form424b5.htm
Filed
Pursuant to Rule 424(b)(5)
Registration
Statement No. 333-161319
PROSPECTUS
SUPPLEMENT
(To
Prospectus Dated August 26, 2009)
3,000,000
Shares
Houston
American Energy Corp.
Common
Stock
We are
offering and selling up to 3,000,000 shares of our common stock directly to
selected investors pursuant to this prospectus supplement and the accompanying
prospectus. The common stock is being offered at a per share purchase price of
$4.68.
Our
common stock is listed on the Nasdaq Global Market under the symbol “HUSA.” The
last sale price of our common stock as reported on the Nasdaq Global Market on
November 30, 2009 was $4.60 per share.
You
should read both this prospectus supplement and the accompanying prospectus, as
well as any documents incorporated by reference in this prospectus supplement
and/or the accompanying prospectus, before you make your investment
decision.
Investing
in our common stock involves risks. You should carefully consider the risk
factors beginning on page S-4 of this prospectus supplement before making any
decision to invest in our common stock.
We have
retained Global Hunter Securities, LLC as our lead placement agent and Knight
Capital Markets LLC as co-placement agent to use their reasonable best efforts
to solicit offers to purchase our common stock in this offering. Pali Capital,
Inc. and Source Capital Group, Inc. also served as placement agents. The
placement agents have no obligation to buy any of the shares of our common stock
from us or to arrange for the purchase or sale of any specific number or dollar
amount of the shares of common stock. See “Plan of Distribution” beginning on
page S-15 of this prospectus supplement for more information regarding these
arrangements.
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Per Share
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Maximum Offering
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Public
offering price
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$ |
4.68 |
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$ |
14,040,000 |
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Placement
agent fees
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$ |
0.23 |
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$ |
702,000 |
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Proceeds,
before expenses, to us
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$ |
4.45 |
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$ |
13,338,000 |
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It is
currently anticipated that the shares of common stock purchased will be
delivered on or about December 4, 2009.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Global
Hunter Securities
Pali Capital, Inc.
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Knight
Capital Markets LLC
Source Capital Group,
Inc.
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This
prospectus supplement is dated November 30, 2009
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S-15
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S-16
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S-17
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S-17
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S-17
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S-17
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Prospectus
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This
document is in two parts. The first part is the prospectus
supplement, which describes the specific terms of this offering. The
second part, the accompanying prospectus, including the documents incorporated
by reference, provides more general information. The accompanying
prospectus was filed with our registration statement on Form S-3 (File No.
333-161319) with the Securities and Exchange Commission (the “SEC”) as part of a
“shelf” registration process. Under the shelf registration process,
we may offer to sell debt securities, common stock, preferred stock and
warrants, from time to time in one or more offerings, up to a total dollar
amount of $75 million (subject to a maximum, during a period of 12 calendar
months, of one-third of the market value of our common stock held by
non-affiliates if the market value of our common stock is less than $75
million). Generally, when we refer to this prospectus, we are
referring to both parts of this document combined. We urge you to
carefully read this prospectus supplement, the information incorporated by
reference, the accompanying prospectus and any free writing prospectus
distributed by us before buying any of the securities being offered under this
prospectus supplement. This prospectus supplement may add to, update or change
information contained in the accompanying prospectus. To the extent
that any statement that we make in this prospectus supplement is inconsistent
with statements made in the accompanying prospectus or any documents
incorporated by reference therein, the statements made in this prospectus
supplement will be deemed to modify or supersede those made in the accompanying
prospectus and such documents incorporated by reference therein.
You
should rely only on the information contained, or incorporated by reference, in
this prospectus supplement, contained, or incorporated by reference, in the
accompanying prospectus or contained in any free writing prospectus we have
distributed in connection with this offering. We have not authorized
anyone to provide you with different information. No dealer,
salesperson or other person is authorized to give any information or to
represent anything not contained in this prospectus supplement and the
accompanying prospectus. You should not rely on any unauthorized
information or representation. This prospectus supplement is an offer
to sell only the securities offered hereby, and only under circumstances and in
jurisdictions where it is lawful to do so. You should assume that the
information in this prospectus supplement, the accompanying prospectus and any
free writing prospectus distributed by us is accurate only as of the date on the
front of the applicable document and that any information we have incorporated
by reference is accurate only as of the date of the document incorporated by
reference, regardless of the time of delivery of this prospectus supplement, the
accompanying prospectus, any free writing prospectus or any sale of a
security.
We are not making any
representation to you regarding the legality of an investment in the shares of
our common stock by you under applicable law. You should consult with your own
legal advisors as to the legal, tax, business, financial and related aspects of
a purchase of the common stock.
Information
contained on or accessible through our website does not constitute part of this
prospectus.
Unless
otherwise mentioned or unless the context requires otherwise, all references in
this prospectus supplement to “Houston American Energy,” “Houston American,”
“Company,” “we,” “us,” and “our” or similar references refer to Houston American
Energy Corp. and its subsidiaries.
PROSPECTUS SUPPLEMENT SUMMARY
This
summary highlights certain information about us, this offering and information
appearing elsewhere in this prospectus supplement, in the accompanying
prospectus and in the documents we incorporate by reference. This
summary is not complete and does not contain all of the information that you
should consider before investing in our securities. To fully
understand this offering and its consequences to you, you should read this
entire prospectus supplement, the accompanying prospectus and any free writing
prospectus distributed by us carefully, including the information contained
under the heading “Risk Factors” in this prospectus supplement beginning on page
S-4, and the financial statements and other information incorporated by
reference in this prospectus supplement and the accompanying prospectus before
making an investment decision.
Houston
American Energy Corp.
Our
Business
Houston
American Energy Corp. is an oil and gas exploration and production
company. Our oil and gas exploration and production activities are
focused on properties in the U.S. onshore Gulf Coast region, principally Texas
and Louisiana, and development of concessions in the South American country of
Colombia. We seek to utilize the contacts and experience of our
executive officers, principally John F. Terwilliger and James Jacobs, to
identify favorable drilling opportunities, to use advanced seismic techniques to
define prospects and to form partnerships and joint ventures to spread the cost
and risks to us of drilling.
Recent
Developments
In June
2009, we entered into a farmout agreement with Shona Energy Limited (“Shona”)
pursuant to which we will pay 25% of designated Phase 1 geological and seismic
costs relating to the Serrania Contract for Exploration and Production relating
to the approximately 110,769 acre Serrania Block in Colombia and for which we
will receive a 12.5% interest in the Serrania Contract.
In
September 2009, we elected to participate for our percentage interest (12.5%) in
the Los Picachos Technical Evaluation Agreement (the “TEA”). The TEA was entered
into in August 2009 by and between the Columbian National Hydrocarbons Agency
(the “ANH”) and Hupecol Operating Co. LLC and encompasses an 86,235 acre region
located to the west and northwest of the Serrania block, which is located in the
municipalities of Uribe and La Macarena in the Department of Meta in the
Republic of Colombia. As a result of the election to participate, we agreed to
pay our proportionate share, or 12.5%, of the acquisition costs and costs for
the minimum work program contained in the TEA.
On
October 16, 2009, we announced the approval by the ANH of a Farmout Agreement
and Joint Operating Agreement with SK Energy Co. LTD., a Korean multinational
conglomerate (“SK”), relating to the CPO 4 Contract for Exploration and
Production (the “CPO 4 Contract”) covering the 345,452 net acre CPO 4 Block
located in the Western Llanos Basin in the Republic of Colombia. Under the Joint
Operating Agreement, retroactively effective as of May 31, 2009, SK will act as
operator of the CPO 4 Block and we agreed to pay 25.0% of all past and future
cost related to the CPO 4 block as well as an additional 12.5% of the Seismic
Acquisition Costs incurred during the Phase 1 Work Program, for which we will
receive a 25.0% interest in the CPO 4 Block. Our share of the past costs is
$194,584. The Phase 1 Work Program consists of reprocessing
approximately 400 kilometers of existing 2-D seismic data, the acquisition,
processing and interpretation of a 2-D seismic program containing approximately
620 kilometers of data and the drilling of two exploration wells. The Phase 1
Work Program is estimated to be completed by June 17, 2012. Our costs for the
entire Phase 1 Work Program are estimated to total approximately $15,000,000
over the next three years.
In
September 2009, we were advised that Hupecol LLC had retained Scotia Waterous
for purposes of evaluating a possible transaction (the “Transaction”) involving
the monetization of five exploration and production contracts covering
approximately 413,000 acres comprising the Leona Block, La Cuerva Block, Dorotea
Block, Las Garzas Block and Cabiona Block in the Republic of Colombia. The
Transaction may involve the sale of some or all of the assets and operations of
the subject properties, an exchange or trade of assets, or other similar
transaction and may be effected in a single transaction or a series of
transactions. Scotia Waterous has established a process whereby
interested parties may evaluate the Transaction with the objective of completing
one or more transactions before December 31, 2009.
We are an
investor in Hupecol and our interest in the assets and operations of Hupecol
that would be included in the Transaction represent a substantial portion of our
assets and operations in the Republic of Colombia and are our principal revenue
producing assets and operations. We intend to closely monitor the
nature and progress of the Transaction in order to protect the interests of our
company and our shareholders. However, we have no effective ability
to alter or prevent the Transaction and are unable to predict whether or not the
Transaction will in fact occur or the nature or timing of any such
transaction. Further, we are unable to estimate the actual value that
we might derive from any such transaction and whether any such transaction will
ultimately be beneficial to our company and our shareholders.
Each of
the foregoing developments is described more fully in our Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2009. You are
urged to refer to such Quarterly Report on Form 10-Q for more information
concerning the foregoing events.
Company
Information
Our
executive offices are located at 801 Travis, Suite 1425, Houston, Texas 77002,
and our telephone number is (713) 222-6966. Our corporate website is located at
www.houstonamericanenergy.com.
We make available free of charge through our Internet website our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to these reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act,
as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. Information on our website does not constitute
part of this prospectus or any prospectus supplement.
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Common
Stock Offered by Us
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3,000,000
shares
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Issue
Price
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$4.68
per share
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Common
Stock Outstanding After the Offering(1)
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31,000,772
shares
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Use
of Proceeds
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We
intend to use these net proceeds for general working capital purposes,
including funding our share of costs of development of properties in which
we hold interests.
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Nasdaq
Global Market Symbol
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HUSA
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Risk
Factors
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An
investment in our common stock involves a high degree of risk. Before
making an investment decision, investors should carefully consider the
“Risk Factors” beginning on page S-4 of this prospectus supplement, as
well as the other risks and uncertainties described in the documents that
we file with the SEC that are incorporated herein by
reference.
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(1)
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Based on actual number of shares
of common stock outstanding as of November 30, 2009 and assumes all shares
offered are sold. Does not include shares reserved for issuance upon the
exercise of options and warrants previously issued and outstanding on
November 30, 2009.
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Investing
in our securities involves a high degree of risk. You should carefully consider
the risk factors discussed below, together with all the other information
contained or incorporated by reference in this prospectus supplement and the
accompanying prospectus before making an investment
decision. Additional risks related to us and our securities may
be in our other filings with the SEC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, which we refer to as
the “Exchange Act.” In evaluating our company, the factors described
below should be considered carefully. The occurrence of one or more
of these events could significantly and adversely affect our business,
prospects, financial condition, results of operations and cash
flows.
A
substantial or extended decline in oil and natural gas prices may adversely
affect our business, financial condition or results of operations and our
ability to meet our capital expenditure obligations and financial
commitments.
The price
we receive for our oil and natural gas production heavily influences our
revenue, profitability, access to capital and future rate of growth. Oil and
natural gas are commodities and, therefore, their prices are subject to wide
fluctuations in response to relatively minor changes in supply and demand.
Historically, the markets for oil and natural gas have been volatile. These
markets will likely continue to be volatile in the future. The prices we receive
for our production, and the levels of our production, depend on numerous factors
beyond our control. These factors include, but are not limited to, the
following:
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changes
in global supply and demand for oil and natural
gas;
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the
actions of the Organization of Petroleum Exporting Countries, or
OPEC;
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the
price and quantity of imports of foreign oil and natural
gas;
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political
conditions, including embargoes, in or affecting other oil-producing
activity;
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the
level of global oil and natural gas exploration and production
activity;
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the
level of global oil and natural gas
inventories;
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technological
advances affecting energy consumption;
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the
price and availability of alternative
fuels.
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Lower oil
and natural gas prices may not only decrease our revenues on a per unit basis
but also may reduce the amount of oil and natural gas that we can produce
economically. Lower prices will also negatively impact the value of our proved
reserves. A substantial or extended decline in oil or natural gas prices may
materially and adversely affect our future business, financial condition,
results of operations, liquidity or ability to finance planned capital
expenditures.
We
May Be Affected by General Economic Conditions
The
disruption experienced in U.S. and global financial and credit markets, and the
accompanying economic contraction, during second half of 2008 and
continuing into 2009 has resulted in projected decreases in demand
for oil and natural gas, resulting in a sharp drop in energy prices, and has
affected the availability and cost of capital. Prolonged negative changes in
domestic and global economic conditions or disruptions of either or both of the
financial and credit markets may have a material adverse effect on our results
of operations, financial condition and liquidity. At this time, it is unclear
whether and to what extent the actions taken by the U.S. government and other
measures currently being implemented or contemplated, will mitigate the effects
of the crisis. With respect to Houston American Energy, while we have no
immediate need to access the credit markets in the foreseeable future, the
impact of the current crisis on our ability to obtain financing in the future,
if needed, and the cost and terms of same, is unclear. From an operating
standpoint, the current crisis has resulted in a steep decline in the price of
oil and natural gas, a marked decline in the value of our reserves, a
determination in March 2009 to temporarily shut-in production from our Colombian
wells and reduced revenues and profitability and, if prices continue to decline,
may result in deterioration of our financial position.
A
substantial percentage of our properties are undeveloped; therefore the risk
associated with our success is greater than would be the case if the majority of
our properties were categorized as proved developed producing.
Because a
substantial percentage of our properties are unproven or proved undeveloped, we
will require significant additional capital to prove and develop such properties
before they may become productive. At December 31, 2008, approximately 58.1% of
our proved reserves were producing. Further, because of the inherent
uncertainties associated with drilling for oil and gas, some of these properties
may never be developed to the extent that they result in positive cash flow.
Even if we are successful in our development efforts, it could take several
years for a significant portion of our undeveloped properties to be converted to
positive cash flow.
While our
current business plan is to fund the development costs with funds on hand, funds
received from this offering and cash flow from our other producing properties,
if such funds are not sufficient we may be forced to seek alternative sources
for cash, through the issuance of additional equity or debt securities,
increased borrowings or other means.
Drilling
for and producing oil and natural gas are high risk activities with many
uncertainties that could adversely affect our business, financial condition or
results of operations.
Our
future success will depend on the success of our exploitation, exploration,
development and production activities. Our oil and natural gas exploration and
production activities are subject to numerous risks beyond our control,
including the risk that drilling will not result in commercially viable oil or
natural gas production. Our decisions to purchase, explore, develop or otherwise
exploit prospects or properties will depend in part on the evaluation of data
obtained through geophysical and geological analyses, production data and
engineering studies, the results of which are often inconclusive or subject to
varying interpretations. Please read “—Reserve estimates depend on many
assumptions that may turn out to be inaccurate” (below) for a discussion of the
uncertainty involved in these processes. Our cost of drilling, completing and
operating wells is often uncertain before drilling commences. Overruns in
budgeted expenditures are common risks that can make a particular project
uneconomical. Further, many factors may curtail, delay or cancel drilling,
including the following:
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delays
imposed by or resulting from compliance with regulatory
requirements;
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pressure
or irregularities in geological
formations;
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shortages
of or delays in obtaining equipment and qualified
personnel;
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equipment
failures or accidents;
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adverse
weather conditions;
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reductions
in oil and natural gas prices;
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limitations
in the market for oil and natural
gas.
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If
oil and natural gas prices decrease, we may be required to take write-downs of
the carrying values of our oil and natural gas properties, potentially
negatively impacting the trading value of our securities.
Accounting
rules require that we review periodically the carrying value of our oil and
natural gas properties for possible impairment. Based on specific market factors
and circumstances at the time of prospective impairment reviews, and the
continuing evaluation of development plans, production data, economics and other
factors, we have and may be required to further write down the carrying value of
our oil and natural gas properties. A write-down could constitute a non-cash
charge to earnings. It is likely the cumulative effect of a write-down could
also negatively impact the trading price of our securities.
Reserve
estimates depend on many assumptions that may turn out to be inaccurate. Any
material inaccuracies in these reserve estimates or underlying assumptions will
materially affect the quantities and present value of our reserves.
The
process of estimating oil and natural gas reserves is complex. It requires
interpretations of available technical data and many assumptions, including
assumptions relating to economic factors. Any significant inaccuracies in these
interpretations or assumptions could materially affect the estimated quantities
and present value of reserves reported.
In order
to prepare our estimates, we must project production rates and timing of
development expenditures. We must also analyze available geological,
geophysical, production and engineering data. The extent, quality and
reliability of this data can vary. The process also requires economic
assumptions about matters such as oil and natural gas prices, drilling and
operating expenses, capital expenditures, taxes and availability of funds.
Therefore, estimates of oil and natural gas reserves are inherently
imprecise.
Actual
future production, oil and natural gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and natural
gas reserves most likely will vary from our estimates. Any significant variance
could materially affect the estimated quantities and present value of our
reserves. In addition, we may adjust estimates of proved reserves to reflect
production history, results of exploration and development activities,
prevailing oil and natural gas prices and other factors, many of which are
beyond our control. During the years ended December 31, 2007 and 2008, revisions
to prior estimates resulted in significant negative revisions to our proved
reserves. Negative revisions during fiscal year 2007 amounted to 57.7% of prior
year-end proved natural gas reserves and 40.2% of prior year-end proved oil
reserves. Product sales and negative revisions during fiscal year 2008 amounted
to 86.2% of prior year-end proved gas reserves and 83.4% of prior year-end
proved oil reserves.
You
should not assume that the present value of future net revenues from our proved
reserves, as reported from time to time, is the current market value of our
estimated oil and natural gas reserves. In accordance with SEC requirements, we
generally base the estimated discounted future net cash flows from our proved
reserves on prices and costs on the date of the estimate. Actual future prices
and costs may differ materially from those used in the present value estimate.
If future values decline or costs increase it could negatively impact our
ability to finance operations, and individual properties could cease being
commercially viable, affecting our decision to continue operations on producing
properties or to attempt to develop properties. All of these factors would have
a negative impact on earnings and net income, and most likely the trading price
of our securities.
We
are dependent upon third party operators of our oil and gas
properties.
Under the
terms of the Operating Agreements related to our oil and gas properties, third
parties act as the operator of our oil and gas wells and control the drilling
and operating activities to be conducted on our properties. Therefore, we have
limited control over certain decisions related to activities on our properties,
which could affect our results of operations. Decisions over which we have
limited control include:
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the
timing and amount of capital
expenditures;
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the
timing of initiating the drilling and recompleting of
wells;
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the
extent of operating costs; and
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the
level of ongoing production.
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Prospects
that we decide to drill may not yield oil or natural gas in commercially viable
quantities.
Our
prospects are properties on which we have identified what we believe, based on
available seismic and geological information, to be indications of oil or
natural gas. Our prospects are in various stages of evaluation, ranging from a
prospect that is ready to drill to a prospect that will require substantial
additional seismic data processing and interpretation. There is no way to
predict in advance of drilling and testing whether any particular prospect will
yield oil or natural gas in sufficient quantities to recover drilling or
completion costs or to be economically viable. This risk may be enhanced in our
situation, due to the fact that a significant percentage of our reserves are
currently unproved reserves. The use of seismic data and other technologies and
the study of producing fields in the same area will not enable us to know
conclusively prior to drilling whether oil or natural gas will be present or, if
present, whether oil or natural gas will be present in commercial quantities. We
cannot assure you that the analogies we draw from available data from other
wells, more fully explored prospects or producing fields will be applicable to
our drilling prospects.
We
may incur substantial losses and be subject to substantial liability claims as a
result of our oil and natural gas operations.
We are
not insured against all risks. Losses and liabilities arising from uninsured and
underinsured events could materially and adversely affect our business,
financial condition or results of operations. Our oil and natural gas
exploration and production activities are subject to all of the operating risks
associated with drilling for and producing oil and natural gas, including the
possibility of:
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environmental
hazards, such as uncontrollable flows of oil, natural gas, brine, well
fluids, toxic gas or other pollution into the environment, including
groundwater and shoreline
contamination;
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abnormally
pressured formations;
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mechanical
difficulties, such as stuck oil field drilling and service tools and
casing collapse;
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personal
injuries and death; and
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Any of
these risks could adversely affect our ability to conduct operations or result
in substantial losses to our company. We may elect not to obtain insurance if we
believe that the cost of available insurance is excessive relative to the risks
presented. In addition, pollution and environmental risks generally are not
fully insurable. If a significant accident or other event occurs and is not
fully covered by insurance, then it could adversely affect us.
We
are subject to complex laws that can affect the cost, manner or feasibility of
doing business.
Exploration,
development, production and sale of oil and natural gas are subject to extensive
federal, state, local and international regulation. We may be required to make
large expenditures to comply with governmental regulations. Matters subject to
regulation include:
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discharge
permits for drilling operations;
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reports
concerning operations;
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unitization
and pooling of properties; and
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Under
these laws, we could be liable for personal injuries, property damage and other
damages. Failure to comply with these laws also may result in the suspension or
termination of our operations and subject us to administrative, civil and
criminal penalties. Moreover, these laws could change in ways that substantially
increase our costs. Any such liabilities, penalties, suspensions, terminations
or regulatory changes could materially adversely affect our financial condition
and results of operations.
Our
operations may incur substantial liabilities to comply with the environmental
laws and regulations.
Our oil
and natural gas operations are subject to stringent federal, state and local
laws and regulations relating to the release or disposal of materials into the
environment or otherwise relating to environmental protection. These laws and
regulations may require the acquisition of a permit before drilling commences,
restrict the types, quantities and concentration of substances that can be
released into the environment in connection with drilling and production
activities, limit or prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas, and impose substantial
liabilities for pollution resulting from our operations. Failure to comply with
these laws and regulations may result in the assessment of administrative, civil
and criminal penalties, incurrence of investigatory or remedial obligations or
the imposition of injunctive relief. Changes in environmental laws and
regulations occur frequently, and any changes that result in more stringent or
costly waste handling, storage, transport, disposal or cleanup requirements
could require us to make significant expenditures to maintain compliance, and
may otherwise have a material adverse effect on our results of operations,
competitive position or financial condition as well as the industry in general.
Under these environmental laws and regulations, we could be held strictly liable
for the removal or remediation of previously released materials or property
contamination regardless of whether we were responsible for the release or if
our operations were standard in the industry at the time they were
performed.
Certain
U.S. federal income tax deductions currently available with respect to oil and
gas exploration and development may be eliminated as a result of future
legislation.
President
Obama’s Proposed Fiscal Year 2010 Budget includes proposed legislation that
would, if enacted into law, make significant changes to United States tax laws,
including the elimination of certain key U.S. federal income tax incentives
currently available to oil and natural gas exploration and production companies.
These changes include, but are not limited to, (i) the repeal of the percentage
depletion allowance for oil and natural gas properties, (ii) the elimination of
current deductions for intangible drilling and development costs, (iii) the
elimination of the deduction for certain domestic production activities, and
(iv) an extension of the amortization period for certain geological and
geophysical expenditures. It is unclear whether any such changes will be enacted
or how soon any such changes could become effective. The passage of any
legislation as a result of these proposals or any other similar changes in U.S.
federal income tax laws could eliminate certain tax deductions that are
currently available with respect to oil and gas exploration and development, and
any such change could negatively affect our financial condition and results of
operations.
The
adoption of climate change legislation by Congress could result in increased
operating costs and reduced demand for the oil and natural gas we
produce.
On June
26, 2009, the U.S. House of Representatives approved adoption of the “American
Clean Energy and Security Act of 2009,” also known as the “Waxman-Markey
cap-and-trade legislation” or ACESA. The purpose of ACESA is to control and
reduce emissions of “greenhouse gases,” or “GHGs,” in the United States. GHGs
are certain gases, including carbon dioxide and methane, that may be
contributing to warming of the Earth’s atmosphere and other climatic changes.
ACESA would establish an economy-wide cap on emissions of GHGs in the United
States and would require an overall reduction in GHG emissions of 17% (from 2005
levels) by 2020, and by over 80% by 2050. Under ACESA, most sources of GHG
emissions would be required to obtain GHG emission “allowances” corresponding to
their annual emissions of GHGs. The number of emission allowances issued each
year would decline as necessary to meet ACESA’s overall emission reduction
goals. As the number of GHG emission allowances declines each year, the cost or
value of allowances is expected to escalate significantly. The net effect of
ACESA will be to impose increasing costs on the combustion of carbon-based fuels
such as oil, refined petroleum products, and natural gas.
The U.S.
Senate has begun work on its own legislation for controlling and reducing
emissions of GHGs in the United States. If the Senate adopts GHG legislation
that is different from ACESA, the Senate legislation would need to be reconciled
with ACESA and both chambers would be required to approve identical legislation
before it could become law. President Obama has indicated that he is in support
of the adoption of legislation to control and reduce emissions of GHGs through
an emission allowance permitting system that results in fewer allowances being
issued each year but that allows parties to buy, sell and trade allowances as
needed to fulfill their GHG emission obligations. Although it is not possible at
this time to predict whether or when the Senate may act on climate change
legislation or how any bill approved by the Senate would be reconciled with
ACESA, any laws or regulations that may be adopted to restrict or reduce
emissions of GHGs would likely require us to incur increased operating costs,
and could have an adverse effect on demand for the oil and natural gas we
produce.
Our
operations in Colombia are subject to risks relating to political and economic
instability.
We
currently have interests in multiple oil and gas concessions in Colombia and
anticipate that operations in Colombia will constitute a substantial element of
our strategy going forward. The political climate in Colombia is unstable and
could be subject to radical change over a very short period of time. In the
event of a significant negative change in the political or economic climate in
Colombia, we may be forced to abandon or suspend our operations in
Colombia.
Our
operations in Colombia are controlled by operators which may carry out
transactions affecting our Colombian assets and operations without our
consent.
Our
operations in Colombia are substantial to a substantial degree of control by the
operators of the properties in which we hold interests in
Colombia. We are an investor in Hupecol and our interest in the
assets and operations of Hupecol represent a substantial portion of our assets
and operations in Colombia and are our principal assets and operations. During
2008, Hupecol sold its interest in the Caracara Association Contract, the
largest single prospect in terms of reserves and revenues in which we then held
an interest. Also, during 2008, Hupecol acquired an interest in the La Cuerva
Contract. In early March 2009, Hupecol determined to temporarily shut-in
production from our Colombian properties and, in the fourth quarter of 2009
Hupecol, commenced efforts to sell certain concessions in Colombia. It is
possible that Hupecol will carry out similar sales or acquisitions of prospects
or make similar decisions in the future. Our management intends to closely
monitor the nature and progress of future transactions by Hupecol in order to
protect our interests. However, we have no effective ability to alter or prevent
a transaction and are unable to predict whether or not any such transactions
will in fact occur or the nature or timing of any such transaction.
In
addition to Hupecol’s control of decisions regarding properties operated by
Hupecol in Colombia, as minority owners, we are subject to substantial control
of other properties in Colombia in which we hold interests that are operated by
SK and Shona. Our Columbian assets consist exclusively of minority,
non-operator project interests in certain Columbian assets owned and operated by
Hupecol, LLC, a 25% non-operated working interest in certain Columbian assets
owned and operated by S-K Energy Co. LTD and a 12.5% non-operated working
interest in certain Colombian assets owned and operated by Shona Energy
Ltd. Our passive investments in such Columbian assets constitute our
principal assets, and as a result, our financial results are directly affected
by the independent strategies and decisions of Hupecol, LLC, S-K Energy Co. LTD.
and Shona Energy Ltd.
Unless
we replace our oil and natural gas reserves, our reserves and production will
decline, which would adversely affect our cash flows and income.
Unless we
conduct successful development, exploitation and exploration activities or
acquire properties containing proved reserves, our proved reserves will decline
as those reserves are produced. Producing oil and natural gas reservoirs
generally are characterized by declining production rates that vary depending
upon reservoir characteristics and other factors. Our future oil and natural gas
reserves and production, and, therefore our cash flow and income, are highly
dependent on our success in efficiently developing and exploiting our current
reserves and economically finding or acquiring additional recoverable reserves.
If we are unable to develop, exploit, find or acquire additional reserves to
replace our current and future production, our cash flow and income will decline
as production declines, until our existing properties would be incapable of
sustaining commercial production.
Our
success depends on our management team and other key personnel, the loss of any
of whom could disrupt our business operations.
Our
success will depend on our ability to retain John F. Terwilliger, our principal
executive officer, and James Jacobs, our chief financial officer, and to attract
other experienced management and non-management employees, including engineers,
geoscientists and other technical and professional staff. We will depend, to a
large extent, on the efforts, technical expertise and continued employment of
such personnel and members of our management team. If members of our management
team should resign or we are unable to attract the necessary personnel, our
business operations could be adversely affected.
The
unavailability or high cost of drilling rigs, equipment, supplies, personnel and
oil field services could adversely affect our ability to execute on a timely
basis our exploration and development plans within our budget.
Shortages
or the high cost of drilling rigs, equipment, supplies or personnel could delay
or adversely affect our development and exploration operations. As the price of
oil and natural gas increases, the demand for production equipment and personnel
will likely also increase, potentially resulting, at least in the near-term, in
shortages of equipment and personnel. In addition, larger producers may be more
likely to secure access to such equipment by virtue of offering drilling
companies more lucrative terms. If we are unable to acquire access to such
resources, or can obtain access only at higher prices, not only would this
potentially delay our ability to convert our reserves into cash flow, but could
also significantly increase the cost of producing those reserves, thereby
negatively impacting anticipated net income.
If
our access to markets is restricted, it could negatively impact our production,
our income and ultimately our ability to retain our leases.
Market
conditions or the unavailability of satisfactory transportation arrangements may
hinder our access to oil and natural gas markets or delay our production. The
availability of a ready market for our oil and natural gas production depends on
a number of factors, including the demand for and supply of oil and natural gas
and the proximity of reserves to pipelines and terminal facilities. Our ability
to market our production depends in substantial part on the availability and
capacity of gathering systems, pipelines and processing facilities owned and
operated by third parties. Our failure to obtain such services on acceptable
terms could materially harm our business.
We may
operate in areas with limited or no access to pipelines, thereby necessitating
delivery by other means, such as trucking, or requiring compression facilities.
Such restrictions on our ability to sell our oil or natural gas have several
adverse affects, including higher transportation costs, fewer potential
purchasers (thereby potentially resulting in a lower selling price) or, in the
event we were unable to market and sustain production from a particular lease
for an extended time, possibly causing us to lose a lease due to lack of
production.
We
may need additional financing to support operations and future capital
commitments.
While we
presently believe that our operating cash flows and funds on hand and funds
provided by this offering will support our ongoing operations and anticipated
future capital requirements, a number of factors could result in our needing
additional financing, including reductions in oil and natural gas prices,
declines in production, unexpected developments in operations that could
decrease our revenues, increase our costs or require additional capital
contributions and commitments to new acquisition or drilling programs. In
particular, given our recent commitments to participate in additional properties
operated by Hupecol and our agreements to participate in the development of
additional prospects in Colombia operated by Shona and SK, we may be subject to
substantially greater calls for commitments to provide capital to support
development of our additional interests. We have no commitments to provide any
additional financing, if needed, and may be limited in our ability to obtain the
capital necessary to support operations, complete development, exploitation and
exploration programs or carry out new acquisition or drilling programs. We have
not thoroughly investigated whether this capital would be available, who would
provide it, and on what terms. If we are unable, on acceptable terms, to raise
the required capital, our business may be seriously harmed or even
terminated.
Competition
in the oil and natural gas industry is intense, which may adversely affect our
ability to compete.
We
operate in a highly competitive environment for acquiring properties, marketing
oil and natural gas and securing trained personnel. Many of our competitors
possess and employ financial, technical and personnel resources substantially
greater than ours, which can be particularly important in the areas in which we
operate. Those companies may be able to pay more for productive oil and natural
gas properties and exploratory prospects and to evaluate, bid for and purchase a
greater number of properties and prospects than our financial or personnel
resources permit. Our ability to acquire additional prospects and to find and
develop reserves in the future will depend on our ability to evaluate and select
suitable properties and to consummate transactions in a highly competitive
environment. Also, there is substantial competition for capital available for
investment in the oil and natural gas industry. We may not be able to compete
successfully in the future in acquiring prospective reserves, developing
reserves, marketing hydrocarbons, attracting and retaining quality personnel and
raising additional capital.
The
price of our common stock may fluctuate significantly, and this may make it
difficult for you to resell common stock when you want or at prices you find
attractive.
The price
of our common stock constantly changes. We expect that the market price of our
common stock will continue to fluctuate.
Our stock
price may fluctuate as a result of a variety of factors, many of which are
beyond our control. These factors include:
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quarterly
variations in our operating
results;
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operating
results that vary from the expectations of management, securities analysts
and investors;
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changes
in expectations as to our future financial
performance;
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announcements
by us, our partners or our competitors of leasing and drilling
activities;
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the
operating and securities price performance of other companies that
investors believe are comparable to
us;
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future
sales of our equity or equity-related
securities;
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changes
in general conditions in our industry and in the economy, the financial
markets and the domestic or international political
situation;
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fluctuations
in oil and gas prices;
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departures
of key personnel; and
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regulatory
considerations.
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In
addition, in recent years, the stock market in general has experienced extreme
price and volume fluctuations. This volatility has had a significant effect on
the market price of securities issued by many companies for reasons often
unrelated to their operating performance. These broad market fluctuations may
adversely affect our stock price, regardless of our operating
results.
The
sale of a substantial number of shares of our common stock may affect our stock
price.
Future
sales of substantial amounts of our common stock or equity-related securities in
the public market or privately, or the perception that such sales could occur,
could adversely affect prevailing trading prices of our common stock and could
impair our ability to raise capital through future offerings of equity or
equity-related securities. No prediction can be made as to the effect, if any,
that future sales of shares of common stock or the availability of shares of
common stock for future sale, will have on the trading price of our common
stock.
There is no
minimum amount required for this offering.
This
offering does not contain a minimum offering. Therefore, all of the
offering proceeds shall be deposited directly into an account of the
Company. Investors should not invest in this offering in the
expectation that the full $14,040,000 will be raised. We have an
immediate need for the proceeds of this offering to fund capital commitments
over the next year. If we do not raise any funds or sufficient funds
in this offering, we may be unable to fund its commitments and may need to
reduce our interest in various prospects or seek other forms of financing, which
sources may be unavailable to us.
We may allocate
the net proceeds from this offering in ways that you and other stockholders do
not approve.
We intend
to use the net proceeds from this offering for general working capital purposes,
including funding our financial obligations associated with development of our
interests in prospects in Colombia operated by Shona and SK
Energy. However, in general, our management will have broad
discretion in the application of the net proceeds from this offering and could
spend the proceeds in ways that do not necessarily improve our operating results
or enhance the value of our common stock.
Our
charter and bylaws, as well as provisions of Delaware law, could make it
difficult for a third party to acquire our company and also could limit the
price that investors are willing to pay in the future for shares of our common
stock.
Delaware
corporate law and our charter and bylaws contain provisions that could delay,
deter or prevent a change in control of our company or our management. These
provisions could also discourage proxy contests and make it more difficult for
our stockholders to elect directors and take other corporate actions without the
concurrence of our management or board of directors. These
provisions:
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authorize
our board of directors to issue “blank check” preferred stock, which is
preferred stock that can be created and issued by our board of directors,
without stockholder approval, with rights senior to those of our common
stock;
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provide
for a staggered board of directors and three-year terms for directors, so
that no more than one-third of our directors could be replaced at any
annual meeting;
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provide
that directors may be removed only for cause;
and
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establish
advance notice requirements for submitting nominations for election to the
board of directors and for proposing matters that can be acted upon by
stockholders at a meeting.
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We are
also subject to anti-takeover provisions under Delaware law, which could also
delay or prevent a change of control. Taken together, these provisions of our
charter, bylaws, and Delaware law may discourage transactions that otherwise
could provide for the payment of a premium over prevailing market prices of our
common stock and also could limit the price that investors are willing to pay in
the future for shares of our common stock.
Our
management owns a significant amount of our common stock, giving them influence
or control in corporate transactions and other matters, and their interests
could differ from those of other shareholders.
At
November 1, 2009, our directors and executive officers owned approximately 46.6%
of our outstanding common stock. As a result, our current directors and
executive officers are in a position to significantly influence or control the
outcome of matters requiring a shareholder vote, including the election of
directors, the adoption of any amendment to our certificate of incorporation or
bylaws, and the approval of mergers and other significant corporate
transactions. Such level of control of the company may delay or prevent a change
of control on terms favorable to the other shareholders and may adversely affect
the voting and other rights of other shareholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements contained in or incorporated by reference into this prospectus
supplement and the prospectus, our filings with the SEC and our public releases,
including, but not limited to, information regarding the status and progress of
our operating activities, the plans and objectives of our management,
assumptions regarding our future performance and plans, and any financial
guidance provided therein are forward-looking statements within the meaning of
Section 27A(i) of the Securities Act of 1933 and Section 21E(i) of the
Securities Exchange Act of 1934. The words “believe,” “may,” “will,” “estimate,”
“continues,” “anticipate,” “intend,” “foresee,” “expect,” “should,” “could,”
“plan,” “predict,” “project,” or their negatives and similar expressions
identify these forward-looking statements, although not all forward-looking
statements contain these identifying words.
The
forward-looking statements contained in this prospectus supplement and the
prospectus are based on our expectations, which reflect estimates and
assumptions made by our management. These estimates and assumptions reflect our
best judgment based on currently known market conditions and other factors.
Although we believe such estimates and assumptions to be reasonable, they are
inherently uncertain and involve a number of risks and uncertainties that are
beyond our control. In addition, management’s assumptions about future events
may prove to be inaccurate. Management cautions all readers that the
forward-looking statements contained in this prospectus are not guarantees of
future performance, and we cannot assure any reader that such statements will be
realized or the forward-looking events and circumstances will occur. Actual
results may differ materially from those anticipated or implied in the
forward-looking statements due to the factors listed in the “Risk Factors”
section and elsewhere in this prospectus supplement and the prospectus. All
forward-looking statements speak only as of the date of this prospectus
supplement. We do not intend to publicly update or revise any forward-looking
statements as a result of new information, future events or otherwise. These
cautionary statements qualify all forward-looking statements attributable to us,
or persons acting on our behalf. The risks, contingencies and uncertainties
relate to, among other matters, the following: our business strategy; our
financial position; our cash flow and liquidity; integration of acquisitions;
declines in the prices we receive for our oil and gas affecting our operating
results and cash flows; economic slowdowns that can adversely affect consumption
of oil and gas by businesses and consumers; uncertainties in estimating our oil
and gas reserves; replacing our oil and gas reserves; uncertainties in exploring
for and producing oil and gas; our inability to obtain financing necessary in
order to fund our operations, capital expenditures, and to meet our other
obligations; availability of drilling and production equipment and field service
providers; disruptions, capacity constraints in, or other limitations on the
pipeline systems which deliver our gas and other processing and transportation
considerations; competition in the oil and gas industry; our inability to retain
and attract key personnel; the effects of government regulation and permitting
and other legal requirements; political instability in Colombia which could
affect our right and ability to produce and exploit our holdings in that
country; weather patterns and poor field infrastructure which could affect our
ability to produce and exploit our holdings in Colombia; costs associated with
perfecting title to mineral rights in some of our properties; and, other factors
discussed under “Risk Factors.”
Other
factors besides those described in this prospectus, any prospectus supplement or
the documents we incorporate by reference herein could also affect our actual
results. These forward-looking statements are largely based on our expectations
and beliefs concerning future events, which reflect estimates and assumptions
made by our management. These estimates and assumptions reflect our best
judgment based on currently known market conditions and other factors relating
to our operations and business environment, all of which are difficult to
predict and many of which are beyond our control.
We
estimate that we will receive net proceeds of approximately $13.3 million from
the sale of the securities offered by this prospectus supplement and the
accompanying prospectus, after deducting our estimated offering expenses and the
estimated placement agent fees.
We intend
to use these net proceeds for general working capital purposes, including
funding our share of costs of development of properties in which we hold
interests.
Global
Hunter Securities LLC, Knight Capital Markets LLC, Pali Capital, Inc. and Source
Capital Group Inc., referred to as the placement agents, have entered into a
placement agency agreement with us in which they have agreed to act as placement
agents in connection with the offering. Subject to the terms and conditions
contained in the placement agency agreement, the placement agents are using
their best efforts to introduce us to selected institutional investors who will
purchase the shares. The placement agents have no obligation to buy any of the
shares from us nor are the placement agents required to arrange the purchase or
sale of any specific number or dollar amount of the shares, but have agreed to
use their best efforts to arrange for the sale of all of the
shares.
The
placement agency agreement provides that the obligations of the placement agents
and the investors are subject to certain conditions precedent, including the
absence of any material adverse changes in our business and the receipt of
customary legal opinions, letters and certificates.
We have
agreed to indemnify the placement agents and certain other persons against
certain liabilities under the Securities Act of 1933, as amended. The placement
agents have informed us that they will not engage in overallotment, stabilizing
transactions or syndicate covering transactions in connection with this
offering.
We have
agreed to pay the placement agents a fee equal to 5.0% of the proceeds of this
offering and to reimburse the placement agents for reasonable expenses that they
incur in connection with the offering in the amount of 1% of the gross proceeds
of this offering, but in no event greater than $75,000. The estimated offering
expenses payable by us, in addition to the placement agents’ fee, are
approximately $45,000, which includes our legal and accounting costs and various
other fees associated with registering and listing the shares offered
hereby.
The
following table shows the per share and total maximum fees we will pay to the
placement agents, assuming a maximum reimbursement of $75,000 and the sale of
all of the shares offered pursuant to this prospectus supplement:
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Per
share
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0.26 |
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Total
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777,000 |
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Because
there is no minimum offering amount required as a condition to closing, the
actual total may be less than the maximum amount set forth above.
This is a
brief summary of the material provisions of the placement agency agreement and
does not purport to be a complete statement of its terms and conditions. A copy
of the placement agency agreement will be filed with the SEC and incorporated by
reference into the registration statement of which this prospectus supplement
forms a part. See
“Where You Can Find More Information” on page S-16 of this prospectus
supplement.
The
transfer agent for our common stock to be issued in this offering is Standard
Registrar and Transfer.
Our
common stock is traded on the Nasdaq Global Market under the symbol
“HUSA”.
A
prospectus supplement and prospectus in electronic format may be made available
on the web sites maintained by the placement agents and the placement agents may
distribute the prospectus supplement and the accompanying prospectus
electronically.
Certain
legal matters with respect to the securities offered hereby will be passed upon
for us by Michael W. Sanders, Attorney at Law.
The
consolidated financial statements of Houston American Energy as of December 31,
2008, and the related consolidated statements of operations, stockholders’
equity (deficit) and cash flows for the year then ended have been incorporated
by reference herein and in the registration statement in reliance upon the
report of GBH CPAs, PC, independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The consolidated financial
statements of Houston American Energy as of December 31, 2007, and the related
consolidated statements of operations, stockholders’ equity (deficit) and cash
flows for the year then ended have been incorporated by reference herein and in
the registration statement in reliance upon the report of Malone & Bailey,
PC, independent registered public accounting firm, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The consolidated financial statements of Houston American
Energy as of December 31, 2006, and the related consolidated statements of
operations, stockholders’ equity (deficit) and cash flows for the year then
ended have been incorporated by reference herein and in the registration
statement in reliance upon the report of Ham, Langston & Brezina, L.LP.
(formerly Thomas Leger & Co., L.L.P.), independent registered public
accounting firm, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
Certain
estimates of our proved oil and gas reserves incorporated by reference herein
were based upon engineering reports prepared by Lonquist & Co, LLC,
independent petroleum consultants. These estimates are included
herein in reliance on the authority of such firm as an expert in such
matters.
WHERE YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and current reports, proxy statements and other information
electronically with the SEC. You may read and copy these reports, proxy
statements and other information at the SEC’s public reference room at 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the public reference room. You can
request copies of these documents by writing to the SEC and paying a fee for the
copying costs. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC, including us. The SEC’s Internet site can be
found at http://www.sec.gov. In addition, we make available free of charge on or
through our Internet site copies of these reports as soon as reasonably
practicable after we electronically file or furnish them to the SEC. Our
Internet site can be found at http://www.houstonamericanenergy.com.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We are
allowed to incorporate by reference information contained in documents that we
file with the SEC. This means that we can disclose important information to you
by referring you to those documents and that the information in this prospectus
is not complete. You should read the information incorporated by reference for
more detail. We incorporate by reference in two ways. First, we list below
certain documents that we have already filed with the SEC. The information in
these documents is considered part of this prospectus. Second, the information
in documents that we file in the future will update and supersede the current
information in, and be incorporated by reference in, this
prospectus.
We
incorporate by reference into this prospectus the documents listed below, any
filings we make with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of the initial registration statement of which
this prospectus is a part and prior to the effectiveness of the registration
statement, and any filings we make with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act from the date of this prospectus until
the termination of this offering (in each case, except for the information
furnished under Item 2.02 or Item 7.01 in any current report on Form 8-K and
Form 8-K/A):
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our
annual report on Form 10-K for the year ended December 31, 2008 filed with
the SEC on March 16, 2009 (File No.
001-32955);
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the
information specifically incorporated by reference into our annual report
on Form 10-K for the year ended December 31, 2008 from our definitive
proxy statement on Schedule 14A filed with the SEC on April 27, 2009 (File
No. 001-32955);
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our
quarterly reports on Form 10-Q for the quarterly period ended March 31,
2009, filed with the SEC on May 11, 2009, for the quarterly period ended
June 30, 2009, filed with the SEC on August 10, 2009, and for the
quarterly period ended September 30, 2009, filed with the SEC on November
5, 2009 (File No. 001-32955);
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our
current reports on Form 8-K filed with the SEC on January 22, 2009,
February 5, 2009, June 11, 2009, June 24, 2009, September 9, 2009,
September 23, 2009, October 16, 2009 and November 10, 2009 (File No.
001-32955);
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the
description of our common stock contained in our registration statement on
Form SB-2 filed with the SEC on June 6, 2006 (File No.
333-134756).
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We will
provide each person, including any beneficial owner, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated by
reference into this prospectus but not delivered with this prospectus upon
written or oral request at no cost to the requester. Requests should be directed
to: Houston American Energy Corp., 801 Travis, Suite 1425, Houston, Texas 77002,
Attn: Investor Relations, telephone: (713) 222-6966.
This
prospectus supplement is part of a registration statement on Form S-3 that we
filed with the SEC. That registration statement contains more information than
this prospectus supplement regarding us and our securities, including certain
exhibits and schedules. You can obtain a copy of the registration statement from
the SEC at the address listed above or from the SEC’s Internet
website.
You
should rely only on the information provided in and incorporated by reference
into this prospectus supplement or the prospectus. We have not authorized anyone
else to provide you with different information. You should not assume that the
information in this prospectus supplement or the prospectus is accurate as of
any date other than the date on the front cover of these
documents.
PROSPECTUS
$75,000,000
Common
Stock
Preferred
Stock
Debt
Securities
Warrants
Units
HOUSTON
AMERICAN ENERGY CORP.
We may,
from time to time in one or more offerings, offer and sell up to $75,000,000 in
the aggregate of common stock, preferred stock, debt securities, warrants to
purchase common stock, preferred stock or debt securities, or any combination of
the foregoing, either individually or as units comprised of one or more of the
other securities.
This
prospectus provides a general description of the securities we may offer. We
will provide the specific terms of the securities offered in one or more
supplements to this prospectus. We may also authorize one or more free writing
prospectuses to be provided to you in connection with these offerings. You
should read carefully this prospectus, the applicable prospectus supplement and
any related free writing prospectus, as well as any documents incorporated by
reference before you invest in any of our securities. This prospectus may not be used to
offer or sell any securities unless accompanied by the applicable prospectus
supplement
Our
common stock is listed on the Nasdaq Capital Market under the symbol
“HUSA.”
As of
August 10, 2009, the aggregate market value of our outstanding common stock held
by non-affiliates was approximately $35,521,034, based on 28,000,772 shares of
outstanding common stock, of which 15,580,830 shares are held by affiliates, and
a price of $2.86 per share, which was the last reported sale price of our common
stock on the Nasdaq Capital Market on August 10, 2009. As of the date of this
prospectus, we have not sold any securities pursuant to General Instruction
I.B.6. of Form S-3 during the prior 12 calendar month period that ends on, and
includes, the date of this prospectus.
Investing
in our securities involves risk. You should carefully review the risks and
uncertainties described under the heading “Risk Factors” beginning on page 5 of
this prospectus and contained in the applicable prospectus supplement and any
related free writing prospectus.
We will
sell these securities directly to investors, through agents designated from time
to time or to or through underwriters or dealers. For additional information on
the methods of sale, you should refer to the section entitled “Plan of
Distribution” in this prospectus. If any underwriters are involved in the sale
of any securities with respect to which this prospectus is being delivered, the
names of such underwriters and any applicable commissions or discounts will be
set forth in a prospectus supplement. The price to the public of such securities
and the net proceeds we expect to receive from such sale will also be set forth
in a prospectus supplement.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is August 26, 2009
TABLE
OF CONTENTS
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Page
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ABOUT
THIS PROSPECTUS
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1
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SUMMARY
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2
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RISK
FACTORS
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5
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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14
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USE
OF PROCEEDS
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14
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DESCRIPTION
OF COMMON STOCK AND PREFERRED STOCK
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15
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DESCRIPTION
OF DEBT SECURITIES
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19
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DESCRIPTION
OF WARRANTS
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27
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DESCRIPTION
OF UNITS
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29
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PLAN
OF DISTRIBUTION
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30
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LEGAL
MATTERS
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31
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EXPERTS
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31
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WHERE
YOU CAN FIND ADDITIONAL INFORMATION
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32
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INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
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32
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This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission, or the SEC, using a “shelf” registration process. Under
this shelf registration process, we may from time to time sell common stock,
preferred stock, debt securities or warrants to purchase common stock, preferred
stock or debt securities, or any combination of the foregoing, either
individually or as units comprised of one or more of the other securities, in
one or more offerings up to a total dollar amount of $75,000,000. We have
provided to you in this prospectus a general description of the securities we
may offer. Each time we sell securities under this shelf registration, we will,
to the extent required by law, provide a prospectus supplement that will contain
specific information about the terms of that offering. We may also authorize one
or more free writing prospectuses to be provided to you that may contain
material information relating to these offerings. The prospectus supplement and
any related free writing prospectus that we may authorize to be provided to you
may also add, update or change information contained in this prospectus or in
any documents that we have incorporated by reference into this prospectus. To
the extent there is a conflict between the information contained in this
prospectus and the prospectus supplement or any related free writing prospectus,
you should rely on the information in the prospectus supplement or the related
free writing prospectus; provided that if any statement in one of these
documents is inconsistent with a statement in another document having a later
date — for example, a document incorporated by reference in this prospectus or
any prospectus supplement or any related free writing prospectus — the statement
in the document having the later date modifies or supersedes the earlier
statement.
We have
not authorized any dealer, agent or other person to give any information or to
make any representation other than those contained or incorporated by reference
in this prospectus and any accompanying prospectus supplement. You must not rely
upon any information or representation not contained or incorporated by
reference in this prospectus or an accompanying prospectus supplement. This
prospectus and the accompanying prospectus supplement, if any, do not constitute
an offer to sell or the solicitation of an offer to buy any securities other
than the registered securities to which they relate, nor do this prospectus and
the accompanying prospectus supplement constitute an offer to sell or the
solicitation of an offer to buy securities in any jurisdiction to any person to
whom it is unlawful to make such offer or solicitation in such jurisdiction. You
should not assume that the information contained in this prospectus, any
applicable prospectus supplement or any related free writing prospectus is
accurate on any date subsequent to the date set forth on the front of the
document or that any information we have incorporated by reference is correct on
any date subsequent to the date of the document incorporated by reference (as
our business, financial condition, results of operations and prospects may have
changed since that date), even though this prospectus, any applicable prospectus
supplement or any related free writing prospectus is delivered or securities are
sold on a later date.
As
permitted by the rules and regulations of the SEC, the registration statement,
of which this prospectus forms a part, includes additional information not
contained in this prospectus. You may read the registration statement and the
other reports we file with the SEC at the SEC’s web site or at the SEC’s offices
described below under the heading “Where You Can Find Additional
Information.”
This
summary highlights selected information from this prospectus and does not
contain all of the information that you need to consider in making your
investment decision. You should carefully read the entire prospectus, including
the risks of investing discussed under “Risk Factors” beginning on page 5, the
information incorporated by reference, including our financial statements, and
the exhibits to the registration statement of which this prospectus is a part.
When used in this prospectus, the terms “Houston American Energy”, “we”, “our”,
“us” or the “Company” refer to Houston American Energy Corp. and its
consolidated subsidiaries, unless otherwise indicated or as the context
otherwise requires.
About
Houston American Energy Corp.
Houston
American Energy Corp. is an oil and gas exploration and production
company. Our oil and gas exploration and production activities are
focused on properties in the U.S. onshore Gulf Coast region, principally Texas
and Louisiana, and development of concessions in the South American country of
Colombia. We seek to utilize the contacts and experience of our
executive officers, principally John F. Terwilliger and James Jacobs, to
identify favorable drilling opportunities, to use advanced seismic techniques to
define prospects and to form partnerships and joint ventures to spread the cost
and risks to us of drilling.
Our
executive offices are located at 801 Travis, Suite 1425, Houston, Texas 77002,
and our telephone number is (713) 222-6966. Our corporate website is located at
www.houstonamericanenergy.com.
We make available free of charge through our Internet website our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act,
as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. Information on our website does not constitute
part of this prospectus or any prospectus supplement.
The
Securities We May Offer
We may
offer shares of our common stock and preferred stock, various series of debt
securities and warrants to purchase any of such securities, either individually
or in units, with a total value of up to $75,000,000 from time to time under
this prospectus, together with any applicable prospectus supplement and related
free writing prospectus, at prices and on terms to be determined by market
conditions at the time of offering. If we issue any debt securities at a
discount from their original stated principal amount, then, for purposes of
calculating the total dollar amount of all securities issued under this
prospectus, we will treat the initial offering price of the debt securities as
the total original principal amount of the debt securities. Each time we offer
securities under this prospectus, we will provide offerees with a prospectus
supplement that will describe the specific amounts, prices and other important
terms of the securities being offered, including, to the extent
applicable:
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Designation
or classification;
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aggregate
principal amount or aggregate offering
price;
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maturity,
if applicable;
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original
issue discount, if any;
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rates
and times of payment of interest or dividends, if
any;
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Redemption,
conversion, exchange or sinking fund terms, if
any;
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conversion
or exchange prices or rates, if any, and, if applicable, any provisions
for changes to or adjustments in the conversion or exchange prices or
rates and in the securities or other property receivable upon conversion
or exchange;
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restrictive
covenants, if any;
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voting
or other rights, if any; and
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important
United States federal income tax
considerations.
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A
prospectus supplement and any related free writing prospectus that we may
authorize to be provided to you may also add, update or change information
contained in this prospectus or in documents we have incorporated by reference.
However, no prospectus supplement or free writing prospectus will offer a
security that is not registered and described in this prospectus at the time of
the effectiveness of the registration statement of which this prospectus is a
part.
We may
sell the securities to or through underwriters, dealers or agents or directly to
purchasers. We, as well as any agents acting on our behalf, reserve the sole
right to accept and to reject in whole or in part any proposed purchase of
securities. Each prospectus supplement will set forth the names of any
underwriters, dealers or agents involved in the sale of securities described in
that prospectus supplement and any applicable fee, commission or discount
arrangements with them, details regarding any over-allotment option granted to
them, and net proceeds to us. The following is a summary of the securities we
may offer with this prospectus.
Common
Stock
We
currently have authorized 100,000,000 shares of common stock, par value $0.001
per share. We may offer shares of our common stock either alone or underlying
other registered securities convertible into or exercisable for our common
stock. Holders of our common stock are entitled to such dividends as our board
of directors may declare from time to time out of legally available funds,
subject to the preferential rights of the holders of any shares of our preferred
stock that are outstanding or that we may issue in the future. We pay dividends
from time to time as determined by our board of directors. Each holder of our
common stock is entitled to one vote per share. In this prospectus, we provide a
general description of, among other things, the rights and restrictions that
apply to holders of our common stock.
Preferred
Stock
We
currently have authorized 10,000,000 shares of preferred stock, par value $0.001
per share, none of which are outstanding. Under our certificate of
incorporation, our board of directors has the authority to issue shares of our
preferred stock in one or more series and to fix or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any series
of preferred stock. The particular terms of each class or series of preferred
stock, including redemption privileges, liquidation preferences, voting rights,
dividend rights and/or conversion rights, will be more fully described in the
applicable prospectus supplement relating to the preferred stock offered
thereby.
The
rights, preferences, privileges and restrictions granted to or imposed upon any
series of preferred stock that we offer and sell under this prospectus and
applicable prospectus supplements will be set forth in a certificate of
designation relating to the series. We will incorporate by reference into the
registration statement of which this prospectus is a part the form of any
certificate of designation that describes the terms of the series of preferred
stock we are offering before the issuance of shares of that series of preferred
stock. You should read any prospectus supplement and any free writing prospectus
that we may authorize to be provided to you related to the series of preferred
stock being offered, as well as the complete certificate of designation that
contains the terms of the applicable series of preferred stock.
Debt
Securities
We may
offer general debt obligations, which may be secured or unsecured, senior or
subordinated and convertible into shares of our common stock. In this
prospectus, we refer to the senior debt securities and the subordinated debt
securities together as the “debt securities.” We may issue debt securities under
a note purchase agreement or under an indenture to be entered between us and a
trustee; a form of the indenture is included as an exhibit to the registration
statement of which this prospectus is a part. The indenture does not limit the
amount of securities that may be issued under it and provides that debt
securities may be issued in one or more series. The senior debt securities will
have the same rank as all of our other indebtedness that is not subordinated.
The subordinated debt securities will be subordinated to our senior debt on
terms set forth in the applicable prospectus supplement. In addition, the
subordinated debt securities will be effectively subordinated to creditors and
preferred stockholders of our subsidiaries. Our board of directors will
determine the terms of each series of debt securities being offered. This
prospectus contains only general terms and provisions of the debt securities.
The applicable prospectus supplement will describe the particular terms of the
debt securities offered thereby. You should read any prospectus supplement and
any free writing prospectus that we may authorize to be provided to you related
to the series of debt securities being offered, as well as the complete note
agreements and/or indentures that contain the terms of the debt securities.
Forms of indentures are incorporated by reference as exhibits to the
registration statement of which this prospectus is a part, and supplemental
indentures and forms of debt securities containing the terms of debt securities
being offered will be incorporated by reference into the registration statement
of which this prospectus is a part from reports we file with the
SEC.
Warrants
We may
offer warrants for the purchase of shares of our common stock or preferred stock
or of debt securities. We may issue the warrants by themselves or together with
preferred stock, common stock or debt securities, and the warrants may be
attached to or separate from any offered securities. Each series of warrants
will be issued under a separate warrant agreement to be entered into between us
and the investors or a warrant agent. Our board of directors will determine the
terms of the warrants. This prospectus contains only general terms and
provisions of the warrants. The applicable prospectus supplement will describe
the particular terms of the warrants being offered thereby. You should read any
prospectus supplement and any free writing prospectus that we may authorize to
be provided to you related to the series of warrants being offered, as well as
the complete warrant agreements that contain the terms of the warrants. Specific
warrant agreements will contain additional important terms and provisions and
will be incorporated by reference into the registration statement of which this
prospectus is a part from reports we file with the SEC.
Units
We may
offer units consisting of our common stock or preferred stock, debt securities
and/or warrants to purchase any of these securities in one or more series. We
may evidence each series of units by unit certificates that we will issue under
a separate agreement. We may enter into unit agreements with a unit agent. Each
unit agent will be a bank or trust company that we select. We will indicate the
name and address of the unit agent in the applicable prospectus supplement
relating to a particular series of units. This prospectus contains only a
summary of certain general features of the units. The applicable prospectus
supplement will describe the particular features of the units being offered
thereby. You should read any prospectus supplement and any free writing
prospectus that we may authorize to be provided to you related to the series of
units being offered, as well as the complete unit agreements that contain the
terms of the units. Specific unit agreements will contain additional important
terms and provisions and will be incorporated by reference into the registration
statement of which this prospectus is a part from reports we file with the
SEC.
Investing
in our securities involves a high degree of risk. You should carefully consider
the risk factors discussed below, together with all the other information
contained or incorporated by reference in this prospectus, as may be updated by
our subsequent filings under the Securities Exchange Act of 1934, as amended, or
the Exchange Act, and the risk factors and other information contained in any
applicable prospectus supplement and in any related free writing prospectus in
connection with a specific offering, and in the documents incorporated herein or
therein before deciding whether to purchase any of the securities being
registered pursuant to the registration statement of which this prospectus is a
part. Each of the risk factors could adversely affect our business, operating
results and financial condition, as well as adversely affect the value of an
investment in our securities, and the occurrence of any of these risks might
cause you to lose all or part of your investment.
A
substantial or extended decline in oil and natural gas prices may adversely
affect our business, financial condition or results of operations and our
ability to meet our capital expenditure obligations and financial
commitments.
The price
we receive for our oil and natural gas production heavily influences our
revenue, profitability, access to capital and future rate of growth. Oil and
natural gas are commodities and, therefore, their prices are subject to wide
fluctuations in response to relatively minor changes in supply and demand.
Historically, the markets for oil and natural gas have been volatile. These
markets will likely continue to be volatile in the future. The prices we receive
for our production, and the levels of our production, depend on numerous factors
beyond our control. These factors include, but are not limited to, the
following:
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changes
in global supply and demand for oil and natural
gas;
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the
actions of the Organization of Petroleum Exporting Countries, or
OPEC;
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the
price and quantity of imports of foreign oil and natural
gas;
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political
conditions, including embargoes, in or affecting other oil-producing
activity;
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the
level of global oil and natural gas exploration and production
activity;
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the
level of global oil and natural gas
inventories;
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technological
advances affecting energy consumption;
and
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the
price and availability of alternative
fuels.
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Lower oil
and natural gas prices may not only decrease our revenues on a per unit basis
but also may reduce the amount of oil and natural gas that we can produce
economically. Lower prices will also negatively impact the value of our proved
reserves. A substantial or extended decline in oil or natural gas prices may
materially and adversely affect our future business, financial condition,
results of operations, liquidity or ability to finance planned capital
expenditures.
We
May Be Affected by General Economic Conditions
The
disruption experienced in U.S. and global credit markets during second half of
2008 has resulted in projected decreases in demand for oil and natural gas,
resulting in a sharp drop in energy prices, and has affected the availability
and cost of capital. Prolonged negative changes in domestic and global economic
conditions or disruptions of either or both of the financial and credit markets
may have a material adverse effect on our results of operations, financial
condition and liquidity. At this time, it is unclear whether and to what extent
the actions taken by the U.S. government, including, without limitation, the
passage of the Emergency Economic Stabilization Act of 2008 and other measures
currently being implemented or contemplated, will mitigate the effects of the
crisis. With respect to Houston American Energy, while we have no immediate need
to access the credit markets in the foreseeable future, the impact of the
current crisis on our ability to obtain financing in the future, if needed, and
the cost and terms of same, is unclear. From an operating standpoint, the
current crisis has resulted in a steep decline in the price of oil and natural
gas, a marked decline in the value of our reserves, a determination in March
2009 to temporarily shut-in production from our Colombian wells and will result
in reduced revenues and reduced profitability and, if prices continue to
decline, may result in deterioration of our financial position.
A
substantial percentage of our properties are undeveloped; therefore the risk
associated with our success is greater than would be the case if the majority of
our properties were categorized as proved developed producing.
Because a
substantial percentage of our properties are unproven or proved undeveloped, we
will require significant additional capital to prove and develop such properties
before they may become productive. At December 31, 2008, approximately 58.1% of
our proved reserves were producing. Further, because of the inherent
uncertainties associated with drilling for oil and gas, some of these properties
may never be developed to the extent that they result in positive cash flow.
Even if we are successful in our development efforts, it could take several
years for a significant portion of our undeveloped properties to be converted to
positive cash flow.
While our
current business plan is to fund the development costs with funds on hand and
cash flow from our other producing properties, if such funds are not sufficient
we may be forced to seek alternative sources for cash, through the issuance of
additional equity or debt securities, increased borrowings or other
means.
Drilling
for and producing oil and natural gas are high risk activities with many
uncertainties that could adversely affect our business, financial condition or
results of operations.
Our
future success will depend on the success of our exploitation, exploration,
development and production activities. Our oil and natural gas exploration and
production activities are subject to numerous risks beyond our control,
including the risk that drilling will not result in commercially viable oil or
natural gas production. Our decisions to purchase, explore, develop or otherwise
exploit prospects or properties will depend in part on the evaluation of data
obtained through geophysical and geological analyses, production data and
engineering studies, the results of which are often inconclusive or subject to
varying interpretations. Please read “—Reserve estimates depend on many
assumptions that may turn out to be inaccurate” (below) for a discussion of the
uncertainty involved in these processes. Our cost of drilling, completing and
operating wells is often uncertain before drilling commences. Overruns in
budgeted expenditures are common risks that can make a particular project
uneconomical. Further, many factors may curtail, delay or cancel drilling,
including the following:
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delays
imposed by or resulting from compliance with regulatory
requirements;
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pressure
or irregularities in geological
formations;
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shortages
of or delays in obtaining equipment and qualified
personnel;
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equipment
failures or accidents;
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adverse
weather conditions;
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reductions
in oil and natural gas prices;
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limitations
in the market for oil and natural
gas.
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If
oil and natural gas prices decrease, we may be required to take write-downs of
the carrying values of our oil and natural gas properties, potentially
negatively impacting the trading value of our securities.
Accounting
rules require that we review periodically the carrying value of our oil and
natural gas properties for possible impairment. Based on specific market factors
and circumstances at the time of prospective impairment reviews, and the
continuing evaluation of development plans, production data, economics and other
factors, we have and may be required to further write down the carrying value of
our oil and natural gas properties. A write-down could constitute a non-cash
charge to earnings. It is likely the cumulative effect of a write-down could
also negatively impact the trading price of our securities.
Reserve
estimates depend on many assumptions that may turn out to be inaccurate. Any
material inaccuracies in these reserve estimates or underlying assumptions will
materially affect the quantities and present value of our reserves.
The
process of estimating oil and natural gas reserves is complex. It requires
interpretations of available technical data and many assumptions, including
assumptions relating to economic factors. Any significant inaccuracies in these
interpretations or assumptions could materially affect the estimated quantities
and present value of reserves reported.
In order
to prepare our estimates, we must project production rates and timing of
development expenditures. We must also analyze available geological,
geophysical, production and engineering data. The extent, quality and
reliability of this data can vary. The process also requires economic
assumptions about matters such as oil and natural gas prices, drilling and
operating expenses, capital expenditures, taxes and availability of funds.
Therefore, estimates of oil and natural gas reserves are inherently
imprecise.
Actual
future production, oil and natural gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and natural
gas reserves most likely will vary from our estimates. Any significant variance
could materially affect the estimated quantities and present value of our
reserves. In addition, we may adjust estimates of proved reserves to reflect
production history, results of exploration and development activities,
prevailing oil and natural gas prices and other factors, many of which are
beyond our control. During the years ended December 31, 2007 and 2008, revisions
to prior estimates resulted in significant negative revisions to our proved
reserves. Negative revisions during fiscal year 2007 amounted to 57.7% of prior
year-end proved natural gas reserves and 40.2% of prior year-end proved oil
reserves. Product sales and negative revisions during fiscal year 2008 amounted
to 86.2% of prior year-end proved gas reserves and 83.4% of prior year-end
proved oil reserves.
You
should not assume that the present value of future net revenues from our proved
reserves, as reported from time to time, is the current market value of our
estimated oil and natural gas reserves. In accordance with SEC requirements, we
generally base the estimated discounted future net cash flows from our proved
reserves on prices and costs on the date of the estimate. Actual future prices
and costs may differ materially from those used in the present value estimate.
If future values decline or costs increase it could negatively impact our
ability to finance operations, and individual properties could cease being
commercially viable, affecting our decision to continue operations on producing
properties or to attempt to develop properties. All of these factors would have
a negative impact on earnings and net income, and most likely the trading price
of our securities.
We
are dependent upon third party operators of our oil and gas
properties.
Under the
terms of the Operating Agreements related to our oil and gas properties, third
parties act as the operator of our oil and gas wells and control the drilling
and operating activities to be conducted on our properties. Therefore, we have
limited control over certain decisions related to activities on our properties,
which could affect our results of operations. Decisions over which we have
limited control include:
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the
timing and amount of capital
expenditures;
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the
timing of initiating the drilling and recompleting of
wells;
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the
extent of operating costs; and
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the
level of ongoing production.
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Prospects
that we decide to drill may not yield oil or natural gas in commercially viable
quantities.
Our
prospects are properties on which we have identified what we believe, based on
available seismic and geological information, to be indications of oil or
natural gas. Our prospects are in various stages of evaluation, ranging from a
prospect that is ready to drill to a prospect that will require substantial
additional seismic data processing and interpretation. There is no way to
predict in advance of drilling and testing whether any particular prospect will
yield oil or natural gas in sufficient quantities to recover drilling or
completion costs or to be economically viable. This risk may be enhanced in our
situation, due to the fact that a significant percentage of our reserves are
currently unproved reserves. The use of seismic data and other technologies and
the study of producing fields in the same area will not enable us to know
conclusively prior to drilling whether oil or natural gas will be present or, if
present, whether oil or natural gas will be present in commercial quantities. We
cannot assure you that the analogies we draw from available data from other
wells, more fully explored prospects or producing fields will be applicable to
our drilling prospects.
We
may incur substantial losses and be subject to substantial liability claims as a
result of our oil and natural gas operations.
We are
not insured against all risks. Losses and liabilities arising from uninsured and
underinsured events could materially and adversely affect our business,
financial condition or results of operations. Our oil and natural gas
exploration and production activities are subject to all of the operating risks
associated with drilling for and producing oil and natural gas, including the
possibility of:
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environmental
hazards, such as uncontrollable flows of oil, natural gas, brine, well
fluids, toxic gas or other pollution into the environment, including
groundwater and shoreline
contamination;
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abnormally
pressured formations;
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mechanical
difficulties, such as stuck oil field drilling and service tools and
casing collapse;
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personal
injuries and death; and
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Any of
these risks could adversely affect our ability to conduct operations or result
in substantial losses to our company. We may elect not to obtain insurance if we
believe that the cost of available insurance is excessive relative to the risks
presented. In addition, pollution and environmental risks generally are not
fully insurable. If a significant accident or other event occurs and is not
fully covered by insurance, then it could adversely affect us.
We
are subject to complex laws that can affect the cost, manner or feasibility of
doing business.
Exploration,
development, production and sale of oil and natural gas are subject to extensive
federal, state, local and international regulation. We may be required to make
large expenditures to comply with governmental regulations. Matters subject to
regulation include:
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discharge
permits for drilling operations;
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reports
concerning operations;
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unitization
and pooling of properties; and
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Under
these laws, we could be liable for personal injuries, property damage and other
damages. Failure to comply with these laws also may result in the suspension or
termination of our operations and subject us to administrative, civil and
criminal penalties. Moreover, these laws could change in ways that substantially
increase our costs. Any such liabilities, penalties, suspensions, terminations
or regulatory changes could materially adversely affect our financial condition
and results of operations.
Our
operations may incur substantial liabilities to comply with the environmental
laws and regulations.
Our oil
and natural gas operations are subject to stringent federal, state and local
laws and regulations relating to the release or disposal of materials into the
environment or otherwise relating to environmental protection. These laws and
regulations may require the acquisition of a permit before drilling commences,
restrict the types, quantities and concentration of substances that can be
released into the environment in connection with drilling and production
activities, limit or prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas, and impose substantial
liabilities for pollution resulting from our operations. Failure to comply with
these laws and regulations may result in the assessment of administrative, civil
and criminal penalties, incurrence of investigatory or remedial obligations or
the imposition of injunctive relief. Changes in environmental laws and
regulations occur frequently, and any changes that result in more stringent or
costly waste handling, storage, transport, disposal or cleanup requirements
could require us to make significant expenditures to maintain compliance, and
may otherwise have a material adverse effect on our results of operations,
competitive position or financial condition as well as the industry in general.
Under these environmental laws and regulations, we could be held strictly liable
for the removal or remediation of previously released materials or property
contamination regardless of whether we were responsible for the release or if
our operations were standard in the industry at the time they were
performed.
Certain
U.S. federal income tax deductions currently available with respect to oil and
gas exploration and development may be eliminated as a result of future
legislation.
President
Obama’s Proposed Fiscal Year 2010 Budget includes proposed legislation that
would, if enacted into law, make significant changes to United States tax laws,
including the elimination of certain key U.S. federal income tax incentives
currently available to oil and natural gas exploration and production companies.
These changes include, but are not limited to, (i) the repeal of the percentage
depletion allowance for oil and natural gas properties, (ii) the elimination of
current deductions for intangible drilling and development costs, (iii) the
elimination of the deduction for certain domestic production activities, and
(iv) an extension of the amortization period for certain geological and
geophysical expenditures. It is unclear whether any such changes will be enacted
or how soon any such changes could become effective. The passage of any
legislation as a result of these proposals or any other similar changes in U.S.
federal income tax laws could eliminate certain tax deductions that are
currently available with respect to oil and gas exploration and development, and
any such change could negatively affect our financial condition and results of
operations.
The
adoption of climate change legislation by Congress could result in increased
operating costs and reduced demand for the oil and natural gas we
produce.
On June
26, 2009, the U.S. House of Representatives approved adoption of the “American
Clean Energy and Security Act of 2009,” also known as the “Waxman-Markey
cap-and-trade legislation” or ACESA. The purpose of ACESA is to control and
reduce emissions of “greenhouse gases,” or “GHGs,” in the United States. GHGs
are certain gases, including carbon dioxide and methane, that may be
contributing to warming of the Earth’s atmosphere and other climatic changes.
ACESA would establish an economy-wide cap on emissions of GHGs in the United
States and would require an overall reduction in GHG emissions of 17% (from 2005
levels) by 2020, and by over 80% by 2050. Under ACESA, most sources of GHG
emissions would be required to obtain GHG emission “allowances” corresponding to
their annual emissions of GHGs. The number of emission allowances issued each
year would decline as necessary to meet ACESA’s overall emission reduction
goals. As the number of GHG emission allowances declines each year, the cost or
value of allowances is expected to escalate significantly. The net effect of
ACESA will be to impose increasing costs on the combustion of carbon-based fuels
such as oil, refined petroleum products, and natural gas.
The U.S.
Senate has begun work on its own legislation for controlling and reducing
emissions of GHGs in the United States. If the Senate adopts GHG legislation
that is different from ACESA, the Senate legislation would need to be reconciled
with ACESA and both chambers would be required to approve identical legislation
before it could become law. President Obama has indicated that he is in support
of the adoption of legislation to control and reduce emissions of GHGs through
an emission allowance permitting system that results in fewer allowances being
issued each year but that allows parties to buy, sell and trade allowances as
needed to fulfill their GHG emission obligations. Although it is not possible at
this time to predict whether or when the Senate may act on climate change
legislation or how any bill approved by the Senate would be reconciled with
ACESA, any laws or regulations that may be adopted to restrict or reduce
emissions of GHGs would likely require us to incur increased operating costs,
and could have an adverse effect on demand for the oil and natural gas we
produce.
Our
operations in Colombia are subject to risks relating to political and economic
instability.
We
currently have interests in multiple oil and gas concessions in Colombia and
anticipate that operations in Colombia will constitute a substantial element of
our strategy going forward. The political climate in Colombia is unstable and
could be subject to radical change over a very short period of time. In the
event of a significant negative change in the political or economic climate in
Colombia, we may be forced to abandon or suspend our operations in
Colombia.
Our
operations in Colombia are controlled by Hupecol which may carry out
transactions affecting our Colombian assets and operations without our
consent.
We are an
investor in Hupecol and our interest in the assets and operations of Hupecol
represent substantially all of our assets and operations in Colombia and are our
principal assets and operations. During 2008, Hupecol sold its interest in the
Caracara Association Contract, the largest single prospect in terms of reserves
and revenues in which we then held an interest. Also, during 2008, Hupecol
acquired an interest in the La Cuerva Contract. In early March 2009, Hupecol
determined to temporarily shut-in production from our Colombian properties. It
is possible that Hupecol will carry out similar sales or acquisitions of
prospects or make similar decisions in the future. Our management intends to
closely monitor the nature and progress of future transactions by Hupecol in
order to protect our interests. However, we have no effective ability to alter
or prevent a transaction and are unable to predict whether or not any such
transactions will in fact occur or the nature or timing of any such
transaction.
Unless
we replace our oil and natural gas reserves, our reserves and production will
decline, which would adversely affect our cash flows and income.
Unless we
conduct successful development, exploitation and exploration activities or
acquire properties containing proved reserves, our proved reserves will decline
as those reserves are produced. Producing oil and natural gas reservoirs
generally are characterized by declining production rates that vary depending
upon reservoir characteristics and other factors. Our future oil and natural gas
reserves and production, and, therefore our cash flow and income, are highly
dependent on our success in efficiently developing and exploiting our current
reserves and economically finding or acquiring additional recoverable reserves.
If we are unable to develop, exploit, find or acquire additional reserves to
replace our current and future production, our cash flow and income will decline
as production declines, until our existing properties would be incapable of
sustaining commercial production.
Our
success depends on our management team and other key personnel, the loss of any
of whom could disrupt our business operations.
Our
success will depend on our ability to retain John F. Terwilliger, our principal
executive officer, and James Jacobs, our chief financial officer, and to attract
other experienced management and non-management employees, including engineers,
geoscientists and other technical and professional staff. We will depend, to a
large extent, on the efforts, technical expertise and continued employment of
such personnel and members of our management team. If members of our management
team should resign or we are unable to attract the necessary personnel, our
business operations could be adversely affected.
The
unavailability or high cost of drilling rigs, equipment, supplies, personnel and
oil field services could adversely affect our ability to execute on a timely
basis our exploration and development plans within our budget.
Shortages
or the high cost of drilling rigs, equipment, supplies or personnel could delay
or adversely affect our development and exploration operations. As the price of
oil and natural gas increases, the demand for production equipment and personnel
will likely also increase, potentially resulting, at least in the near-term, in
shortages of equipment and personnel. In addition, larger producers may be more
likely to secure access to such equipment by virtue of offering drilling
companies more lucrative terms. If we are unable to acquire access to such
resources, or can obtain access only at higher prices, not only would this
potentially delay our ability to convert our reserves into cash flow, but could
also significantly increase the cost of producing those reserves, thereby
negatively impacting anticipated net income.
If
our access to markets is restricted, it could negatively impact our production,
our income and ultimately our ability to retain our leases.
Market
conditions or the unavailability of satisfactory transportation arrangements may
hinder our access to oil and natural gas markets or delay our production. The
availability of a ready market for our oil and natural gas production depends on
a number of factors, including the demand for and supply of oil and natural gas
and the proximity of reserves to pipelines and terminal facilities. Our ability
to market our production depends in substantial part on the availability and
capacity of gathering systems, pipelines and processing facilities owned and
operated by third parties. Our failure to obtain such services on acceptable
terms could materially harm our business.
We may
operate in areas with limited or no access to pipelines, thereby necessitating
delivery by other means, such as trucking, or requiring compression facilities.
Such restrictions on our ability to sell our oil or natural gas have several
adverse affects, including higher transportation costs, fewer potential
purchasers (thereby potentially resulting in a lower selling price) or, in the
event we were unable to market and sustain production from a particular lease
for an extended time, possibly causing us to lose a lease due to lack of
production.
We
may need additional financing to support operations and future capital
commitments.
While we
presently believe that our operating cash flows and funds on hand will support
our ongoing operations and anticipated future capital requirements, a number of
factors could result in our needing additional financing, including reductions
in oil and natural gas prices, declines in production, unexpected developments
in operations that could decrease our revenues, increase our costs or require
additional capital contributions and commitments to new acquisition or drilling
programs. We have no commitments to provide any additional financing, if needed,
and may be limited in our ability to obtain the capital necessary to support
operations, complete development, exploitation and exploration programs or carry
out new acquisition or drilling programs. We have not thoroughly investigated
whether this capital would be available, who would provide it, and on what
terms. If we are unable, on acceptable terms, to raise the required capital, our
business may be seriously harmed or even terminated.
Competition
in the oil and natural gas industry is intense, which may adversely affect our
ability to compete.
We
operate in a highly competitive environment for acquiring properties, marketing
oil and natural gas and securing trained personnel. Many of our competitors
possess and employ financial, technical and personnel resources substantially
greater than ours, which can be particularly important in the areas in which we
operate. Those companies may be able to pay more for productive oil and natural
gas properties and exploratory prospects and to evaluate, bid for and purchase a
greater number of properties and prospects than our financial or personnel
resources permit. Our ability to acquire additional prospects and to find and
develop reserves in the future will depend on our ability to evaluate and select
suitable properties and to consummate transactions in a highly competitive
environment. Also, there is substantial competition for capital available for
investment in the oil and natural gas industry. We may not be able to compete
successfully in the future in acquiring prospective reserves, developing
reserves, marketing hydrocarbons, attracting and retaining quality personnel and
raising additional capital.
The
price of our common stock may fluctuate significantly, and this may make it
difficult for you to resell common stock when you want or at prices you find
attractive.
The price
of our common stock constantly changes. We expect that the market price of our
common stock will continue to fluctuate.
Our stock
price may fluctuate as a result of a variety of factors, many of which are
beyond our control. These factors include:
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quarterly
variations in our operating
results;
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operating
results that vary from the expectations of management, securities analysts
and investors;
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changes
in expectations as to our future financial
performance;
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announcements
by us, our partners or our competitors of leasing and drilling
activities;
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the
operating and securities price performance of other companies that
investors believe are comparable to
us;
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future
sales of our equity or equity-related
securities;
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changes
in general conditions in our industry and in the economy, the financial
markets and the domestic or international political
situation;
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fluctuations
in oil and gas prices;
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departures
of key personnel; and
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regulatory
considerations.
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In
addition, in recent years, the stock market in general has experienced extreme
price and volume fluctuations. This volatility has had a significant effect on
the market price of securities issued by many companies for reasons often
unrelated to their operating performance. These broad market fluctuations may
adversely affect our stock price, regardless of our operating
results.
The
sale of a substantial number of shares of our common stock may affect our stock
price.
Future
sales of substantial amounts of our common stock or equity-related securities in
the public market or privately, or the perception that such sales could occur,
could adversely affect prevailing trading prices of our common stock and could
impair our ability to raise capital through future offerings of equity or
equity-related securities. No prediction can be made as to the effect, if any,
that future sales of shares of common stock or the availability of shares of
common stock for future sale, will have on the trading price of our common
stock.
Our
charter and bylaws, as well as provisions of Delaware law, could make it
difficult for a third party to acquire our company and also could limit the
price that investors are willing to pay in the future for shares of our common
stock.
Delaware
corporate law and our charter and bylaws contain provisions that could delay,
deter or prevent a change in control of our company or our management. These
provisions could also discourage proxy contests and make it more difficult for
our stockholders to elect directors and take other corporate actions without the
concurrence of our management or board of directors. These
provisions:
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authorize
our board of directors to issue “blank check” preferred stock, which is
preferred stock that can be created and issued by our board of directors,
without stockholder approval, with rights senior to those of our common
stock;
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provide
for a staggered board of directors and three-year terms for directors, so
that no more than one-third of our directors could be replaced at any
annual meeting;
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provide
that directors may be removed only for cause;
and
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establish
advance notice requirements for submitting nominations for election to the
board of directors and for proposing matters that can be acted upon by
stockholders at a meeting.
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We are
also subject to anti-takeover provisions under Delaware law, which could also
delay or prevent a change of control. Taken together, these provisions of our
charter, bylaws, and Delaware law may discourage transactions that otherwise
could provide for the payment of a premium over prevailing market prices of our
common stock and also could limit the price that investors are willing to pay in
the future for shares of our common stock.
Our
management owns a significant amount of our common stock, giving them influence
or control in corporate transactions and other matters, and their interests
could differ from those of other shareholders.
At August
10, 2009, our directors and executive officers owned approximately 46.6% of our
outstanding common stock. As a result, our current directors and executive
officers are in a position to significantly influence or control the outcome of
matters requiring a shareholder vote, including the election of directors, the
adoption of any amendment to our certificate of incorporation or bylaws, and the
approval of mergers and other significant corporate transactions. Such level of
control of the company may delay or prevent a change of control on terms
favorable to the other shareholders and may adversely affect the voting and
other rights of other shareholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements contained in or incorporated by reference into this prospectus, our
filings with the SEC and our public releases, including, but not limited to,
information regarding the status and progress of our operating activities, the
plans and objectives of our management, assumptions regarding our future
performance and plans, and any financial guidance provided therein are
forward-looking statements within the meaning of Section 27A(i) of the
Securities Act of 1933 and Section 21E(i) of the Securities Exchange Act of
1934. The words “believe,” “may,” “will,” “estimate,” “continues,” “anticipate,”
“intend,” “foresee,” “expect,” “should,” “could,” “plan,” “predict,” “project,”
or their negatives and similar expressions identify these forward-looking
statements, although not all forward-looking statements contain these
identifying words.
The
forward-looking statements contained in this prospectus are largely based on our
expectations, which reflect estimates and assumptions made by our management.
These estimates and assumptions reflect our best judgment based on currently
known market conditions and other factors. Although we believe such estimates
and assumptions to be reasonable, they are inherently uncertain and involve a
number of risks and uncertainties that are beyond our control. In addition,
management’s assumptions about future events may prove to be inaccurate.
Management cautions all readers that the forward-looking statements contained in
this prospectus are not guarantees of future performance, and we cannot assure
any reader that such statements will be realized or the forward-looking events
and circumstances will occur. Actual results may differ materially from those
anticipated or implied in the forward-looking statements due to the factors
listed in the “Risk Factors” section and elsewhere in this prospectus. All
forward-looking statements speak only as of the date of this prospectus. We do
not intend to publicly update or revise any forward-looking statements as a
result of new information, future events or otherwise. These cautionary
statements qualify all forward-looking statements attributable to us, or persons
acting on our behalf. The risks, contingencies and uncertainties relate to,
among other matters, the following: our business strategy; our financial
position; our cash flow and liquidity; integration of acquisitions; declines in
the prices we receive for our oil and gas affecting our operating results and
cash flows; economic slowdowns that can adversely affect consumption of oil and
gas by businesses and consumers; uncertainties in estimating our oil and gas
reserves; replacing our oil and gas reserves; uncertainties in exploring for and
producing oil and gas; our inability to obtain financing necessary in order to
fund our operations, capital expenditures, and to meet our other obligations;
availability of drilling and production equipment and field service providers;
disruptions, capacity constraints in, or other limitations on the pipeline
systems which deliver our gas and other processing and transportation
considerations; competition in the oil and gas industry; our inability to retain
and attract key personnel; the effects of government regulation and permitting
and other legal requirements; political instability in Colombia which could
affect our right and ability to produce and exploit our holdings in that
country; weather patterns and poor field infrastructure which could affect our
ability to produce and exploit our holdings in Colombia; costs associated with
perfecting title to mineral rights in some of our properties; and, other factors
discussed under “Risk Factors.”
Other
factors besides those described in this prospectus, any prospectus supplement or
the documents we incorporate by reference herein could also affect our actual
results. These forward-looking statements are largely based on our expectations
and beliefs concerning future events, which reflect estimates and assumptions
made by our management. These estimates and assumptions reflect our best
judgment based on currently known market conditions and other factors relating
to our operations and business environment, all of which are difficult to
predict and many of which are beyond our control.
Except as
described in any prospectus supplement and any free writing prospectus in
connection with a specific offering, we currently intend to use the net proceeds
from the sale of the securities offered under this prospectus for general
corporate purposes, including working capital.
When we
offer a particular series of securities, we will describe the intended use of
the net proceeds from that offering in a prospectus supplement.
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK
The
following description of our common stock and preferred stock, together with any
additional information we include in any applicable prospectus supplement or any
related free writing prospectus, summarizes the material terms and provisions of
our common stock and the preferred stock that we may offer under this
prospectus. While the terms we have summarized below will apply generally to any
future common stock or preferred stock that we may offer, we will describe the
particular terms of any class or series of these securities in more detail in
the applicable prospectus supplement. For the complete terms of our common stock
and preferred stock, please refer to our certificate of incorporation and our
amended and restated bylaws that are incorporated by reference into the
registration statement of which this prospectus is a part or may be incorporated
by reference in this prospectus or any applicable prospectus supplement. The
terms of these securities may also be affected by Delaware General Corporation
Law. The summary below and that contained in any applicable prospectus
supplement or any related free writing prospectus are qualified in their
entirety by reference to our certificate of incorporation and our amended and
restated bylaws.
Common
Stock
We are
authorized to issue 100,000,000 shares of common stock, par value $0.001 per
share, of which 28,000,772 shares were issued and outstanding as of August 10,
2009. Additional shares of authorized common stock may be issued, as authorized
by our board of directors from time to time, without stockholder approval,
except as may be required by applicable securities exchange requirements. The
holders of common stock possess exclusive voting rights in us, except to the
extent our board of directors specifies voting power with respect to any other
class of securities issued in the future. Each holder of our common stock is
entitled to one vote for each share held of record on each matter submitted to a
vote of stockholders, including the election of directors. Stockholders do not
have any right to cumulate votes in the election of directors.
Subject
to preferences that may be granted to the holders of preferred stock, each
holder of our common stock is entitled to share ratably in distributions to
stockholders and to receive ratably such dividends as may be declared by our
board of directors out of funds legally available therefor. In the event of our
liquidation, dissolution or winding up, the holders of our common stock will be
entitled to receive, after payment of all of our debts and liabilities and of
all sums to which holders of any preferred stock may be entitled, the
distribution of any of our remaining assets. Holders of our common stock have no
conversion, exchange, sinking fund, redemption or appraisal rights (other than
such as may be determined by our board of directors in its sole discretion) and
have no preemptive rights to subscribe for any of our securities.
All of
the outstanding shares of our common stock are, and the shares of common stock
issued upon the conversion of any securities convertible into our common stock
will be, fully paid and non-assessable. The shares of common stock offered by
this prospectus or upon the conversion of any preferred stock or debt securities
or exercise of any warrants offered pursuant to this prospectus, when issued and
paid for, will also be, fully paid and non-assessable.
Securities
Exchange Listing
Our
common stock is listed on the Nasdaq Capital Market under the symbol
“HUSA.”
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Standard Registrar and
Transfer Company.
Preferred
Stock
We are
authorized to issue 10,000,000 shares of preferred stock, par value $0.001 per
share, none of which are issued and outstanding as of the date of this
prospectus. Our board of directors is authorized to classify or reclassify any
unissued portion of our authorized shares of preferred stock to provide for the
issuance of shares of other classes or series, including preferred stock in one
or more series. We may issue preferred stock from time to time in one or more
class or series, with the exact terms of each class or series established by our
board of directors. Our board of directors may issue preferred stock with voting
and other rights that could adversely affect the voting power of the holders of
our common stock without seeking stockholder approval. Additionally, the
issuance of preferred stock may have the effect of decreasing the market price
of the common stock and may adversely affect the voting power of holders of
common stock and reduce the likelihood that common stockholders will receive
dividend payments and payments upon liquidation.
The
rights, preferences, privileges and restrictions of the preferred stock of each
series will be fixed by the certificate of designation relating to each series.
We will incorporate by reference into the registration statement of which this
prospectus is a part the form of any certificate of designation that describes
the terms of the series of preferred stock we are offering before the issuance
of the related series of preferred stock. The applicable prospectus supplement
will specify the terms of the series of preferred stock we are offering,
including, but not limited to:
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the
distinctive designation and the maximum number of shares in the
series;
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the
number of shares we are offering and purchase price per
share;
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the
liquidation preference, if any;
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the
terms on which dividends, if any, will be
paid;
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the
voting rights, if any, on the shares of the
series;
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the
terms and conditions, if any, on which the shares of the series shall be
convertible into, or exchangeable for, shares of any other class or
classes of capital stock;
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the
terms on which the shares may be redeemed, if at
all;
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any
listing of the preferred stock on any securities exchange or
market;
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a
discussion of any material or special United States federal income tax
considerations applicable to the preferred stock;
and
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any
or all other preferences, rights, restrictions, including restrictions on
transferability, and qualifications of shares of the
series.
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The
issuance of preferred stock may delay, deter or prevent a change in
control.
The
description of preferred stock above and the description of the terms of a
particular series of preferred stock in any applicable prospectus supplement are
not complete. You should refer to the applicable certificate of designation for
complete information.
The
General Corporation Law of the State of Delaware, the state of our
incorporation, provides that the holders of preferred stock will have the right
to vote separately as a class on any proposal involving fundamental changes in
the rights of holders of that preferred stock. This right is in addition to any
voting rights that may be provided for in the applicable certificate of
designation.
Anti-Takeover
Effects of Provisions of our Charter Documents and Delaware Law
The
following is a summary of certain provisions of Delaware law, our certificate of
incorporation and our amended and restated bylaws. This summary does not purport
to be complete and is qualified in its entirety by reference to the corporate
law of Delaware and our certificate of incorporation and amended and restated
bylaws.
Certificate
of Incorporation and Bylaws
Preferred Stock. Under our
certificate of incorporation, our board of directors has the power to authorize
the issuance of up to 10,000,000 shares of preferred stock, all of which are
currently undesignated, and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
further vote or action by our stockholders. The issuance of preferred stock
may:
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delay,
defer or prevent a change in
control;
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discourage
bids for our common stock at a premium over the market price of our common
stock;
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adversely
affect the voting and other rights of the holders of our common stock;
and
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discourage
acquisition proposals or tender offers for our shares and, as a
consequence, inhibit fluctuations in the market price of our shares that
could result from actual or rumored takeover
attempts.
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Advance Notice Requirement.
Stockholder nominations of individuals for election to our board of
directors and stockholder proposals of other matters to be brought before an
annual meeting of our stockholders must comply with the advance notice
procedures set forth in our amended and restated bylaws. Generally, to be
timely, such notice must be received at our principal executive offices no later
than the date specified in our proxy statement released to stockholders in
connection with the preceding year’s annual meeting of stockholders, which date
shall be not earlier than the 90th day, nor later than the close of business on
the 70th day, prior to the first anniversary of the date of the preceding year’s
annual meeting of stockholders.
Special Meeting Requirements.
Our amended and restated bylaws provide that special meetings of our
stockholders may only be called at the request of our board of directors or
holders of at least ten percent (10%) of the shares entitled to vote at a
meeting. Only such business shall be considered at a special meeting as shall
have been stated in the notice for such meeting.
No Cumulative Voting. Our
certificate of incorporation does not include a provision for cumulative voting
for directors.
Classified Board; Removal of
Director. Our certificate of incorporation provides that the members of
our board of directors are divided into three classes as nearly equal as
possible. Each class is elected for a three-year term. At each annual meeting of
shareholders, approximately one-third of the members of the board of directors
are elected for a three-year term and the other directors remain in office until
their three-year terms expire. Furthermore, our certificate of incorporation
provides that no director may be removed without the affirmative vote of the
holders of at least two-thirds of the voting power of the outstanding capital
stock entitled to vote for the election of directors. Thus, control of the board
of directors cannot be changed in one year without removing the directors by a
vote of two-thirds of the stockholders; rather, at least two annual meetings
must be held before a majority of the members of the board of directors could be
changed.
Indemnification. Our
certificate of incorporation and our bylaws, as amended, provide that we will
indemnify our officers and directors against losses they incur in investigations
and legal proceedings resulting from their services to us, which may include
service in connection with takeover defense measures.
Delaware Anti-Takeover
Statute.
We are
subject to Section 203 of the Delaware General Corporation Law, an anti-takeover
law. In general, Section 203 prohibits, with some exceptions, a publicly held
Delaware corporation from engaging in a “business combination” with any
“interested stockholder” for a period of three years following the date that
stockholder became an interested stockholder, unless:
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prior
to that date, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the
stockholder becoming an interested
stockholder;
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upon
consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares of voting stock outstanding (but not the voting stock owned by the
interested stockholder) those shares owned by persons who are directors
and officers and by excluding employee stock plans in which employee
participants do not have the right to determine whether shares held
subject to the plan will be tendered in a tender or exchange offer;
or
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on
or subsequent to that date, the business combination is approved by the
board of directors of the corporation and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66-2/3% of the outstanding voting stock that
is not owned by the interested
stockholder.
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Section
203 defines “business combination” to include any of the following:
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any
merger or consolidation involving the corporation and the interested
stockholder;
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any
sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested
stockholder;
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subject
to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder;
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any
transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder;
or
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the
receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
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In
general, Section 203 defines an “interested stockholder” as any person who,
together with the person’s affiliates and associates, beneficially owns, or
within three years prior to the determination of interested stockholder status
did beneficially own, 15% or more of the outstanding voting stock of the
corporation.
The above
provisions may deter a hostile takeover or delay a change in control of
management or us.
DESCRIPTION OF DEBT SECURITIES
General
The debt
securities that we may issue may constitute debentures, notes, bonds or other
evidences of indebtedness of Houston American Energy Corp., to be issued in one
or more series, which may include senior debt securities, subordinated debt
securities and senior subordinated debt securities. The particular terms of any
series of debt securities we may offer, including the extent to which the
general terms set forth below may be applicable to a particular series, will be
described in a prospectus supplement relating to such series.
Debt
securities that we may issue may be issued under a senior indenture between us
and a trustee, or a subordinated indenture between us and a trustee
(collectively, the “indenture”). We have incorporated by reference forms of the
indentures as exhibits to the registration statement of which this prospectus is
a part. If we enter into any revised indenture or indenture supplement, we will
file a copy of that supplement with the SEC.
THE
FOLLOWING DESCRIPTION IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE INDENTURE.
IT DOES NOT RESTATE THE INDENTURE IN ITS ENTIRETY. THE INDENTURE IS GOVERNED BY
THE TRUST INDENTURE ACT OF 1939. THE TERMS OF THE DEBT SECURITIES INCLUDE THOSE
STATED IN THE INDENTURE AND THOSE MADE PART OF THE INDENTURE BY REFERENCE TO THE
TRUST INDENTURE ACT. WE URGE YOU TO READ THE INDENTURE BECAUSE IT, AND NOT THIS
DESCRIPTION, DEFINES YOUR RIGHTS AS A HOLDER OF THE DEBT
SECURITIES.
The
indenture contains no covenant or provision which affords debt holders
protection in the event of a highly leveraged transaction.
Information
You Will Find in the Prospectus Supplement
The
indenture provides that we may issue debt securities from time to time in one or
more series by resolution of our board of directors or by means of a
supplemental indenture, and that we may denominate the debt securities and make
them payable in foreign currencies. The indenture does not limit the aggregate
principal amount of debt securities that can be issued thereunder. The
prospectus supplement for a series of debt securities will provide information
relating to the terms of the series of debt securities being offered, which may
include:
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the
title and denominations of the debt securities of the
series;
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any
limit on the aggregate principal amount of the debt securities of the
series;
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the
date or dates on which the principal and premium, if any, with respect to
the debt securities of the series are payable or the method of
determination thereof;
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the
rate or rates, which may be fixed or variable, at which the debt
securities of the series shall bear interest, if any, or the method of
calculating and/or resetting such rate or rates of
interest;
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the
dates from which such interest shall accrue or the method by which such
dates shall be determined and the basis upon which interest shall be
calculated;
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the
interest payment dates for the series of debt securities or the method by
which such dates will be determined, the terms of any deferral of interest
and any right of ours to extend the interest payments
periods;
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the
place or places where the principal and interest on the series of debt
securities will be payable;
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the
terms and conditions upon which debt securities of the series may be
redeemed, in whole or in part, at our option or
otherwise;
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our
obligation, if any, to redeem, purchase, or repay debt securities of the
series pursuant to any sinking fund or other specified event or at the
option of the holders and the terms of any such redemption, purchase, or
repayment;
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the
terms, if any, upon which the debt securities of the series may be
convertible into or exchanged for other securities, including, among other
things, the initial conversion or exchange price or rate and the
conversion or exchange period;
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if
the amount of principal, premium, if any, or interest with respect to the
debt securities of the series may be determined with reference to an index
or formula, the manner in which such amounts will be
determined;
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if
any payments on the debt securities of the series are to be made in a
currency or currencies (or by reference to an index or formula) other than
that in which such securities are denominated or designated to be payable,
the currency or currencies (or index or formula) in which such payments
are to be made and the terms and conditions of such
payments;
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any
changes or additions to the provisions of the indenture dealing with
defeasance, including any additional covenants that may be subject to our
covenant defeasance option;
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the
currency or currencies in which payment of the principal and premium, if
any, and interest with respect to debt securities of the series will be
payable, or in which the debt securities of the series shall be
denominated, and the particular provisions applicable thereto in
accordance with the indenture;
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the
portion of the principal amount of debt securities of the series which
will be payable upon declaration of acceleration or provable in bankruptcy
or the method by which such portion or amount shall be
determined;
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whether
the debt securities of the series will be secured or guaranteed and, if
so, on what terms;
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any
addition to or change in the events of default with respect to the debt
securities of the series;
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the
identity of any trustees, authenticating or paying agents, transfer agents
or registrars;
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the
applicability of, and any addition to or change in, the covenants
currently set forth in the
indenture;
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the
subordination, if any, of the debt securities of the series and terms of
the subordination;
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any
other terms of the debt securities of the series;
and
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whether
securities of the series shall be issuable as registered securities or
bearer securities (with or without interest coupons), and any restrictions
applicable to the offering, sale or delivery of such bearer securities and
the terms upon which such bearer securities of a series may be exchanged
for registered securities, and vice
versa.
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Holders
of debt securities may present debt securities for exchange in the manner, at
the places, and subject to the restrictions set forth in the debt securities,
the indenture, and the prospectus supplement. We will provide these services
without charge, other than any tax or other governmental charge payable in
connection therewith, but subject to the limitations provided in the indenture,
any board resolution establishing such debt securities and any applicable
indenture supplement. Debt securities in bearer form and the coupons, if any,
appertaining thereto will be transferable by delivery.
Senior
Debt
We may
issue senior debt securities under the indenture and any coupons that will
constitute part of our senior debt. Unless otherwise set forth in the applicable
indenture supplement or in any board resolution establishing such debt
securities and described in a prospectus supplement, the senior debt securities
will be senior unsecured obligations, ranking equally with all of our existing
and future senior unsecured debt. The senior debt securities will be senior to
all of our subordinated debt and junior to any secured debt we may incur as to
the assets securing such debt.
Subordinated
Debt
We may
issue subordinated debt securities under the indenture and any coupons that will
constitute part of such subordinated debt. These subordinated debt securities
will be subordinate and junior in right of payment, to the extent and in the
manner set forth in the indenture and any applicable indenture supplement, to
all of our senior indebtedness.
If this
prospectus is being delivered in connection with a series of subordinated debt
securities, the accompanying prospectus supplement or the information
incorporated by reference will set forth the approximate amount of senior
indebtedness, if any, outstanding as of the end of our most recent fiscal
quarter.
Senior
Subordinated Debt
We may
issue senior subordinated debt securities under the indenture and any coupons
that will constitute part of our senior subordinated debt. These senior
subordinated debt securities will be, to the extent and in the manner set forth
in the indenture, subordinate and junior in right of payment to all of our
“senior indebtedness” and senior to our other subordinated debt. See the
discussions above under “—Senior Debt” and “—Subordinated Debt” for a more
detailed explanation of our senior and subordinated indebtedness.
Interest
Rate
Debt
securities that bear interest will do so at a fixed rate or a floating rate. We
may sell, at a discount below the stated principal amount, any debt securities
which bear no interest or which bear interest at a rate that at the time of
issuance is below the prevailing market rate. The relevant prospectus supplement
will describe the special United States federal income tax considerations
applicable to:
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any
discounted debt securities; and
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any
debt securities issued at par which are treated as having been issued at a
discount for United States federal income tax
purposes.
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Registered
Global Securities
We may
issue registered debt securities of a series in the form of one or more fully
registered global securities. We will deposit the registered global security
with a depositary or with a nominee for a depositary identified in the
prospectus supplement relating to such series. The global security or global
securities will represent and will be in a denomination or aggregate
denominations equal to the portion of the aggregate principal amount of
outstanding registered debt securities of the series to be represented by the
registered global security or securities. Unless it is exchanged in whole or in
part for debt securities in definitive registered form, a registered global
security may not be transferred, except as a whole in three cases:
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by
the depositary for the registered global security to a nominee of the
depositary;
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by
a nominee of the depositary to the depositary or another nominee of the
depositary; and
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by
the depositary or any nominee to a successor of the depositary or a
nominee of the successor.
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The
prospectus supplement relating to a series of debt securities will describe the
specific terms of the depositary arrangement concerning any portion of that
series of debt securities to be represented by a registered global security. We
anticipate that the following provisions will generally apply to all depositary
arrangements.
Upon the
issuance of a registered global security, the depositary will credit, on its
book-entry registration and transfer system, the principal amounts of the debt
securities represented by the registered global security to the accounts of
persons that have accounts with the depositary. These persons are referred to as
“participants.” Any underwriters, agents or debtors participating in the
distribution of debt securities represented by the registered global security
will designate the accounts to be credited. Only participants or persons that
hold interests through participants will be able to beneficially own interests
in a registered global security. The depositary for a global security will
maintain records of beneficial ownership interests in a registered global
security for participants. Participants or persons that hold through
participants will maintain records of beneficial ownership interests in a global
security for persons other than participants. These records will be the only
means to transfer beneficial ownership in a registered global
security.
The laws
of some states may require that specified purchasers of securities take physical
delivery of the securities in definitive form. These laws may limit the ability
of those persons to own, transfer or pledge beneficial interests in global
securities.
So long
as the depositary, or its nominee, is the registered owner of a registered
global security, the depositary or its nominee will be considered the sole owner
or holder of the debt securities represented by the registered global security
for all purposes under the indenture. Except as set forth below, owners of
beneficial interests in a registered global security:
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may
not have the debt securities represented by a registered global security
registered in their names;
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will
not receive or be entitled to receive physical delivery of debt securities
represented by a registered global security in definitive form;
and
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will
not be considered the owners or holders of debt securities represented by
a registered global security under the
indenture.
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Accordingly,
each person owning a beneficial interest in a registered global security must
rely on the procedures of the depositary for the registered global security and,
if the person is not a participant, on the procedures of the participant through
which the person owns its interests, to exercise any rights of a holder under
the indenture applicable to the registered global security.
We
understand that, under existing industry practices, if we request any action of
holders, or if an owner of a beneficial interest in a registered global security
desires to give or take any action which a holder is entitled to give or take
under the indenture, the depositary for the registered global security would
authorize the participants holding the relevant beneficial interests to give or
take the action, and the participants would authorize beneficial owners owning
through the participants to give or take the action or would otherwise act upon
the instructions of beneficial owners holding through them.
Payment
of Interest on and Principal of Registered Global Securities
We will
make principal, premium, if any, and interest payments on debt securities
represented by a registered global security registered in the name of a
depositary or its nominee to the depositary or its nominee as the registered
owner of the registered global security. None of Houston American Energy, the
trustee, or any paying agent for debt securities represented by a registered
global security will have any responsibility or liability for:
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any
aspect of the records relating to, or payments made on account of,
beneficial ownership interests in such registered global
security;
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maintaining,
supervising, or reviewing any records relating to beneficial ownership
interests;
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the
payments to beneficial owners of the global security of amounts paid to
the depositary or its nominee; or
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any
other matter relating to the actions and practices of the depositary, its
nominee or any of its participants.
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We expect
that the depositary, upon receipt of any payment of principal, premium or
interest in respect of the global security, will immediately credit
participants’ accounts with payments in amounts proportionate to their
beneficial interests in the principal amount of a registered global security as
shown on the depositary’s records. We also expect that payments by participants
to owners of beneficial interests in a registered global security held through
participants will be governed by standing instructions and customary practices.
This is currently the case with the securities held for the accounts of
customers registered in “street name.” Such payments will be the responsibility
of participants.
Exchange
of Registered Global Securities
We may
issue debt securities in definitive form in exchange for the registered global
security if both of the following occur:
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the
depositary for any debt securities represented by a registered global
security is at any time unwilling or unable to continue as depositary or
ceases to be a clearing agency registered under the Exchange Act;
and
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we
do not appoint a successor depositary within 90
days.
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In
addition, we may, at any time, determine not to have any of the debt securities
of a series represented by one or more registered global securities. In this
event, we will issue debt securities of that series in definitive form in
exchange for all of the registered global security or securities representing
those debt securities.
Our
Covenants
The
indenture includes covenants by us, including among other things that we will
make all payments of principal and interest at the times and places required.
The board resolution or supplemental indenture establishing each series of debt
securities may contain additional covenants, including covenants which could
restrict our right to incur additional indebtedness or liens and to take certain
actions with respect to our businesses and assets.
Events
of Default
Unless
otherwise indicated in the applicable prospectus supplement, the following will
be events of default under the indenture with respect to each series of debt
securities issued under the indenture:
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failure
to pay when due any interest on any debt security of that series that
continues for 30 days;
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failure
to pay when due the principal of, or premium, if any, on, any debt
security of that series;
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default
in the payment of any sinking fund installment with respect to any debt
security of that series when due and
payable;
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failure
to perform any other covenant or agreement of ours under the indenture or
the supplemental indenture with respect to that series or the debt
securities of that series, continued for 90 days after written notice to
us by the trustee or holders of at least 25% in aggregate principal amount
of the outstanding debt securities of the series to which the covenant or
agreement relates;
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certain
events of bankruptcy, insolvency or similar proceedings affecting us and
our subsidiaries; and
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any
other event of default specified in any supplemental indenture under which
such series of debt securities is
issued.
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Except as
to certain events of bankruptcy, insolvency or similar proceedings affecting us
and except as provided in the applicable prospectus supplement, if any event of
default shall occur and be continuing with respect to any series of debt
securities under the indenture, either the trustee or the holders of at least
25% in aggregate principal amount of outstanding debt securities of such series
may accelerate the maturity of all debt securities of such series. Upon certain
events of bankruptcy, insolvency or similar proceedings affecting us, the
principal, premium, if any, and interest on all debt securities of each series
shall be immediately due and payable.
After any
such acceleration, but before a judgment or decree based on acceleration has
been obtained by the trustee, the holders of a majority in aggregate principal
amount of each affected series of debt securities may waive all defaults with
respect to such series and rescind and annul such acceleration if all events of
default, other than the non-payment of accelerated principal, have been cured,
waived or otherwise remedied.
No holder
of any debt securities will have any right to institute any proceeding with
respect to the indenture or for any remedy under the indenture, unless such
holder shall have previously given to the trustee written notice of a continuing
event of default and the holders of at least 25% in aggregate principal amount
of the outstanding debt securities of the relevant series shall have made
written request and offered indemnity satisfactory to the trustee to institute
such proceeding as trustee, and the trustee shall not have received from the
holders of a majority in aggregate principal amount of the outstanding debt
securities of such series a direction inconsistent with such request and shall
have failed to institute such proceeding within 60 days. However, such
limitations do not apply to a suit instituted by a holder of a debt security for
enforcement of payment of the principal of and premium, if any, or interest on
such debt security on or after the respective due dates expressed in such debt
security.
Supplemental
Indentures
We and
the trustee may, at any time and from time to time, without prior notice to or
consent of any holders of debt securities after issuance of such debt
securities, enter into one or more supplemental indentures to, among other
things:
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add
guarantees to or secure any series of debt
securities;
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add
any additional Events of Default;
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provide
for the succession of another person pursuant to the provisions of the
indenture relating to consolidations, mergers and sales of assets and the
assumption by such successor of our covenants, agreements, and
obligations, or to otherwise comply with the provisions of the indenture
relating to consolidations, mergers, and sales of
assets;
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surrender
any right or power conferred upon us under the indenture or to add to our
covenants further covenants, restrictions, conditions or provisions for
the protection of the holders of all or any series of debt
securities;
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cure
any ambiguity or to correct or supplement any provision contained in the
indenture, in any supplemental indenture or in any debt securities that
may be defective or inconsistent with any other provision contained
therein, so long as any such action does not adversely affect the
interests of the holders of debt securities of any series in any material
respect;
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add
or change or eliminate any of the provisions of the indenture to extent as
shall be necessary to permit or facilitate the issuance of debt securities
in bearer form, registrable or not registrable as to principal, and with
or without interest coupons;
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add
to or change any of the provisions of the indenture to permit the
defeasance and discharge of any series of debt securities pursuant to the
indenture;
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change,
or eliminate any of the provisions of the indenture provided that any such
change or elimination shall become effective only when there are no debt
securities outstanding of any series created prior to the execution of
such supplemental indenture;
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evidence
and provide for the acceptance of appointment by a successor or separate
trustee; and
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establish
the form or terms of debt securities of any series and to make any change
that does not adversely affect the interests of the holders of debt
securities.
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With the
consent of the holders of at least a majority in principal amount of debt
securities of each series affected by such supplemental indenture (each series
voting as one class), we and the trustee may enter into one or more supplemental
indentures for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the indenture or modifying in any manner
the rights of the holders of debt securities of each such
series.
Notwithstanding
our rights and the rights of the trustee to enter into one or more supplemental
indentures with the consent of the holders of debt securities of the affected
series as described above, no such supplemental indenture to be entered into
after issuance of the debt securities shall, without the consent of the holder
of each outstanding debt security of the affected series, among other
things:
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change
the final maturity of the principal of, or any installment of interest on,
any debt securities;
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reduce
the principal amount of any debt securities or the rate of interest on any
debt securities;
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change
the currency in which any debt securities are
payable;
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release
any security interest that may have been granted with respect to such debt
securities;
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impair
the right of the holders to conduct a proceeding for any remedy available
to the trustee;
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reduce
the percentage in principal amount of any series of debt securities whose
holders must consent to an amendment or supplemental
indenture;
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modify
the ranking or priority of the
securities;
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reduce
any premium payable upon the redemption of any debt securities or change
the time at which any debt security may be redeemed;
or
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make
any change that adversely affects the relative rights of holders of
subordinated debt securities with respect to senior debt
securities.
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Satisfaction
and Discharge of the Indenture; Defeasance
Except to
the extent set forth in a supplemental indenture with respect to any series of
debt securities, we, at our election, may discharge the indenture and the
indenture shall generally cease to be of any further effect with respect to that
series of debt securities if (a) we have delivered to the trustee for
cancellation all debt securities of that series (with certain limited
exceptions) or (b) all debt securities of that series not previously delivered
to the trustee for cancellation shall have become due and payable, or are by
their terms to become due and payable within one year or are to be called for
redemption within one year, and we have deposited with the trustee the entire
amount sufficient to pay at maturity or upon redemption all such debt
securities.
In
addition, we have a “legal defeasance option” (pursuant to which we may
terminate, with respect to the debt securities of a particular series, all of
our obligations under such debt securities and the indenture with respect to
such debt securities) and a “covenant defeasance option” (pursuant to which we
may terminate, with respect to the debt securities of a particular series, our
obligations with respect to such debt securities under certain specified
covenants contained in the indenture). If we exercise our legal defeasance
option with respect to a series of debt securities, payment of such debt
securities may not be accelerated because of an event of default. If we exercise
our covenant defeasance option with respect to a series of debt securities,
payment of such debt securities may not be accelerated because of an event of
default related to the specified covenants.
We may
exercise our legal defeasance option or our covenant defeasance option with
respect to the debt securities of a series only if we irrevocably deposit in
trust with the trustee cash or U.S. government obligations (as defined in the
indenture) for the payment of principal, premium, if any, and interest with
respect to such debt securities to maturity or redemption, as the case may be.
In addition, to exercise either of our defeasance options, we must comply with
certain other conditions, including the delivery to the trustee of an opinion of
counsel to the effect that the holders of debt securities of such series will
not recognize income, gain or loss for Federal income tax purposes as a result
of such defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance had not occurred (and, in the case of legal defeasance only,
such opinion of counsel must be based on a ruling from the Internal Revenue
Service or other change in applicable Federal income tax law).
The
trustee will hold in trust the cash or U.S. government obligations deposited
with it as described above and will apply the deposited cash and the proceeds
from deposited U.S. government obligations to the payment of principal, premium,
if any, and interest with respect to the debt securities of the defeased series.
In the case of subordinated debt securities, the money and U.S. government
obligations held in trust will not be subject to the subordination provisions of
the indenture.
Mergers,
Consolidations and Certain Sales of Assets
Under the
proposed form of indenture, we may not (1) consolidate with or merge into any
other person or entity or permit any other person or entity to consolidate with
or merge into us in a transaction in which we are not the surviving entity, or
(2) transfer, lease or dispose of all or substantially all of our assets to any
other person or entity unless:
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the
resulting, surviving or transferee entity shall be a corporation organized
and existing under the laws of the United States or any state thereof and
such resulting, surviving or transferee entity shall expressly assume, by
supplemental indenture, all of our obligations under the debt securities
and the indenture;
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immediately
after giving effect to such transaction (and treating any indebtedness
which becomes an obligation of the resulting, surviving or transferee
entity as a result of such transaction as having been incurred by such
entity at the time of such transaction), no default or event of default
would occur or be continuing; and
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we
shall have delivered to the trustee an officers’ certificate and an
opinion of counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the
indenture.
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Governing
Law
The
indenture and the debt securities will be governed by the laws of the State of
New York.
No
Personal Liability of Directors, Officers, Employees and
Stockholders
No
director, officer, incorporator or stockholder of Houston American Energy, as
such, shall have any liability for any obligations of Houston American Energy
under the debt securities or the indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation, solely by reason of
his, her, or its status as director, officer, incorporator or stockholder of
Houston American Energy. By accepting a debt security, each holder waives and
releases all such liability, but only such liability. The waiver and release are
part of the consideration for issuance of the debt securities. Nevertheless,
such waiver may not be effective to waive liabilities under the federal
securities laws and it has been the view of the SEC that such a waiver is
against public policy.
Conversion
or Exchange Rights
Any debt
securities issued under the indenture may be convertible into or exchangeable
for shares of our equity securities. The terms and conditions of such conversion
or exchange will be set forth in the applicable prospectus supplement. Such
terms may include, among others, the following:
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the
conversion or exchange price;
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the
conversion or exchange period;
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provisions
regarding our ability or that of the holder to convert or exchange the
debt securities;
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events
requiring adjustment to the conversion or exchange price;
and
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provisions
affecting conversion or exchange in the event of our redemption of such
debt securities.
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Concerning
the Trustee
The
indenture provides that there may be more than one trustee with respect to one
or more series of debt securities. If there are different trustees for different
series of debt securities, each trustee will be a trustee of a trust under a
supplemental indenture separate and apart from the trust administered by any
other trustee under such indenture. Except as otherwise indicated in this
prospectus or any prospectus supplement, any action permitted to be taken by a
trustee may be taken by the trustee only with respect to the one or more series
of debt securities for which it is the trustee under an indenture. Any trustee
under the indenture or a supplemental indenture may resign or be removed with
respect to one or more series of debt securities. All payments of principal of,
premium, if any, and interest on, and all registration, transfer, exchange,
authentication and delivery of (including authentication and delivery on
original issuance of the debt securities), the debt securities of a series will
be effected by the trustee with respect to such series at an office designated
by the trustee.
The
indenture contains limitations on the right of the trustee, should it become a
creditor of Houston American Energy, to obtain payment of claims in certain
cases or to realize on certain property received in respect of any such claim as
security or otherwise. If the trustee acquires an interest that conflicts with
any duties with respect to the debt securities, the trustee is required to
either resign or eliminate such conflicting interest to the extent and in the
manner provided by the indenture.
Limitations
on Issuance of Bearer Debt Securities
Debt
securities in bearer form are subject to special U.S. tax requirements and may
not be offered, sold, or delivered within the United States or its possessions
or to a U.S. person, except in certain transactions permitted by U.S. tax
regulations. Investors should consult the relevant prospectus supplement, in the
event that bearer debt securities are issued for special procedures and
restrictions that will apply to such an offering.
We may
issue warrants for the purchase of common stock, preferred stock or debt
securities. Warrants may be offered independently or together with common stock,
preferred stock or debt securities offered by any prospectus supplement and may
be attached to or separate from those securities. While the terms we have
summarized below will apply generally to any warrants that we may offer under
this prospectus, we will describe in particular the terms of any series of
warrants that we may offer in more detail in the applicable prospectus
supplement and any applicable free writing prospectus. The terms of any warrants
offered under a prospectus supplement may differ from the terms described
below.
We will
file as exhibits to the registration statement of which this prospectus is a
part, or will incorporate by reference from another report that we file with the
SEC, the form of warrant agreement, which may include a form of warrant
certificate, that describes the terms of the particular series of warrants we
are offering before the issuance of the related series of warrants. We may issue
the warrants under a warrant agreement that we will enter into with a warrant
agent to be selected by us. The warrant agent will act solely as our agent in
connection with the warrants and will not assume any obligation or relationship
of agency or trust for or with any registered holders of warrants or beneficial
owners of warrants. The following summary of material provisions of the warrants
and warrant agreements are subject to, and qualified in their entirety by
reference to, all the provisions of the warrant agreement and warrant
certificate applicable to a particular series of warrants. We urge you to read
the applicable prospectus supplement and any applicable free writing prospectus
related to the particular series of warrants that we sell under this prospectus,
as well as the complete warrant agreements and warrant certificates that contain
the terms of the warrants.
The
particular terms of any issue of warrants will be described in the prospectus
supplement relating to the issue. Those terms may include:
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the
title of such warrants;
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the
aggregate number of such warrants;
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the
price or prices at which such warrants will be
issued;
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the
currency or currencies (including composite currencies) in which the price
of such warrants may be payable;
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the
terms of the securities purchasable upon exercise of such warrants and the
procedures and conditions relating to the exercise of such
warrants;
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the
price at which the securities purchasable upon exercise of such warrants
may be purchased;
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the
date on which the right to exercise such warrants will commence and the
date on which such right shall
expire;
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any
provisions for adjustment of the number or amount of securities receivable
upon exercise of the warrants or the exercise price of the
warrants;
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if
applicable, the minimum or maximum amount of such warrants that may be
exercised at any one time;
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if
applicable, the designation and terms of the securities with which such
warrants are issued and the number of such warrants issued with each such
security;
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if
applicable, the date on and after which such warrants and the related
securities will be separately
transferable;
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information
with respect to book-entry procedures, if
any;
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the
terms of any rights to redeem or call the
warrants;
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United
States federal income tax consequences of holding or exercising the
warrants, if material; and
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any
other terms of such warrants, including terms, procedures and limitations
relating to the exchange or exercise of such
warrants.
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Each
warrant will entitle its holder to purchase the principal amount of debt
securities or the number of shares of preferred stock or common stock at the
exercise price set forth in, or calculable as set forth in, the applicable
prospectus supplement. Unless we otherwise specify in the applicable prospectus
supplement, holders of the warrants may exercise the warrants at any time up to
the specified time on the expiration date that we set forth in the applicable
prospectus supplement. After the close of business on the expiration date,
unexercised warrants will become void.
We will
specify the place or places where, and the manner in which, warrants may be
exercised in the warrant agreement or warrant certificate and applicable
prospectus supplement. Upon receipt of payment and the warrant certificate
properly completed and duly executed at the corporate trust office of the
warrant agent or any other office indicated in the applicable prospectus
supplement, we will, as soon as practicable, issue and deliver the purchased
securities. If less than all of the warrants represented by the warrant
certificate are exercised, a new warrant certificate will be issued for the
remaining amount of warrants. If we so indicate in the applicable prospectus
supplement, holders of the warrants may surrender securities as all or part of
the exercise price for warrants.
Prior to
the exercise of any warrants to purchase common stock, preferred stock or debt
securities, holders of the warrants will not have any of the rights of holders
of the common stock, preferred stock or debt securities purchasable upon
exercise, including (i) in the case of warrants for the purchase of common stock
or preferred stock, the right to vote or to receive any payments of dividends or
payments upon our liquidation, dissolution or winding up on the common stock or
preferred stock purchasable upon exercise, if any; or (ii) in the case of
warrants for the purchase of debt securities, the right to receive payments of
principal of, any premium or interest on the debt securities purchasable upon
exercise or to enforce covenants in the applicable indenture.
The
following description, together with the additional information we may include
in any applicable prospectus supplement, summarizes the material terms and
provisions of the units that we may offer under this prospectus. While the terms
we have summarized below will apply generally to any units that we may offer
under this prospectus, we will describe the particular terms of any series of
units in more detail in the applicable prospectus supplement. The terms of any
units offered under a prospectus supplement may differ from the terms described
below. However, no prospectus supplement will fundamentally change the terms
that are set forth in this prospectus or offer a security that is not registered
and described in this prospectus at the time of its effectiveness.
We will
file with the SEC, the form of unit agreement that describes the terms of the
series of units we are offering, and any supplemental agreements, before the
issuance of the related series of units. The following summaries of material
terms and provisions of the units are subject to, and qualified in their
entirety by reference to, all the provisions of the unit agreement and any
supplemental agreements applicable to a particular series of units. We urge you
to read the applicable prospectus supplements related to the particular series
of units that we sell under this prospectus, as well as the complete unit
agreement and any supplemental agreements that contain the terms of the
units.
General
We may
issue units comprised of one or more debt securities, shares of common stock,
shares of preferred stock and warrants in any combination. Each unit will be
issued so that the holder of the unit is also the holder of each security
included in the unit. Thus, the holder of a unit will have the rights and
obligations of a holder of each included security. The unit agreement under
which a unit is issued may provide that the securities included in the unit may
not be held or transferred separately, at any time or at any time before a
specified date.
We will
describe in the applicable prospectus supplement the terms of the series of
units, including, but not limited to:
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the
designation and terms of the units and of the securities comprising the
units, including whether and under what circumstances those securities may
be held or transferred separately;
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any
provisions of the governing unit agreement that differ from those
described below; and
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any
provisions for the issuance, payment, settlement, transfer or exchange of
the units or of the securities comprising the
units.
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The
provisions described in this section, as well as those described under
“Description of Common Stock and Preferred Stock,” “Description of Debt
Securities” and “Description of Warrants” will apply to each unit and to any
common stock, preferred stock, debt security or warrant included in each unit,
respectively.
Issuance
in Series
We may
issue units in such amounts and in numerous distinct series as we
determine.
Enforceability
of Rights by Holders of Units
Each unit
agent will act solely as our agent under the applicable unit agreement and will
not assume any obligation or relationship of agency or trust with any holder of
any unit. A single bank or trust company may act as unit agent for more than one
series of units. A unit agent will have no duty or responsibility in case of any
default by us under the applicable unit agreement or unit, including any duty or
responsibility to initiate any proceedings at law or otherwise, or to make any
demand upon us. Any holder of a unit may, without the consent of the related
unit agent or the holder of any other unit, enforce by appropriate legal action
its rights as holder under any security included in the unit.
We, the
unit agents and any of their agents may treat the registered holder of any unit
certificate as an absolute owner of the units evidenced by that certificate for
any purpose and as the person entitled to exercise the rights attaching to the
units so requested, despite any notice to the contrary.
We may
sell the securities to or through underwriters or dealers, through agents, or
directly to one or more purchasers. A prospectus supplement or supplements (and
any related free writing prospectus that we may authorize to be provided to you)
will describe the terms of the offering of the securities, including, to the
extent applicable
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the
name or names of any agents or
underwriters;
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the
purchase price of the securities being offered and the proceeds we will
receive from the sale;
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any
over-allotment options under which underwriters may purchase additional
securities from us;
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any
agency fees or underwriting discounts and other items constituting agents’
or underwriters’ compensation;
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any
public offering price;
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any
discounts or concessions allowed or reallowed or paid to dealers;
and
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any
securities exchanges or markets on which such securities may be
listed.
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We
may distribute the securities from time to time in one or more
transactions at:
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fixed
price or prices, which may be changed from time to
time;
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market
prices prevailing at the time of
sale;
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prices
related to such prevailing market prices;
or
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Agents
We may
designate agents who agree to use their reasonable efforts to solicit purchases
of our securities for the period of their appointment or to sell our securities
on a continuing basis. We will name any agent involved in the offering and sale
of securities and we will describe any commissions we will pay the agent in the
applicable prospectus supplement.
Underwriters
If we use
underwriters for a sale of securities, the underwriters will acquire the
securities for their own account. The underwriters may resell the securities in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase the securities will be subject to
the conditions set forth in the applicable underwriting agreement. Subject to
certain conditions, the underwriters will be obligated to purchase all the
securities of the series offered if they purchase any of the securities of that
series. We may change from time to time any public offering price and any
discounts or concessions the underwriters allow or reallow or pay to dealers. We
may use underwriters with whom we have a material relationship. We will describe
the nature of any such relationship in any applicable prospectus supplement
naming any such underwriter. Only underwriters we name in the prospectus
supplement are underwriters of the securities offered by the prospectus
supplement.
We may
provide agents and underwriters with indemnification against civil liabilities
related to offerings under this prospectus, including liabilities under the
Securities Act, or contribution with respect to payments that the agents or
underwriters may make with respect to these liabilities.
Direct
Sales
We may
also sell securities directly to one or more purchasers without using
underwriters or agents. Underwriters, dealers and agents that participate in the
distribution of the securities may be underwriters as defined in the Securities
Act, and any discounts or commissions they receive from us and any profit on
their resale of the securities may be treated as underwriting discounts and
commissions under the Securities Act. We will identify in the applicable
prospectus supplement any underwriters, dealers or agents and will describe
their compensation. We may have agreements with the underwriters, dealers and
agents to indemnify them against specified civil liabilities, including
liabilities under the Securities Act. Underwriters, dealers and agents may
engage in transactions with or perform services for us in the ordinary course of
their businesses.
Trading
Markets and Listing of Securities
Unless
otherwise specified in the applicable prospectus supplement, each class or
series of securities will be a new issue with no established trading market,
other than our common stock, which is currently listed on the Nasdaq Capital
Market. We may elect to list any other class or series of securities on any
exchange or market, but we are not obligated to do so. It is possible that one
or more underwriters may make a market in a class or series of securities, but
the underwriters will not be obligated to do so and may discontinue any market
making at any time without notice. We cannot give any assurance as to the
liquidity of the trading market for any of the securities.
Stabilization
Activities
Any
underwriter may engage in overallotment, stabilizing transactions, short
covering transactions and penalty bids in accordance with Regulation M under the
Exchange Act. Overallotment involves sales in excess of the offering size, which
create a short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Short covering transactions involve purchases of the securities in the
open market after the distribution is completed to cover short positions.
Penalty bids permit the underwriters to reclaim a selling concession from a
dealer when the securities originally sold by the dealer are purchased in a
covering transaction to cover short positions. Those activities may cause the
price of the securities to be higher than it would otherwise be. If commenced,
the underwriters may discontinue any of these activities at any
time.
Passive
Market Making
Any
underwriters who are qualified market makers on the Nasdaq Capital Market may
engage in passive market making transactions in the securities on the Nasdaq
Capital Market in accordance with Rule 103 of Regulation M, during the business
day prior to the pricing of the offering, before the commencement of offers or
sales of the securities. Passive market makers must comply with applicable
volume and price limitations and must be identified as passive market makers. In
general, a passive market maker must display its bid at a price not in excess of
the highest independent bid for such security. If all independent bids are
lowered below the passive market maker’s bid, however, the passive market
maker’s bid must then be lowered when certain purchase limits are
exceeded.
The
validity of the securities being offered by this prospectus will be passed upon
for us by Michael Sanders, Attorney at Law. If the validity of any securities is
also passed upon by counsel for any underwriters, dealers or agents, that
counsel will be named in the prospectus supplement relating to that specific
offering.
The
consolidated financial statements of Houston American Energy as of December 31,
2008, and the related consolidated statements of operations, stockholders’
equity (deficit) and cash flows for the year then ended have been incorporated
by reference herein and in the registration statement in reliance upon the
report of GBH CPAs, PC, independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The consolidated financial
statements of Houston American Energy as of December 31, 2007, and the related
consolidated statements of operations, stockholders’ equity (deficit) and cash
flows for the year then ended have been incorporated by reference herein and in
the registration statement in reliance upon the report of Malone & Bailey,
PC, independent registered public accounting firm, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The consolidated financial statements of Houston American
Energy as of December 31, 2006, and the related consolidated statements of
operations, stockholders’ equity (deficit) and cash flows for the year then
ended have been incorporated by reference herein and in the registration
statement in reliance upon the report of Ham, Langston & Brezina, L.LP.
(formerly Thomas Leger & Co., L.L.P.), independent registered public
accounting firm, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and current reports, proxy statements and other information
electronically with the SEC. You may read and copy these reports, proxy
statements and other information at the SEC’s public reference room at 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the public reference room. You can
request copies of these documents by writing to the SEC and paying a fee for the
copying costs. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC, including us. The SEC’s Internet site can be
found at http://www.sec.gov. In addition, we make available on or through our
Internet site copies of these reports as soon as reasonably practicable after we
electronically file or furnish them to the SEC. Our Internet site can be found
at http://www.houstonamericanenergy.com.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We are
allowed to incorporate by reference information contained in documents that we
file with the SEC. This means that we can disclose important information to you
by referring you to those documents and that the information in this prospectus
is not complete. You should read the information incorporated by reference for
more detail. We incorporate by reference in two ways. First, we list below
certain documents that we have already filed with the SEC. The information in
these documents is considered part of this prospectus. Second, the information
in documents that we file in the future will update and supersede the current
information in, and be incorporated by reference in, this
prospectus.
We
incorporate by reference into this prospectus the documents listed below, any
filings we make with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of the initial registration statement of which
this prospectus is a part and prior to the effectiveness of the registration
statement, and any filings we make with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act from the date of this prospectus until
the termination of this offering (in each case, except for the information
furnished under Item 2.02 or Item 7.01 in any current report on Form 8-K and
Form 8-K/A):
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our
annual report on Form 10-K for the year ended December 31, 2008 filed with
the SEC on March 16, 2009 (File No.
001-32955);
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the
information specifically incorporated by reference into our annual report
on Form 10-K for the year ended December 31, 2008 from our definitive
proxy statement on Schedule 14A filed with the SEC on April 27, 2009 (File
No. 001-32955);
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our
quarterly reports on Form 10-Q for the quarterly period ended March 31,
2009, filed with the SEC on May 11, 2009, and for the quarterly period
ended June 30, 2009, filed with the SEC on August 10, 2009 (File No.
001-32955);
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our
current reports on Form 8-K filed with the SEC on January 22, 2009,
February 5, 2009, June 11, 2009 and June 24, 2009 (File No.
001-32955);
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the
description of our common stock contained in our registration statement on
Form SB-2 filed with the SEC on June 6, 2006 (File No.
333-134756).
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We will
provide each person, including any beneficial owner, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated by
reference into this prospectus but not delivered with this prospectus upon
written or oral request at no cost to the requester. Requests should be directed
to: Houston American Energy Corp., 801 Travis, Suite 1425, Houston, Texas 77002,
Attn: Investor Relations, telephone: (713) 222-6966.
This
prospectus is part of a registration statement on Form S-3 that we filed with
the SEC. That registration statement contains more information than this
prospectus regarding us and our securities, including certain exhibits and
schedules. You can obtain a copy of the registration statement from the SEC at
the address listed above or from the SEC’s Internet website.
You
should rely only on the information provided in and incorporated by reference
into this prospectus or any prospectus supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front cover of these documents.
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