SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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14a-6(e)(2))
HOUSTON AMERICAN ENERGY CORP.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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HOUSTON AMERICAN ENERGY CORP.
801 TRAVIS ST., SUITE 1425
HOUSTON, TEXAS 77002
April 16, 2007
Dear Stockholder:
We cordially invite you to attend our 2007 annual meeting of stockholders,
which will be held at 10:00 a.m. on Monday, May 21, 2007 at the Houston Club,
which is located at 811 Rusk Avenue, Houston, Texas 77002.
At this year's annual meeting, the agenda will include the election of 2
Class A directors and 1 Class C director, the ratification of the selection of
our independent registered public accounting firm for fiscal 2007 and the
transaction of such other business as may properly come before the meeting or
any adjournment thereof. Please refer to the enclosed proxy statement for
detailed information on the proposal and other important information about
Houston American Energy.
We hope you will be able to attend the annual meeting, but we know that not
every stockholder will be able to do so. Whether or not you plan to attend,
please complete, sign and return your proxy, or vote by telephone or via the
Internet according to the instructions on the proxy card, so that your shares
will be voted at the annual meeting.
Sincerely,
JOHN TERWILLIGER
Chairman of the Board
HOUSTON AMERICAN ENERGY CORP.
801 TRAVIS ST., SUITE 1425
HOUSTON, TEXAS 77002
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NOTICE OF 2007 ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 2007
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Dear Stockholder:
The annual meeting of stockholders of Houston American Energy Corp. will be
held at 10:00 a.m. on Monday, May 21, 2007, at the Houston Club located at 811
Rusk Avenue, Houston, Texas 77002. The purpose of the annual meeting is to:
1. Elect two Class A directors to hold office for the next three years
and one Class C director to hold office for the next year.
2. Ratify the selection of Malone & Bailey, PC as our independent
registered public accounting firm for the 2007 fiscal year.
3. Transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on April 9, 2007 will
be entitled to vote at the annual meeting and any and all adjourned sessions
thereof. Our stock transfer books will remain open.
To ensure that your vote is recorded promptly, please vote as soon as
possible. If you are a stockholder of record, please complete, sign and mail the
proxy card in the enclosed postage-paid envelope. If your shares are held in
"street name", that is held for your account by a broker or other nominee, you
will receive instructions from the holder of record that you must follow for
your shares to be voted.
By Order of the Board of Directors,
JOHN TERWILLIGER
Chairman
Houston, Texas
April 16, 2007
HOUSTON AMERICAN ENERGY CORP.
801 TRAVIS ST., SUITE 1425
HOUSTON, TEXAS 77002
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PROXY STATEMENT
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Our board of directors is soliciting your proxy for the annual meeting of
stockholders to be held at the Houston Club located at 811 Rusk Avenue, Houston,
Texas 77002, on Monday, May 21, 2007 at 10:00 a.m. and at any and all adjourned
sessions of the annual meeting.
We are mailing our annual report for the fiscal year ended December 31,
2006, to our stockholders with this notice and proxy statement (including the
form of proxy) on or about April 18, 2007.
RECORD DATE AND QUORUM REQUIREMENTS
Only stockholders of record at the close of business on April 9, 2007 will
be entitled to vote at the annual meeting. The majority of the shares of common
stock issued and outstanding and entitled to vote on the record date must be
present in person or by proxy to have a quorum for the transaction of business
at the annual meeting. Shares of common stock present in person or represented
by proxy (including shares which abstain, withhold the vote or do not vote with
respect to one or more of the matters presented for stockholder approval) will
be counted for purposes of determining whether a quorum exists for a matter
presented at the annual meeting. At the close of business on April 9, 2007, we
had 27,920,172 shares of common stock issued and outstanding. Each share of
common stock is entitled to one vote.
VOTING YOUR SHARES AND VOTES REQUIRED
Your vote is very important. If you do not vote your shares, you will not
have an impact with respect to the issues to be voted on at this annual meeting.
In addition, banks and brokers cannot vote on their clients' behalf on
"non-routine" proposals.
In order to be elected as directors, each of the nominees for director must
receive a plurality of the votes cast at the annual meeting. Ratification of the
selection of Malone & Bailey, PC as our independent registered public accounting
firm for the 2007 fiscal year will require the affirmative vote of a majority of
the shares of common stock present or represented by proxy at the annual
meeting.
Shares that abstain from voting on a particular proposal, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares on a particular
proposal, will not be counted as votes "in favor" of such proposal, and will
also not be counted as votes cast or shares voting on that proposal.
Accordingly, abstentions and "broker non-votes" will have no effect on the
voting on a proposal that requires the affirmative vote of a certain percentage
of the votes cast or shares voting on a proposal. However, abstentions are
considered to be present or represented in determining whether a quorum exists
on a given matter.
SUBMITTING YOUR PROXY
If you complete and submit your proxy, the persons named as proxies will
vote the shares represented by your proxy in accordance with your instructions.
If you submit a proxy card but do not fill out the voting instructions on the
proxy card, the persons named as proxies will vote the shares represented by
your proxy as follows:
- FOR the election of the director nominees.
- FOR the ratification of the selection of Malone & Bailey, PC as
our registered public accounting firm.
To ensure that your vote is recorded promptly, please vote as soon as
possible. To vote by proxy, please complete, sign and mail the proxy card in
the enclosed postage-paid envelope.
Stockholders that attend the annual meeting and wish to vote in person will
be given a ballot at the meeting. If your shares are held in "street name" and
you want to attend the annual meeting, you must bring an account statement or
letter from the brokerage firm or bank holding your shares showing that you were
the beneficial owner of the shares on the record date. If you want to vote
shares that are held in "street name" or are otherwise not registered in your
name, you will need to obtain a "legal proxy" from the holder of record and
present it at the annual meeting.
REVOKING OR CHANGING YOUR PROXY
You may revoke or change your proxy at any time before it is voted. For a
stockholder "of record", meaning one whose shares are registered in his or her
own name, to revoke or change a proxy, the stockholder may follow one of the
procedures listed below.
- submit another properly signed proxy, which bears a later date;
- deliver a written revocation to our corporate secretary; or
- attend the annual meeting or any adjourned session thereof and vote in
person.
If you are a beneficial owner of our common stock, and not the stockholder
of record (for example your common stock is registered in "street name" with a
brokerage firm), you must follow the procedures required by the holder of
record, which is usually a brokerage firm or bank, to revoke or change a proxy.
You should contact the stockholder of record directly for more information on
these procedures.
OTHER INFORMATION
We will bear the expense of soliciting proxies. Our officers and certain
other employees, without additional remuneration, may solicit proxies personally
or by telephone, e-mail or other means.
Our Annual Report on Form 10-KSB for the year ended December 31, 2006,
which is not part of the proxy soliciting materials, is included with this Proxy
Statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below shows the number of our shares of common stock beneficially
owned as of March 15, 2007 by:
- each person or group known by us to beneficially own more than 5% of
our outstanding common stock;
- each director and nominee for director;
- each executive officer named in the Summary Compensation Table under
the heading "Executive Compensation" below; and
- all of our current directors and executive officers of the company as
a group.
The number of shares beneficially owned by each 5% holder, director or
executive officer is determined by the rules of the SEC, and the information
does not necessarily indicate beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares over which the person or
entity has sole or shared voting power or investment power and also any shares
that the person or entity can acquire within 60 days of March 15, 2007 through
the exercise of any stock option or other right. For purposes of computing the
percentage of outstanding shares of common stock held by each person or entity,
any shares that the person or entity has the right to acquire within 60 days
after March 15, 2007 are deemed to be outstanding with respect to such person or
entity but are not deemed to be outstanding for the purpose of computing the
percentage of ownership of any other person or entity. Unless otherwise
indicated, each person or entity has sole investment and voting power (or shares
such power with his or her spouse) over the shares set forth in the following
table. The inclusion in the table below of any shares deemed beneficially owned
does not constitute an admission of beneficial ownership of those shares. As of
March 15, 2007, there were 27,920,172 shares of common stock issued and
outstanding.
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SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING
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John Terwilliger (1)* 8,574,486 30.7%
O. Lee Tawes (2)* 3,387,324(3) 12.1%
Northeast Securities, Inc. (2) 2,522,700(4) 9.0%
GLG Partners LP (5) 1,420,318(6) 5.1%
Edwin Broun III* 1,025,000(7) 3.7%
Jay Jacobs 66,667(8) +
Stephen Hartzell* 76,000(9) +
John Boylan* 22,000(10) +
All current directors and executive officers as a
group (6 persons) 13,151,477(11) 46.9%
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* Director of our company
+ Less than 1% of the shares of total common stock outstanding as of May 15,
2007.
(1) Address is care of Houston American Energy Corp., 801 Travis St., Suite
1425, Houston, Texas 77002.
(2) Address is care of Northeast Securities, Inc., 100 Wall Street, New York,
New York 10005.
(3) Includes 119,314 shares owned by Mr. Tawes' spouse and 20,000 stock options
that may be exercised within 60 days of March 15, 2007. 3,117,010 of the
shares held by Mr. Tawes are pledged as security.
(4) Based upon information regarding Houston American Energy Corp. holdings
reported on a Schedule 13G filed with the SEC on January 26, 2007.
Northeast Securities, Inc. reports that it has the shared power to dispose
of or to direct the disposition of, and limited power to vote, all
2,522,700 shares reported as beneficially owned by it. Shares indicated as
beneficially owned include shares held by, or for the benefit of, certain
officers, directors and employees and unrelated clients of Northeast
Securities, Inc.
(5) Address is 1 Curzon Street, London W1J 5HB, United Kingdom.
(6) Based upon information regarding Houston American Energy Corp. holdings
reported on a Schedule 13G filed with the SEC on January 16, 2007. Includes
shares of common stock owned by certain funds to which GLG Partners LP
serves as investment manager (the "GLG Funds"). The shares held by the GLG
Funds may be deemed to be beneficially owned by GLG Partners LP, the
investment manager of the GLG Funds, by GLG Partners Limited, the general
partner of GLG Partners LP and by Noam Gottesman, Pierre Lagrange and
Emmanuel Roman, each a managing director of GLG Partners LP. Each of GLG
Partners LP, GLG Partners Limited, Noam Gottesman, Pierre Lagrange and
Emmanuel Roman disclaims beneficial ownership of the shares indicated as
owned by the GLG Funds.
(7) Includes 5,000 shares owned by Mr. Broun's spouse and 20,000 stock options
that may be exercised within 60 days of March 15, 2007.
(8) Includes 66,667 stock options that may be exercised within 60 days of March
15, 2007.
(9) Includes 20,000 stock options that may be exercised within 60 days of March
15, 2007.
(10) Includes 20,000 stock options that may be exercised within 60 days of March
15, 2007.
(11) Includes 146,667 stock options that may be exercised within 60 days of
March 15, 2007. 3,117,010 of the shares held by directors and executive
officers are pledged as security.
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PROPOSAL I
ELECTION OF DIRECTORS
Our restated articles of organization and amended and restated by-laws,
each as amended to date, provide for the classification of our board into three
classes, as nearly equal in number as possible. The Class A, Class B and Class C
directors are currently serving until the annual meeting of stockholders that
will be held in 2007, 2008 and 2009, respectively, and until their respective
successors are elected and qualified. At each annual meeting of stockholders,
directors are elected for a full term of three years to succeed those whose
terms are expiring.
Our board has fixed the number of directors at five. There are currently
three Class A directors, one Class B director and one Class C director. In order
to balance each class of directors, our board has revised the number of
directors in each class to include two Class A directors, one Class B director
and two Class C directors with O. Lee Tawes being redesignated from a Class A
director to a Class C director.
Unless otherwise instructed, the persons named as proxies will vote all
proxies received FOR the election of the persons named as nominees below as
Class A directors for a term of three years, until the annual meeting of
stockholders to be held in 2010 and until their respective successors are
elected and qualified, and, with respect to Mr. Tawes, as a Class C director for
a term of one year, until the annual meeting of stockholders to be held in 2008
and until his successor is elected and qualified.
The nominees listed below are currently serving as directors and have
indicated that they are willing to continue to serve, if elected. The
independent directors of the board nominated each of the candidates for
election. If any of the nominees should become unavailable, the persons named as
proxies will vote all proxies received for a substitute nominee designated by
the board, unless instructions are given to the contrary. The board has no
reason to believe that any of the nominees will become unavailable.
In the section below, we provide the names and biographical information
about the Class A and Class C nominees and each other member of the board.
There are no family relationships among any of our directors, nominees for
director and executive officers.
NOMINEES FOR ELECTION AS CLASS A DIRECTORS
CONTINUING IN OFFICE UNTIL 2010
Edwin Broun III Mr. Broun, is the owner/operator of Broun Energy, LLC, an oil
Age: 54 and gas exploration and production company. He co-founded, and
Director Since: 2005 from 1994 to 2003 was Vice President and Managing Partner of,
Sierra Mineral Development, L.C., an oil and gas exploration and
production company where he was responsible for reserve and
economic evaluation of acquisitions, drill site selection and
workover design. From 1992 to 1994 he was a partner and
consultant in Tierra Mineral Develoment, L.C., where he
evaluated, negotiated and structured acquisitions, workovers and
divestitures of oil and gas holdings. From 1975 to 1992, Mr.
Broun served in various petroleum engineering capacities,
beginning as a petroleum engineer with Atlantic Richfield
Company from 1975 to 1979 and Tenneco Oil Company from
1979 to 1982 and rising to serve in various management capacities
as Acquisitions Manager from 1982 to 1986 and Vice President,
Engineering from 1986 to 1987 at ITR Petroleum, Inc.; Vice
President, Acquisitions from 1987 to 1988 and Vice President,
Houston District from 1988 to 1990 at General Atlantic
Resources, Inc.; and Vice President, Engineering and Acquisitions
from 1990 to 1992 at West Hall Associates, Inc. Mr. Broun
received his B.S. in Petroleum Engineering from the University of
Texas and an M.S. in Engineering Management from the
University of Alaska.
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Stephen Hartzell Mr. Hartzell, has over 28 years of experience as a petroleum
Age: 53 geologist. Since 2003, Mr. Hartzell has been an owner operator of
Director Since: 2005 Southern Star Exploration, LLC, an independent oil and gas
company. From 1986 to 2003, Mr. Hartzell served as an
independent consulting geologist. From 1978 to 1986, Mr.
Hartzell served as a petroleum geologist, division geologist and
senior geologist with Amoco Production Company, Tesoro
Petroleum Corporation, Moore McCormack Energy and American
Hunter Exploration. Mr. Hartzell received his B.S. in Geology
from Western Illinois University and an M.S. in Geology from
Northern Illinois University.
NOMINEE FOR ELECTION AS CLASS C DIRECTOR
CONTINUING IN OFFICE UNTIL 2008
O. Lee Tawes III Mr. Tawes is Executive Vice President and Head of Investment
Age: 59 Banking, and a Director at Northeast Securities Inc. From 2000-
Director Since: 2005 2001 he was Managing Director of Research for C.E. Unterberg,
Towbin, an investment and merchant banking firm specializing in
high growth technology companies. Mr. Tawes spent 20 years at
Oppenheimer & Co. Inc. and CIBC World Markets, where he was
Director of Equity Research from 1991 to 1999. He was also
Chairman of the Stock Selection Committee at CIBC, a member of
the firm's Executive Committee, and Commitment Committee.
From 1972 to 1990, Mr. Tawes was an analyst covering the food
and diversified industries at Goldman Sachs & Co. from 1972 to
1979, and Oppenheimer from 1979 to 1990. As food analyst, he
was named to the Institutional Investor All America Research
Team five times from 1979 through 1989. Mr. Tawes has served
as a Director of Baywood International, Inc. since 2001. Mr.
Tawes is a graduate of Princeton University and received his
MBA from Darden School at the University of Virginia.
CLASS B DIRECTOR CONTINUING IN OFFICE
UNTIL 2009
John Boylan Mr. Boylan has served as Chief Financial Officer and Director of
Age: 40 Business Development of Atasca Resources, an independent oil
Director Since: 2006 and gas exploration and production company, since 2003. Since
1996 Mr. Boylan has also served as owner/operator of Boylan
Energy Corporation, an independent oil and gas exploration
company. Mr. Boylan's energy industry experience also includes
serving as President, CEO and Managing Partner of Birdwell
Partners, an oil field services company, from 1999 to 2003 and
service as Chief Financial Officer and Director of Business
Development of Prolithic Energy Company, an independent oil
and gas exploration company, from 1998 to 2002. Prior to
entering the energy business, Mr. Boylan was a consultant and
senior auditor providing professional services in a range of
accounting, financial and project management roles, including
service as a senior auditor for KPMG Peat Marwick from 1988 to
1990, service as a project management consultant for R.L.
Townsend & Associates from 1990 to 1991 and service as senior
associate project management consultant for Coopers & Lybrand
Consulting from 1991 to 1995. Mr. Boylan holds a Bachelors
Degree in Accounting from the University of Texas and an MBA
Degree in Finance, Economics and International Business from
New York University. Mr. Boylan is a Certified Public
Accountant.
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CLASS C DIRECTOR CONTINUING IN OFFICE
UNTIL 2008
John Terwilliger Mr. Terwilliger has served as our Chairman, Chief Executive
Age: 59 Officer, President and a director since our inception in April 2001.
Director Since: 2001 From 1988 to April 2002, Mr. Terwilliger served as the Chairman
of the Board and President of Moose Oil & Gas Company, and its
wholly-owned subsidiary, Moose Operating Co., Inc., both
Houston, Texas based companies. Prior to 1988, Mr. Terwilliger
was the Chairman of the Board and President of Cambridge Oil
Company, a Houston, Texas based oil exploration and production
company. Mr. Terwilliger served in the United States Army,
receiving his honorable discharge in 1969. On April 9, 2002,
Moose Oil & Gas Company and its wholly-owned subsidiary,
Moose Operating Co., Inc., filed a bankruptcy petition under
Chapter 7 of the United States Bankruptcy Code in Cause No. 02-
33891-H507: 02-22892, in the United States District Court for the
Southern District of Texas, Houston Division. At the time of the
filing of the bankruptcy petition, Mr. Terwilliger was the
Chairman of the Board and President of both Moose Oil & Gas
Company and Moose Operating Co., Inc. Mr. Terwilliger resigned
those positions on April 9, 2002.
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES TO THE
BOARD OF DIRECTORS SET FORTH IN THIS PROPOSAL I.
In considering your vote with respect to the election directors pursuant to
Proposal I, you should consider the discussions of "Executive Compensation" and
"Corporate Governance" and the other discussions contained in this Proxy
Statement.
PROPOSAL II
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our board, on the recommendation of the audit committee, has selected the
firm of Malone & Bailey, PC as our registered public accounting firm for fiscal
2007. Malone & Bailey, PC was appointed to serve as our registered public
accounting firm in April 2007. Thomas Leger & Co., LLP served as our registered
public accounting firm during fiscal 2006. Although stockholder approval of the
board's selection of Malone & Bailey, PC is not required by law, the board
believes that it is advisable to give stockholders an opportunity to ratify this
selection. If this proposal is not approved at the annual meeting, the board
will reconsider its selection of Malone & Bailey, PC.
Representatives of Malone & Bailey, PC are expected to be present at the
annual meeting. They will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions from
stockholders.
OUR BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF MALONE & BAILEY, PC AS
OUR REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31,
2007.
In considering your vote with respect to the ratification of our selection
of Malone & Bailey, PC as our registered public accounting firm pursuant to
Proposal II, you should consider the discussion of "Relationship with
Independent Registered Public Accounting Firm" and the other discussions
contained in this Proxy Statement.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Objectives of Compensation Program
Our compensation program is designed to attract and retain key employees,
motivating them to achieve and rewarding them for superior performance.
Additionally, the stock option component of our compensation program is designed
to promote an ownership mentality among management, key employees and our Board
of Directors. Finally, we seek to ensure that our compensation program is
fundamentally fair for all stakeholders in the company, including stockholders,
management and non-management employees.
What Our Compensation Program is Designed to Reward
In general, our compensation program is designed to reward overall company
performance with recognition of individual contributions to that performance.
Because we maintain a very small employee base with all of our present employees
being officers of the company and one of those officers being the largest
shareholder of the company, we have historically focused our compensation
program on recognition of required and delivered expertise, experience and
effort to effectively carry out our operations and plans - that is reflected in
base salary - and growth in shareholder value derived from superior performance
- that is reflected in equity ownership in the form of direct stock ownership
and grants of stock options.
As the company grows and seeks to hire and retain additional employees,
whether executives or non-executives, we intend to expand the scope of our
compensation program to more specifically tailor elements of our program to
motivate and reward more specific performance criteria designed to benefit
overall company performance. In that regard, we expect to establish more narrow
goal oriented programs geared to both short and long-term performance in order
to create an environment of goals, rewards and expectations. We anticipate that
goals that may be rewarded will include growth of revenues, growth of operating
earnings and earnings per share, growth in oil and gas reserves and other key
operating metrics. Because we believe that all employees contribute to
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our success, we intend to develop programs that will measure and reward both
individual and team performance for substantially all future employees.
Elements of our Compensation Plan and Why We Chose the Character and Amount
of Each
Elements of compensation for our executives presently include salary and
periodic stock option grants as well as participation in broad based benefit
plans available to all employees, including health, disability and life
insurance.
It is the compensation committee's intention to set base salaries of our
executive officers sufficiently high so as to attract and retain a strong
motivated leadership team but not so high as to create excessive wealth to the
detriment of the company or other stakeholders. The compensation committee
plans to review executive officer salaries annually at its regularly scheduled
meeting held in conjunction with the annual shareholders meeting, typically held
in May. At this meeting, our compensation committee will make adjustments to
base salary, as it deems appropriate, for the upcoming year to reflect the
evolving nature, scope and size of our enterprise. In reviewing and adjusting
base salary, the compensation committee may review compensation data for
comparable companies to establish ranges of compensation suitable to retain the
company's executive officers but does not plan to benchmark salaries to place
executive officers within a specific segment of compensation among its
competitors.
In conjunction with the hiring of the company's CFO, the board of directors
fixed the base salary of the CFO in accordance with the practices described
above but with the understanding and agreement that the compensation committee
would retain a compensation consulting firm during 2007 to review the overall
compensation, including the base salary, of the CFO and make adjustments as the
committee and the CFO may agree based on the findings and recommendations of the
consulting firm.
At the annual meeting, the compensation committee will also review and
approve and adopt, as appropriate, management incentive plans for the coming
year and grant stock options selectively to executive officers and other
eligible employees.
It is the compensation committee's intent to use equity incentives as the
principal means of rewarding superior company performance to create wealth
accumulation opportunities and an equity ownership mentality for company
executives. With respect to the company's CEO, the compensation committee has
taken the position that his position as the largest shareholder of the company
creates adequate wealth accumulation incentive and ownership mentality and,
accordingly, no stock options have been granted, or are expected to be granted,
to the CEO. With respect to the company's CFO, being the only other current
officer of the company, and other employees and officers hired in the future,
the board has granted, and the compensation committee expects to grant, stock
options on initial hiring at levels and with vesting periods designed to
motivate performance over multi-year periods through potential wealth
accumulation. All employees of the company are eligible to participate in the
company's stock option plan and it is anticipated that the compensation
committee will make stock option grants to all, or substantially all, employees
on hiring and periodically thereafter as the committee deems appropriate to
create continual incentives through equity based wealth accumulation
opportunities.
Compensation Practices and Procedures
The company's current compensation practices and procedures are
intentionally simplistic at this time in recognition of the small number of
employees and the company's historic preference for minimizing cash outlays. As
a result, the company has not, as yet, adopted any cash bonus plans or any
retirement plans, instead relying on equity compensation as a principal element
of both compensation and motivation of its executive officers. In particular,
wealth creation aspects of equity have served as both an avenue for rewarding
overall company performance and as a means of creating wealth accumulation.
With the growth of the company in recent years, the receipt of funding from
the company's 2006 private placement and the formation of the compensation
committee, it is anticipated that the compensation committee will, at its annual
compensation review, adjust its compensation practices and procedures taking
into consideration the history of all the elements of each executive officer's
total compensation, including reviewing compensation make-up, totals and trends
over recent fiscal years and comparisons of the compensation of the executive
officers with that of the executive officers in an appropriate market comparison
group. The committee is expected to take into consideration the recommendations
of the chief executive officer with respect to the executive officers who report
to him. Such executive officers are not expected to be present at the time of
these deliberations. The compensation
7
committee may accept or adjust such recommendations. With respect to the chief
executive officer, the compensation committee may consult with the chief
executive officer but the chief executive officer will not be present at the
time of deliberations and the compensation committee will make the sole
determination of compensation.
We anticipate that future hiring demands will require the company to expand
the scope of its compensation practices to include the implementation of
specific cash based bonus plans designed to reward short-term performance. Such
bonus plan is expected to entail the establishment by the compensation committee
of target annual bonuses fixed as a percentage of base salary based on
satisfaction of criteria determined by the committee. Target bonuses and
performance criteria are expected to be tailored to measure individual
performance of key employees as well as overall company performance. It is
anticipated that the compensation committee will retain the discretionary
authority to award bonuses beyond those otherwise earned under established bonus
plans.
We choose to pay each element of compensation, including compensation under
any bonus plans we may adopt, in order to attract and retain the necessary
executive talent, reward annual performance and provide incentive for their
balanced focus on long-term strategic goals as well as short-term performance.
The amount of each element of compensation will be determined by or under the
direction of our compensation committee, which intends to use the following
factors to determine the amount of salary and other benefits to pay each
executive:
- performance against corporate and individual objectives for the
previous year;
- difficulty of achieving desired results in the coming year;
- value of their unique skills and capabilities to support long-term
performance of the company;
- performance of their general management responsibilities; and
- contribution as a member of the executive management team.
These elements fit into our overall compensation objectives by helping to
secure the future potential of our operations, facilitating our development of
oil and gas reserves, providing proper compliance and regulatory guidance, and
helping to create a cohesive team.
Our policy for allocating between long-term and currently paid compensation
is to ensure adequate base compensation to attract and retain personnel, while
providing incentives to maximize long-term value for our company and our
stockholders. Likewise, we provide cash compensation in the form of base salary
to meet competitive salary norms. We provide non-cash stock based compensation
in the form of stock option grants to reward superior performance and the
creation of long-term value. We may adopt a cash bonus plan to specifically
reward performance based on specific short-term goals.
While, historically, we have not specifically sought to establish specific
ranges of allocations as among cash and non-cash and fixed and variable
compensation, we anticipate that the compensation committee will consider the
relative allocations in the future. In establishing such targeted allocations,
and in establishing levels and terms of option grants, it is anticipated that
the compensation committee will take into account existing stock holdings,
historic stock option grants and accumulated gains on stock option grants. Where
holdings, past grants and accumulated gains are deemed to create sufficient
levels of equity incentive and wealth growth potential, the compensation
committee will consider reducing or foregoing future stock option grants to
subject executives. Moreover, in establishing the amounts, types and allocation
among types of compensation of executive officers, the compensation committee
will take into account the various stakeholders of the company, including
shareholders and non-executive employees, with a view to creating an environment
of mutual interests among all stakeholders.
With respect to the timing of stock option grants, the compensation
committee is expected to make such grants only on the initial hiring of
employees and in conjunction with the compensation committee's annual review of
compensation. The compensation committee has adopted as a policy a specific
prohibition of timing stock option grants, and has made no stock option grants,
to coordinate with the release of material non-public information in any manner
designed to affect the value of executive compensation.
8
In addition to the anticipated establishment of a bonus plan, the
compensation committee is expected to consider, from time to time, the adoption
of certain benefits designed to attract and retain executive officers and other
employees with such benefits expected to be broadly available to all employees.
In particular, the compensation committee may consider the establishment of a
401K plan, that may include a company matching element, that will be available
to all company employees.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a tax deduction to public companies for compensation in excess of $1
million paid to the corporation's chief executive officer and four other most
highly paid executive officers. Qualifying performance-based compensation will
not be subject to the deduction limitation if certain requirements are met. Our
compensation committee will periodically review the potential consequences of
Section 162(m) and may structure future performance-based executive compensation
to comply with certain exemptions in Section 162(m). However, we reserve the
right to use our judgment to authorize compensation payments that do not comply
with the exemptions in Section 162(m) when we believe that such payments are
appropriate and in the best interests of the stockholders, after taking into
consideration changing business conditions or the officer's performance.
Compensation Consultant
We have not, to date, utilized the services of a compensation consultant to
advise with respect to the compensation of our executive officers. As noted
above, in conjunction with the hiring of our CFO, we agreed to retain, during
2007, a compensation consultant to review and make recommendations with respect
to the compensation of our CFO. Our compensation committee will be tasked with
retaining a qualified compensation consultant to carry out a competitive
assessment of our CFO's compensation and make recommendations. Our compensation
committee is expected to seek data from the compensation consultant regarding
base salary, bonus and equity incentive compensation of similar size companies
in our industry as well as recommendations with respect to our CFO's total
compensation package. Our CFO will not participate in that process. Our
compensation committee is expected to take the findings and recommendations of
the compensation consultant into consideration in determining whether
modifications to our CFO's compensation package are appropriate.
REPORT OF COMPENSATION COMMITTEE
The compensation committee is responsible for discharging the
responsibilities of the board with respect to the compensation of our executive
officers. The compensation committee sets performance goals and objectives for
the chief executive officer and the other executive officers, evaluates their
performance with respect to those goals and sets their compensation based upon
the evaluation of their performance. In evaluating executive officer pay, the
compensation committee may retain the services of a compensation consultant and
consider recommendations from the chief executive officer with respect to goals
and compensation of the other executive officers. The compensation committee
assesses the information it receives in accordance with its business judgment.
The compensation committee also periodically reviews director compensation. All
decisions with respect to executive and director compensation are approved by
the compensation committee and recommended to the full board for ratification.
The compensation committee is responsible for administering all of our
equity-based plans. The committee may, however, authorize the chair of the
compensation committee to grant individual stock awards upon the hiring of new
employees between scheduled meetings of the compensation committee. The
compensation committee also periodically reviews compensation and equity-based
plans and makes its recommendations to the board with respect to these areas.
The compensation committee has reviewed and discussed the Compensation
Discussion and Analysis (the "CD&A") for the year ended December 31, 2006 with
management. In reliance on the reviews and discussions referred to above, the
compensation committee recommended to the board, and the board has approved,
that the CD&A be included in the proxy statement for the year ended December 31,
2006 for filing with the SEC.
By the Compensation Committee of the Board of Directors:
John Boylan, Compensation Committee Chair
Stephen Hartzell, Compensation Committee Member
Edwin Broun III, Compensation Committee Member
9
SUMMARY COMPENSATION TABLE
The following table includes information concerning compensation for the
year ended December 31, 2006 for our CEO and our CFO, being our only executive
officers and employees during the year:
CHANGE IN
PENSION
NON-EQUITY VALUE AND
INCENTIVE NONQUALIFIED
STOCK OPTION PLAN DEFERRED ALL OTHER
SALARY BONUS AWARDS AWARDS COMPENSATION COMPENSATION COMPENSATION TOTAL
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)(1) ($) EARNINGS ($) ($) ($)
--------------------------- ---- --------- ------ ------- --------- ------------- ------------- -------------- ---------
John F. Terwilliger, CEO 2006 $ 267,500 - - $ - - - $ - $ 267,500
Jay Jacobs, CFO 2006 57,291 - - 219,555 - - - 276,846
--------
(1) Refer to Note 5, "Stock Based Compensation," in the Notes to Financial
Statements included in the Annual Report on Form 10-KSB filed on March 30,
2007 for the relevant assumptions used to determine the valuation of our
option awards.
Base Salary
It is the compensation committee's intention to set base salaries of our
executive officers sufficiently high so as to attract and retain a strong
motivated leadership team but not so high as to create excessive wealth to the
detriment of the company or other stakeholders. During 2006, we increased the
base salary of John Terwilliger, our CEO, from $180,000 annually to $300,000
annually following the successful completion of a private placement. During
2006, we hired Jay Jacobs as our CFO and fixed his initial salary at $125,000
annually. In setting base salaries for fiscal 2006, we reviewed salary
compensation of officers with comparable qualifications, experience and
responsibilities at comparable companies. We also considered the past and
expected future contributions of our executive officers in achieving our goals
including Mr. Terwilliger's contributions towards establishing the company's
existing oil and gas holdings while serving with no compensation for a number of
years. In connection with our hiring of Jay Jacobs, we agreed to retain a
compensation consultant to review Mr. Jacobs' salary during 2007 and to make
appropriate adjustments to his salary taking into account the recommendations of
the consultant. It is not our policy to benchmark the pay our chief executive
officer to his peers but rather to set his compensation on a basis relative to
the scope and nature of responsibilities involved, the financial resources
available and the compensation of other members of our senior management team,
taking into account ranges of pay to similarly situated executives at similar
companies. We believe that this gives us the opportunity to attract and retain
talented managerial employees both at the senior executive level and below.
Bonus
We do not presently maintain any formal bonus plan for our executive
officers and employees and no bonuses were given during 2006. Discretion to pay
bonuses lies with our compensation committee. It is our general philosophy that
management be rewarded as a team for performance based on achievement of goals
while also recognizing special contributions of individuals. Historically, in
light of our limited resources prior to our 2006 private placement, we have not
paid bonuses instead viewing equity ownership, including stock option awards, as
being a principal means of rewarding performance. The compensation committee
may, at its discretion, elect to adopt a formal bonus plan to reward
shorter-term performance based on the satisfaction of specific financial and
other goals to be established by the compensation committee from time to time.
Stock Option and Equity Incentive Programs
We intend that our stock option program is the primary vehicle for offering
long-term incentives and rewarding our executive officers and key employees. We
also regard our stock option program as a key retention tool. This is a very
important factor in our determination of the terms of options granted, including
the number of underlying shares that are granted in connection with that award.
Because of the direct relationship between the value of an option and the market
price of our common stock, we believe that granting stock options is the best
method of motivating the executive officers to manage our company in a manner
that is consistent with the interests of our company and our stockholders.
10
Option Awards Granted. We grant options to our executive officers and key
employees at the time of hiring and, thereafter, at the time of the compensation
committee's annual review of compensation based upon prior performance, the
importance of retaining their services and the potential for their performance
to help us attain our long-term goals. However, there is no set formula for the
granting of options to individual executives or employees. Since the adoption of
our stock option plan in 2005, we have granted options to executive officers in
only one instance, being the hiring of Jay Jacobs as our Chief Financial
Officer, with the option grant representing, as of the date of grant, 0.7% of
the outstanding shares of our common stock on a fully-diluted basis. During
fiscal year 2006 our only employees were our executive officers. During 2006, 1
employee, Mr. Jacobs, and 1 non-employee director received stock option grants
to purchase an aggregate of 0.8% of the outstanding shares of our common stock.
Timing of Grants. Stock option awards to our executive officers and other
key employees have, historically, been limited to the commencement of
employment. In the future, we expect that stock option awards to our executive
officers and key employees will typically be granted annually in conjunction
with the review of the individual performance of our executive officers. This
review is expected to take place at the regularly scheduled annual meeting of
the compensation committee, which is expected to held in May of each year. Stock
option awards are granted to our non-employee directors on their initial
appointment or election and, thereafter, on the date of our annual meeting of
stockholders. Grants to newly hired employees are effective on the employee's
first day of employment, and to facilitate this practice, the compensation
committee may authorize the chair of the compensation committee to grant
individual stock awards to non-executive employees between scheduled meetings of
the compensation committee. The compensation committee has adopted as a policy a
specific prohibition of timing stock option grants, and has made no stock option
grants, to coordinate with the release of material non-public information in any
manner designed to affect the value of executive compensation. The exercise
price of all stock options is set at the prior day's closing price of our common
stock on the American Stock Exchange.
Stock Ownership Guidelines. We do not presently maintain any guidelines or
requirements with respect to minimum number, or value, of our shares to be owned
by our executive officers or directors. In determining whether to grant stock
option awards, and the number of shares covered by stock option awards, we will,
however, consider the number of shares held by an executive officer to determine
whether additional grants will serve to motivate performance.
Perquisites
Our executives are entitled to few benefits and, in each case, those
benefits are available to all of our employees. In this regard it should be
noted that we do not provide pension arrangements, post-retirement health
coverage, or similar benefits for our executives or employees. The principal
benefit we maintain for our executives is our health insurance plan that is the
same for all employees.
GRANTS OF PLAN-BASED AWARDS
The following table sets forth certain information with respect to stock
options granted during or for the fiscal year ended December 31, 2006 to each of
our named executive officers:
ALL
ESTIMATED ESTIMATED OTHER ALL
FUTURE PAYOUTS FUTURE PAYOUTS STOCK OTHER
UNDER NON-EQUITY UNDER EQUITY AWARDS: OPTIONS EXERCISE
INCENTIVE PLAN AWARDS INCENTIVE PLAN AWARDS NUMBER OF AWARDS: OR BASE
----------------------------- ----------------------------- SHARES NUMBER OF PRICE
OF SECURITIES OF
STOCK UNDERLYING OPTION
GRANT THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM OR UNITS OPTIONS AWARDS
NAME DATE ($) ($) ($) ($) ($) ($) (#) (#) ($/SH)(1)
--------------------- -------- ---------- ------- -------- ---------- ------- -------- --------- ----------- ----------
John Terwilliger, CEO - - - - - - - - - $ -
Jay Jacobs, CFO 07/05/06 - - - - - - - 200,000 2.98
CLOSING GRANT
PRICE OF DATE
STOCK FAIR VALUE
ON OF OPTION
GRANT AWARDS
NAME DATE (S)(2)
--------------------- --------- ------------
John Terwilliger, CEO $ - $ -
Jay Jacobs, CFO 2.98 494,000
-------
(1) The exercise price of the stock option awards is equal to the prior day's
closing price of the common stock as reported by the OTC Bulletin Board.
(2) Refer to Note 5, "Stock Based Compensation," in the Notes to Consolidated
Financial Statements included in the Annual Report on Form 10-KSB filed on
March 30, 2007 for the relevant assumptions used to determine the valuation
of our option awards.
11
The board granted stock options under the company's 2005 Stock Option Plan
to Jay Jacobs on July 5, 2006, the start date of Mr. Jacob's employment by the
company as Chief Financial Officer. In keeping with our standard policy and
practice, the exercise price of the stock options that were awarded was $2.98
per share, the prior day's closing price of our common stock as reported on the
OTC Bulletin Board. The terms of the options provide for vesting in three equal
installments commencing ninety days from the grant date and on each of the first
and second anniversaries of the date of grant. The options have a life of 10
years.
OUTSTANDING EQUITY AWARD AT FISCAL YEAR-END
The following table includes certain information with respect to the number
of all unexercised options previously awarded to the named executive officers at
December 31, 2006.
OPTION AWARDS STOCK AWARDS
----------------------------------------------------- ---------------------------------------------------------
EQUITY
INCENTIVE
EQUITY PLAN
INCENTIVE AWARDS:
EQUITY MARKET PLAN MARKET
INCENTIVE VALUE AWARDS: OR PAYOUT
NUMBER NUMBER PLAN NUMBER OF NUMBER OF VALUE OF
OF OF AWARDS: OF SHARES UNEARNED UNEARNED
SECURITIES SECURITIES NUMBER OF SHARES OR OR SHARES, SHARES,
UNDER- UNDER- SECURITIES UNITS OF UNITS OF UNITS OR UNITS OR
LYING LYING UNDER- STOCK STOCK OTHER OTHER
UNEXER- UNEXE- LYING THAT THAT RIGHTS RIGHTS
CISED CISED UNEXER- OPTION HAVE HAVE THAT THAT
OPTIONS OPTIONS CISED EXERCISE OPTION NOT NOT HAVE HAVE NOT
EXERCISABLE UNEXERCISABLE UNEARNED PRICE EXPIRATION VESTED VESTED NOT VESTED
NAME (#)(1) (#)(1) OPTIONS (#) ($) DATE (#) ($) VESTED (#) ($)
-------------- ------------ -------------- ----------- ---------- ---------- ---------- --------- ---------- ----------
John
Terwilliger,
CEO - - - $ - - - - - -
Jay Jacobs,
CFO 66,667 133,333 - 2.98 07/05/2016 - - - -
---------
(1) Options become exercisable in three equal installments beginning ninety
days after the date of grant and on each of the first and second
anniversaries of the date of grant
OPTION EXERCISES AND STOCK VESTED
During the year ended December 31, 2006, no named executive officer
exercised any options or had any stock awards vest and, accordingly, no amounts
were realized by named executive officers from such exercises or vesting.
POST-EMPLOYMENT COMPENSATION
Pension Benefits
We do not provide pension arrangements or post-retirement health coverage
for our executives or employees.
Nonqualified Deferred Compensation
We do not provide any nonqualified defined contribution or other deferred
compensation plans.
Other Post-Employment Payments
All of our employees, including our executive officers, are
employees-at-will and as such do not have employment contracts with us and we
have no agreements, written or oral, to provide any payments to our executives
or employees upon termination or a change-in-control.
12
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about securities authorized for
issuance under our equity compensation plans as of December 31, 2006:
(a) (b) (c)
--------------------- ------------------ -----------------------------
NUMBER OF SECURITIES WEIGHTED-AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE REMAINING AVAILABLE FOR
EXERCISE OF OF OUTSTANDING FUTURE ISSUANCE UNDER EQUITY
OUTSTANDING OPTIONS, OPTIONS COMPENSATION PLANS
WARRANTS, AND WARRANTS, AND (EXCLUDING SECURITIES
PLAN CATEGORY RIGHTS RIGHTS REFLECTED IN COLUMN (A))
------------------------------ --------------------- ------------------ -----------------------------
Equity compensation plans
approved by stockholders (1) 309,000 $ 2.89 191,000
Equity compensation plans not
approved by Stockholders - - -
TOTAL 309,000 $ 2.89 191,000
----------
(1) Consists of shares reserved under the Houston American Energy 2005 Stock
Option Plan pursuant to which 500,000 shares were reserved.
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION TABLE
The following table provides compensation information for the year ended
December 31, 2006 for each member of our Board of Directors:
CHANGE IN
PENSION VALUE
AND
NONQUALIFIED
FEES EARNED NON-EQUITY DEFERRED
OR PAID IN INCENTIVE PLAN COMPENSATION ALL OTHER
CASH STOCK AWARDS OPTION AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME (1) ($) ($) ($) (2)(3)(4) ($) ($) ($) ($)
----------------- ------------ ------------- -------------- --------------- -------------- ------------- --------
John Boylan 4,250 - 70,200 - - - $ 74,450
Edwin Broun III 3,000 - - - - - 3,000
Stephen Hartzell 4,000 - - - - - 4,000
O. Lee Tawes III 3,000 - - - - - 3,000
-------
(1) Mr. John Terwilliger, a director and officer of our company, has been
omitted from this table since he receives no compensation for serving on
our board.
(2) Amounts calculated utilizing the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123R, "Share-based Payments." Refer to
Note 5, "Stock Based Compensation," in the Notes to Financial Statements
included in the Annual Report on Form 10-KSB filed on March 30, 2007 for
the relevant assumptions used to determine the valuation of our option
awards.
(3) The grant date fair value of each stock option awarded to our non-employee
directors, computed in accordance with SFAS 123R, is: $70,200 for Mr.
Boylan.
(4) The following are the aggregate number of option awards outstanding that
have been granted to each of our non-employee directors as of December 31,
2006, the last day of the 2006 fiscal year: Mr. Boylan: 20,000; Mr. Broun:
20,000; Mr. Hartzell: 20,000; and Mr. Tawes: 20,000.
13
OVERVIEW OF COMPENSATION AND PROCEDURES
We review the level of compensation of our non-employee directors on an
annual basis. To determine how appropriate the current level of compensation for
our non-employee directors is, we have historically obtained data from a number
of different sources including:
- publicly available data describing director compensation in peer
companies;
- input from legal, accounting and other advisors; and
- information obtained directly from other companies.
We compensate non-employee members of the board through a mixture of cash
and equity-based compensation. Beginning May 17, 2006, each non-employee
director receives an annual retainer of $6,000, payable in quarterly
installments of $1,500, for his services as a director. Each committee member
receives an annual retainer of $2,000 per committee served on, payable in
quarterly installments of $500 per committee. In addition, the chairman of the
audit committee receives an annual retainer of $2,500 payable in quarterly
installments of $625 and the chairmen of all other committees receive annual
retainers of $1,500 payable in quarterly installments of $375. We also reimburse
expenses incurred by non-employee directors to attend board and committee
meetings. Prior to May 17, 2006, non-employee directors received $1,000 for each
board meeting attended, $500 for each telephonic meeting and reimbursement of
expenses.
On the date of the initial appointment or election of each non-employee
director, the non-employee director receives a stock option grant to purchase
20,000 shares of our common stock at a price equal to the fair market value of
our common stock on the date of grant. On the date of each annual meeting of
stockholders following initial appointment or election, each non-employee
director that stands for reelection and is reelected receives an annual stock
option grant to purchase 10,000 shares of our common stock at a price equal to
the fair market value of our common stock on the date of grant. Prior to May 17,
2006, each non-employee director received, on the date of his initial
appointment or election and following each annual meeting of stockholders, a
grant of a stock option to purchase 20,000 shares of our common stock at a price
equal to the fair market value of our common stock on the date of grant.
On May 17, 2006, the date of his initial appointment as a director, John
Boylan received a stock option award to purchase 20,000 shares of common stock
at an exercise price of $4.10 per share, the prior day's closing price of our
common stock on the OTC Bulletin Board.
Directors who are also our employees do not receive cash or equity
compensation for service on the board in addition to compensation payable for
their service as employees of Houston American Energy.
OWNERSHIP GUIDELINES
We do not presently maintain any guidelines regarding the minimum value of
our stock that a non-employee director must own.
CORPORATE GOVERNANCE
THE BOARD AND BOARD MEETINGS
The board consists of five directors. During the fiscal year ended December
31, 2006, the board held a total of 2 meetings. Each director attended at least
75% of the total number of meetings of the board and at least 75% of the
meetings of all committees on which he served. Our corporate governance
guidelines, which were adopted in March 2007, provide that directors are
expected to attend the annual meeting of stockholders. The 2007 annual meeting
will be our first annual meeting of stockholders.
BOARD INDEPENDENCE
The board has determined that each of the directors, with the exception of
Messrs. Terwilliger and Tawes, qualify as "independent" as defined by applicable
AMEX and SEC rules. In making this determination, the board has concluded that
none of these members has a relationship that, in the opinion of the board,
would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. Stephen Hartzell has served as lead director
since March 2007 and presides over meetings of the independent directors.
14
BOARD COMMITTEES
The board currently has, and appoints members to, two standing committees:
the audit committee and the compensation committee. Each member of these
committees is independent as defined by applicable AMEX and SEC rules. Each of
the committees has a written charter approved by the board. The current members
of the committees are identified below:
DIRECTOR AUDIT COMPENSATION
---------------- ------------------ ------------------
John Boylan X (Chair) X (Chair)
Edwin Broun III X X
Stephen Hartzell X X
AUDIT COMMITTEE
The audit committee is composed of three independent directors, Messrs.
Boylan, Broun and Hartzell, each of whom meets the independence and financial
literacy requirements as defined by applicable AMEX and SEC rules. The audit
committee assists the board in its general oversight of our financial reporting,
internal controls, legal compliance, ethics programs and audit functions, and is
directly responsible for the appointment, evaluation, retention and compensation
of the registered public accounting firm. The board has determined that Mr.
Boylan qualifies as an "audit committee financial expert" in accordance with the
applicable rules and regulations of the SEC.
The audit committee acts under the terms of a written charter initially
adopted in May 2006. A copy of the audit committee charter is attached to this
Proxy Statement as Appendix A. The audit committee met 2 times during the fiscal
year ended December 31, 2006. For more information regarding the audit
committee, please refer to the "Report of Audit Committee" beginning on page 17.
COMPENSATION COMMITTEE
The compensation committee, which is appointed by the board, is composed of
three non-employee independent directors as defined by applicable AMEX rules.
The committee is responsible for establishing and administering the policies
that govern both annual compensation and equity ownership. It reviews and
approves salaries, bonus and incentive compensation, perquisites, equity
compensation, and all other forms of compensation for our executive officers,
including the chief executive officer. The compensation committee is also
responsible for reviewing and administering our incentive compensation plans,
equity incentive programs and other benefit plans. It periodically reviews and
makes recommendations to the board with respect to director compensation.
The compensation committee acts under the terms of a written charter
adopted in May 2006. A copy of the compensation committee charter is attached to
this Proxy Statement as Appendix B. The compensation committee held no meetings
during the fiscal year ended December 31, 2006. For more information regarding
the compensation committee, please refer to the "Report of Compensation
Committee" beginning on page 9.
NOMINATION OF DIRECTORS
The Board of Directors does not maintain a standing Nominating Committee.
Instead, the Board has adopted, by Board resolution, a process of nominating
directors wherein nominees must be selected, or recommended for the board's
selection, by a majority of the independent directors with independence
determined in accordance with American Stock Exchange standards. Because of the
relatively small size of the Board and the current demands on the independent
directors, the Board determined that the nomination process would best be
carried out, while maintaining the independence of the nominating process, by
drawing upon the resources of all Board members with the requirement that
nominates be selected by a majority of the independent directors.
In the event of a vacancy on the board, the process followed by the
independent directors in nominating and evaluating director candidates includes
requests to board members and others for recommendations, meetings from time to
time to evaluate biographical information and background material relating to
potential candidates and interviews of selected candidates by members of the
board.
In considering whether to recommend any particular candidate for inclusion
in the board's slate of recommended director nominees, the independent directors
apply criteria adopted by the board. These criteria
15
include the candidate's integrity, business acumen, knowledge of our business
and industry, experience, diligence, absence of conflicts of interest and the
ability to act in the interests of all stockholders. No specific weights are
assigned to particular criteria and no particular criterion is a prerequisite
for each prospective nominee. We believe that the backgrounds and qualifications
of our directors, considered as a group, should provide a composite mix of
experience, knowledge and abilities that will best allow the board to fulfill
its responsibilities.
The Board may utilize the services of a search firm to help identify
candidates for director who meet the qualifications outlined above.
Stockholders may recommend individuals to the independent directors for
consideration as potential director candidates by submitting their names,
together with appropriate biographical information and background materials and
a statement as to whether the stockholder or group of stockholders making the
recommendation has beneficially owned more than 5% of our common stock for at
least a year as of the date such recommendation is made, to Independent
Directors, c/o Corporate Secretary, Houston American Energy Corp., 801 Travis
St., Suite 1425, Houston, Texas 77002. Assuming that appropriate biographical
and background material has been provided on a timely basis, the stockholder-
recommended candidates will be evaluated by following substantially the same
process, and applying substantially the same criteria, as it follows for
candidates recommended by our board or others. If the board determines to
nominate a stockholder-recommended candidate and recommends his or her election,
then his or her name will be included in the proxy card for the next annual
meeting.
Stockholders also have the right under our bylaws to directly nominate
director candidates, without any action or recommendation on the part of the
board, by following the procedures set forth under "Deadline for Submission of
Stockholder Proposals for the 2008 Annual Meeting" on page 19. Candidates
nominated by stockholders in accordance with the procedures set forth in the
bylaws will not be included in our proxy card for the next annual meeting.
COMMUNICATING WITH THE INDEPENDENT DIRECTORS
Our board will give appropriate attention to written communications that
are submitted by stockholders, and will respond if and as appropriate. Our lead
director, Mr. Hartzell, is primarily responsible for monitoring communications
from stockholders and for providing copies or summaries to the other directors
as he considers appropriate.
Communications are forwarded to all directors if they relate to important
substantive matters and include suggestions or comments that the lead director,
with the assistance of our counsel, considers to be important for the directors
to know. In general, communications relating to corporate governance and
long-term corporate strategy are more likely to be forwarded than communications
relating to ordinary business affairs, personal grievances and matters as to
which we tend to receive repetitive or duplicative communications.
Stockholders who wish to send communications on any topic to the board
should address such communications to Houston American Energy Corp., Board of
Directors, c/o Corporate Secretary, Houston American Energy Corporation, 801
Travis St., Suite 1425, Houston, Texas 77002.
CODE OF CONDUCT AND ETHICS
We have adopted a written code of conduct and ethics that applies to all
our directors, officers and employees, including our chief executive officer and
our chief financial and accounting officer. A current copy of the code can be
found as an exhibit to our Current Report on Form 8-K, dated July 5, 2006 as
filed with the SEC on July 6, 2006, located at www.sec.gov. In addition, we
-----------
intend to post on our website or file under cover of Form 8-K all disclosures
that are required by law or American Stock Exchange listing standards concerning
any amendments to, or waivers from, any provision of the code.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All members of the compensation committee are independent directors, and
none of them are present or past employees or officers of ours or any of our
subsidiaries. No member of the compensation committee has had any relationship
with us requiring disclosure under Item 404 of Regulation S-K under the Exchange
Act. None of our executive officers has served on the board or compensation
committee (or other committee serving an equivalent function) of any other
entity, one of whose executive officers served on our board or compensation
committee.
16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2006, we were not a party to any transactions involving amounts
exceeding $120,000 in which any officer, director, principal shareholder or
immediate family member of any of those persons had or will have a direct or
indirect material interest other than a loan from John Terwilliger, our
President, in the amount of $900,000 and with interest accruing at 7.2% per
annum, that was repaid during 2006 along with interest in the amount of $20,440.
In accordance with our audit committee charter, our audit committee is
responsible for reviewing and approving the terms and conditions of all related
party transactions. Although we have not entered into any financial transactions
with any immediate family member of a director or executive officer of our
company, if we were to do so, any such material financial transaction would need
to be approved by our audit committee prior to our company entering into such
transaction. A report is made to our audit committee annually disclosing all
related parties that are employed by us and related parties that are employed by
other companies that we had a material relationship with during that year, if
any.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, or "Section 16(a)", requires that
directors, executive officers and persons who own more than ten percent of any
registered class of a company's equity securities, or "reporting persons," file
with the SEC initial reports of beneficial ownership and report changes in
beneficial ownership of common stock and other equity securities. Reporting
persons holding our stock are required by SEC regulations to furnish us with
copies of all Section 16(a) reports they file.
Based solely on our review of copies of these reports, and written
representations from such reporting persons, we believe that all filings
required to be made by reporting persons of our stock were timely filed for the
year ended December 31, 2006 in accordance with Section 16(a).
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On April 16, 2007, we dismissed Thomas Leger & Co., LLP ("TL&C") as our
independent registered public accounting firm.
For the years ended December 31, 2005 and 2006, TL&C's reports contained no
adverse opinions or any disclaimers of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principle.
During the years ended December 31, 2005 and 2006, and through April 16,
2007, there were no disagreements (as described under Item 304(a)(1)(iv) of
Regulation S-K) with TL&C on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to TL&C's satisfaction, would have caused TL&C to
make reference thereto in their reports on our financial statements for such
years.
During the years ended December 31, 2005 and 2006, and through April 16,
2007, there were no "reportable events" (as such term is defined in Item
304(a)(1)(v) of Regulation S-K) except that TL&C advised us of material
weaknesses in our internal control over financial reporting as of December 31,
2005 and December 31, 2006, respectively.
On April 16, 2007, we appointed Malone & Bailey, PC as our independent
registered public accounting firm. During the years ended December 31, 2005 and
2006, and through April 16, 2007, we did not consult with Malone & Bailey, PC
regarding any of the matters or events set forth in Item 304(a)(2)(i) or (ii) of
Regulation S-K.
REPORT OF AUDIT COMMITTEE
The audit committee is responsible for assessing the information provided
by management and our registered public accounting firm in accordance with its
business judgment. Management is responsible for the preparation, presentation
and integrity of our financial statements and for the appropriateness of the
accounting principles and reporting policies that are used. Management is also
responsible for testing the system of internal controls, and reports to the
audit committee on any deficiencies found. Our registered public accounting firm
during 2005 and 2006, Thomas Leger & Co., LLP, was responsible for auditing the
financial statements and for reviewing the unaudited interim financial
statements.
17
The audit committee reviewed with our registered public accounting firm the
overall scope and plan of the audit. In addition, it met with our registered
public accounting firm, with and without management present, to discuss the
results of Thomas Leger & Co., LLP's examination, the evaluation of our system
of internal controls, the overall quality of our financial reporting and such
other matters as are required to be discussed under generally accepted auditing
standards. The audit committee has also received from, and discussed with, our
registered public accounting firm the matters required to be discussed by
Statement on Auditing Standards 61 (Communication with Audit Committees).
The audit committee discussed with Thomas Leger & Co., LLP that firm's
independence from management and our company, including the matters in the
written disclosures and the letter required by the Independence Standards Board
Standard No. 1. The audit committee has also considered the compatibility of
audit related and tax services with the auditors' independence.
In fulfilling its oversight responsibilities, the audit committee has
reviewed and discussed the audited financial statements in the Annual Report on
Form 10-KSB for the year ended December 31, 2006 with both management and our
registered public accounting firm. The audit committee's review included a
discussion of the quality and integrity of the accounting principles, the
reasonableness of significant estimates and judgments, and the clarity of
disclosures in the financial statements.
In reliance on the reviews and discussions referred to above, the audit
committee recommended to the board, and the board has approved, that the audited
financial statements be included in the Annual Report on Form 10-KSB for the
year ended December 31, 2006 for filing with the SEC.
By the Audit Committee of the Board of Directors:
John Boylan, Audit Committee Chair
Edwin Broun III, Audit Committee Member
Stephen Hartzell, Audit Committee Member
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
The following table summarizes the fees of Thomas Leger & Co., LLP, our
registered public accounting firm, billed to us for each of the last two fiscal
years:
FEE CATEGORY FY 2006 FY 2005
----------------------------- -------- --------
Audit Fees (1) $ 84,031 $ 31,475
Audit-Related Fees - -
Tax Fees - -
All Other Fees (2) 9,485 -
Total Fees (3) $ 93,516 $ 31,475
-------
(1) Audit fees consist of fees for the audit of our financial statements, the
review of the interim financial statements included in our Quarterly
Reports on Form 10-QSB, and other professional services provided in
connection with statutory and regulatory filings or engagements.
(2) Other fees consisted of $2,485 relating to filing of a registration
statement and $7,000 relating to restatement of financial statements and
amendment of quarterly reports for the second and third quarters of 2005.
(3) All fees set forth in the table that were incurred on or after May 17, 2006
were approved by our audit committee. Prior to May 17, 2006, we did not
maintain an audit committee.
PRE-APPROVAL POLICIES AND PROCEDURES
The audit committee has adopted policies and procedures relating to the
approval of all audit and non-audit services that are to be performed by our
registered public accounting firm. This policy generally provides that we will
not engage our registered public accounting firm to render audit or non-audit
services unless the service is specifically approved in advance by the audit
committee or the engagement is entered into pursuant to one of the pre-approval
procedures described below.
From time to time, the audit committee may pre-approve specific types of
services that are expected to be provided by our registered public accounting
firm during the next 12 months. Any such pre-approval is detailed as to the
particular services to be provided and is also generally subject to a maximum
dollar amount.
The committee's practice is to consider for approval, at its regularly
scheduled quarterly meetings, all audit and non-audit services proposed to be
provided by our registered public accounting firm. In situations where a matter
cannot wait until the next regularly scheduled committee meeting, the chairman
of the committee has been delegated authority to consider and, if appropriate,
approve audit and non-audit services or, if in the chairman's judgment it is
considered appropriate, to call a special meeting of the committee for that
purpose.
18
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be participating
in the practice of "householding". This means that only one copy of our annual
report and proxy statement will be sent to stockholders who share the same last
name and address. Householding is designed to reduce duplicate mailings and save
significant printing and postage costs.
If you receive a household mailing this year and would like to receive
additional copies of our annual report and/or proxy statement, please submit
your request in writing to: Houston American Energy Corp., 801 Travis St., Suite
1425, Houston, Texas 77002, Attention: Secretary or by calling Houston American
Energy at (712) 222-6966. Any stockholder who wants to receive separate copies
of the proxy statement in the future, or who is currently receiving multiple
copies and would like to receive only one copy for his or her household, should
contact his or her bank, broker, or other nominee record holder.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR THE 2008 ANNUAL MEETING
Any stockholders who wish to submit a proposal, pursuant to Rule 14a-8
under the Exchange Act, for inclusion in the proxy materials for our 2008 annual
meeting of stockholders must ensure that it is received by our corporate
secretary at our corporate headquarters, which are located at 801 Travis St.,
Suite 1425, Houston, Texas 77002, no later than December 16, 2007.
Our amended and restated by-laws also establish an advance notice procedure
for stockholders who wish to nominate candidates for election as directors or
otherwise propose business for consideration at a stockholders meeting. We must
receive a notice regarding stockholder nominations for director or other
business at our corporate headquarters not less than 70 days nor more than 90
days prior to the first anniversary of the prior year's stockholder meeting,
provided, however, that in the event we do not publicly announce the date of the
applicable annual meeting by mail, press release or otherwise more than 70 days
prior to the meeting, we must receive the notice no later than the tenth day
following the day on which such announcement of the date of the meeting is made.
Any such notice must contain certain specified information concerning the
persons to be nominated or proposed business and the stockholder submitting the
nomination or business, all as set forth in the amended and restated by-laws.
The presiding officer of the meeting may refuse to acknowledge any director
nomination or business not made in compliance with such advance notice
requirements. We have not publicly announced the date of the 2007 annual meeting
prior to the mailing of this notice and proxy statement. Accordingly, an
appropriate notice from a stockholder regarding nominations for director or
other business to be acted on at the 2007 annual meeting must be received within
ten days of this mailing.
Any stockholders wishing to submit proposals intended to be presented at
our 2008 annual meeting of stockholders that are not submitted pursuant to
Exchange Act Rule 14a-8 must ensure that they are received by us not later than
March 11, 2008 and not earlier than February 19, 2008. The persons designated in
the proxy card will be granted discretionary authority with respect to any
stockholder proposal not timely submitted to us.
By Order of the Board of Directors,
JOHN TERWILLIGER
Chairman
April 16, 2007
THE BOARD ENCOURAGES STOCKHOLDERS TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT
YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
19
APPENDIX A
Houston American Energy Corp.
Audit Committee Charter
(Adopted May 17, 2006)
I. PURPOSE
The audit committee is established by and among the board of directors for the
primary purpose of assisting the board in:
- Overseeing the integrity of the company's financial statements
- Overseeing the company's compliance with legal and regulatory requirements
- Overseeing the independent auditor's qualifications and independence
- Overseeing the performance of the company's independent auditor and
internal audit function
- Overseeing the company's systems of disclosure controls and procedures,
internal controls over financial reporting, and compliance with ethical
standards adopted by the company.
Consistent with this function, the audit committee should encourage continuous
improvement of, and should foster adherence to, the company's policies,
procedures, and practices at all levels. The audit committee should also provide
for open communication among the independent auditor, financial and senior
management, the internal auditing function, and the board of directors.
The audit committee has the authority to obtain advice and assistance from
outside legal, accounting, or other advisors as deemed appropriate to perform
its duties and responsibilities.
The company will provide appropriate funding, as determined by the audit
committee, for compensation to the independent auditor, to any advisors that the
audit committee chooses to engage, and for payment of ordinary administrative
expenses of the audit committee that are necessary or appropriate in carrying
out its duties.
The audit committee will primarily fulfill its responsibilities by carrying out
the activities enumerated in Section III of this charter. The audit committee
will report regularly to the board of directors regarding the execution of its
duties and responsibilities.
A-1
II. COMPOSITION AND MEETINGS
The audit committee will comprise three or more directors as determined by the
board. Each audit committee member will be a person other than an officer or
employee of the company or its subsidiaries or any other individual having a
relationship that, in the opinion of the board, would interfere with the
exercise of his or her independent judgment in carrying out the responsibilities
of a director. All committee members must be independent, including being free
of disallowed compensation agreements, under all other applicable rules and
regulations.
All members of the committee must comply with all financial literacy
requirements of the securities exchange(s) on which the company is listed. The
board will determine whether at least one member of the committee qualifies as
an "audit committee financial expert" in compliance with the criteria
established by the SEC. The existence of such a member, including his or her
name and whether or not he or she is independent, will be disclosed in periodic
filings as required by the SEC. Committee members are encouraged to enhance
their familiarity with finance and accounting by participating in educational
programs, including those conducted by the company or outside consultants.
The members of the committee will be elected by the board at the annual
organizational meeting of the board to serve until their successors are elected.
Unless a chairperson is elected by the full board, the members of the committee
may designate a chairperson by majority vote.
No committee member shall simultaneously serve on the audit committees of more
than two other public companies.
The committee will meet four times annually, or more frequently as circumstances
dictate. Each regularly scheduled meeting will conclude with an executive
session of the committee absent members of management. As part of its
responsibility to foster open communication, the committee will meet
periodically with management, the director of the internal auditing function (if
any), and the independent auditor in separate executive sessions. In addition,
the committee will meet with the independent auditor and management to discuss
the annual audited financial statements and quarterly financial statements,
including the company's disclosures under "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
A-2
III. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the audit committee will:
DOCUMENTS/REPORTS/ACCOUNTING INFORMATION REVIEW
1. Review this charter periodically, at least annually, and recommend to the
board of directors any necessary amendments.
2. Review and discuss with management and the independent auditor the
company's annual financial statements, quarterly financial statements
(prior to the company's 10-Q filings or release of earnings), and all
internal controls reports (or summaries thereof). Review other relevant
reports or financial information submitted by the company to any
governmental body or the public, including management certifications as
required by the Sarbanes-Oxley Act of 2002 and relevant reports rendered by
the independent auditor (or summaries thereof).
3. Recommend to the board whether the financial statements should be included
in the annual report on Form 10-K
4. Discuss earnings press releases, including the type and presentation of
information, paying particular attention to any pro forma or adjusted
non-GAAP information. Such discussions may be in general terms (i.e.,
discussion of the types of information to be disclosed and the type of
presentations to be made).
5. Discuss financial information and earnings guidance provided to analysts
and ratings agencies. Such discussions may be in general terms (i.e.,
discussion of the types of information to be disclosed and the type of
presentations to be made).
6. Review the regular internal reports to management (or summaries thereof)
prepared by the internal auditing department (if any), as well as
management's response.
INDEPENDENT AUDITOR
7. Appoint (and recommend that the board submit for shareholder ratification,
if applicable), compensate, retain, and oversee the work performed by the
independent auditor for the purpose of preparing or issuing an audit report
or related work. Review the performance of the independent auditor and
remove the independent auditor if circumstances warrant. The independent
auditor will report directly to the audit committee and the audit committee
will oversee the resolution of disagreements between management and the
independent auditor if they arise. Consider whether the auditor's
performance of permissible nonaudit services is compatible with the
auditor's independence. Discuss with the independent auditor the matters
required to be discussed under Statement on Auditing Standards (SAS) No.
61, as amended by SAS No. 84 and SAS No. 90.
A-3
8. Review with the independent auditor any problems or difficulties and
management's response; review the independent auditor's attestation and
report on management's internal control report, from the time that such
reports are prepared; and hold timely discussions with the independent
auditor regarding the following:
- All critical accounting policies and practices
- All alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the independent auditor
- Other material written communications between the independent auditor
and management, including, but not limited to, the management letter
and schedule of unadjusted differences.
9. At least annually, obtain and review a report by the independent auditor
describing:
- The firm's internal quality-control procedures
- Any material issues raised by the most recent internal quality-control
review or peer review, or by any inquiry or investigation conducted by
governmental or professional authorities during the preceding five
years with respect to independent audits carried out by the firm, and
any steps taken to deal with any such issues
- All relationships between the independent auditor and the company
addressing the matters set forth in Independence Standards Board
Standard No. 1. This report should be used to evaluate the independent
auditor's qualifications, performance, and independence. Further, the
committee will review the experience and qualifications of the lead
partner and other senior members of the independent audit team each
year and determine that all partner rotation requirements, as
promulgated by applicable rules and regulations, are executed. The
committee will also consider whether there should be rotation of the
firm itself.
10. Actively engage in dialogue with the independent auditor with respect to
any disclosed relationships or services that may affect the independence
and objectivity of the auditor and take, or recommend that the full board
take, appropriate actions to oversee the independence of the outside
auditor.
A-4
11. Review and pre-approve (which may be pursuant to pre-approval policies and
procedures) both audit and nonaudit services to be provided by the
independent auditor. The authority to grant pre-approvals may be delegated
to one or more designated members of the audit committee whose decisions
will be presented to the full audit committee at its next regularly
scheduled meeting. Approval of nonaudit services will be disclosed to
investors in periodic reports required by Section 13(a) of the Securities
Exchange Act of 1934.
12. Set clear hiring policies, compliant with governing laws and regulations,
for employees or former employees of the independent auditor.
FINANCIAL REPORTING PROCESSES, ACCOUNTING POLICIES, AND INTERNAL CONTROL
STRUCTURE
13. In consultation with the independent auditor and the internal auditor (if
any), review the integrity of the organization's financial reporting
processes (both internal and external), and the internal control structure
(including disclosure controls and procedures and internal control over
financial reporting).
14. Receive and review any disclosure from the company's CEO or CFO made in
connection with the certification of the company's quarterly and annual
reports filed with the SEC of: a) all significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the company's
ability to record, process, summarize, and report financial data; and b)
any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal controls.
15. Review major issues regarding accounting principles and financial statement
presentations, including any significant changes in the company's selection
or application of accounting principles; major issues as to the adequacy of
the company's internal controls; and any special audit steps adopted in
light of material control deficiencies.
16. Review analyses prepared by management (and the independent auditor as
noted in item 8 above) setting forth significant financial reporting issues
and judgments made in connection with the preparation of the financial
statements, including analyses of the effects of alternative GAAP methods
on the financial statements.
17. Review the effect of regulatory and accounting initiatives, as well as
off-balance-sheet structures, on the financial statements of the company.
18. Review and approve all related-party transactions, defined as those
transactions required to be disclosed under Item 404 of Regulation S-K.
A-5
19. Establish procedures for the receipt, retention, and treatment of
complaints regarding accounting, internal accounting controls, or auditing
matters.
20. Establish procedures for the confidential, anonymous submission by company
employees regarding questionable accounting or auditing matters.
INTERNAL AUDIT
21. Review and advise on the selection and removal of the internal audit
director (if any).
22. Review activities, organizational structure, and qualifications of the
internal audit function (if any).
23. Annually, review and recommend changes (if any) to the internal audit
charter (if any).
24. Periodically review with the internal audit director (if any) any
significant difficulties, disagreements with management, or scope
restrictions encountered in the course of the function's work.
ETHICAL COMPLIANCE, LEGAL COMPLIANCE, AND RISK MANAGEMENT
25. Establish, review, and update periodically a code of business conduct and
ethics and determine whether management has established a system to enforce
this code. Determine whether the code is in compliance with all applicable
rules and regulations.
26. Review management's monitoring of the company's compliance with its code of
business conduct and ethics, and determine whether management has the
proper review system in place such that the company's financial statements,
reports, and other financial information disseminated to governmental
organizations and the public satisfy legal requirements.
27. Review, with the company's counsel, legal compliance matters, including
corporate securities trading policies.
28. Review, with the company's counsel, any legal matter that could have a
significant impact on the company's financial statements.
29. Discuss policies with respect to risk assessment and risk management,
including appropriate guidelines and policies to govern the process, as
well as the company's major financial risk exposures and the steps
management has undertaken to control them.
A-6
OTHER RESPONSIBILITIES
30. Review with the independent auditor, the internal auditing department (if
any), and management the extent to which changes or improvements in
financial or accounting practices have been implemented.
31. Prepare the report that the SEC requires be included in the company's
annual proxy statement.
32. Conduct an annual performance assessment relative to the audit committee's
purpose, duties, and responsibilities outlined herein.
33. Perform any other activities consistent with this charter, the company's
bylaws, and governing law, as the board deems necessary or appropriate.
A-7
APPENDIX B
HOUSTON AMERICAN ENERGY CORP.
Compensation Committee Charter
(Adopted May 17, 2006)
PURPOSE
The role of the committee is to establish and oversee the compensation policies
and practices of Houston American Energy Corp. on behalf of the Board of
Directors. The committee will discharge the duties of the Board of Directors, to
the extent delegated to the committee, and approve or make recommendations to
the Board of Directors, with respect to compensation of the Company's
executives. The committee will produce an annual report on executive
compensation for inclusion in the Company's proxy statement, in accordance with
applicable rules and regulations of the Securities and Exchange Commission (the
"SEC") and any exchange on which the Company's stock is then listed. The
committee does not have any authority with regard to the compensation
arrangements for members of the Board of Directors who are not employees, which
arrangements must be authorized by the Board of Directors but may provide input
regarding compensation arrangements for non-employee members of the Board of
Directors.
MEMBERSHIP
The Compensation Committee shall consist of at least three members. Members of
the committee are appointed by the Board of Directors from time to time and may
be removed by the Board of Directors at any time. Each member of the committee
shall be an "independent director" as determined by the Board of Directors in
accordance with the applicable rules of the SEC and any exchange on which the
Company's securities. All committee members shall also be "non-employee
directors" as defined by Rule 16b-3 under the Securities Exchange Act of 1934
and "outside directors" as defined by Section 162(m) of the Internal Revenue
Code. Committee members shall be chosen based on their competence and ability to
add substance to the deliberations of the committee.
Compensation Committee members shall devote sufficient attention to their duties
to enable them to fully understand the environment in which the Company's
compensation program operates as well as to understand and apply principles of
competitive compensation practice. The Chairperson shall be responsible for
making regular reports to the Board of Directors.
MEETINGS
The committee will meet at least annually, with authority to convene additional
meetings, as circumstances require. All committee members are expected to
attend each meeting, in person or via tele- or video-conference. The committee
will invite members of management, consultants or others to attend meetings and
provide pertinent information, as necessary; provided, however, that the CEO may
not be present at any meeting where voting or deliberations take place with
respect to the CEO's compensation. It will meet separately, periodically, with
management. It will also meet periodically in executive session. Meeting
agendas will be prepared and provided in advance to members, along with
appropriate briefing materials. Minutes will be prepared.
B-1
RESPONSIBILITIES
The Committee shall have the following duties and responsibilities:
- Annually review and approve corporate goals and objectives relevant to
CEO compensation, evaluate the CEO's performance in light of these
goals and objectives after giving due consideration to the input of
the Board, and provide a report thereon to the Board.
- Annually review and recommend to the Board all compensation
arrangements, including base salary, incentive compensation and
long-term compensation, for the CEO. The independent members of the
Board have the sole responsibility for approving such compensation
arrangements. In recommending long-term incentive compensation of the
CEO, the Committee will consider the Company's performance, relative
stockholder return, the value of similar incentive awards to CEOs at
comparable companies and the awards given to the CEO in past years.
- Annually review and approve all compensation arrangements, including
base salary, incentive compensation and long-term incentive
compensation, for all officers of the company (other than the CEO) who
are subject to the reporting requirements of Section 16 of the
Securities Exchange Act of 1934. The committee shall approve the date
of any equity-based or equity-related awards to Section 16 Officers.
- Annually review and determine the senior management compensation
structure, approve any material proposed changes in the senior
management incentive compensation programs, and approve any senior
management compensation arrangements other than salary and short and
long term incentive awards.
- Administer the Company's long term incentive plans, including the 2005
Stock Option Plan, and select employees to whom awards will be
granted, determine the types of awards, and the number of shares
covered, set the date, terms, conditions and provisions of such awards
and cancel or suspend awards.
- The committee may choose to make adjustments to the short term or long
term incentive plans targets or awards to eliminate the effect of
certain unplanned events, accounting adjustments, or extraordinary
items. Adjustments, if any, are intended to ensure that award payments
reflect the operating results of the Company and are not inflated or
deflated artificially.
- Review all proposed new employee benefit plans, trusts and insurance
agreements maintained by the Company for its employees (the "Plans"),
the termination of, actions to be taken under or changes in the Plans
(authority over which has not been delegated by the Board of Directors
to Company officers or committees of such officers) and approve
presentation of such proposals to the Board of Directors.
B-2
- The CEO shall annually review with the committee the senior management
succession arrangements in order to ensure there is a sufficient pool
of qualified internal candidates to fill senior management positions.
- Make recommendations to the Board of Directors with respect to matters
relating to incentive compensation and equity- based plans that are
appropriate for action by the Board of Directors under applicable SEC
and exchange rules.
- Monitor the disclosure regarding compensation matters in the Company's
proxy statement.
- Regularly report to the Board on the committee's activities.
DELEGATION
The committee may delegate its duties and responsibilities to a subcommittee
consisting of one or more members of the committee, or to senior officers of the
Company. Any delegation may be made only to the extent permitted by SEC rules,
exchange rules and applicable law. The committee may not, however, delegate any
of its duties and responsibilities with regard to (i) compensation arrangements,
including salary and short term and long term incentive awards, with respect to
the Chief Executive Officer and any Section 16 Officer, or (ii) the Company's
annual proxy statement.
COMPENSATION CONSULTANTS
The committee may obtain advice and assistance, as needed, from internal or
external legal, accounting, search firms, compensation specialists or other
advisors, including the retention, termination and negotiation of terms and
conditions of the assignment.
ANNUAL PERFORMANCE EVALUATION
The committee shall conduct an annual review of the committee's performance,
periodically assess the adequacy of its charter and recommend changes to the
Board as needed.
B-3
HOUSTON AMERICAN ENERGY CORP.
801 Travis St., Suite 1425
Houston, Texas 77002
Proxy for Annual Meeting of Shareholders
to be held on May 21, 2007
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints John F. Terwilliger and James J. Jacobs,
and each of them, as Proxies, with full power of substitution in each of them,
in the name, place and stead of the undersigned, to vote at an Annual Meeting of
Shareholders (the "Meeting") of Houston American Energy Corp., a Delaware
corporation (the "Company"), on May 21, 2007, at 10:00 a.m., or at any
adjournment or adjournments thereof, in the manner designated below, all of the
shares of the Company's common stock that the undersigned would be entitled to
vote if personally present.
(1) Election of directors:
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY TO VOTE FOR
(except as marked to the contrary below) ALL NOMINEES LISTED BELOW
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEES,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
Edwin Broun III (Class A Director Nominee) O. Lee Tawes III (Class C Director Nominee)
Stephen Hartzell (Class A Director Nominee)
(2) Proposal to ratify the appointment of Malone & Bailey, PC as the Company's
independent registered public accounting firm
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
[ ] GRANT AUTHORITY [ ] WITHHOLD AUTHORITY
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR MANAGEMENT'S NOMINEES FOR DIRECTOR LISTED IN THIS PROXY, FOR PROPOSAL
2 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO ANY OTHER MATTERS
PROPERLY BROUGHT BEFORE THE SHAREHOLDERS AT THE MEETING.
Please sign exactly as your name appears hereon.
When shares are held by joint tenants, both should
sign. When signing as an attorney, executor,
administrator, trustee, guardian, or corporate
officer, please indicate the capacity in which
signing.
DATED: , 2007
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Signature:
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Signature if held jointly:
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PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE