning given such term in Paragraph VI hereof.
"Laws" means all applicable constitutions, treaties, statutes, laws,
ordinances, regulations, orders, writs, injunctions or decrees of the United
States or of any state, commonwealth, county, parish, municipality or Tribunal.
"Lien" means any lien, mechanic's lien, materialman's lien, pledge,
conditional sale agreement, title retention agreement, financing lien,
production payment, security interest, mortgage, deed of trust or other
encumbrance, whether arising by agreement or under Law.
"Mortgaged Property" has the meaning given such term on page 1 hereof.
"Note" has the meaning given such term in Section 1.1 hereof.
"Obligation" has the meaning given such term in Article One hereof.
"Other security instrument" has the meaning given such term in Section 1.3
hereof.
"Permitted Liens" means (i) Liens for Taxes not yet due or that are being
contested in good faith by appropriate proceedings; (ii) Liens in connection
with workmen's compensation, unemployment insurance or other social security,
old age pension or public liability obligations; (iii) legal or equitable
encumbrances deemed to exist by reason of the existence of any litigation or
other legal proceedings or arising out of a judgment or award with respect to
which an appeal is being prosecuted; (iv) vendors', repairmen's, mechanics',
workmen's, construction or other like Liens arising by operation of Law in the
ordinary course of business or incident to the construction or improvement of
any Mortgaged Property in respect of obligations that are not yet due or that
are being contested in good faith by appropriate proceedings; (v) Liens arising
under operating agreements in respect of obligations that are not yet due or
that are being contested in good faith by appropriate proceedings; and (vi)
Liens and minor irregularities in title that do not materially interfere with
the occupation, use and enjoyment by Grantor of any Mortgaged Property in the
normal course of business as presently conducted or materially impair the value
thereof for such business.
"Person" means any individual, firm, corporation, association, partnership,
joint venture, company, trust, Tribunal or other entity.
"Personal Property" has the meaning given such term in Paragraph V hereof.
"Proceeds" has the meaning given such term in Subsection 4.1(a) hereof.
"Rights" means rights, remedies, powers and privileges.
"Sale" has the meaning given such term in Subsection 3.2(f) hereof.
"Section" means a Section of this Deed of Trust, unless specifically
indicated otherwise.
"Subject Contracts" has the meaning given such term in Paragraph IV hereof.
"Subject Easements" has the meaning given such term in Paragraph V hereof.
"Subject Leases" has the meaning given such term in Paragraph I hereof.
"Subject Interests" has the meaning given such term in Paragraphs I and II
hereof.
"Taxes" means all taxes, assessments, fees, levies, imposts, duties,
deductions, withholdings or other similar charges from time to time or at any
time imposed by any Law or any Tribunal.
"Tribunal" means any court or any governmental department, commission,
board, bureau, agency or instrumentality of the United States or of any state,
commonwealth, nation, territory, possession, county, parish or municipality,
whether now or hereafter constituted and/or existing.
"Trustee" means the Person who is duly appointed trustee or successor or
substitute trustee under this Deed of Trust at the time in question.
Section 4.14 Form of Deed of Trust. This instrument may be construed and
enforced from time to time as a mortgage, deed of trust, chattel mortgage,
conveyance, assignment, security agreement, pledge, financing statement,
hypothecation or contract, or any one or more of them as may be appropriate
under applicable Laws, in order fully to effectuate the Lien hereof and the
purposes and agreements herein set forth. Insofar as this instrument is a
security agreement and financing statement, Grantor is the debtor, and
Beneficiary is the secured party. The addresses shown in Section 4.10 are the
addresses of the debtor and secured party and information concerning the
security interest granted hereby may be obtained from the secured party at such
address. Without in any manner limiting the generality of any of the foregoing
provisions hereof: (a) some portions of the goods described or to which
reference is made herein are or are to become fixtures on the Land described or
to which reference is made herein/ (b) the minerals and the like (including oil
and gas) included in the Mortgaged Property and the accounts resulting from the
sale thereof will be financed at the wellhead(s) or minehead(s) of the well(s)
or mine(s) located on the Land described or to which reference is made herein;
and (c) this instrument is to be filed of record in the real estate records in
the counties in which any portion of the Mortgaged Property is situated as a
financing statement but the failure to do so will not otherwise affect the
validity or enforceability of this instrument.
Section 4.15 Binding Effect. This Deed of Trust is binding upon Grantor and
Grantor's Successors and shall inure to the benefit of Beneficiary and its
successors and assigns, and the provisions hereof shall likewise be covenants
running with the Land. The duties, covenants, conditions, obligations, and
warranties of Grantor in this Deed of Trust shall be joint and several
obligations of Grantor and Grantor's Successors. Each and every party who signs
this Deed of Trust, other than Beneficiary, and each and every subsequent owner
of the Mortgaged Property, or any part thereof, jointly and severally covenants
and agrees that he or it will perform, or cause to be performed, each and every
condition, term, provision, and covenant of this Deed of Trust.
Section 4.16 Peace. Nothing contained herein shall be construed so as to
allow Beneficiary to commit a breach of the peace or a trespass.
Section 4.17 Multiple Counterparts. The instrument may be executed in
multiple counterparts, each of which will be enforceable against the signatories
regardless of whether the other listed parties have executed the same or any
other copy.
EXECUTED effective as of the 30th day of May, 2002.
GRANTOR:
VENUS EXPLORATION, INC.
By: /s/ John Y. Ames
John Y. Ames, President
BENEFICIARY:
-------------------------------
ACKNOWLEDGMENTS
THE STATE OF TEXAS ss.
ss.
COUNTY OF BEXAR ss.
This instrument was acknowledged before me on the ___ day of May, 2002, by
John Y. Ames, President of VENUS EXPLORATION, INC., a Delaware corporation, on
behalf of said corporation.
-------------------------
Notary Public in and for
The State of Texas
THE STATE OF ____________ ss.
ss.
COUNTY OF _______________ ss.
This instrument was acknowledged before me on the ___ day of May, 2002, by
___________________________________.
-------------------------
Notary Public in and for
The State of ________________
EXHIBIT A
Attached to and made a part of the following instruments:
1. Deed of Trust, Mortgage, Assignment of Production, Security Agreement
and Financing Statement from Venus Exploration, Inc., as Grantor, to
____________________, Trustee, for the benefit of
___________________________________, as Beneficiary .
2. Financing Statement naming Venus Exploration, Inc., as Debtor, and
___________________________________, as Secured Party.
------------------------------------------------------
Each property described below shall include all of Grantor's interests in
the lands described, whether now owned or hereafter acquired, and the leases
covering the same, including any interests derived under leases or other
instruments not specifically referred to herein.
Each reference to a lease in this Exhibit A shall be deemed a reference to
said lease as said lease may have been amended and/or ratified by all amendments
and/or ratifications heretofore executed, whether or not referred to herein.
"WI" or "Working Interest" shall mean the percentage of interest in the
full and entire leasehold estate created by virtue of the leases covered by this
instrument, as described below, and all rights and obligations of every kind and
character pertinent thereto, or arising therefrom, without regard to any valid
lessors' royalties, overriding royalties, or other burdens against production
therefrom insofar as the interest in said leasehold is burdened with the
obligation to bear and pay the costs of exploration, development, maintenance,
and operation.
"NRI" or "Net Revenue Interest" shall mean the percentage interest in and
to all oil, gas, and other hydrocarbons produced and saved or sold from, under,
or by virtue of the leases covered by this instrument after giving effect to all
valid lessors' royalties, overriding royalties of third parties, or other
burdens against production therefrom.
The interests set forth below are the minimum, warranted interests of
Grantor in the Subject Leases and shall not limit or restrict the interests
conveyed by Grantor pursuant to this Deed of Trust.
Exhibit 10.7
FIRST LIEN
(ON RECORDED, NON-PRODUCING LEASES)
DEED OF TRUST, MORTGAGE, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT, AND FINANCING STATEMENT
VENUS EXPLORATION, INC., a Delaware corporation (herein called
"Grantor"),1250 N. E. Loop 410, Suite 810, San Antonio, Texas 78209, to secure
payment and performance of the Obligation (hereinafter defined), and for and in
consideration of the sum of Ten and No/100 Dollars ($10.00) cash and other
valuable consideration in hand paid to Grantor, the receipt and adequacy of
which are hereby acknowledged, and for and in consideration of the debt and
trusts hereinafter mentioned, has GRANTED, BARGAINED, SOLD, ASSIGNED,
TRANSFERRED, and CONVEYED, and by these presents does GRANT, BARGAIN, SELL,
ASSIGN, TRANSFER and CONVEY, unto Carl R. Oliver (herein called "Trustee"),
whose address is 4040 Broadway, Suite 690, San Antonio, Texas 78209, and to
Trustee's successor or successors or substitutes in this trust, with power of
sale, all of the record and/or beneficial interest of Grantor in and to the real
and personal properties, rights, titles, interests and estates described or to
which reference is made in Paragraphs I through VI, inclusive, below, whether
now owned by Grantor or hereafter acquired by Grantor (herein collectively
called the "Mortgaged Property"):
Paragraph I. Oil and Gas Leases and Other Properties. All of those
certain oil and gas and/or oil, gas and mineral leases, lands, interests and
other properties (all such leases being herein called the "Subject Leases," and
all such leases, lands, interests and other properties being herein called the
"Subject Interests") that are described and/or to which reference may be made on
Exhibit A attached to and made a part of this Deed of Trust for all purposes and
incorporated herein by reference as fully as if copied verbatim in the body of
this Deed of Trust at this point.
Paragraph II. Pooled Interests. All rights, titles, interests and
estates now owned or hereafter acquired by Grantor in and to (i) any and all
properties now or hereafter pooled or unitized with any of the Subject
Interests, and (ii) all presently existing or future unitization,
communitization and pooling agreements, and the units created thereby, that
include all or any part of the Subject Interests, including, without limitation,
all units formed under or pursuant to any Laws. The rights, titles, interests
and estates described in this Paragraph II shall also be included within the
term "Subject Interests" as used herein.
Paragraph III. Hydrocarbons. All oil, gas, casinghead, gas, drip
gasoline, natural gasoline and condensate, all other liquid and gaseous
hydrocarbons, and all other minerals, whether similar to the foregoing or not
(herein collectively called "Hydrocarbons"), now or hereafter accruing to or
produced from the Subject Interests and/or to which Grantor now or hereafter may
be entitled as a result of or by virtue of its record and/or beneficial
ownership of any one or more of the Subject Interests.
Paragraph IV. Contracts. All present and future rights of Grantor
(including, without limitation, all rights to receive payments under or by
virtue of all present and future operating agreements, contracts for the
purchase, exchange, processing, transportation or sale of Hydrocarbons, and
other contracts and agreements relating in any way to all or any part of the
Mortgaged Property as the same may be amended or supplemented from time to time
(the "Subject Contracts").
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Paragraph V. Other Property. All tenements, hereditaments,
appurtenances and properties in anywise appertaining, belonging, affixed or
incidental to the Subject Leases, in which Grantor now owns or hereafter
acquires an interest, including, without limitation, any and all property, real
or personal, in which Grantor now owns or hereafter acquires an interest that is
situated upon and/or used or useful in connection with all or any part of the
Subject Leases and including all pipelines; gathering lines; trunk lines;
lateral lines; pipeline easements and rights-of-way; compressor, dehydration and
pumping equipment, sites and leases; pumps; compressors; dehydration units;
separators; heater treaters; valves; flow lines; gauge meters; alarms; supplies;
machinery; derricks; building; tanks; casings; Christmas trees; tubing; rods;
liquid extractors; engines; boilers; tools; appliances; cables; wires; surface
leases; rights-of-way; easements; servitudes; and franchises; and all
accessions, additions, substitutes and replacements to or for, and all
accessories and attachments to, any of the foregoing (all such surface leases,
easements, licenses, rights-of-way and franchises being herein called the
"Subject Easements," and all such tangible property described in this Paragraph
V being herein called the "Personal Property").
Paragraph VI. Other Rights to Hydrocarbons. Any and all other rights,
titles, estates, royalties and interests (whether or not presently included
within the Subject Interests) now owned or hereafter acquired by Grantor (i) in
and to all Hydrocarbons in and under and that may be produced and saved from the
lands described or to which reference is made on Exhibit A (the "Land") and (ii)
in and to all reversions, remainders, tolls, rents, revenues, issues, proceeds,
earnings, income and profits from the Land.
TO HAVE AND TO HOLD the Mortgaged Property, together with all and
singular the rights, privileges, contracts and appurtenances now or hereafter at
any time before the foreclosure or release hereof in anywise appertaining or
belonging thereto, unto Trustee and to his successors or substitutes hereunder
and to their successors and assigns forever; and Grantor hereby binds and
obligates Grantor and Grantor's Successors to warrant and forever defend, all
and singular, the Mortgaged Property unto Trustee and to his successors or
substitutes hereunder and to their successors and assigns, against the lawful
claims of any and all Persons whomsoever claiming or to claim the same, or any
part thereof, SUBJECT, HOWEVER, ONLY to Permitted Liens.
REFERENCE IS MADE TO SECTION 4.13 FOR THE DEFINITIONS OF SEVERAL OF THE
TERMS USED HEREIN.
This conveyance is made in trust, however, upon the terms and
provisions hereinafter set out to secure the full and final payment and
performance of the Obligation, as defined in Article I below.
To further secure the Obligation, Grantor hereby grants to L. Lowry
Mays, James W. Gorman, Robert Scott, Robert Buschman, Michael E. Little, E.L.
Ames, Jr. and John Y. Ames (collectively, herein called "Beneficiary"), whose
address is in care of the Trustee at the Trustee's address, a security interest
in the Mortgaged Property insofar as such Mortgaged Property consists of
equipment, general intangibles, accounts, inventory, fixtures and any and all
other personal property of any kind or character defined in and subject to the
provisions of the Code, including the proceeds and products from any and all of
such Mortgaged Property [all of such Mortgaged Property (and the proceeds and
products thereof) being herein called the "Collateral"]. Upon the happenings of
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any Default, Beneficiary is and shall be entitled to all of the Rights afforded
a secured party by the Code with reference to the Collateral, or Trustee or
Beneficiary may proceed as to both the real and personal property covered hereby
in accordance with the Rights granted under this Deed of Trust in respect to the
real property covered hereby. Such Rights shall be cumulative and in addition to
those granted to Trustee or Beneficiary under any other provision of this Deed
of Trust or under any other instrument executed in connection with or as
security for all or any part of the Obligation.
ARTICLE ONE
SECURED OBLIGATION.
------------------
This Deed of Trust, Mortgage, Assignment of Production, Security
Agreement, and Financing Statement (herein called the "Deed of Trust") is made
to secure and enforce the following, obligations, indebtedness, covenants,
conditions, agreements, loans, advances, debts and liabilities (herein
collectively called the "Obligation"):
Section 1.1 Guaranty The obligation to repay each Beneficiary for any
amounts paid by the Beneficiary to the Frost National Bank or its assigns (the
"Bank") as a direct result of the Bank's exercise of its rights under that
Guaranty Agreement dated May 30, 2002, from Beneficiary to the Bank (the
"Guaranty Agreement") securing Grantor's indebtedness to the Bank in the amount
of $2,000,000 as referenced in that Guaranty Agreement (the "Note"). The
obligation to repay Beneficiary is more particularly described in that
Guarantors' Cooperation Agreement dated May 30, 2002, among Venus Exploration,
Inc., Trustee and Beneficiaries.
Section 1.2 Other Indebtedness. Any and all other additional
indebtedness or liabilities for which Grantor is now or may hereafter become
liable to Beneficiary at any time and from time to time, in any manner, either
primarily or secondarily, absolutely or contingently, directly or indirectly,
jointly, severally, or jointly and severally, and whether matured or unmatured,
including all indebtedness and liabilities now or hereafter arising directly out
of transactions between Grantor and Beneficiary or acquired by Beneficiary
outright, conditionally, or as collateral security from another Person and
whether or not created after payment in full of the Note if this Deed of Trust
shall not have been released of record by Beneficiary.
Section 1.3 Indebtedness Arising Under Security Instruments. All
indebtedness, obligations, covenants, conditions, agreements and liabilities
arising pursuant to the provisions of this Deed of Trust and/or any other
security agreement, mortgage, deed of trust, collateral pledge agreement,
contract, assignment or loan agreement of any kind now or hereafter existing as
security for, executed in connection with, or related to the Obligation and/or
any part thereof (each such agreement being herein called "other security
instrument").
Section 1.4 Costs and Expenses. All sums advanced and costs and
expenses incurred by Beneficiary, including without limitation, all legal,
accounting, engineering, management, consulting or like fees, made and incurred
in connection with the foregoing Sections 1.1, 1.2, and 1.3 or any part thereof,
or in connection with the acquisition, perfection, realization, maintenance or
preservation of the security therefor, or in connection with the following
Section 1.5, or any part thereof, whether such advances, costs or expenses shall
have been made and incurred at the request of Grantor or Beneficiary.
3
Section 1.5 Renewals, Extensions, and Rearrangements. Any and all
renewals, extensions and/or rearrangements of all or any part of the Note,
indebtedness, obligations, debts, loans, advances, covenants, agreements and
liabilities described or to which reference is made in the foregoing Sections
1.1, 1.2, 1.3, and 1.4.
ARTICLE TWO
CERTAIN REPRESENTATIONS, WARRANTIES, AND COVENANTS OF GRANTOR
Section 2.1 Representations and Warranties. Grantor epresents and
warrants to Beneficiary that in all material respects:
(a) Authority. Grantor has authority to execute this Deed of Trust, to
grant, bargain, sell, mortgage, assign, transfer, and convey the Mortgaged
Property to the Trustee pursuant to this Deed of Trust, and to make the
covenants, representations, warranties, and assignments contained in this Deed
of Trust;
(b) Title. Grantor (i) has good title to, (ii) is the lawful owner and
holder of, and (iii) is possessed of the Mortgaged Property free and clear of
any and all Liens except Permitted Liens;
(c) Percentage Interests. The percentage interests of Grantor's
participation in the total costs incurred in connection with the Mortgaged
Property described on Exhibit A attached hereto is not greater than as
represented on said Exhibit, and the percentage interests of Grantor's
participation in the total production of Hydrocarbons produced and saved from
the Mortgaged Property described on Exhibit A is not less than as represented on
said Exhibit; and
(d) Advance Payment Contract. Grantor is not a party to any
Advance Payment Contract affecting or relating to any of the Subject Interests
not heretofore disclosed to Beneficiary in writing.
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Section 2.2 Covenants of Grantor. Grantor, for Grantor and Grantor's
Successors, covenants and agrees to:
(a) Additional Documents. At any time, and from time to time, upon
request by Beneficiary, forthwith execute and deliver to Beneficiary any and all
additional instruments and further assurances, and do all other acts and things,
as may be necessary or proper to effect the intent of these presents and to
evidence and perfect more fully the Rights and Liens herein created or intended
to be created and to protect the Rights of Beneficiary hereunder.
(b) Existence and Authority. Continuously maintain Grantor's existence
as a corporation in good standing under the laws of the state of its corporation
and in all jurisdictions in which it is conducting business.
(c) Cure of Defects. If the validity or priority of this Deed of Trust
or of any Rights or Liens created or evidenced hereby with respect to the
Mortgaged Property or any material part thereof shall be endangered or
questioned or shall be attacked directly or indirectly or if any legal
proceedings are instituted against Grantor with respect thereto, give written
notice thereof to Beneficiary promptly and, at Grantor's own cost and expense,
diligently endeavor to cure any defect that may be developed or claimed, and
take all necessary and proper steps for the defense of such legal proceedings,
including, but not limited to, the employment of counsel acceptable to
Beneficiary, the prosecution or defense of litigation and the release or
discharge of all adverse claims, and Trustee and Beneficiary, or either of them
(whether or not named as parties to legal proceedings with respect thereto), are
hereby authorized and empowered to take such additional steps as in their
judgment and discretion may be necessary or proper for the defense of any such
legal proceedings, including, but not limited to, the prosecution or defense of
litigation, and the compromise or discharge of any adverse claims made with
respect to the Mortgaged Property, and all expense so incurred of every kind and
character shall be a demand obligation owing by Grantor to Beneficiary.
(d) Payment of Taxes. Pay, or cause to be paid, before delinquent, all
lawful Taxes in respect to the Mortgaged Property, or any part thereof, and from
time to time, upon request of Beneficiary, to furnish to Beneficiary evidence
satisfactory to Beneficiary of the timely payment of such Taxes.
(e) Compliance with Subject Leases, Interests, Contracts, and
Easements. Timely perform all obligations under, and not violate any of, the
Subject Leases, Subject Interests, Subject Contracts or Subject Easements.
(f) Maintenance of Mortgaged Property. At all times maintain, preserve
and keep the Mortgaged Property in good repair and condition, and from time to
time to make all necessary and proper repairs, replacements and renewals; and
not to commit or permit any waste on or of the Mortgaged Property.
5
(g) Mortgage Taxes. At any time any Law shall be enacted imposing or
authorizing the imposition of any Tax upon this Deed of Trust, or upon any Lien
created hereby, immediately pay all such taxes; provided that, in the
alternative, Grantor may, in the event of the enactment of such a Law, and must,
if it is unlawful for Grantor to pay such Taxes, prepay that portion of the
Obligation that Beneficiary in good faith determines is secured by property
covered by such Law within 30 days after demand therefor by Beneficiary.
(h) Performance of Covenants. Punctually and properly perform all
of Grantor's covenants, duties, and liabilities under this Deed of Trust and any
other security instrument.
(i) Inspection of Mortgaged Property. Allow Beneficiary to
inspect the Mortgaged Property and all records relating thereto, and to make and
take away copies of such records.
(j) Operation of Mortgaged Property. Operate the Mortgaged Property, or
cause it to be operated, in a careful and efficient manner in accordance with
the practices of the industry and in compliance with all Subject Leases, Subject
Contracts, Subject Easements and Laws.
(k) Development Work. Do, or cause to be done, such development and
other work as would be conducted by a reasonably prudent operator to protect
from material diminution the production capacity of the Mortgaged Property and
each producing well thereon.
(l) Maintenance of Subject Leases, Contract, and Easements. Maintain
all Subject Leases, Subject Contracts, and Subject Easements in full force and
effect and not permit to occur the surrender, abandonment, release or
termination of any Subject Leases, Subject Contracts or Subject Easements, so
long as the Subject Interests covered thereby or relating thereto are capable of
producing Hydrocarbons in commercially paying quantities.
(m) Insurance. Carry insurance with respect to the Mortgaged Property
with such insurers, in such amounts, and covering such risks as shall be
customary in the industry, including, but not limited to, workmen's compensation
insurance and insurance against loss or damage by fire, lightning, hail,
windstorm, explosion, hazards, casualties and other contingencies; deliver
evidence of the policies of insurance to Beneficiary and pay or cause to be paid
all premiums for such insurance at least 15 days before such premiums become
due; furnish to Beneficiary satisfactory proof of the timely making of such
payments; and deliver evidence of all renewal policies to Beneficiary at least
15 days before the expiration date of each expiring policy.
(n) Compliance with Laws. Comply with all Laws applicable
to the Mortgaged Property and its ownership, use and operation, including,
without limitation, Environmental Laws.
(o) Sales of Mortgaged Property. Not, without the prior written consent
of Beneficiary, which will not be unreasonably withheld, sell, trade, transfer,
convey, assign, exchange, pledge, encumber, create any Lien (except a Permitted
Lien) with respect to or otherwise dispose of the Mortgaged Property, or any
part thereof, or any interest therein, except items of Personal Property that
have become obsolete or worn beyond practical use and that have been replaced by
adequate substitutes having a value equal to or greater than the replaced items
when new.
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(p) Title Opinions. Furnish to Beneficiary copies of any title
opinions and any abstracts of title requested by Beneficiary from time to time
that Grantor has or may hereafter obtain affecting any part of the Mortgaged
Property.
(q) Advance Payment Contract. Not enter into or agree to any
Advance Payment Contract with any person affecting any of the Mortgaged
Property.
(r) Transactions with Affiliates. Not, directly or indirectly, enter
into any sale, lease or exchange of any property or any contract for the
rendering of goods or services with respect to any of the Mortgaged Property
(including, without limitation, operating agreements under which Grantor or an
affiliate of Grantor serves as operator) with any affiliate of Grantor other
than upon fair and reasonable terms no less favorable than could be obtained in
an arm's length transaction with a Person not an affiliate of Grantor.
(s) Properties Not Operated by Grantor. Anything in this Section 2.2 to
the contrary notwithstanding, Grantor, with respect to those Subject Interests
that are operated by operators other than Grantor, shall not be obligated
himself to perform undertakings performable only by such operators and that are
beyond the control of Grantor. In each such case, however, Grantor will promptly
take all actions available to him, under applicable operating arrangements or
otherwise, to bring about the performance of any such undertakings required to
be performed by such operators.
ARTICLE THREE
DEFAULTS AND REMEDIES
Section 3.1 Defaults. The term "Default," as used herein, shall mean
(i) the failure of Grantor, within 30 days after written notice thereof from
Beneficiary, to cure a default in the due performance or observance of any
covenant or agreement contained in this Deed of Trust and not constituting a
default in the payment of principal of or interest on the Obligation, or (ii)
the failure of Grantor within 10 business days after written notice thereof from
Beneficiary to pay when due the principal of or interest on the Obligation, or
any part thereof, after the same shall have become due and payable (whether at
stated maturity, by acceleration, or otherwise).
Section 3.2 Remedies. If a Default shall occur and be continuing,
Beneficiary may, at its option, do any one or more of the following to the
extent permitted by applicable Law:
(a) Payment or Performance by Beneficiary. If Grantor has failed to
keep or perform any covenant whatsoever contained in this Deed of Trust or any
other security instrument, Beneficiary may, but shall not be obligated to any
Person to do so, perform or attempt to perform such covenant, and any payment
made or expense incurred in the performance or attempted performance of any such
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covenant shall be a part of the Obligation, and Grantor promises, upon demand,
to pay to Beneficiary, at the place where the Note is payable, or at such other
place as Beneficiary may direct by written notice, all sums so advanced or paid
by Beneficiary until paid by Grantor. No such payment by Beneficiary shall
constitute a waiver of any Default.
(b) Acceleration. Beneficiary may, at its option, declare the aggregate
unpaid principal amount of and interest on the Note and all other parts of the
Obligation to be, and the same shall thereupon become, immediately due and
payable without presentment, demand, protest, notice of acceleration, notice of
intent to accelerate, notice of protest or notice of dishonor, or any other
notice of any kind, all of which are expressly waived by Grantor.
(c) Foreclosure. Beneficiary may request Trustee to proceed with
foreclosure, and in such event Trustee is hereby authorized and empowered, and
it shall be his duty, upon such request of Beneficiary, and to the extent
permitted by applicable Law, to sell all or any part of the Mortgaged Property
at one or more sales, as an entirety or in parcels, at such place or places and
otherwise in such manner and upon such notice as may be required by applicable
Law, or in the absence of any such requirement, as Trustee and/or Beneficiary
may deem appropriate, and to make conveyance to the purchaser or purchasers
thereof. Any sale of any part of the Mortgaged Property shall be made to the
highest bidder or bidders for cash, at the courthouse door of, or at such other
place as may be required or permitted by applicable Law in, the county wherein
the Land included within the Mortgaged Property to be sold is situated; provided
that if the Land is situated in more than one county, such sale of the Mortgaged
Property, or any part thereof, may be made in any county wherein any part of the
Land included within the Mortgaged Property to be sold is situated. Any such
sale shall be made at public outcry, on the day of any month, during the hours
of such day and after written notices thereof have been publicly posted in such
places and for such time periods and after all Persons entitled to notice
thereof have been sent such notice, all as required by applicable Law in effect
at the time of such sale; and nothing herein shall be deemed to require
Beneficiary or Trustee to do, and Beneficiary and Trustee shall not be required
to do, any act other than as required by applicable Law in effect at the time of
such sale. Any such sale may be as a whole or in such parcels as Trustee may
select. After such sale, Trustee shall make to the purchaser or purchasers
thereunder good and sufficient deeds and assignments, in the name of Grantor,
conveying the Mortgaged Property, or part thereof, so sold to the purchaser or
purchasers with special warranty of title (subject to Permitted Liens) by
Grantor. Sale of a part of the Mortgaged Property shall not exhaust the power of
sale, but sales may be made from time to time until the Obligation is paid and
performed in full. It shall not be necessary to have present or to exhibit at
any such sale any of the Collateral. It is intended by each of the foregoing
provisions of this Subsection 3.2(c) that Trustee may, after any request or
direction by Beneficiary, sell, not only the Subject Interests included within,
but also, all other items constituting a part of, the Mortgaged Property, or any
part thereof, along with the Land, or any part thereof, included within the
Mortgaged Property all as a unit and as a part of a single sale, or may sell any
part of the Mortgaged Property separately from the remainder of the Mortgaged
Property. It is agreed that, in any deed or assignment given by Trustee, any and
all statements of fact or other recitals therein made as to the identity of
Beneficiary or as to the occurrence or existence of any Default, or as to the
acceleration of the maturity of the Obligation, or as to the request to sell,
notice of sale, time, place, terms and manner of sale, and the receipt,
distribution and application of the money realized therefrom, or as to the due
and proper appointment of a substitute trustee, and, without being limited by
the foregoing, as to any other act or thing having been duly done by Beneficiary
or by Trustee, shall be evidence that the said statements or recitals state
facts and are without further question to be so accepted, and Grantor does
hereby ratify and confirm any and all acts that Trustee may lawfully do in the
premises by virtue hereof. In the event of the resignation (such resignation
being hereby authorized for any reason) or death of Trustee, or his removal from
his county of residence stated on the first page hereof, or his failure, refusal
or inability, for any reason, to make any such sale or to perform any of the
trusts herein declared, or, at the option of Beneficiary, without cause,
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Beneficiary may appoint, in writing, a substitute trustee, who shall thereupon
succeed to all the estates, titles, rights, powers and trusts herein granted to
and vested in Trustee. Such appointment may be made on behalf of Beneficiary by
any person who is then the president, or any vice president or any other
authorized officer or agent of Beneficiary. In the event of the resignation
(such resignation being hereby authorized for any reason) or death of any such
substitute trustee, or his failure, refusal or inability to make such sale or
perform such trusts, or, at the option of Beneficiary, without cause, successive
substitute trustees may thereafter, from time to time, be appointed by
Beneficiary in the same manner. Trustee may appoint, in writing, any one or more
Persons as Trustee's agent and attorney-in-fact to act as Trustee under him and
in his name, place and stead, to perform any one or more acts necessary or
incident to any sale under the power of sale granted under the preceding
provisions of this Subsection 3.2(c), including, without limitation, the posting
and filing of any notices, the conduct of such sale and the execution and
delivery of any instruments conveying the Mortgaged Property so sold, but in the
name and on behalf of Trustee. All acts done or performed by any such agent and
attorney-in-fact shall be valid, lawful and binding as if done or performed by
Trustee. Wherever herein the word "Trustee" is used, the same shall mean the
Person who is the duly appointed trustee or substitute trustee hereunder at the
time in question.
(d) Suit. Beneficiary may, or Trustee may upon written request of
Beneficiary, proceed by suit or suits, at law or in equity, to enforce the
payment and performance of the Obligation in accordance with the terms hereof
and of the Note or the other security instruments, or other documents and/or
writings securing and/or evidencing the Obligation, to foreclose the Liens of
this Deed of Trust as against all or any part of the Mortgaged Property and to
have all or any part of the Mortgaged Property sold under the judgment or decree
of a court of competent jurisdiction.
(e) Assemble Collateral. Beneficiary may require Grantor to assemble
the Collateral included within the Mortgaged Property, or any part thereof, and
make it available to Beneficiary, at a place to be designated by Beneficiary
that is reasonably convenient to Grantor and Beneficiary.
(f) Disposition of Collateral. After notification, if any, as hereafter
provided in this Subsection 3.2(f), Beneficiary may sell, lease or otherwise
dispose of, at the office of Beneficiary, or on the Land, or elsewhere, as
chosen by Beneficiary, all or any part of the Collateral included within the
Mortgaged Property, in its then condition, or following any commercially
reasonable preparation or processing, and each Sale [as used in this Subsection
3.2(f), the term "Sale" means any such sale, lease, or other disposition made
pursuant to this Subsection 3.2(f)] may be as a unit or in parcels, by public or
in private proceedings, and by way of one or more contracts, and, at any Sale,
it shall not be necessary to exhibit the Collateral, or any part thereof, being
sold, leased or otherwise disposed of. The Sale of all or any part of the
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Collateral shall not exhaust Beneficiary's power of Sale, but Sales may be made
from time to time until the Obligation is paid and performed in full. Reasonable
notification of the time and place of any public Sale pursuant to this
Subsection 3.2(f), or reasonable notification of the time after which any
private Sale is to be made pursuant to this Subsection 3.2(f), shall be sent to
Grantor and to any other persons entitled under the Code to notice. It is agreed
that notice sent or given not less than 21calendar days prior to the taking of
the action to which the notice relates, is reasonable notification and notice
for such purposes of this Subsection 3.2(f).
(g) Surrender of Insurance Policies. Beneficiary may surrender the
insurance policies maintained pursuant to Subsection 2.2(m) hereof, or any part
thereof, and receive and apply the unearned premiums as a credit on the
Obligation, and, in connection therewith, Grantor hereby appoints Beneficiary as
the agent and attorney-in-fact for Grantor to collect such premiums.
Section 3.3 Purchase of Mortgaged Property by Beneficiary. If
Beneficiary is the purchaser of the Mortgaged Property, or any part thereof (and
it is specifically agreed that Beneficiary may be the purchaser of the Mortgaged
Property, or any part thereof, if permitted by applicable Law), at any sale
thereof, whether such sale be under the power of sale hereinabove vested in
Trustee, or upon any other foreclosure of the Liens hereof, or otherwise,
Beneficiary shall, upon any such purchase, acquire good title to the Mortgaged
Property so purchased, free of the Liens of these presents.
Section 3.4 Possession of Property After Foreclosure. In case the Liens
hereof shall be foreclosed by Trustee's sale, or by other judicial or
non-judicial action, the purchaser at any such sale shall receive, as an
incident to his ownership, immediate possession of the Mortgaged Property, or
any part thereof so conveyed, and, subsequent to foreclosure, Grantor and
Grantor's Successors shall be considered as tenants at sufferance of the
purchaser at foreclosure sale, and anyone occupying the property after demand
made for possession thereof shall be guilty of forcible detainer and shall be
subject to eviction and removal, forcible, or otherwise, with or without process
of Law, and all damages by reason thereof are hereby expressly waived.
Section 3.5 Application of Proceeds. The proceeds from any sale, lease
or other disposition made pursuant to this Article Three, the proceeds from
surrendering any insurance policies pursuant to Subsection 3.2(g), any proceeds
of Hydrocarbons collected by Beneficiary pursuant to Article Four, and sums
received pursuant to Section 4.5 shall be applied by Trustee, or by Beneficiary,
as the case may be, to the payment of the Obligation, whether or not matured, as
may be determined by Beneficiary in its sole discretion until the Obligation is
paid in full.
Section 3.6 Abandonment of Sale. In the event a foreclosure hereunder
should be commenced by Trustee in accordance with Subsection 3.2(c), Beneficiary
may at any time before the sale direct Trustee to abandon the sale, and may then
institute suit for the collection of the Obligation, and/or for the foreclosure
of the Liens hereof. If Beneficiary should institute a suit for the collection
of the Obligation, and/or for the foreclosure of the Liens hereof, it may at any
time before the entry of a final judgment in said suit sell and/or require
Trustee to sell (and Trustee is hereby expressly authorized to sell) the
Mortgaged Property, or any part thereof, in accordance with the provisions of
this Deed of Trust.
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Section 3.7 Waiver of Appraisement and Redemption. To the full extent
Grantor may lawfully do so, Grantor agrees that Grantor will not at any time
insist upon, plead, claim or take the benefit or advantage of any appraisement,
valuation, stay, extension or redemption Law, now or hereafter in force, in
order to prevent or hinder the enforcement of this Deed of Trust or the absolute
sale of the Mortgaged Property, or any part thereof, or the possession thereof
by any purchaser at any such sale, but Grantor, insofar as Grantor now or
hereafter may lawfully do so, hereby waives the benefit of all such Laws;
provided, however, that the appraisement of any of the Mortgaged Property is
hereby expressly waived or not waived at the option of Trustee and/or
Beneficiary, such option to be exercised prior to or at the time judgment is
rendered in any foreclosure of this Deed of Trust. Grantor also expressly
waives, to the extent Grantor may lawfully do so, all Rights to have the
Mortgaged Property marshaled upon any foreclosure of this Deed of Trust.
ARTICLE FOUR
MISCELLANEOUS
Section 4.1 Release. If the Obligation is paid and performed in full in
accordance with the terms of this Deed of Trust and the Note and other security
instruments and documents and writings evidencing or securing all or any part of
the Obligation, then this conveyance shall be released at Grantor's request and
expense; provided, however, Grantor's warranties and indemnities contained in
this Deed of Trust shall survive the payment and performance of the Obligation
and the release of this Deed of Trust.
Section 4.2 Rights Cumulative. All Rights and Liens herein expressly
conferred are cumulative of all other Rights and Liens herein, or by Law or in
equity provided, or provided in any other security instrument, and shall not be
deemed to deprive Beneficiary or Trustee of any such other legal or equitable
Rights and Liens by judicial proceedings, or otherwise, appropriate to enforce
the conditions, covenants and terms of this Deed of Trust and other security
instruments, and the employment or enforcement of any Rights hereunder, or
otherwise, shall not prevent the concurrent or subsequent employment or
enforcement of any other Rights.
Section 4.3 Waivers. Any and all covenants in this Deed of Trust may
from time to time, by instrument in writing signed by Beneficiary and delivered
to Grantor, be waived to such extent and in such manner as Beneficiary may
desire, but no such waiver shall ever affect or impair Beneficiary's Rights or
Liens hereunder, except to the extent specifically stated in such written
instruments.
Section 4.4 Sale of Mortgaged Property. In the event Grantor or any of
Grantor's Successors conveys any interest in the Mortgaged Property, or in any
part thereof, to any other Person, Beneficiary may, without notice to Grantor or
Grantor's successors, deal with any owner of any part of the Mortgaged Property
with reference to this Deed of Trust and the Obligation, either by way of
forbearance on the part of Beneficiary, or extension of time of payment of the
Obligation, or release of all of any part of the Mortgaged Property, or any
other property securing payment and performance of the Obligation, without in
any way modifying or affecting Beneficiary's Rights and Liens hereunder or the
liability of Grantor or any other party liable for payment and performance of
the Obligation, in whole or in part, provided, that no action taken or omitted
to be taken by Beneficiary under this Section 4.4 shall be deemed a waiver of
any Default occurring by reason of any such conveyance.
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Section 4.5 Condemnation Sale. Beneficiary shall be entitled to receive
any and all sums that may be awarded or become payable to Grantor for the
condemnation of the Mortgaged Property, or any portion thereof, for public or
quasi-public use, or by virtue of private sale in lieu thereof, and any sums
that may be awarded or become payable to Grantor for damages caused by public
works or construction on or near the Mortgaged Property. Grantor shall, upon
request of Beneficiary, make, execute, acknowledge and deliver any and all
additional assignments and documents as may be necessary from time to time to
enable Beneficiary to collect and receive any such sums. Beneficiary shall not
be, under any circumstances, liable or responsible for failure to collect, or
exercise diligence in the collection of, any of such sums.
Section 4.6 Renewals of Indebtedness. It is understood and agreed that
the proceeds advanced by Guarantor to the Bank pursuant to the Guaranty
Agreement or for the purchase of the Bank's Note, have been advanced by
Beneficiary at Grantor's request and upon Grantor's representation that such
amounts are due and payable. Beneficiary shall be subrogated to any and all
Rights and Liens owned or claimed by any owner or holder of such outstanding
Rights and Liens, however remote, regardless of whether such Rights and Liens
are acquired by assignment or are released by the holder thereof upon payment.
Section 4.7 Waiver of Marshaling. Grantor hereby waives all rights
of marshaling in event of any foreclosure of the Liens hereby created.
Section 4.8 Number and Gender of Words, Etc. Whenever herein the
singular number is used, the same shall include the plural where appropriate,
and vice versa, and words such as "herein," "hereof," "hereinafter" and other
words of similar import shall refer to this Deed of Trust and not to any
particular section or portion hereof, and words of any gender shall include each
other gender where appropriate.
Section 4.9 Headings. The captions, headings, and arrangements used in
this Deed of Trust are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
Section 4.10 Notices. Whenever this Deed of Trust requires or permits
any consent, approval, notice, request or demand from one party to another, it
shall be (a) in writing, (b) delivered to a principal officer or managing entity
of the recipient in person, by courier or mail or by facsimile, telegram, telex,
cablegram or similar transmission, and (c) effective only upon actual receipt by
such person during normal business hours. If received after normal business
12
hours, the notice will be considered to have been received on the next business
day after such delivery. Whenever any notice is required to be given by
applicable law or this Contract, a written waiver thereof, signed by the Person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice. For purposes of notices, the
mailing addresses of the parties shall, until changed as hereinafter provided,
be as follows:
If to Grantor: Venus Exploration, Inc.
1250 N. E. Loop 410, Suite 810
San Antonio, Texas 78205
If to Beneficiary: Carl R. Oliver, Trustee
4040 Broadway, Suite 690
San Antonio, Texas ,78209
Each party shall have the right from time to time and at any time to
change its address by giving at least 15 days' written notice to the other
party.
Section 4.11 Governing Law. THIS DEED OF TRUST IS INTENDED TO BE
PERFORMED IN THE STATE OF TEXAS OR THE STATE IN WHICH THE MORTGAGED PROPERTY IS
LOCATED AND THE SUBSTANTIVE LAWS OF SUCH STATE AND OF THE UNITED STATES OF
AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION
OF THIS DEED OF TRUST. HOWEVER, ANYTHING IN THIS DEED OF TRUST TO THE CONTRARY
NOTWITHSTANDING, THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS RELATING TO THE
VALIDITY, CONSTRUCTION, AND INTERPRETATION OF THE OBLIGATION AND TO USURY AND
PERMISSIBLE INTEREST AND SIMILAR CHARGES AND AMOUNTS SHALL GOVERN ALL ASPECTS OF
THIS DEED OF TRUST.
Section 4.12 Invalid Provisions. If any provision of this Deed of Trust
is invalid or unenforceable, then, to the extent permitted by Law, the other
provisions hereof shall remain in full force and effect and shall be liberally
construed in favor of Beneficiary in order to carry out the intentions of the
parties hereto as nearly as may be possible. If the Rights and Liens created by
this Deed of Trust shall be invalid or unenforceable as to any part of the
Obligation, the unsecured portion of the Obligation shall be completely paid
prior to the payment of the remaining and secured portion of the Obligation, and
all payments made on the Obligation shall be considered to have been paid on and
applied first to the complete payment of the unsecured portion of the
Obligation.
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Section 4.13 Definitions. As used herein, the following terms
shall have the meanings indicated:
"Advance Payment Contract" means any contract with another Person or
party (the "Other Party") whereby Grantor either (i) receives or becomes
entitled to receive (either directly or to a third party for Grantor's account
or benefit) any payment (an "Advance Payment") that the Other Party may require
to be applied toward payment of the purchase price of Hydrocarbons and which
Advance Payment is paid or to be paid in advance of actual delivery of such
production to or for the account of the other Party regardless of such
production or (ii) grants an option or right of refusal to such Other Party to
purchase and take delivery of such production, and, in either of the foregoing
instances, regardless of whether the Advance Payment may be applied as payment
for a portion only of the purchase price thereof or of a percentage or share of
such production. Inclusion of the standard "take or pay" provision in any gas
sales or purchase contract shall not, in and of itself, constitute such contract
an "Advance Payment Contract" for the purposes hereof.
"Beneficiary" means L. Lowry Mays, James W. Gorman, Robert Scott,
Robert Buschman, Michael E. Little, E.L. Ames, Jr. and John Y. Ames and any
future holder.
"Code" means the Texas Uniform Commercial Code, TEX. BUS. & COM.
CODE ANN.ss.ss.1.101-11.108, as the same may be amended from time to time.
"Collateral" has the meaning given such term on page 2 hereof.
"Deed of Trust" has the meaning given such term in Article One hereof.
"Default" has the meaning given such term in Section 3.1 hereof.
"Environmental Laws" means the following: the Resource Conservation
and Recovery Act of 1976, 42 U.S.C.ss.ss.6901 et seq., as amended ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C.ss.ss.9601 et seq. ("CERCLA"), the Toxic Substance Control
U.S.C.ss.ss.2601 et seq., the Clean Air Act, 42 U.S.C.ss.ss.7401 et seq., the
Clean Water Act, 33 U.S.C.ss.ss.1251 et seq., and any other Law regulating or
imposing liability for or standards of conduct concerning the release or
disposal of any Hazardous Material or relating to pollution or the protection of
the environment, including, without limitation, Laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or other Hazardous Materials into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), health, industrial hygiene, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, removal, cleanup, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or other Hazardous Materials.
"Grantor" means Venus Exploration, Inc., a Delaware corporation.
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"Grantor's Successors" means each and all the immediate and remote
successors, assigns, heirs, executors, administrators, and legal representatives
of Grantor.
"Hazardous Material" shall mean any flammable, explosive, radioactive
material, hazardous waste, toxic substance or related material and any other
substance or material defined or designated as a hazardous or toxic substance,
material or waste by any Law presently in effect or as amended or promulgated in
the future and shall include, without limitation:
(i) those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or
"solid waste" in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S.C.ss.ss.1801 et seq., and -- --- in the
regulations promulgated pursuant thereto;
(ii) those substances defined as "hazardous wastes" or as
"hazardous substances" in applicable state Law and in the regulations
promulgated pursuant thereto;
(iii) those substances listed by the Environmental Protection Agency
as hazardous substances;
(iv) such other substances, materials and wastes that are or become
regulated under applicable Law or that are classified as hazardous or
toxic under Laws; and
(v) any material, waste or substance that is (A) petroleum, (B)
asbestos, (C) polychlorinated biphenyls or (D) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act,
33 U.S.C.ss.ss.1251 et seq. (33 U.S.C.ss.ss.1321), or listed
pursuant to Section 307 of the Clean Water Act (33 U.S.C.ss.ss.1317).
"Highest Lawful Rate" means the maximum nonusurious interest rate, if
any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Note or on other indebtedness owed to
Beneficiary, as the case may be, under Laws applicable to such Note or other
indebtedness that are presently in effect or, to the extent allowed by
applicable Law, under such applicable Laws that may hereafter be in effect and
that allow a higher maximum nonusurious interest rate than applicable Laws now
allow.
"Holder" means any present or future holder of the Obligation or any
part thereof.
"Hydrocarbons" has the meaning given such term in Paragraph III hereof.
"Land" has the meaning given such term in Paragraph VI hereof.
"Laws" means all applicable constitutions, treaties, statutes, laws,
ordinances, regulations, orders, writs, injunctions or decrees of the United
States or of any state, commonwealth, county, parish, municipality or Tribunal.
15
"Lien" means any lien, mechanic's lien, materialman's lien, pledge,
conditional sale agreement, title retention agreement, financing lien,
production payment, security interest, mortgage, deed of trust or other
encumbrance, whether arising by agreement or under Law.
"Mortgaged Property" has the meaning given such term on page 1 hereof.
"Note" has the meaning given such term in Section 1.1 hereof.
"Obligation" has the meaning given such term in Article One hereof.
"Other security instrument" has the meaning given such term in Section
1.3 hereof.
"Permitted Liens" means (i) Liens for Taxes not yet due or that are
being contested in good faith by appropriate proceedings; (ii) Liens in
connection with workmen's compensation, unemployment insurance or other social
security, old age pension or public liability obligations; (iii) legal or
equitable encumbrances deemed to exist by reason of the existence of any
litigation or other legal proceedings or arising out of a judgment or award with
respect to which an appeal is being prosecuted; (iv) vendors', repairmen's,
mechanics', workmen's, construction or other like Liens arising by operation of
Law in the ordinary course of business or incident to the construction or
improvement of any Mortgaged Property in respect of obligations that are not yet
due or that are being contested in good faith by appropriate proceedings; (v)
Liens arising under operating agreements in respect of obligations that are not
yet due or that are being contested in good faith by appropriate proceedings;
and (vi) Liens and minor irregularities in title that do not materially
interfere with the occupation, use and enjoyment by Grantor of any Mortgaged
Property in the normal course of business as presently conducted or materially
impair the value thereof for such business.
"Person" means any individual, firm, corporation, association,
partnership, joint venture, company, trust, Tribunal or other entity.
"Personal Property" has the meaning given such term in Paragraph V
hereof.
"Proceeds" has the meaning given such term in Subsection 4.1(a) hereof.
"Rights" means rights, remedies, powers and privileges.
"Sale" has the meaning given such term in Subsection 3.2(f) hereof.
"Section" means a Section of this Deed of Trust, unless specifically
indicated otherwise.
"Subject Contracts" has the meaning given such term in Paragraph IV
hereof.
"Subject Easements" has the meaning given such term in Paragraph V
hereof.
"Subject Leases" has the meaning given such term in Paragraph I hereof.
"Subject Interests" has the meaning given such term in Paragraphs I and
II hereof.
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"Taxes" means all taxes, assessments, fees, levies, imposts, duties,
deductions, withholdings or other similar charges from time to time or at any
time imposed by any Law or any Tribunal.
"Tribunal" means any court or any governmental department, commission,
board, bureau, agency or instrumentality of the United States or of any state,
commonwealth, nation, territory, possession, county, parish or municipality,
whether now or hereafter constituted and/or existing.
"Trustee" means the Person who is duly appointed trustee or successor
or substitute trustee under this Deed of Trust at the time in question.
Section 4.14 Form of Deed of Trust. This instrument may be construed
and enforced from time to time as a mortgage, deed of trust, chattel mortgage,
conveyance, assignment, security agreement, pledge, financing statement,
hypothecation or contract, or any one or more of them as may be appropriate
under applicable Laws, in order fully to effectuate the Lien hereof and the
purposes and agreements herein set forth. Insofar as this instrument is a
security agreement and financing statement, Grantor is the debtor, and
Beneficiary is the secured party. The addresses shown in Section 4.10 are the
addresses of the debtor and secured party and information concerning the
security interest granted hereby may be obtained from the secured party at such
address. Without in any manner limiting the generality of any of the foregoing
provisions hereof: (a) some portions of the goods described or to which
reference is made herein are or are to become fixtures on the Land described or
to which reference is made herein/ (b) the minerals and the like (including oil
and gas) included in the Mortgaged Property and the accounts resulting from the
sale thereof will be financed at the wellhead(s) or minehead(s) of the well(s)
or mine(s) located on the Land described or to which reference is made herein;
and (c) this instrument is to be filed of record in the real estate records in
the counties in which any portion of the Mortgaged Property is situated as a
financing statement but the failure to do so will not otherwise affect the
validity or enforceability of this instrument.
Section 4.15 Binding Effect. This Deed of Trust is binding upon Grantor
and Grantor's Successors and shall inure to the benefit of Beneficiary and its
successors and assigns, and the provisions hereof shall likewise be covenants
running with the Land. The duties, covenants, conditions, obligations, and
warranties of Grantor in this Deed of Trust shall be joint and several
obligations of Grantor and Grantor's Successors. Each and every party who signs
this Deed of Trust, other than Beneficiary, and each and every subsequent owner
of the Mortgaged Property, or any part thereof, jointly and severally covenants
and agrees that he or it will perform, or cause to be performed, each and every
condition, term, provision, and covenant of this Deed of Trust.
Section 4.16 Peace. Nothing contained herein shall be construed so
as to allow Beneficiary to commit a breach of the peace or a trespass.
Section 4.17 Multiple Counterparts. The instrument may be executed in
multiple counterparts, each of which will be enforceable against the signatories
regardless of whether the other listed parties have executed the same or any
other copy.
17
EXECUTED effective as of the 30th day of May, 2002.
GRANTOR:
VENUS EXPLORATION, INC.
By: /s/ John Y. Ames
------------------------
John Y. Ames, President
BENEFICIARY:
-------------------------------
ACKNOWLEDGMENTS
THE STATE OF TEXAS ss.
ss.
COUNTY OF BEXAR ss.
This instrument was acknowledged before me on the ___ day of
May, 2002, by John Y. Ames, President of VENUS EXPLORATION, INC., a
Delaware corporation, on behalf of said corporation.
---------------------------------
Notary Public in and for
The State of Texas
THE STATE OF ____________ ss.
ss.
COUNTY OF _______________ ss.
This instrument was acknowledged before me on the ___ day of May, 2002, by
___________________________________.
---------------------------------
Notary Public in and for
The State of ________________
18
EXHIBIT A
Attached to and made a part of the following instruments:
1. Deed of Trust, Mortgage, Assignment of Production, Security
Agreement and Financing Statement from Venus Exploration, Inc., as Grantor, to
Carl R. Oliver, Trustee, for the benefit of L. Lowry Mays, James W. Gorman,
Robert Scott, Robert Buschman, Michael E. Little, E.L. Ames, Jr. and John Y.
Ames, as Beneficiary .
2. Financing Statement naming Venus Exploration, Inc., as Debtor, and
L. Lowry Mays, et al, as Secured Party.
------------------------------------------------------
Each property described below shall include all of Grantor's interests
in the lands described, whether now owned or hereafter acquired, and the leases
covering the same, including any interests derived under leases or other
instruments not specifically referred to herein.
Each reference to a lease in this Exhibit A shall be deemed a reference
to said lease as said lease may have been amended and/or ratified by all
amendments and/or ratifications heretofore executed, whether or not referred to
herein.
"WI" or "Working Interest" shall mean the percentage of interest in the
full and entire leasehold estate created by virtue of the leases covered by this
instrument, as described below, and all rights and obligations of every kind and
character pertinent thereto, or arising therefrom, without regard to any valid
lessors' royalties, overriding royalties, or other burdens against production
therefrom insofar as the interest in said leasehold is burdened with the
obligation to bear and pay the costs of exploration, development, maintenance,
and operation.
"NRI" or "Net Revenue Interest" shall mean the percentage interest in
and to all oil, gas, and other hydrocarbons produced and saved or sold from,
under, or by virtue of the leases covered by this instrument after giving effect
to all valid lessors' royalties, overriding royalties of third parties, or other
burdens against production therefrom.
The interests set forth below are the minimum, warranted interests of
Grantor in the Subject Leases and shall not limit or restrict the interests
conveyed by Grantor pursuant to this Deed of Trust.
19
Exhibit 10.8
SECOND LIEN
(ON PRODUCING LEASES)
DEED OF TRUST, MORTGAGE, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT, AND FINANCING STATEMENT
VENUS EXPLORATION, INC., a Delaware corporation (herein called
"Grantor"),1250 N. E. Loop 410, Suite 810, San Antonio, Texas 78209, to secure
payment and performance of the Obligation (hereinafter defined), and for and in
consideration of the sum of Ten and No/100 Dollars ($10.00) cash and other
valuable consideration in hand paid to Grantor, the receipt and adequacy of
which are hereby acknowledged, and for and in consideration of the debt and
trusts hereinafter mentioned, has GRANTED, BARGAINED, SOLD, ASSIGNED,
TRANSFERRED, and CONVEYED, and by these presents does GRANT, BARGAIN, SELL,
ASSIGN, TRANSFER and CONVEY, unto Carl R. Oliver, Trustee (herein called
"Trustee"), whose address is 4040 Broadway, Suite 609, San Antonio, Texas 78209,
and to Trustee's successor or successors or substitutes in this trust, with
power of sale, all of the record and/or beneficial interest of Grantor in and to
the real and personal properties, rights, titles, interests and estates
described or to which reference is made in Paragraphs I through VI, inclusive,
below, whether now owned by Grantor or hereafter acquired by Grantor (herein
collectively called the "Mortgaged Property"):
Paragraph I. Oil and Gas Leases and Other Properties. All of those
certain oil and gas and/or oil, gas and mineral leases, lands, interests and
other properties (all such leases being herein called the "Subject Leases," and
all such leases, lands, interests and other properties being herein called the
"Subject Interests") that are described and/or to which reference may be made on
Exhibit A attached to and made a part of this Deed of Trust for all purposes and
incorporated herein by reference as fully as if copied verbatim in the body of
this Deed of Trust at this point.
Paragraph II. Pooled Interests. All rights, titles, interests and
estates now owned or hereafter acquired by Grantor in and to (i) any and all
properties now or hereafter pooled or unitized with any of the Subject
Interests, and (ii) all presently existing or future unitization,
communitization and pooling agreements, and the units created thereby, that
include all or any part of the Subject Interests, including, without limitation,
all units formed under or pursuant to any Laws. The rights, titles, interests
and estates described in this Paragraph II shall also be included within the
term "Subject Interests" as used herein.
Paragraph III. Hydrocarbons. All oil, gas, casinghead, gas, drip
gasoline, natural gasoline and condensate, all other liquid and gaseous
hydrocarbons, and all other minerals, whether similar to the foregoing or not
(herein collectively called "Hydrocarbons"), now or hereafter accruing to or
produced from the Subject Interests and/or to which Grantor now or hereafter may
be entitled as a result of or by virtue of its record and/or beneficial
ownership of any one or more of the Subject Interests.
Paragraph IV. Contracts. All present and future rights of Grantor
(including, without limitation, all rights to receive payments under or by
virtue of all present and future operating agreements, contracts for the
purchase, exchange, processing, transportation or sale of Hydrocarbons, and
other contracts and agreements relating in any way to all or any part of the
Mortgaged Property as the same may be amended or supplemented from time to time
(the "Subject Contracts").
1
Paragraph V. Other Property. All tenements, hereditaments,
appurtenances and properties in anywise appertaining, belonging, affixed or
incidental to the Subject Leases, in which Grantor now owns or hereafter
acquires an interest, including, without limitation, any and all property, real
or personal, in which Grantor now owns or hereafter acquires an interest that is
situated upon and/or used or useful in connection with all or any part of the
Subject Leases and including all pipelines; gathering lines; trunk lines;
lateral lines; pipeline easements and rights-of-way; compressor, dehydration and
pumping equipment, sites and leases; pumps; compressors; dehydration units;
separators; heater treaters; valves; flow lines; gauge meters; alarms; supplies;
machinery; derricks; building; tanks; casings; Christmas trees; tubing; rods;
liquid extractors; engines; boilers; tools; appliances; cables; wires; surface
leases; rights-of-way; easements; servitudes; and franchises; and all
accessions, additions, substitutes and replacements to or for, and all
accessories and attachments to, any of the foregoing (all such surface leases,
easements, licenses, rights-of-way and franchises being herein called the
"Subject Easements," and all such tangible property described in this Paragraph
V being herein called the "Personal Property").
Paragraph VI. Other Rights to Hydrocarbons. Any and all other rights,
titles, estates, royalties and interests (whether or not presently included
within the Subject Interests) now owned or hereafter acquired by Grantor (i) in
and to all Hydrocarbons in and under and that may be produced and saved from the
lands described or to which reference is made on Exhibit A (the "Land") and (ii)
in and to all reversions, remainders, tolls, rents, revenues, issues, proceeds,
earnings, income and profits from the Land.
TO HAVE AND TO HOLD the Mortgaged Property, together with all and
singular the rights, privileges, contracts and appurtenances now or hereafter at
any time before the foreclosure or release hereof in anywise appertaining or
belonging thereto, unto Trustee and to his successors or substitutes hereunder
and to their successors and assigns forever; and Grantor hereby binds and
obligates Grantor and Grantor's Successors to warrant and forever defend, all
and singular, the Mortgaged Property unto Trustee and to his successors or
substitutes hereunder and to their successors and assigns, against the lawful
claims of any and all Persons whomsoever claiming or to claim the same, or any
part thereof, SUBJECT, HOWEVER, ONLY to Permitted Liens.
REFERENCE IS MADE TO SECTION 5.13 FOR THE DEFINITIONS OF SEVERAL OF THE
TERMS USED HEREIN.
This conveyance is made in trust, however, upon the terms and
provisions hereinafter set out to secure the full and final payment and
performance of the Obligation, as defined in Article I below.
2
To further secure the Obligation, Grantor hereby grants to L. Lowry
Mays, James W. Gorman, Robert Scott, Robert Buschman, Michael E. Little, E.L.
Ames, Jr., and John Y. Ames (collectively, herein called "Beneficiary"), whose
address is in care of the Trustee at the Trustee's address, a security interest
in the Mortgaged Property insofar as such Mortgaged Property consists of
equipment, general intangibles, accounts, inventory, fixtures and any and all
other personal property of any kind or character defined in and subject to the
provisions of the Code, including the proceeds and products from any and all of
such Mortgaged Property [all of such Mortgaged Property (and the proceeds and
products thereof) being herein called the "Collateral"]. Upon the happenings of
any Default, Beneficiary is and shall be entitled to all of the Rights afforded
a secured party by the Code with reference to the Collateral, or Trustee or
Beneficiary may proceed as to both the real and personal property covered hereby
in accordance with the Rights granted under this Deed of Trust in respect to the
real property covered hereby. Such Rights shall be cumulative and in addition to
those granted to Trustee or Beneficiary under any other provision of this Deed
of Trust or under any other instrument executed in connection with or as
security for all or any part of the Obligation.
ARTICLE ONE
SECURED OBLIGATION.
------------------
This Deed of Trust, Mortgage, Assignment of Production, Security
Agreement, and Financing Statement (herein called the "Deed of Trust") is made
to secure and enforce the following, obligations, indebtedness, covenants,
conditions, agreements, loans, advances, debts and liabilities (herein
collectively called the "Obligation"):
Section 1.1 Guaranty The obligation to repay each Beneficiary for any
amounts paid by the Beneficiary to the Frost National Bank or its assigns (the
"Bank") as a direct result of the Bank's exercise of its rights under that
Guaranty Agreement dated May 30, 2002, from Beneficiary to the Bank (the
"Guaranty Agreement") securing Grantor's indebtedness to the Bank in the amount
of $2,000,000 as referenced in that Guaranty Agreement (the "Note"). The
obligation to repay Beneficiary is more particularly described in that
Guarantors' Cooperation Agreement dated contemporaneously herewith among Venus
Exploration, Inc., the Trustee and the Beneficiaries.
Section 1.2 Other Indebtedness. Any and all other additional
indebtedness or liabilities for which Grantor is now or may hereafter become
liable to Beneficiary at any time and from time to time, in any manner, either
primarily or secondarily, absolutely or contingently, directly or indirectly,
jointly, severally, or jointly and severally, and whether matured or unmatured,
including all indebtedness and liabilities now or hereafter arising directly out
of transactions between Grantor and Beneficiary or acquired by Beneficiary
outright, conditionally, or as collateral security from another Person and
whether or not created after payment in full of the Note if this Deed of Trust
shall not have been released of record by Beneficiary.
Section 1.3 Indebtedness Arising Under Security Instruments. All
indebtedness, obligations, covenants, conditions, agreements and liabilities
arising pursuant to the provisions of this Deed of Trust and/or any other
security agreement, mortgage, deed of trust, collateral pledge agreement,
contract, assignment or loan agreement of any kind now or hereafter existing as
security for, executed in connection with, or related to the Obligation and/or
any part thereof (each such agreement being herein called "other security
instrument").
Section 1.4 Costs and Expenses. All sums advanced and costs and
expenses incurred by Beneficiary, including without limitation, all legal,
accounting, engineering, management, consulting or like fees, made and incurred
in connection with the foregoing Sections 1.1, 1.2, and 1.3 or any part thereof,
or in connection with the acquisition, perfection, realization, maintenance or
preservation of the security therefor, or in connection with the following
Section 1.5, or any part thereof, whether such advances, costs or expenses shall
have been made and incurred at the request of Grantor or Beneficiary.
3
Section 1.5 Renewals, Extensions, and Rearrangements. Any and all
renewals, extensions and/or rearrangements of all or any part of the Note,
indebtedness, obligations, debts, loans, advances, covenants, agreements and
liabilities described or to which reference is made in the foregoing Sections
1.1, 1.2, 1.3, and 1.4.
ARTICLE TWO
CERTAIN REPRESENTATIONS, WARRANTIES, AND COVENANTS OF GRANTOR
Section 2.1 Representations and Warranties. Grantor represents and
warrants to Beneficiary that in all material respects:
(a) Authority. Grantor has authority to execute this Deed of Trust, to
grant, bargain, sell, mortgage, assign, transfer, and convey the Mortgaged
Property to the Trustee pursuant to this Deed of Trust, and to make the
covenants, representations, warranties, and assignments contained in this Deed
of Trust;
(b) Title. Grantor (i) has good title to, (ii) is the lawful
owner and holder of, and (iii) is possessed of the Mortgaged Property free and
clear of any and all Liens except Permitted Liens;
(c) Percentage Interests. The percentage interests of Grantor's
participation in the total costs incurred in connection with the Mortgaged
Property described on Exhibit A attached hereto is not greater than as
represented on said Exhibit, and the percentage interests of Grantor's
participation in the total production of Hydrocarbons produced and saved from
the Mortgaged Property described on Exhibit A is not less than as represented on
said Exhibit; and
(d) Advance Payment Contract. Grantor is not a party to any
Advance Payment Contract affecting or relating to any of the Subject Interests
not heretofore disclosed to Beneficiary in writing.
4
Section 2.2 Covenants of Grantor. Grantor, for Grantor and Grantor's
Successors, covenants and agrees to:
(a) Additional Documents. At any time, and from time to time, upon
request by Beneficiary, forthwith execute and deliver to Beneficiary any and all
additional instruments and further assurances, and do all other acts and things,
as may be necessary or proper to effect the intent of these presents and to
evidence and perfect more fully the Rights and Liens herein created or intended
to be created and to protect the Rights of Beneficiary hereunder.
(b) Existence and Authority. Continuously maintain Grantor's existence
as a corporation in good standing under the laws of the state of its corporation
and in all jurisdictions in which it is conducting business.
(c) Cure of Defects. If the validity or priority of this Deed of Trust
or of any Rights or Liens created or evidenced hereby with respect to the
Mortgaged Property or any material part thereof shall be endangered or
questioned or shall be attacked directly or indirectly or if any legal
proceedings are instituted against Grantor with respect thereto, give written
notice thereof to Beneficiary promptly and, at Grantor's own cost and expense,
diligently endeavor to cure any defect that may be developed or claimed, and
take all necessary and proper steps for the defense of such legal proceedings,
including, but not limited to, the employment of counsel acceptable to
Beneficiary, the prosecution or defense of litigation and the release or
discharge of all adverse claims, and Trustee and Beneficiary, or either of them
(whether or not named as parties to legal proceedings with respect thereto), are
hereby authorized and empowered to take such additional steps as in their
judgment and discretion may be necessary or proper for the defense of any such
legal proceedings, including, but not limited to, the prosecution or defense of
litigation, and the compromise or discharge of any adverse claims made with
respect to the Mortgaged Property, and all expense so incurred of every kind and
character shall be a demand obligation owing by Grantor to Beneficiary.
(d) Payment of Taxes. Pay, or cause to be paid, before delinquent, all
lawful Taxes in respect to the Mortgaged Property, or any part thereof, and from
time to time, upon request of Beneficiary, to furnish to Beneficiary evidence
satisfactory to Beneficiary of the timely payment of such Taxes.
(e) Compliance with Subject Leases, Interests, Contracts,
and Easements. Timely perform all obligations under, and not violate any of, the
Subject Leases, Subject Interests, Subject Contracts or Subject Easements.
(f) Maintenance of Mortgaged Property. At all times maintain, preserve
and keep the Mortgaged Property in good repair and condition, and from time to
time to make all necessary and proper repairs, replacements and renewals; and
not to commit or permit any waste on or of the Mortgaged Property.
5
(g) Mortgage Taxes. At any time any Law shall be enacted imposing or
authorizing the imposition of any Tax upon this Deed of Trust, or upon any Lien
created hereby, immediately pay all such taxes; provided that, in the
alternative, Grantor may, in the event of the enactment of such a Law, and must,
if it is unlawful for Grantor to pay such Taxes, prepay that portion of the
Obligation that Beneficiary in good faith determines is secured by property
covered by such Law within 30 days after demand therefor by Beneficiary.
(h) Performance of Covenants. Punctually and properly perform all of
Grantor's covenants, duties, and liabilities under this Deed of Trust and any
other security instrument.
(i) Inspection of Mortgaged Property. Allow Beneficiary to inspect
the Mortgaged Property and all records relating thereto, and to make and take
away copies of such records.
(j) Operation of Mortgaged Property. Operate the Mortgaged Property, or
cause it to be operated, in a careful and efficient manner in accordance with
the practices of the industry and in compliance with all Subject Leases, Subject
Contracts, Subject Easements and Laws.
(k) Development Work. Do, or cause to be done, such development and
other work as would be conducted by a reasonably prudent operator to protect
from material diminution the production capacity of the Mortgaged Property and
each producing well thereon.
(l) Maintenance of Subject Leases, Contract, and Easements. Maintain
all Subject Leases, Subject Contracts, and Subject Easements in full force and
effect and not permit to occur the surrender, abandonment, release or
termination of any Subject Leases, Subject Contracts or Subject Easements, so
long as the Subject Interests covered thereby or relating thereto are capable of
producing Hydrocarbons in commercially paying quantities.
(m) Insurance. Carry insurance with respect to the Mortgaged Property
with such insurers, in such amounts, and covering such risks as shall be
customary in the industry, including, but not limited to, workmen's compensation
insurance and insurance against loss or damage by fire, lightning, hail,
windstorm, explosion, hazards, casualties and other contingencies; deliver
evidence of the policies of insurance to Beneficiary and pay or cause to be paid
all premiums for such insurance at least 15 days before such premiums become
due; furnish to Beneficiary satisfactory proof of the timely making of such
payments; and deliver evidence of all renewal policies to Beneficiary at least
15 days before the expiration date of each expiring policy.
(n) Compliance with Laws. Comply with all Laws applicable to the
Mortgaged Property and its ownership, use and operation, including, without
limitation, Environmental Laws.
(o) Sales of Mortgaged Property. Not, without the prior written consent
of Beneficiary, which will not be unreasonably withheld, sell, trade, transfer,
convey, assign, exchange, pledge, encumber, create any Lien (except a Permitted
Lien) with respect to or otherwise dispose of the Mortgaged Property, or any
part thereof, or any interest therein, except items of Personal Property that
have become obsolete or worn beyond practical use and that have been replaced by
adequate substitutes having a value equal to or greater than the replaced items
when new.
6
(p) Title Opinions. Furnish to Beneficiary copies of any title
opinions and any abstracts of title requested by Beneficiary from time to time
that Grantor has or may hereafter obtain affecting any part of the Mortgaged
Property.
(q) Advance Payment Contract. Not enter into or agree to any Advance
Payment Contract with any person affecting any of the Mortgaged
Property.
(r) Transactions with Affiliates. Not, directly or indirectly, enter
into any sale, lease or exchange of any property or any contract for the
rendering of goods or services with respect to any of the Mortgaged Property
(including, without limitation, operating agreements under which Grantor or an
affiliate of Grantor serves as operator) with any affiliate of Grantor other
than upon fair and reasonable terms no less favorable than could be obtained in
an arm's length transaction with a Person not an affiliate of Grantor.
(s) Properties Not Operated by Grantor. Anything in this Section 2.2 to
the contrary notwithstanding, Grantor, with respect to those Subject Interests
that are operated by operators other than Grantor, shall not be obligated
himself to perform undertakings performable only by such operators and that are
beyond the control of Grantor. In each such case, however, Grantor will promptly
take all actions available to him, under applicable operating arrangements or
otherwise, to bring about the performance of any such undertakings required to
be performed by such operators.
ARTICLE THREE
DEFAULTS AND REMEDIES
Section 3.1 Defaults. The term "Default," as used herein, shall mean
(i) the failure of Grantor, within 30 days after written notice thereof from
Beneficiary, to cure a default in the due performance or observance of any
covenant or agreement contained in this Deed of Trust and not constituting a
default in the payment of principal of or interest on the Obligation, or (ii)
the failure of Grantor within 10 business days after written notice thereof from
Beneficiary to pay when due the principal of or interest on the Obligation, or
any part thereof, after the same shall have become due and payable (whether at
stated maturity, by acceleration, or otherwise).
Section 3.2 Remedies. If a Default shall occur and be continuing,
Beneficiary may, at its option, do any one or more of the following to the
extent permitted by applicable Law:
(a) Payment or Performance by Beneficiary. If Grantor has failed to
keep or perform any covenant whatsoever contained in this Deed of Trust or any
other security instrument, Beneficiary may, but shall not be obligated to any
Person to do so, perform or attempt to perform such covenant, and any payment
made or expense incurred in the performance or attempted performance of any such
covenant shall be a part of the Obligation, and Grantor promises, upon demand,
to pay to Beneficiary, at the place where the Note is payable, or at such other
place as Beneficiary may direct by written notice, all sums so advanced or paid
by Beneficiary until paid by Grantor. No such payment by Beneficiary shall
constitute a waiver of any Default.
7
(b) Acceleration. Beneficiary may, at its option, declare the aggregate
unpaid principal amount of and interest on the Note and all other parts of the
Obligation to be, and the same shall thereupon become, immediately due and
payable without presentment, demand, protest, notice of acceleration, notice of
intent to accelerate, notice of protest or notice of dishonor, or any other
notice of any kind, all of which are expressly waived by Grantor.
(c) Foreclosure. Beneficiary may request Trustee to proceed with
foreclosure, and in such event Trustee is hereby authorized and empowered, and
it shall be his duty, upon such request of Beneficiary, and to the extent
permitted by applicable Law, to sell all or any part of the Mortgaged Property
at one or more sales, as an entirety or in parcels, at such place or places and
otherwise in such manner and upon such notice as may be required by applicable
Law, or in the absence of any such requirement, as Trustee and/or Beneficiary
may deem appropriate, and to make conveyance to the purchaser or purchasers
thereof. Any sale of any part of the Mortgaged Property shall be made to the
highest bidder or bidders for cash, at the courthouse door of, or at such other
place as may be required or permitted by applicable Law in, the county wherein
the Land included within the Mortgaged Property to be sold is situated; provided
that if the Land is situated in more than one county, such sale of the Mortgaged
Property, or any part thereof, may be made in any county wherein any part of the
Land included within the Mortgaged Property to be sold is situated. Any such
sale shall be made at public outcry, on the day of any month, during the hours
of such day and after written notices thereof have been publicly posted in such
places and for such time periods and after all Persons entitled to notice
thereof have been sent such notice, all as required by applicable Law in effect
at the time of such sale; and nothing herein shall be deemed to require
Beneficiary or Trustee to do, and Beneficiary and Trustee shall not be required
to do, any act other than as required by applicable Law in effect at the time of
such sale. Any such sale may be as a whole or in such parcels as Trustee may
select. After such sale, Trustee shall make to the purchaser or purchasers
thereunder good and sufficient deeds and assignments, in the name of Grantor,
conveying the Mortgaged Property, or part thereof, so sold to the purchaser or
purchasers with special warranty of title (subject to Permitted Liens) by
Grantor. Sale of a part of the Mortgaged Property shall not exhaust the power of
sale, but sales may be made from time to time until the Obligation is paid and
performed in full. It shall not be necessary to have present or to exhibit at
any such sale any of the Collateral. It is intended by each of the foregoing
provisions of this Subsection 3.2(c) that Trustee may, after any request or
direction by Beneficiary, sell, not only the Subject Interests included within,
but also, all other items constituting a part of, the Mortgaged Property, or any
part thereof, along with the Land, or any part thereof, included within the
Mortgaged Property all as a unit and as a part of a single sale, or may sell any
part of the Mortgaged Property separately from the remainder of the Mortgaged
Property. It is agreed that, in any deed or assignment given by Trustee, any and
all statements of fact or other recitals therein made as to the identity of
Beneficiary or as to the occurrence or existence of any Default, or as to the
acceleration of the maturity of the Obligation, or as to the request to sell,
notice of sale, time, place, terms and manner of sale, and the receipt,
distribution and application of the money realized therefrom, or as to the due
and proper appointment of a substitute trustee, and, without being limited by
the foregoing, as to any other act or thing having been duly done by Beneficiary
or by Trustee, shall be evidence that the said statements or recitals state
facts and are without further question to be so accepted, and Grantor does
hereby ratify and confirm any and all acts that Trustee may lawfully do in the
premises by virtue hereof. In the event of the resignation (such resignation
being hereby authorized for any reason) or death of Trustee, or his removal from
his county of residence stated on the first page hereof, or his failure, refusal
or inability, for any reason, to make any such sale or to perform any of the
trusts herein declared, or, at the option of Beneficiary, without cause,
8
Beneficiary may appoint, in writing, a substitute trustee, who shall thereupon
succeed to all the estates, titles, rights, powers and trusts herein granted to
and vested in Trustee. Such appointment may be made on behalf of Beneficiary by
any person who is then the president, or any vice president or any other
authorized officer or agent of Beneficiary. In the event of the resignation
(such resignation being hereby authorized for any reason) or death of any such
substitute trustee, or his failure, refusal or inability to make such sale or
perform such trusts, or, at the option of Beneficiary, without cause, successive
substitute trustees may thereafter, from time to time, be appointed by
Beneficiary in the same manner. Trustee may appoint, in writing, any one or more
Persons as Trustee's agent and attorney-in-fact to act as Trustee under him and
in his name, place and stead, to perform any one or more acts necessary or
incident to any sale under the power of sale granted under the preceding
provisions of this Subsection 3.2(c), including, without limitation, the posting
and filing of any notices, the conduct of such sale and the execution and
delivery of any instruments conveying the Mortgaged Property so sold, but in the
name and on behalf of Trustee. All acts done or performed by any such agent and
attorney-in-fact shall be valid, lawful and binding as if done or performed by
Trustee. Wherever herein the word "Trustee" is used, the same shall mean the
Person who is the duly appointed trustee or substitute trustee hereunder at the
time in question.
(d) Suit. Beneficiary may, or Trustee may upon written request of
Beneficiary, proceed by suit or suits, at law or in equity, to enforce the
payment and performance of the Obligation in accordance with the terms hereof
and of the Note or the other security instruments, or other documents and/or
writings securing and/or evidencing the Obligation, to foreclose the Liens of
this Deed of Trust as against all or any part of the Mortgaged Property and to
have all or any part of the Mortgaged Property sold under the judgment or decree
of a court of competent jurisdiction.
(e) Assemble Collateral. Beneficiary may require Grantor to assemble
the Collateral included within the Mortgaged Property, or any part thereof, and
make it available to Beneficiary, at a place to be designated by Beneficiary
that is reasonably convenient to Grantor and Beneficiary.
(f) Disposition of Collateral. After notification, if any, as hereafter
provided in this Subsection 3.2(f), Beneficiary may sell, lease or otherwise
dispose of, at the office of Beneficiary, or on the Land, or elsewhere, as
chosen by Beneficiary, all or any part of the Collateral included within the
Mortgaged Property, in its then condition, or following any commercially
reasonable preparation or processing, and each Sale [as used in this Subsection
3.2(f), the term "Sale" means any such sale, lease, or other disposition made
pursuant to this Subsection 3.2(f)] may be as a unit or in parcels, by public or
in private proceedings, and by way of one or more contracts, and, at any Sale,
it shall not be necessary to exhibit the Collateral, or any part thereof, being
sold, leased or otherwise disposed of. The Sale of all or any part of the
Collateral shall not exhaust Beneficiary's power of Sale, but Sales may be made
from time to time until the Obligation is paid and performed in full. Reasonable
notification of the time and place of any public Sale pursuant to this
Subsection 3.2(f), or reasonable notification of the time after which any
private Sale is to be made pursuant to this Subsection 3.2(f), shall be sent to
Grantor and to any other persons entitled under the Code to notice. It is agreed
that notice sent or given not less than 21calendar days prior to the taking of
the action to which the notice relates, is reasonable notification and notice
for such purposes of this Subsection 3.2(f).
9
(g) Surrender of Insurance Policies. Beneficiary may surrender the
insurance policies maintained pursuant to Subsection 2.2(m) hereof, or any part
thereof, and receive and apply the unearned premiums as a credit on the
Obligation, and, in connection therewith, Grantor hereby appoints Beneficiary as
the agent and attorney-in-fact for Grantor to collect such premiums.
Section 3.3 Purchase of Mortgaged Property by Beneficiary. If
Beneficiary is the purchaser of the Mortgaged Property, or any part thereof (and
it is specifically agreed that Beneficiary may be the purchaser of the Mortgaged
Property, or any part thereof, if permitted by applicable Law), at any sale
thereof, whether such sale be under the power of sale hereinabove vested in
Trustee, or upon any other foreclosure of the Liens hereof, or otherwise,
Beneficiary shall, upon any such purchase, acquire good title to the Mortgaged
Property so purchased, free of the Liens of these presents.
Section 3.4 Possession of Property After Foreclosure. In case the Liens
hereof shall be foreclosed by Trustee's sale, or by other judicial or
non-judicial action, the purchaser at any such sale shall receive, as an
incident to his ownership, immediate possession of the Mortgaged Property, or
any part thereof so conveyed, and, subsequent to foreclosure, Grantor and
Grantor's Successors shall be considered as tenants at sufferance of the
purchaser at foreclosure sale, and anyone occupying the property after demand
made for possession thereof shall be guilty of forcible detainer and shall be
subject to eviction and removal, forcible, or otherwise, with or without process
of Law, and all damages by reason thereof are hereby expressly waived.
Section 3.5 Application of Proceeds. The proceeds from any sale, lease
or other disposition made pursuant to this Article Three, the proceeds from
surrendering any insurance policies pursuant to Subsection 3.2(g), any proceeds
of Hydrocarbons collected by Beneficiary pursuant to Article Four, and sums
received pursuant to Section 5.5 shall be applied by Trustee, or by Beneficiary,
as the case may be, to the payment of the Obligation, whether or not matured, as
may be determined by Beneficiary in its sole discretion until the Obligation is
paid in full.
Section 3.6 Abandonment of Sale. In the event a foreclosure hereunder
should be commenced by Trustee in accordance with Subsection 3.2(c), Beneficiary
may at any time before the sale direct Trustee to abandon the sale, and may then
institute suit for the collection of the Obligation, and/or for the foreclosure
of the Liens hereof. If Beneficiary should institute a suit for the collection
of the Obligation, and/or for the foreclosure of the Liens hereof, it may at any
time before the entry of a final judgment in said suit sell and/or require
Trustee to sell (and Trustee is hereby expressly authorized to sell) the
Mortgaged Property, or any part thereof, in accordance with the provisions of
this Deed of Trust.
10
Section 3.7 Waiver of Appraisement and Redemption. To the full extent
Grantor may lawfully do so, Grantor agrees that Grantor will not at any time
insist upon, plead, claim or take the benefit or advantage of any appraisement,
valuation, stay, extension or redemption Law, now or hereafter in force, in
order to prevent or hinder the enforcement of this Deed of Trust or the absolute
sale of the Mortgaged Property, or any part thereof, or the possession thereof
by any purchaser at any such sale, but Grantor, insofar as Grantor now or
hereafter may lawfully do so, hereby waives the benefit of all such Laws;
provided, however, that the appraisement of any of the Mortgaged Property is
hereby expressly waived or not waived at the option of Trustee and/or
Beneficiary, such option to be exercised prior to or at the time judgment is
rendered in any foreclosure of this Deed of Trust. Grantor also expressly
waives, to the extent Grantor may lawfully do so, all Rights to have the
Mortgaged Property marshaled upon any foreclosure of this Deed of Trust.
ARTICLE FOUR
SECOND LIEN
The interest of the Beneficiary that is created by this Deed of Trust
is a second lien to that of the Permitted Liens and to the liens and security
interests owned and held by the Bank in or with respect to the Mortgaged
Property. Notwithstanding any provision in this Deed of Trust to the contrary,
the Beneficiary acknowledges and agrees that this Deed of Trust and the liens
and security interests created hereby are subject, inferior and subordinate to
the instruments described or referred to below in this paragraph and to the
liens and/or security interests created by such instruments, which are described
or referred to as follows:
(1) That certain Oklahoma Mortgage, Security Agreement, Financing
Statement and Assignment of Production dated July 6, 2001, from
Grantor to Hibernia National Bank, covering certain of the Mortgaged
Property situated in Grady, Latimer and Seminole Counties, Oklahoma,
multiple originals of which are recorded in Book 3297, Page 117 of the
records of Grady County, Oklahoma, in Book 579, Page 430 of the
records of Latimer County, Oklahoma, and in Book 2385, Page 74 of the
records of Seminole County, Oklahoma (collectively, the "July 6, 2001
Oklahoma Mortgage"), to which instruments and the record thereof
reference is hereby made for all purposes;
(2) That certain Texas Deed of Trust, Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement dated July 6, 2001,
from Grantor to Lyndsay P. Job, Trustee for the benefit of Hibernia
National Bank, covering certain of the Mortgaged Property situated in
Atascosa, Crockett, Hansford, Jefferson and Wharton Counties, Texas,
multiple originals of which are recorded in Volume 174, Page 364 of
the Official Public Records of Atascosa County, Texas, in Volume 597,
Page 529 of the Official Public Records of Crockett County, Texas, in
Volume 284, Page 93 of the Official Records of Hansford County, Texas,
under Document No. 2001024467 of the Official Public Records of Real
Property of Jefferson County, Texas, and in Volume 419, Page 37 of the
Official Records of Wharton County, Texas (collectively, the "July 6,
2001 Texas Mortgage"), to which instruments and the record thereof
reference is hereby made for all purposes;
11
(3) That certain Utah Deed of Trust, Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement dated July 6, 2001,
from Grantor to GeoScout Land & Title Company, Inc., as Trustee for
the benefit of Hibernia National Bank, covering certain of the
Mortgaged Property situated in Duchesne and Uintah Counties, Utah,
duplicate originals of which are recorded under Entry No. 347970, and
in Book A0353, Page 129, of the records of Duchesne County, Utah, and
under Entry No. 2001004623, and in Book 766, Page 809, of the records
of Uintah County, Utah (collectively, the "July 6, 2001 Utah
Mortgage"), to which instruments and the record thereof reference is
hereby made for all purposes;
(4) That certain Oklahoma Mortgage, Security Agreement, Financing
Statement and Assignment of Production dated September 27, 2001, from
Grantor to Hibernia National Bank, covering certain of the Mortgaged
Property situated in Blaine, Custer, Garfield, Latimer, Major, Pawnee,
Payne and Pittsburgh Counties, Oklahoma, multiple originals of which
are recorded in Book 833, Page 717 of the records of Blaine County,
Oklahoma, in Book 1145, Page 322 of the records in Custer County,
Oklahoma, in Book 1555, Page 333 of the records of Garfield County,
Oklahoma, in Book 583, Page 741 of the records of Latimer County,
Oklahoma, in Book 1543, Page 371 of the records of Major County,
Oklahoma, in Book 543, Page 760 of the records of Pawnee County,
Oklahoma, in Book 1323, Page 323 of the records of Payne County,
Oklahoma, and in Book 1132, Page 417 of the records of Pittsburgh
County, Oklahoma (collectively, the "September 27, 2001 Oklahoma
Mortgage"), to which instruments and the record thereof reference is
hereby made for all purposes;
(5) That certain Texas Deed of Trust, Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement dated September 27,
2001, from Grantor to Lyndsay P. Job, Trustee for the benefit of
Hibernia National Bank, covering certain of the Mortgaged Property
situated in Jefferson County, Texas, recorded under Document No.
2001035621 of the Official Public Records of Real Property of
Jefferson County, Texas (the "September 27, 2001 Jefferson County
Mortgage"), to which instrument and the record thereof reference is
hereby made for all purposes;
(6) That certain Texas Deed of Trust, Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement dated September 27,
2001, from Grantor to Lyndsay P. Job, Trustee for the benefit of
Hibernia National Bank, covering certain of the Mortgaged Property
situated in Crane, Fort Bend, Hardin, Irion, Lipscomb, Panola and
Upton Counties, Texas, multiple originals of which are recorded in
Volume 431, Page 478 of the Official Public Records of Crane County,
Texas, under Document No. 2001094231 of the Official Public Records of
Fort Bend County, Texas, in Volume 1286, Page 418 of the Official
Public Records of Hardin County, Texas, in Volume 142, Page 560 of the
Official Public Records of Irion County, Texas, in Volume 400, Page
286 of the Real Property Records of Lipscomb County, Texas, in Volume
1132, Page 23 of the Official Public Records of Panola County, Texas,
and under Document No. 0128688 and recorded in Volume 711, Page 75 of
the Official Public Records of Upton County, Texas (collectively, the
"September 27, 2001 Texas Mortgage"), to which instruments and the
record thereof reference is hereby made for all purposes;
12
(7) That certain First Supplement and Amendment to Utah Deed of Trust,
Mortgage, Assignment, Security Agreement, Fixture Filing, and
Financing Statement dated October 15, 2001, but effective as of July
6, 2001, from Grantor to GeoScout Land & Title, Inc., as Trustee for
the benefit of Hibernia National Bank, covering certain of the
Mortgaged Property situated in Duchesne County, Utah, recorded under
Entry No. 350401, and in Book M0296, Page 632, of the records of said
county (the "October 15, 2001 Amendment"), to which instrument and the
record thereof reference is hereby made for all purposes;
(8) That certain Texas Deed of Trust, Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement dated November 1,
2001, from Grantor to Lyndsay P. Job, Trustee for the benefit of
Hibernia National Bank, covering certain of the Mortgaged Property
situated in Crockett and Jefferson Counties, Texas, duplicate
originals of which are recorded under Document No. 134982 and recorded
in Volume 601, Page 512 of the Official Records of Crockett County,
Texas, and under Document No. 2001039301 of the Official Public
Records of Real Property of Jefferson County, Texas (collectively, the
"November 1, 2001 Texas Mortgage"), to which instruments and the
record thereof reference is hereby made for all purposes;
(9) That certain UCC-1 Financing Statement filed in the office of the
Secretary of State of the State of Delaware on July 10, 2001 under
File No. 1066812 4 in said office (the "First Financing Statement"),
to which instrument and the filing thereof reference is hereby made
for all purposes;
(10) That certain UCC-1 Financing Statement filed in the office of the
Secretary of State of the State of Delaware on October 15, 2001 under
File No. 1139515 6 in said office (the "Second Financing Statement"),
to which instrument and the filing thereof reference is hereby made
for all purposes;
(11) That certain UCC-1 Financing Statement filed in the office of the
Secretary of State of the State of Delaware on November 5, 2001 under
File No. 1160608 1 in said office (the "Third Financing Statement"),
to which instrument and the filing thereof reference is hereby made
for all purposes;
(12) That certain assignment and transfer of note and liens of even date
herewith from Hibernia National Bank to the Bank, assigning to the
Bank the July 6, 2001 Oklahoma Mortgage, the July 6, 2001 Texas
Mortgage, the July 6, 2001 Utah Mortgage, the September 27, 2001
Oklahoma Mortgage, the September 27, 2001 Jefferson County Mortgage,
the September 27, 2001 Texas Mortgage, the October 15, 2001 Amendment,
and the November 1, 2001 Texas Mortgage, the liens and security
interests created thereby, and the collateral and promissory note
described therein, multiple originals of which are being recorded
contemporaneously with the recording of this Deed of Trust in the
above-described counties, to which instruments and the record thereof
reference is hereby made for all purposes;
13
(13) Separate UCC-3 Assignments from Hibernia National Bank to the Bank,
assigning to the Bank the First Financing Statement, the Second
Financing Statement and the Third Financing Statement, the security
interests created thereby and the collateral described therein, each
of which is being filed with the Secretary of State of the State of
Delaware contemporaneously with the recording of this Deed of Trust in
the various counties, to which instruments and the filing thereof
reference is hereby made for all purposes; and
(14) All amendments, modifications, extensions, continuations, supplements,
revivors and/or ratifications of any of the above-described
instruments as may have been executed or filed heretofore, are being
executed or filed contemporaneously herewith, or may be executed or
filed hereafter from time to time by Grantor and/or the Bank, or the
Bank's successors or assigns, including (without limitation) those
securing the payment of any additional indebtedness hereafter advanced
by the Bank, its successors or assigns, to Grantor.
ARTICLE FIVE
MISCELLANEOUS
Section 5.1 Release. If the Obligation is paid and performed in full in
accordance with the terms of this Deed of Trust and the Note and other security
instruments and documents and writings evidencing or securing all or any part of
the Obligation, then this conveyance shall be released at Grantor's request and
expense; provided, however, Grantor's warranties and indemnities contained in
this Deed of Trust shall survive the payment and performance of the Obligation
and the release of this Deed of Trust.
Section 5.2 Rights Cumulative. All Rights and Liens herein expressly
conferred are cumulative of all other Rights and Liens herein, or by Law or in
equity provided, or provided in any other security instrument, and shall not be
deemed to deprive Beneficiary or Trustee of any such other legal or equitable
Rights and Liens by judicial proceedings, or otherwise, appropriate to enforce
the conditions, covenants and terms of this Deed of Trust and other security
instruments, and the employment or enforcement of any Rights hereunder, or
otherwise, shall not prevent the concurrent or subsequent employment or
enforcement of any other Rights.
Section 5.3 Waivers. Any and all covenants in this Deed of Trust may
from time to time, by instrument in writing signed by Beneficiary and delivered
to Grantor, be waived to such extent and in such manner as Beneficiary may
desire, but no such waiver shall ever affect or impair Beneficiary's Rights or
Liens hereunder, except to the extent specifically stated in such written
instruments.
14
Section 5.4 Sale of Mortgaged Property. In the event Grantor or any of
Grantor's Successors conveys any interest in the Mortgaged Property, or in any
part thereof, to any other Person, Beneficiary may, without notice to Grantor or
Grantor's successors, deal with any owner of any part of the Mortgaged Property
with reference to this Deed of Trust and the Obligation, either by way of
forbearance on the part of Beneficiary, or extension of time of payment of the
Obligation, or release of all of any part of the Mortgaged Property, or any
other property securing payment and performance of the Obligation, without in
any way modifying or affecting Beneficiary's Rights and Liens hereunder or the
liability of Grantor or any other party liable for payment and performance of
the Obligation, in whole or in part, provided, that no action taken or omitted
to be taken by Beneficiary under this Section 5.4 shall be deemed a waiver of
any Default occurring by reason of any such conveyance.
Section 5.5 Condemnation Sale. Beneficiary shall be entitled to receive
any and all sums that may be awarded or become payable to Grantor for the
condemnation of the Mortgaged Property, or any portion thereof, for public or
quasi-public use, or by virtue of private sale in lieu thereof, and any sums
that may be awarded or become payable to Grantor for damages caused by public
works or construction on or near the Mortgaged Property. Grantor shall, upon
request of Beneficiary, make, execute, acknowledge and deliver any and all
additional assignments and documents as may be necessary from time to time to
enable Beneficiary to collect and receive any such sums. Beneficiary shall not
be, under any circumstances, liable or responsible for failure to collect, or
exercise diligence in the collection of, any of such sums.
Section 5.6 Renewals of Indebtedness. It is understood and agreed that
the proceeds advanced by Guarantor to the Bank pursuant to the Guaranty
Agreement or for the purchase of the Bank's Note, have been advanced by
Beneficiary at Grantor's request and upon Grantor's representation that such
amounts are due and payable. Beneficiary shall be subrogated to any and all
Rights and Liens owned or claimed by any owner or holder of such outstanding
Rights and Liens, however remote, regardless of whether such Rights and Liens
are acquired by assignment or are released by the holder thereof upon payment.
Section 5.7 Waiver of Marshaling. Grantor hereby waives all rights
of marshaling in event of any foreclosure of the Liens hereby created.
Section 5.8 Number and Gender of Words, Etc. Whenever herein the
singular number is used, the same shall include the plural where appropriate,
and vice versa, and words such as "herein," "hereof," "hereinafter" and other
words of similar import shall refer to this Deed of Trust and not to any
particular section or portion hereof, and words of any gender shall include each
other gender where appropriate.
Section 5.9 Headings. The captions, headings, and arrangements used in
this Deed of Trust are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
15
Section 5.10 Notices. Whenever this Deed of Trust requires or permits
any consent, approval, notice, request or demand from one party to another, it
shall be (a) in writing, (b) delivered to a principal officer or managing entity
of the recipient in person, by courier or mail or by facsimile, telegram, telex,
cablegram or similar transmission, and (c) effective only upon actual receipt by
such person during normal business hours. If received after normal business
hours, the notice will be considered to have been received on the next business
day after such delivery. Whenever any notice is required to be given by
applicable law or this Contract, a written waiver thereof, signed by the Person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice. For purposes of notices, the
mailing addresses of the parties shall, until changed as hereinafter provided,
be as follows:
If to Grantor: Venus Exploration, Inc.
1250 N. E. Loop 410, Suite 810
San Antonio, Texas 80203
If to Beneficiary: Carl R. Oliver
4040 Broadway, suite 690
San Antonio, TX 78209
Each party shall have the right from time to time and at any time to
change its address by giving at least 15 days' written notice to the other
party.
Section 5.11 Governing Law. THIS DEED OF TRUST IS INTENDED TO BE
PERFORMED IN THE STATE OF TEXAS OR THE STATE IN WHICH THE MORTGAGED PROPERTY IS
LOCATED AND THE SUBSTANTIVE LAWS OF SUCH STATE AND OF THE UNITED STATES OF
AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION
OF THIS DEED OF TRUST. HOWEVER, ANYTHING IN THIS DEED OF TRUST TO THE CONTRARY
NOTWITHSTANDING, THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS RELATING TO THE
VALIDITY, CONSTRUCTION, AND INTERPRETATION OF THE OBLIGATION AND TO USURY AND
PERMISSIBLE INTEREST AND SIMILAR CHARGES AND AMOUNTS SHALL GOVERN ALL ASPECTS OF
THIS DEED OF TRUST.
Section 5.12 Invalid Provisions. If any provision of this Deed of Trust
is invalid or unenforceable, then, to the extent permitted by Law, the other
provisions hereof shall remain in full force and effect and shall be liberally
construed in favor of Beneficiary in order to carry out the intentions of the
parties hereto as nearly as may be possible. If the Rights and Liens created by
this Deed of Trust shall be invalid or unenforceable as to any part of the
Obligation, the unsecured portion of the Obligation shall be completely paid
prior to the payment of the remaining and secured portion of the Obligation, and
all payments made on the Obligation shall be considered to have been paid on and
applied first to the complete payment of the unsecured portion of the
Obligation.
16
Section 5.13 Definitions. As used herein, the following terms shall
have the meanings indicated:
"Advance Payment Contract" means any contract with another Person or
party (the "Other Party") whereby Grantor either (i) receives or becomes
entitled to receive (either directly or to a third party for Grantor's account
or benefit) any payment (an "Advance Payment") that the Other Party may require
to be applied toward payment of the purchase price of Hydrocarbons and which
Advance Payment is paid or to be paid in advance of actual delivery of such
production to or for the account of the other Party regardless of such
production or (ii) grants an option or right of refusal to such Other Party to
purchase and take delivery of such production, and, in either of the foregoing
instances, regardless of whether the Advance Payment may be applied as payment
for a portion only of the purchase price thereof or of a percentage or share of
such production. Inclusion of the standard "take or pay" provision in any gas
sales or purchase contract shall not, in and of itself, constitute such contract
an "Advance Payment Contract" for the purposes hereof.
"Beneficiary" means L. Lowry Mays, James W, Gorman, Robert Scott,
Robert Buschman, Michael E. Little, E.L. Ames, Jr., and John Y. Ames and any
future holder.
"Code" means the Texas Uniform Commercial Code, TEX. BUS. & COM.
CODE ANN.ss.ss.1.101-11.108, as the same may be amended from time to time.
"Collateral" has the meaning given such term on page 2 hereof.
"Deed of Trust" has the meaning given such term in Article One hereof.
"Default" has the meaning given such term in Section 3.1 hereof.
"Environmental Laws" means the following: the Resource Conservation
and Recovery Act of 1976, 42 U.S.C. ss.ss.6901 et seq., as amended ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C.ss.ss.9601 et seq. ("CERCLA"), the Toxic Substance Control
U.S.C.ss.ss.2601 et seq., the Clean Air Act, 42 U.S.C.ss.ss.7401 et seq., the
Clean Water Act, 33 U.S.C.ss.ss.1251 et seq., and any other Law regulating or
imposing liability for or standards of conduct concerning the release or
disposal of any Hazardous Material or relating to pollution or the protection of
the environment, including, without limitation, Laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or other Hazardous Materials into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), health, industrial hygiene, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, removal, cleanup, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or other Hazardous Materials.
17
"Grantor" means Venus Exploration, Inc., a Delaware corporation.
"Grantor's Successors" means each and all the immediate and remote
successors, assigns, heirs, executors, administrators, and legal representatives
of Grantor.
"Hazardous Material" shall mean any flammable, explosive, radioactive
material, hazardous waste, toxic substance or related material and any other
substance or material defined or designated as a hazardous or toxic substance,
material or waste by any Law presently in effect or as amended or promulgated in
the future and shall include, without limitation:
(i) those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or "solid
waste" in CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49
U.S.C.ss.ss.1801 et seq., and in the regulations promulgated pursuant thereto;
(ii) those substances defined as "hazardous wastes" or as "hazardous
substances" in applicable state Law and in the regulations promulgated pursuant
thereto;
(iii) those substances listed by the Environmental Protection Agency
as hazardous substances;
(iv) such other substances, materials and wastes that are or become
regulated under applicable Law or that are classified as hazardous or toxic
under Laws; and
(v) any material, waste or substance that is (A) petroleum, (B)
asbestos, (C) polychlorinated biphenyls or (D) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. ss.ss.1251
et seq. (33 U.S.C.ss.ss.1321), or listed pursuant to Section 307 of the Clean
Water Act (33 U.S.C.ss.ss.1317).
-- ----
"Highest Lawful Rate" means the maximum nonusurious interest rate, if
any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Note or on other indebtedness owed to
Beneficiary, as the case may be, under Laws applicable to such Note or other
indebtedness that are presently in effect or, to the extent allowed by
applicable Law, under such applicable Laws that may hereafter be in effect and
that allow a higher maximum nonusurious interest rate than applicable Laws now
allow.
"Holder" means any present or future holder of the Obligation or any
part thereof.
"Hydrocarbons" has the meaning given such term in Paragraph III hereof.
"Land" has the meaning given such term in Paragraph VI hereof.
"Laws" means all applicable constitutions, treaties, statutes, laws,
ordinances, regulations, orders, writs, injunctions or decrees of the United
States or of any state, commonwealth, county, parish, municipality or Tribunal.
18
"Lien" means any lien, mechanic's lien, materialman's lien, pledge,
conditional sale agreement, title retention agreement, financing lien,
production payment, security interest, mortgage, deed of trust or other
encumbrance, whether arising by agreement or under Law.
"Mortgaged Property" has the meaning given such term on page 1 hereof.
"Note" has the meaning given such term in Section 1.1 hereof.
"Obligation" has the meaning given such term in Article One hereof.
"Other security instrument" has the meaning given such term in Section
1.3 hereof.
"Permitted Liens" means (i) Liens for Taxes not yet due or that are
being contested in good faith by appropriate proceedings; (ii) Liens in
connection with workmen's compensation, unemployment insurance or other social
security, old age pension or public liability obligations; (iii) legal or
equitable encumbrances deemed to exist by reason of the existence of any
litigation or other legal proceedings or arising out of a judgment or award with
respect to which an appeal is being prosecuted; (iv) vendors', repairmen's,
mechanics', workmen's, construction or other like Liens arising by operation of
Law in the ordinary course of business or incident to the construction or
improvement of any Mortgaged Property in respect of obligations that are not yet
due or that are being contested in good faith by appropriate proceedings; (v)
Liens arising under operating agreements in respect of obligations that are not
yet due or that are being contested in good faith by appropriate proceedings;
(vi) Liens and minor irregularities in title that do not materially interfere
with the occupation, use and enjoyment by Grantor of any Mortgaged Property in
the normal course of business as presently conducted or materially impair the
value thereof for such business;(vii) that certain previously granted Deed of
Trust, Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement instrument dated July 6, 2001, by and between Grantor and Hibernia
National Bank; and (viii) the Bank's lien.
"Person" means any individual, firm, corporation, association,
partnership, joint venture, company, trust, Tribunal or other entity.
"Personal Property" has the meaning given such term in Paragraph V
hereof. "Proceeds" has the meaning given such term in Subsection 4.1(a)
hereof.
"Rights" means rights, remedies, powers and privileges.
"Sale" has the meaning given such term in Subsection 3.2(f) hereof.
"Section" means a Section of this Deed of Trust, unless specifically
indicated otherwise.
"Subject Contracts" has the meaning given such term in Paragraph IV
hereof.
"Subject Easements" has the meaning given such term in Paragraph V
hereof.
19
"Subject Leases" has the meaning given such term in Paragraph I hereof.
"Subject Interests" has the meaning given such term in Paragraphs I and
II hereof.
"Taxes" means all taxes, assessments, fees, levies, imposts, duties,
deductions, withholdings or other similar charges from time to time or at any
time imposed by any Law or any Tribunal.
"Tribunal" means any court or any governmental department, commission,
board, bureau, agency or instrumentality of the United States or of any state,
commonwealth, nation, territory, possession, county, parish or municipality,
whether now or hereafter constituted and/or existing.
"Trustee" means the Person who is duly appointed trustee or successor
or substitute trustee under this Deed of Trust at the time in question.
Section 5.14 Form of Deed of Trust. This instrument may be construed
and enforced from time to time as a mortgage, deed of trust, chattel mortgage,
conveyance, assignment, security agreement, pledge, financing statement,
hypothecation or contract, or any one or more of them as may be appropriate
under applicable Laws, in order fully to effectuate the Lien hereof and the
purposes and agreements herein set forth. Insofar as this instrument is a
security agreement and financing statement, Grantor is the debtor, and
Beneficiary is the secured party. The addresses shown in Section 5.10 are the
addresses of the debtor and secured party and information concerning the
security interest granted hereby may be obtained from the secured party at such
address. Without in any manner limiting the generality of any of the foregoing
provisions hereof: (a) some portions of the goods described or to which
reference is made herein are or are to become fixtures on the Land described or
to which reference is made herein/ (b) the minerals and the like (including oil
and gas) included in the Mortgaged Property and the accounts resulting from the
sale thereof will be financed at the wellhead(s) or minehead(s) of the well(s)
or mine(s) located on the Land described or to which reference is made herein;
and (c) this instrument is to be filed of record in the real estate records in
the counties in which any portion of the Mortgaged Property is situated as a
financing statement but the failure to do so will not otherwise affect the
validity or enforceability of this instrument.
Section 5.15 Binding Effect. This Deed of Trust is binding upon Grantor
and Grantor's Successors and shall inure to the benefit of Beneficiary and its
successors and assigns, and the provisions hereof shall likewise be covenants
running with the Land. The duties, covenants, conditions, obligations, and
warranties of Grantor in this Deed of Trust shall be joint and several
obligations of Grantor and Grantor's Successors. Each and every party who signs
this Deed of Trust, other than Beneficiary, and each and every subsequent owner
of the Mortgaged Property, or any part thereof, jointly and severally covenants
and agrees that he or it will perform, or cause to be performed, each and every
condition, term, provision, and covenant of this Deed of Trust.
20
Section 5.16 Peace. Nothing contained herein shall be construed so
as to allow Beneficiary to commit a breach of the peace or a trespass.
Section 5.17 Multiple Counterparts. The instrument may be executed in
multiple counterparts, each of which will be enforceable against the signatories
regardless of whether the other listed parties have executed the same or any
other copy.
EXECUTED effective as of the 30th day of May, 2002.
GRANTOR:
VENUS EXPLORATION, INC.
By: _/s/ John Y. Ames
------------------------
John Y. Ames, President
BENEFICIARY:
-------------------------------
ACKNOWLEDGMENTS
THE STATE OF TEXAS ss.
ss.
COUNTY OF BEXAR ss.
This instrument was acknowledged before me on the ___ day of
May, 2002, by John Y. Ames, President of VENUS EXPLORATION, INC., a
Delaware corporation, on behalf of said corporation.
--------------------------------------
Notary Public in and for
The State of Texas
THE STATE OF ____________ ss.
ss.
COUNTY OF _______________ ss.
21
This instrument was acknowledged before me on the ___ day of May, 2002, by
- -----------------------------------.
------------------------------------
Notary Public in and for
The State of ________________
22
EXHIBIT A
Attached to and made a part of the following instruments:
1. Deed of Trust, Mortgage, Assignment of Production, Security
Agreement and Financing Statement from Venus Exploration, Inc., as Grantor, to
Carl R. Oliver, Trustee, for the benefit of L. Lowry Mays, James W. Gorman,
Robert Scott, Robert Buschman, Michael E. Little, E.L. Ames, Jr., and John Y.
Ames as Beneficiary .
2. Financing Statement naming Venus Exploration, Inc., as
Debtor, and L. Lowry Mays, et al as Secured Party.
------------------------------------------------------
Each property described below shall include all of Grantor's interests
in the lands described, whether now owned or hereafter acquired, and the leases
covering the same, including any interests derived under leases or other
instruments not specifically referred to herein.
Each reference to a lease in this Exhibit A shall be deemed a reference
to said lease as said lease may have been amended and/or ratified by all
amendments and/or ratifications heretofore executed, whether or not referred to
herein.
"WI" or "Working Interest" shall mean the percentage of interest in the
full and entire leasehold estate created by virtue of the leases covered by this
instrument, as described below, and all rights and obligations of every kind and
character pertinent thereto, or arising therefrom, without regard to any valid
lessors' royalties, overriding royalties, or other burdens against production
therefrom insofar as the interest in said leasehold is burdened with the
obligation to bear and pay the costs of exploration, development, maintenance,
and operation.
"NRI" or "Net Revenue Interest" shall mean the percentage interest in
and to all oil, gas, and other hydrocarbons produced and saved or sold from,
under, or by virtue of the leases covered by this instrument after giving effect
to all valid lessors' royalties, overriding royalties of third parties, or other
burdens against production therefrom.
The interests set forth below are the minimum, warranted interests of
Grantor in the Subject Leases and shall not limit or restrict the interests
conveyed by Grantor pursuant to this Deed of Trust.
23
Exhibit 99.1
CERTIFICATION OF CEO AND CAO PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
ss. 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Venus
Exploration, Inc. (the "Company") for the quarterly period ending June 30, 2002,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Eugene L. Ames, Jr., Chairman of the Board and Chief Executive
Officer of the Company, and Terry F. Hardeman, Chief Accounting Officer of the
Company (the Company presently has no Chief Financial Officer), each hereby
certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
Dated: August 19, 2002 By: /S/EUGENE L. AMES, JR.
-------------------------
Eugene L. Ames, Jr.
Chief Executive Officer
Dated: August 19, 2002 By: /S/TERRY F. HARDEMAN
--------------------
Terry F. Hardeman
Chief Accounting Officer
This certification accompanies this Report pursuant to section 906 of
the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by
the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
section 18 of the Securities Exchange Act of 1934, as amended.
1