SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
HOUSTON AMERICAN ENERGY CORP.
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(Name of Registrant As Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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HOUSTON AMERICAN ENERGY CORP.
801 Travis St., Suite 2020
Houston, Texas 77002
TO THE STOCKHOLDERS OF HOUSTON AMERICAN ENERGY CORP.:
Houston American Energy Corp. (the "Company") has obtained the written consent
of a majority of its stockholders of record as of January 11, 2006 to approve
adoption of the Houston American Energy Corp. 2005 Stock Option Plan (the "2005
Option Plan"). Adoption of the 2005 Option Plan was previously approved by the
Company's Board of Directors. Your consent is not required and is not being
solicited in connection with this action.
Pursuant to the Delaware General Corporation Law, you are hereby being provided
with notice of the approval by less than unanimous written consent of the
Company's stockholders of the foregoing adoption of the 2005 Option Plan.
Pursuant to the Securities Exchange Act of 1934, as amended, you are being
furnished an information statement relating to this action with this letter.
John F. Terwilliger
President and Chief Executive Officer
Houston, Texas
January 20, 2005
HOUSTON AMERICAN ENERGY CORP.
801 Travis Street, Suite 2020
Houston, Texas 77002
INFORMATION STATEMENT
BACKGROUND
We are furnishing this Information Statement to the stockholders of Houston
American Energy Corp., a Delaware corporation (the "Company"), in connection
with the adoption and approval of the Houston American Energy Corp. 2005 Stock
Option Plan (the "2005 Option Plan").
The Board of Directors adopted resolutions setting forth the adoption of the
2005 Option Plan, declaring its advisability and calling on the stockholders to
consider the adoption of the 2005 Option Plan. In order to adopt the 2005 Option
Plan, the holders of a majority of the outstanding shares of Common Stock must
vote in favor of the adoption of the 2005 Option Plan. The Company's Bylaws, and
the Delaware General Corporation Law, permit shareholders to act by written
consent rather than at a meeting of the stockholders. John F. Terwilliger, O.
Lee Tawes, Edwin Broun III and Stephen Hartzell, our currently serving
directors, collectively hold approximately 63% of the Company's outstanding
Common Stock and have adopted a resolution by written consent of stockholders to
approve the 2005 Option Plan. Therefore, the requirements of the Delaware
General Corporation Law and the Company's Bylaws have been met and no further
action by the stockholders is required to approve the 2005 Option Plan.
In accordance with the regulations of the Securities and Exchange Commission
(the "Commission"), the stockholders' consent will become effective 21 days
following the mailing of this Information Statement to the Company's
stockholders.
The approximate date on which this information statement is first being sent or
given to stockholders is January 26, 2006. It is being sent to holders of the
Company's common stock as of the close of business on January 25, 2006, the
record date.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The Company will pay the entire cost of furnishing this Information Statement.
The Company will request brokerage houses, nominees, custodians, fiduciaries and
other like parties to forward this Information Statement to the beneficial
owners of the Common Stock held of record by them. The close of business on
January 25, 2006 has been fixed as the record date (the "Record Date") for the
determination of holders of Common Stock of the Company who are entitled to
receive this Information Statement.
You are being provided with this Information Statement pursuant to Section 14C
of the Securities Exchange Act of 1934, as amended, and Rule 14c and Schedule
14C thereunder.
VOTING SECURITIES
As of January 11, 2006, the Company had 19,968,089 shares of Common Stock issued
and outstanding. Each share of outstanding Common Stock is entitled to one vote
on matters submitted for stockholder approval. On January 11, 2006, John F.
Terwilliger, O. Lee Tawes, Edwin Broun III and Stephen Hartzell, our currently
serving directors, who collectively hold 12,598,496 shares of the Common Stock
(or approximately 63% of the shares of Common Stock then outstanding), executed
and delivered to the Company a written consent approving the adoption of the
2005 Option Plan. Since the adoption of the 2005 Option Plan has been approved
by the holders of the required majority of Common Stock, no proxies are being
solicited with this Information Statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January 11, 2006, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of our common stock held by (i) each person known
by us to be the owner of more than 5% of our outstanding shares of common stock,
(ii) each director, (iii) each named executive officer, and (iv) all executive
officers and directors as a group:
Name and Address Number of Shares Percentage
of Beneficial Owner (1) Beneficially Owned of Class (2)
----------------------- ------------------ ------------
John F. Terwilliger 8,574,486 42.9%
801 Travis, Suite 2020
Houston, Texas 77002
Orrie Lee Tawes 3,307,044 (3) 16.4%
100 Wall Street
New York, New York 10005
Edwin Broun III 1,030,000 (4) 5.1%
6025 Riverview Way
Houston, Texas 77056
Stephen Hartzell 76,000 (5) *
All directors and officers
as a group (four persons) 12,987,530 (6) 64.2%
__________
* Less than 1%.
(1) Unless otherwise indicated, each beneficial owner has both sole voting and
sole investment power with respect to the shares beneficially owned by such
person, entity or group. The number of shares shown as beneficially owned
include all options, warrants and convertible securities held by such
person, entity or group that are exercisable or convertible within 60 days
of January 11, 2006.
(2) The percentages of beneficial ownership as to each person, entity or group
assume the exercise or conversion of all options, warrants and convertible
securities held by such person, entity or group which are exercisable or
convertible within 60 days, but not the exercise or conversion of options,
warrants and convertible securities held by others shown in the table.
(3) Shares shown as beneficially owned by Mr. Tawes include 20,000 shares
issuable upon exercise of options held by Mr. Tawes and 119,034 shares held
by his wife, Marsha Russell. Excludes shares underlying warrants held by
Northeast Securities, Inc. as to which shares Mr. Tawes disclaims
beneficial ownership.
(4) Includes 200,000 issuable upon conversion of notes held by Mr. Broun,
20,000 shares issuable upon exercise of options held by Mr. Broun and
10,000 shares held by his wife.
(5) Includes 20,000 shares issuable upon exercise of options held by Mr.
Hartzell.
(6) Includes 260,000 shares issuable upon exercise of outstanding options and
conversion of notes.
2
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning cash and non-cash
compensation paid or accrued for services in all capacities during the year
ended December 31, 2005 of each person who served as our Chief Executive Officer
during fiscal 2005 and the next four most highly paid executive officers (the
"Named Officers").
Annual Compensation
Name and --------------------
Principal Position Year Salary($) Bonus($) Other ($)
------------------------- ---- --------- -------------------- ---------
John Terwilliger 2005 180,000 -0- -0- (1)(2)
President and 2004 45,000 -0- -0- (1)(2)
Chief Executive Officer 2003 -0- -0- -0- (1)(2)
_______________
(1) Mr. Terwilliger receives no other compensation or benefits other than
vacation benefits, expense reimbursements and participation in
medical, retirement and other benefit plans that are generally
available to our executives.
(2) Mr. Terwilliger received overriding royalty interests in three
properties identified by Mr. Terwilliger. No value was assigned to
those overriding royalty interests for purposes of this table.
Payments received by Mr. Terwilliger pursuant to those overriding
royalty interests totaled $38,109, $21,170, and $3,600 in 2005, 2004
and 2003, respectively.
We have no employment agreements with any of our officers or employees.
DIRECTOR COMPENSATION
Non-employee directors are paid $1,000 per meeting attended, or $500 per
telephonic meeting, and are reimbursed all expenses associated with attendance
of, or participation in, meetings. Each non-employee director is also granted an
option to purchase 20,000 shares of common stock upon their initial appointment
as a director and annually thereafter so long as they continue to serve as
directors. The options granted to non-employee directors are exercisable at fair
market value on the date of grant and have a term of ten years.
ACTION 1
APPROVAL OF THE COMPANY'S 2005 STOCK OPTION PLAN
In August of 2005, the Company's Board of Directors adopted and approved, and,
in January of 2006, by means of the Written Consent the shareholders adopted and
approved, a stock option plan for the Company, the Houston American Energy Corp.
2005 Stock Option Plan (the "2005 Option Plan"), under which stock option awards
may be made to employees, directors and consultants of the Company. A copy of
the 2005 Option Plan is attached hereto as Appendix A.
General. The purpose of the 2005 Option Plan is to provide us with a means of
providing employees, directors and consultants the benefits of ownership of our
common stock. The 2005 Option Plan is designed to help attract and retain
personnel of superior ability for positions of exceptional responsibility, to
reward employees, directors and consultants for past services and to motivate
such individuals through added incentives to further contribute to our future
growth and success.
Under the 2005 Option Plan, options ("Awards") may be granted from time to time
to Eligible Persons (hereinafter defined), all generally in the discretion of
the Board of Directors, which is responsible for administering the 2005 Option
Plan unless the Board establishes a committee to administer the 2005 Option
Plan. Each Award under the Plan will be evidenced by a separate written
agreement which sets forth the terms and conditions of the Award. "Eligible
Persons" generally include any employee, including employees of subsidiaries,
members of the Board of Directors and any consultant or other person whose
participation the Board of Directors determines is in our best interest. There
is no maximum number of persons eligible to receive Awards under the 2005 Option
Plan, nor is there any limit on the amount of Awards that may be granted to any
such person, except as described below with respect to incentive stock options.
3
We have initially reserved 500,000 shares of common stock for issuance under the
2005 Option Plan, subject to adjustment to protect against dilution in the event
of certain changes in our capitalization.
Administration. The 2005 Option Plan will be administered by our Board of
Directors unless the Board elects to establish a committee comprised of one or
more of its members to administer the 2005 Option Plan. To the extent necessary
to comply with Rule 16b-3, the committee, if any, will consist solely of two or
more "non-employee directors," as that term is defined in Rule 16b-3. Under the
2005 Option Plan, generally the Board, or the committee, will have complete
authority to determine the persons to whom Awards will be granted from time to
time, as well as the terms and conditions of such Awards. The Board, or
committee, also will have discretion to interpret the 2005 Option Plan and the
Awards granted under the 2005 Option Plan and to make other determinations
necessary or advisable for the administration of the 2005 Option Plan.
Stock Options Terms. The Board, or committee, may grant either incentive stock
options (for purposes of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code")) or nonqualified stock options under the 2005 Option Plan.
Except as described below for incentive stock options, the Board, or committee,
generally has the discretion to determine the persons to whom stock options will
be granted, the numbers of shares subject to such options, the exercise prices
of such options, the vesting schedules with respect to such options, the terms
of such options, as well as the period, if any, following a participant's
termination of service during which such option may be exercised, and the
circumstances in which all or a portion of an option may become immediately
exercisable or be forfeited. The Board, or committee, also has the discretion,
exercisable either at the time an option is granted or at the time of a
participant's termination of service, to provide for accelerated vesting of the
exercisability of an option for a limited period following such termination of
service. Such terms may differ among the various persons to whom the options are
granted and among the various options granted to any such person.
In the discretion of the Board, or committee, the price due upon exercise of an
option may be paid in cash or in shares of our common stock valued at their then
current fair market value, or a combination of both. Shares delivered in payment
of such price may be shares acquired by prior exercises of options or otherwise,
in the Board's, or committee's, discretion. Also in the discretion of the Board,
or committee, a participant may exercise an option as to only a part of the
shares covered thereby and then, in an essentially simultaneous transaction, use
the shares so acquired in payment of the exercise price for additional option
shares.
Generally, options granted under the 2005 Option Plan may not be transferred by
a participant other than by will or by the laws of descent and distribution and
generally will be exercisable during the participant's lifetime only by such
participant or his or her guardian or legal representative.
The Board, or committee, may also, in its discretion, allow the voluntary
surrender of all or a portion of a stock option conditioned upon the granting to
the participant of a new stock option for the same or a different number of
shares, or may require the surrender as a condition precedent to the grant of a
new stock option. The Board, or committee, may also purchase a participant's
outstanding option, on such terms and conditions as the Board, or committee, in
its discretion determines.
Holders of options shall have no rights as shareholders unless and until such
options are exercised and shares are delivered to such persons in accordance
with the 2005 Option Plan.
Incentive Stock Options. Incentive stock options may be granted only to persons
who are employees (including directors who are also employees but excluding
non-employee directors). Generally, incentive stock options must be granted
within ten years of the date the 2005 Option Plan is adopted, and the term of
any incentive stock option may not exceed ten years. Furthermore, the aggregate
fair market value of shares of common stock with respect to which any incentive
stock options are exercisable for the first time by a participant during any
calendar year, whether such incentive stock options are granted under the 2005
Option Plan or any other plans we may adopt, may not exceed $100,000.
Furthermore, the exercise price of incentive stock options must be at least 100%
of the fair market value of the common stock at the time the incentive stock
option is granted, except in the case of incentive stock options granted to any
individual who owns more than 10% of the total combined voting power of all
classes of our stock, in which case the exercise price of incentive stock
options must be at least 110% of the fair market value of the common stock at
the time of grant.
4
The 2005 Option Plan also provides that, with respect to incentive stock
options, the period during which an option may be exercisable following a
termination of service generally may not exceed three months, unless (i)
employment is terminated as the result of disability, in which case in the
discretion of the Board, or committee, the incentive stock options may be
exercised during a period of one year following the date of such disability, or
(ii) employment is terminated as the result of death, or if the employee dies
following a termination of service (other than as a result of disability) and
during the period that the incentive stock option is still exercisable, in which
case in the discretion of the Board, or committee, the incentive stock option
may be exercised during a period of one year following the date of such death.
In no event, however, may an incentive stock option be exercised after the
expiration of its original term.
Changes of Control or Other Fundamental Change. The 2005 Option Plan provides
that upon certain mergers or other reorganizations to which we or any subsidiary
is a party that involves an exchange or conversion or other adjustment of our
outstanding common stock, each participant generally shall be entitled upon the
exercise of his or her stock options to receive the number and class of
securities or other property to which such participant would have been entitled
in the merger or reorganization if such participant had exercised such stock
option prior to such merger or reorganization.
The 2005 Option Plan also provides that, upon the occurrence of a change of
control the Board, or committee, has the right, but not the obligation, to
accelerate the time at which all or a portion of any outstanding options may be
exercised.
Miscellaneous. The Board of Directors generally may amend or terminate the 2005
Option Plan or any provision of the 2005 Option Plan at any time. To the extent
required by the Exchange Act or the Code, however, absent approval by our
shareholders, no amendment may (i) materially alter the group of persons
eligible to participate in the 2005 Option Plan; (ii) except as specifically
provided in Section 6.11 of the 2005 Option Plan, increase the number of shares
available for Awards under the 2005 Option Plan; (iii) extend the period during
which incentive stock options may be granted beyond August 12, 2015; or (iv)
decrease the exercise price of any option granted under the 2005 Option Plan.
Furthermore, without the consent of the participant, no amendment to or
discontinuance of the 2005 Option Plan or any provision thereof shall adversely
affect any Award granted to the participant under the 2005 Option Plan.
Federal Income Tax Consequences. The following is a brief description of the
Federal income tax consequences to the participants and the Company of the
issuance and exercise of stock options under the 2005 Option Plan. All ordinary
income recognized by a participant with respect to Awards under the 2005 Option
Plan shall be subject to both wage withholding and employment taxes. The
deduction allowed to us for the ordinary income recognized by a participant with
respect to an Award under the 2005 Option Plan will be limited to amounts that
constitute reasonable, ordinary and necessary business expenses.
-- Incentive Stock Options. In general, no income will result for Federal income
tax purposes upon either the granting or the exercise of any incentive option
issued under the 2005 Option Plan. If certain holding period requirements (at
least two years from the date of grant of the option and at least one year from
the date of exercise of the option) are satisfied prior to a disposition of
stock acquired upon exercise of an incentive option, the excess of the sales
price upon disposition over the option exercise price generally will be
recognized by the participant as a capital gain, and the Company will not be
allowed a business expense deduction.
If the holding period requirements with respect to incentive options are not
met, the participant generally will recognize, at the time of the disposition of
the stock, ordinary income in an amount equal to the difference between the
option price of such stock and the lower of the fair market value of the stock
on the date of exercise and the amount realized on the sale or exchange. The
difference between the option price of such stock and the fair market value of
the stock on the date of exercise is a tax preference item for purposes of
calculating the alternative minimum tax on a participant's federal income tax
return. If the amount realized on the sale or exchange exceeds the fair market
value of the stock on the date of exercise, then such excess generally will be
recognized as a capital gain. In the case of a disposition prior to satisfaction
of the holding period requirements which results in the recognition of ordinary
income by the participant, we generally will be entitled to a deduction in the
amount of such ordinary income in the year of the disposition.
5
If a participant delivers shares of our common stock in payment of the option
price, the participant generally will be treated as having made a like-kind
exchange of such shares for an equal number of the shares so purchased, and no
gain or loss will be recognized with respect to the shares surrendered in
payment of said option price. In such a case, the participant will have a tax
basis in a number of shares received pursuant to the exercise of the option
equal to the number of shares of common stock used to exercise the option and
equal to such participant's tax basis in the shares of common stock submitted in
payment of the option price. The remaining shares of common stock acquired
pursuant to the exercise of the option will have a tax basis equal to the gain,
if any, recognized on the exercise of the option and any other consideration
paid for such shares on the exercise of the option.
Notwithstanding the foregoing, if a participant delivers any stock that was
previously acquired through the exercise of an incentive stock option in payment
of all or a portion of the option price of an option, and the holding period
requirements described above have not been satisfied with respect to the shares
of stock so delivered, the use of such stock to pay a portion of the option
price will be treated as a disqualifying disposition of such shares, and the
participant generally will recognize income.
-- Nonqualified Stock Options. The grant of nonqualified stock options under the
2005 Option Plan will not result in any income being taxed to the participant at
the time of the grant or in any tax deduction for us at such time. At the time a
nonqualified stock option is exercised, the participant will be treated as
having received ordinary income equal to the excess of the fair market value of
the shares of common stock acquired as of the date of exercise over the price
paid for such stock. At that time, we will be allowed a deduction for Federal
income tax purposes equal to the amount of ordinary income attributable to the
participant upon exercise. The participant's holding period for the shares of
common stock acquired will commence on the date of exercise, and the tax basis
of the shares will be the greater of their fair market value at the time of
exercise or the exercise price.
-- New Plan Benefits
As of January 20, 2006, an aggregate of 60,000 options had been granted under
the 2005 Option Plan. The options granted to date consist of 20,000 options
issued to each of O. Lee Tawes III, Edwin Broun III and Stephen Hartzell
pursuant to their service as non-employee directors.
STOCKHOLDERS SHARING AN ADDRESS
The Company will deliver only one Information Statement to multiple stockholders
sharing an address unless the Company has received contrary instructions from
one or more of the stockholders. The Company undertakes to deliver promptly,
upon written or oral request, a separate copy of the Information Statement to a
stockholder at a shared address to which a single copy of the Information
Statement is delivered. A stockholder can notify the Company that the
stockholder wishes to receive a separate copy of the Information Statement by
contacting the Company at the telephone number or address set forth above.
John F. Terwilliger
President and Chief Executive Officer
Houston, Texas
January 20, 2006
6
APPENDIX A
HOUSTON AMERICAN ENERGY CORP.
2005 STOCK OPTION PLAN
1. Purpose. The purpose of this HOUSTON AMERICAN ENERGY CORP 2005 STOCK
-------
OPTION PLAN ("Plan") is to encourage ownership of common stock, $0.001 par value
("Common Stock"), of HOUSTON AMERICAN ENERGY CORP, a Delaware corporation (the
"Company"), by eligible key employees, consultants and directors of the Company
and its Affiliates (as defined below) and to provide increased incentive for
such employees, consultants and directors to render services and to exert
maximum effort for the business success of the Company. In addition, the Company
expects that this Plan will further strengthen the identification of employees,
consultants and directors with the shareholders. Certain options to be granted
under this Plan are intended to qualify as Incentive Stock Options ("ISOs")
pursuant to Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), while other options granted under this Plan will be nonqualified
options which are not intended to qualify as ISOs ("Nonqualified Options"),
either or both as provided in the agreements evidencing the options as provided
in Section 6 hereof. As used in this Plan, the term "Affiliates" means any
"parent corporation" of the Company and any "subsidiary corporation" of the
Company within the meaning of Sections 424(e) and (f), respectively, of the
Code.
2. Administration.
--------------
2.1 Administration by the Board or the Compensation Committee. This
---------------------------------------------------------
Plan shall be administered by the Board of Directors (the "Board") unless the
Board establishes a committee comprised of one or more of its members to carry
out such administration, in which case administration of the Plan shall be by a
Compensation Committee (the "Committee") designated by the Board of the Company,
which shall also designate the Chairman of the Committee.
2.2 Board or Committee Action. The Board, or the Committee as
-------------------------
appropriate, shall hold its meetings at such times and places as it may be
determine. A majority of the members of such Board or Committee shall constitute
a quorum, and all determinations of the Board or Committee shall be made by not
less than a majority of its members. Any decision or determination reduced to
writing and signed by a majority of the members shall be fully effective as if
it had been made by a majority vote of its members at a meeting duly called and
held. The Board or Committee may designate the Secretary of the Company or other
Company employees to assist the Board or Committee in the administration of this
Plan, and may grant authority to such persons to execute award agreements or
other documents on behalf of the Board or the Committee and the Company. Any
duly constituted committee of the Board satisfying the qualifications of this
Section 2 may be appointed as the Committee.
2.3 Expenses. All expenses and liabilities incurred by the Board or
--------
the Committee in the administration of this Plan shall be borne by the Company.
The Board or the Committee may employ attorneys, consultants, accountants or
other persons.
3. Stock Reserved. Subject to adjustment as provided in Section 6.11
--------------
hereof, the aggregate number of shares of Common Stock that may be optioned
under this Plan is 500,000. The shares subject to this Plan shall consist of
authorized but unissued shares of Common Stock and such number of shares shall
be and is hereby reserved for sale for such purpose. Any of such shares which
may remain unsold and which are not subject to outstanding options at the
termination of this Plan shall cease to be reserved for the purpose of this
Plan, but until termination of this Plan or the termination of the last of the
options granted under this Plan, whichever last occurs, the Company shall at all
times reserve a sufficient number of shares to meet the requirements of this
Plan. Should any option expire or be canceled prior to its exercise in full, the
shares theretofore subject to such option may again be made subject to an option
under this Plan.
4. Eligibility. The persons eligible to participate in this Plan as a
-----------
recipient of options ("Optionee") shall include only key employees, consultants
and directors of the Company or its Affiliates at the time the option is
granted. An employee or consultant who has been granted an option hereunder may
be granted an additional option or options, if the Board or the Committee, as
appropriate, shall so determine.
A-1
5. Grant of Options.
----------------
5.1 Discretion. The Board or Committee, as appropriate, shall have
----------
sole and absolute discretionary authority (i) to determine, authorize, and
designate those key employees, consultants and directors of the Company or its
Affiliates who are to receive options under this Plan, (ii) to determine the
number of shares of Common Stock to be covered by such options and the terms
thereof, and (iii) to determine the type of option granted: ISOs, Nonqualified
Options or a combination of ISOs and Nonqualified Options; provided that
consultants and directors who are not employees of the Company may not receive
any ISOs. The Board or Committee shall thereupon grant options in accordance
with such determination as evidenced by a written option agreement. Subject to
the express provisions of this Plan, the Board or the Committee shall have
discretionary authority to prescribe, amend and rescind rules and regulations
relating to this Plan, to interpret this Plan, to prescribe and amend the terms
of the option agreements (which need not be identical) and to make all other
determinations deemed necessary or advisable for the administration of this
Plan.
5.2 Shareholder Approval. All options granted under this Plan are
--------------------
subject to, and may not be exercised before, the approval of this Plan by the
shareholders prior to the first anniversary date of the Board meeting held to
approve this Plan, by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present, or represented by proxy, and entitled
to vote thereat or written consent in accordance with the laws of the State of
Delaware; provided that if such approval by the shareholders of the Company is
not forthcoming, all options previously granted under this Plan shall be void.
5.3 Limitation on Incentive Stock Options. The aggregate fair market
-------------------------------------
value (determined in accordance with Section 6.2 of this Plan at the time the
option is granted) of the Common Stock with respect to which ISOs may be
exercisable for the first time by any Optionee during any calendar year under
all such plans of the Company and its Affiliates shall not exceed $100,000.
6. Terms and Conditions. Each option granted under this Plan shall be
--------------------
evidenced by an agreement, in a form approved by the Board or the Committee,
which shall be subject to the following express terms and conditions and to such
other terms and conditions as the Board or the Committee may deem appropriate.
6.1 Option Period. The Board or the Committee shall promptly notify
-------------
the Optionee of the option grant and a written agreement shall promptly be
executed and delivered by and on behalf of the Company and the Optionee,
provided that the option grant shall expire if a written agreement is not signed
by said Optionee (or his agent or attorney) and returned to the Company within
60 days from date of receipt by the Optionee of such agreement. The date of
grant shall be the date the option is actually granted by the Board or the
Committee, even though the written agreement may be executed and delivered by
the Company and the Optionee after that date. Each option agreement shall
specify the period for which the option thereunder is granted (which in no event
shall exceed ten years from the date of grant in the case of an ISO) and shall
provide that the ISO shall expire at the end of such period. If the original
term of an option is less than ten years from the date of grant, the option may
be amended prior to its expiration, with the approval of the Board or the
Committee and the Optionee, to extend the term so that the term as amended is
not more than ten years from the date of grant. However, in the case of an ISO
granted to an individual who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or its Affiliate ("Ten Percent Stockholder"), such period shall not
exceed five years from the date of grant.
6.2 Exercise Price. The exercise price of each share of Common Stock
--------------
subject to each option granted pursuant to this option is granted and, in the
case of ISOs, shall not be less than 100% of the fair market value of a share of
Common Stock on the date the option is granted, as determined by the Board or
the Committee. In the case of ISOs granted to a Ten Percent Stockholder, the
exercise price shall not be less than 110% of the fair market value of a share
of Common Stock on the date the option is granted. The exercise price of each
share of Common Stock subject to a Nonqualified Option under this Plan shall be
determined by the Board or the Committee prior to granting the option. The Board
or the Committee shall set the exercise price for each share subject to a
Nonqualified Option at such price as the Board or the Committee in its sole
discretion shall determine, provided that the exercise price of each share of
Common Stock subject to a Nonqualified Option shall not be less than 85% of the
fair market value of a share of Common Stock on the date the option is granted
as determined by the Board or the Committee.
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For all purposes under this Plan, the fair market value of a share of
Common Stock on a particular date shall be equal to the mean of the reported
high and low sales prices of the Common Stock on the principal market on which
the Common Stock is listed on that date, or if no prices are reported on that
date, on the last preceding date on which such prices of the Common Stock are so
reported. If the Common Stock is not traded on a public market at the time a
determination of its fair market value is required to be made hereunder, its
fair market value shall be deemed to be equal to the average between the closing
bid and ask prices of the Common Stock on the most recent date the Common Stock
was publicly traded. In the event the Common Stock is not publicly traded at the
time a determination of its value is required to be made hereunder, the
determination of its fair market value shall be made by the Board or the
Committee in such manner as it deems appropriate.
6.3 Exercise Period. The Board or the Committee may provide in the
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option agreement that an option may be exercised immediately or over the period
of the grant and in whole or in increments. However, no portion of any option
may be exercisable by an Optionee prior to the approval of this Plan by the
shareholders of the Company.
6.4 Procedure for Exercise. Options shall be exercised by the
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delivery by the Optionee of written notice to the Secretary of the Company
setting forth the number of shares of Common Stock with respect to which the
option is being exercised. The notice shall be accompanied by, at the election
of the Optionee and as permitted by the Board or the Committee in the Agreement
granting such options, (i) cash, cashier's check, bank draft, or postal or
express money order payable to the order of the Company, (ii) certificates
representing shares of Common Stock theretofore owned by the Optionee duly
endorsed for transfer to the Company, (iii) an election by the Optionee to have
the Company withhold the number of shares of Common Stock the fair market value,
less the exercise price, of which is equal to the aggregate exercise price of
the shares of Common Stock issuable upon exercise of the option, or (iv) any
combination of the preceding, equal in value to the full amount of the exercise
price. Notice may also be delivered by telecopy provided that the exercise price
of such shares is received by the Company via wire transfer on the same day the
telecopy transmission is received by the Company. The notice shall specify the
address to which the certificates for such shares are to be mailed. An option to
purchase shares of Common Stock in accordance with this Plan, shall be deemed to
have been exercised immediately prior to the close of business on the date (i)
written notice of such exercise and (ii) payment in full of the exercise price
for the number of share for which options are being exercised, are both received
by the Company and the Optionee shall be treated for all purposes as the record
holder of such shares of Common Stock as of such date.
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to the Optionee certificates for the number
of shares with respect to which such option has been so exercised, issued in the
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to the Optionee at the address specified pursuant to this
Section 6.4.
6.5 Termination of Employment. If an employee to whom an option is
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granted ceases to be employed by the Company or its affiliates for any reason
other than death or disability or if a director or consultant to whom an option
is granted ceases to serve on the Board or as a consultant for any reason other
than death or disability, any option which is exercisable on the date of such
termination of employment or cessation of serving on the Board or cessation of
service as a consultant shall expire three-months from the date of such
termination or cessation but in no event may the option be exercised after its
expiration under the terms of the option agreement.
6.6 Disability or Death. In the event the Optionee dies or is
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determined under this Plan to be disabled while the Optionee is employed by the
Company or its Affiliates, acts as consultant or serves on the Board of the
Company, the options previously granted to the Optionee may be exercised (to the
extent the Optionee would have been entitled to do so at the date of death or
the determination of disability) at any time and from time to time, within a
twelve-month period after such death or determination of disability, by the
Optionee, the guardian of the Optionee's estate, the executor or administrator
of the Optionee's estate or by the person or persons to whom the Optionee's
rights under the option shall pass by will or the laws of descent and
distribution, but in no event may the option be exercised after its expiration
under the terms of the option agreement. An Optionee shall be deemed to be
disabled if, in the opinion of a physician selected by the Board or the
Committee, the Optionee is incapable of performing services for the Company of
the kind the Optionee was performing at the time the disability occurred by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long, continued and indefinite duration.
The date of determination of disability for purposes hereof shall be the date of
such determination by such physician.
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6.7 Transferability. An option granted pursuant to this Plan shall
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not be assignable or otherwise transferable by the Optionee otherwise than by
Optionee's will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the code or Title I of the
Employee Retirement Income Security Act, as amended, or the rules thereunder.
During the lifetime of an Optionee, an option shall be exercisable only by such
Optionee. Any heir or legatee of the Optionee shall take rights granted herein
and in the option agreement subject to the terms and conditions hereof and
thereof. No such transfer of any option to heirs or legatees of the Optionee
shall be effective to bind the Company unless the Company shall have been
furnished with written notice thereof and a copy of such evidence as the Board
or the Committee may deem necessary to establish the validity of the transfer
and the acceptance by the transferee or transferees of the terms and conditions
hereof.
6.8 Incentive Stock Options. Each option agreement may contain such
-----------------------
terms and provisions as the Board or the Committee may determine to be necessary
or desirable in order to qualify under the Code of option designated as an
incentive stock option.
6.9 No Rights as Shareholder. No Optionee shall have any rights as a
------------------------
shareholder with respect to shares covered by an option until the option is
exercised by written notice and accompanied by payment as provided in Section
6.4 above.
6.10 Extraordinary Corporate Transactions. The existence of
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outstanding options shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, exchanges, or other changes in the Company's
capital structure or its business, or any merger or consolidation of the
Company, or any issuance of Common Stock or other securities or subscription
rights thereto, or any issuance of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise. If the Company recapitalizes or
otherwise changes its capital structure, or merges, consolidates, sells all of
its assets or dissolves (each of the forgoing a "Fundamental Change"), then
thereafter upon any exercise of an option theretofore granted the Optionee shall
be entitled to purchase under such option, in lieu of the number of shares of
Common Stock as to which option shall then be exercisable, the number and class
of shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the Fundamental Change if, immediately prior to such
Fundamental Change, the Optionee had been the holder of record of the number of
shares of Common Stock as to which such option is then exercisable. If (i) the
Company shall not be the surviving entity in any merger or consolidation (or
survives only as a subsidiary of another entity), (ii) the Company sells all or
substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary), (iii) any person or entity (including a "group" as
contemplated by Section 13(d)(3) of the Exchange Act) acquires or gains
ownership or control of (including, without limitation, power to vote) more than
50% of the outstanding shares of Common Stock, (iv) the Company is to be
dissolved and liquidated, or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board (each
such event in clauses (i) through (v) above is referred to herein as a
"Corporate Change"), the Board or the Committee, in its sole discretion, may
accelerate the time at which all or a portion of an Optionee's options may be
exercised for a limited period of time before or after a specified date.
6.11 Changes in Capital Structure. If the outstanding shares of
----------------------------
Common Stock or other securities of the Company, or both, for which the option
is then exercisable shall at any time be changed or exchanged by declaration of
a stock dividend, stock split, combination of shares or recapitalization, the
number and kind of shares of Common Stock or other securities which are subject
to this Plan or subject to any options theretofore granted, and the exercise
prices, shall be appropriately and equitably adjusted so as to maintain the
proportionate number of shares or other securities without changing the
aggregate exercise price.
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6.12 Acceleration of Options. Except as hereinbefore expressly
-----------------------
provided, (i) the issuance by the Company of shares of stock of any class of
securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, (ii) the payment of a dividend
in property other than Common Stock, or (iii) the occurrence of any similar
transaction, and in any case whether or not for fair value, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock subject to options thereto fore granted or the purchase
price per share, unless the Board or the Committee shall determine in its sole
discretion that an adjustment is necessary to provide equitable treatment to
Optionee. Notwithstanding anything to the contrary contained in this Plan, the
Board or the Committee may in its sole discretion accelerate the time at which
any option may be exercised, including, but not limited to, upon the occurrence
of the events specified in this Section 6.
7. Amendments or Termination. The Board may amend, alter or discontinue
-------------------------
this Plan, but no amendment or alteration shall be made which would impair the
rights of any Optionee, without his consent, under any option theretofore
granted, or which, without the approval of the shareholders, would: (i) except
as is provided in Section 6.11 of this Plan, increase the total number of shares
reserved for the purposes of this Plan, (ii) change the class of persons
eligible to participate in this Plan as provided in Section 4 of this Plan,
(iii) extend the applicable maximum option period provided for in Section 6.1 of
this Plan, (iv) extend the expiration date of this Plan set forth in Section 14
of this Plan, (v) except as provided in Section 6.11 of this Plan, decrease to
any extent the exercise price of any option granted under this Plan or (vi)
withdraw the administration of this Plan from the Board or the Committee.
8. Compliance With Other Laws and Regulations. This Plan, the grant and
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exercise of options thereunder, and the obligation of the Company to sell and
deliver shares under such options, shall be subject to all applicable federal
and state laws, rules and regulations and to such approvals by any governmental
or regulatory agency as may be required. The Company shall not be required to
issue or deliver any certificates for shares of Common Stock prior to the
completion of any registration or qualification of such shares under any federal
or state law or issuance of any ruling or regulation of any government body
which the Company shall, in its sole discretion, determine to be necessary or
advisable. Any adjustments provided for in Sections 6.10, .11 and .12 of this
Plan shall be subject to any shareholder action required by Delaware corporate
law.
9. Purchase for Investment. Unless the options and shares of Common Stock
-----------------------
covered by this Plan have been registered under the Securities Act of 1933, as
amended, or the Company has determined that such registration is unnecessary,
each person exercising an option under this Plan may be required by the Company
to give a representation in writing that such person is acquiring such shares
for his or her own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof.
10. Taxes.
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10.1 The Company may make such provisions as it may deem appropriate
for the withholding of any taxes which it determines is required in connection
with any options granted under this Plan.
10.2 Notwithstanding the terms of Section 10.1, each Optionee must
pay all taxes required to be withheld by the Company or paid by the Optionee in
connection with the exercise of a Nonqualified Option.
11. Replacement of Options. The Board or the Committee from time to time
----------------------
may permit an Optionee under this Plan to surrender for cancellation any
unexercised outstanding option and receive from the Company in exchange an
option for such number of shares of Common Stock as may be designated by the
Board or the Committee. The Board or the Committee may, with the consent of the
person entitled to exercise any outstanding option, amend such option, including
reducing the exercise price of any option to not less than the fair market value
of the Common Stock at the time of the amendment and extending the term thereof.
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12. No Right to Employment. Employees shall be considered to be in the
----------------------
employment of the Company so long as they remain employees of the Company or its
Affiliates. Any questions as to whether and when there has been a termination of
such employment and the cause of such termination shall be determined by the
Board or the Committee, and its determination shall be final. Nothing contained
herein shall be construed as conferring upon the Optionee the right to continue
in the employ of the Company or its Affiliates, nor shall anything contained
herein be construed or interpreted to limit the "employment at will"
relationship between the Optionee and the Company or its Affiliates. The option
agreements may contain such provisions as the Board or the Committee may approve
with reference to the effect of approved leaves of absence.
13. Liability of Company for Non-Issuance of Shares and Tax Consequences.
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The Company and any Affiliates that are in existence or hereafter come into
existence shall not be liable to an Optionee or other persons as to:
13.1 The non-issuance or sale of shares as to which the Company has
been unable to obtain from any regulatory body having jurisdiction the authority
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any shares hereunder; and
13.2 Any tax consequence expected, but not realized, by any Optionee
or other person due to the exercise of any option granted hereunder.
14. Effectiveness and Expiration of Plan. This Plan shall be effective on
------------------------------------
the date of adoption by the Board. If the shareholders of the Company fail to
approve this Plan within twelve months of the date of the Board adoption, this
Plan shall terminate and all options previously granted under this Plan shall
become void and of no effect. This Plan shall expire ten years after the date of
the Board adopts this Plan and thereafter no option shall be granted pursuant to
this Plan.
15. Non-Exclusivity of this Plan. Neither the adoption by the Board nor
----------------------------
the submission for approval of this Plan to the shareholders of the Company
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including
without limitation, the granting of restricted stock or stock options otherwise
than under this Plan, and such arrangements may be either generally applicable
or applicable only in specific cases.
16. Governing Law. This Plan and any agreements hereunder shall be
-------------
interpreted and construed in accordance with the laws of the State of Delaware
and applicable federal law.
17. Cashless Exercise. The Board or the Committee also may allow cashless
-----------------
exercises as permitted under the Federal Reserve Board's Regulation T, subject
to applicable securities law restrictions, or by any other means which the Board
or the Committee determines to be consistent with this Plan's purpose and
applicable law. The proceeds from such a payment shall be added to the general
funds of the Company and shall be used for general corporate purposes.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by directors of the Company, Houston American Energy Corp has caused
these presents to be duly executed in its name and behalf by its proper officers
thereunto duly authorized as of this 12th day of August 2005.
HOUSTON AMERICAN ENERGY CORP
By: /s/ John Terwilliger
Name: John Terwilliger
Title: President
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