THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NEITHER THIS NOTE
NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAS BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
ANY APPLICABLE STATE SECURITIES LAWS. NEITHER THIS NOTE NOR THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE SOLD OR OTHERWISE TRANSFERRED OR
PLEDGED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM THE
REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS.
NO. ____ $__________
HOUSTON AMERICAN ENERGY CORP.
8.0% SUBORDINATED CONVERTIBLE NOTE DUE MAY 1, 2010
Section 1. General.
FOR VALUE RECEIVED, Houston American Energy Corp., a Delaware
corporation (the "COMPANY"), hereby promises to pay to the order of_____________
_____________________, or its registered assigns (the "INVESTOR"), the principal
sum of ____________________________ DOLLARS AND ZERO CENTS ($_________), or such
lesser amount as shall then equal the outstanding principal amount hereof,
together with interest thereon at a rate equal to 8% (the "Interest Rate") per
annum, simple interest computed on the basis of the actual number of days
elapsed and a year of 360 days comprised of twelve 30 day months. Unless
earlier redeemed in accordance with Section 2 or converted in accordance with
Section 5, all unpaid principal, together with any then unpaid and accrued
interest and other amounts payable hereunder, shall be due and payable on the
earlier of (i) May 1, 2010 (the "MATURITY DATE"); or (ii) when such amounts
become due and payable as a result of, and following, an Event of Default in
accordance with Section 3. All payments required to be made hereunder, if any,
shall be made in such coin or currency of the United States of America as at the
time of payment shall be legal tender therein for the payment of public and
private debts. Interest shall accrue on the unpaid balance of the principal
amount of this Note (without any compounding) from and including the date hereof
to, but excluding, the date on which the principal amount of this Note is paid
in full (or converted in accordance with Section 5 hereof) and shall be payable
on April 20 and October 20 of each year until the outstanding principal amount
hereof shall be paid in full, with the first such payment of interest being due
October 20, 2005.
This is one of a duly authorized issue of notes (this note being
referred to as the "NOTE" and, collectively, all similar notes issued by the
Company pursuant to the Note Offering being referred to as the "NOTES") of the
Company in an anticipated aggregate principal amount of up to US$2,500,000 (the
"NOTE OFFERING"). Nothing herein shall restrict the ability of the Company to
either increase or decrease the aggregate principal amount of Notes offered in
the Note Offering.
1
SECTION 2. REDEMPTION.
(a) Redemption at Option of the Company. At any time after May 1,
2007 and prior to the Maturity Date, the Company, at its sole election, may
redeem this Note, in whole or in part, upon giving at least two business days
prior written notice of intent to redeem, by paying to the Investor an amount
equal to (i) for redemptions occurring after May 1, 2007 and before January 1,
2008, 103% of the portion of this Note being redeemed, plus accrued and unpaid
interest on the portion of the Note being redeemed, (ii) for redemptions
occurring during calendar year 2008, 102% of the portion of this Note being
redeemed, plus accrued and unpaid interest on the portion of the Note being
redeemed, (iii) for redemptions occurring during calendar year 2009, 101% of the
portion of this Note being redeemed, plus accrued and unpaid interest on the
portion of the Note being redeemed, and (iv) for redemptions occurring during
calendar year 2010, 100% of the portion of this Note being redeemed, plus
accrued and unpaid interest on the portion of the Note being redeemed. Except
as set forth above, the Company shall have no right to prepay the Note, in whole
or in part, prior to the Maturity Date.
(b) Redemption at Option of the Investor. Prior to the Maturity
Date, the Investor, at its sole election, may require the Company to redeem this
Note (an "INVESTOR REDEMPTION"), in whole or in part, by providing written
notice to the Company (an "INVESTOR REDEMPTION NOTICE") of its election to cause
the Company to redeem this Note and the portion of the Note to be redeemed. The
Company shall redeem the portion of the Note for which an Investor Redemption
Notice is provided by paying to the Investor, within ten business days following
receipt of such Investor Redemption Notice, an amount equal to 100% of the
portion of the Note to be redeemed, plus accrued and unpaid interest on the
portion of the Note to be redeemed; provided, however, that an Investor
Redemption Notice shall only be effective and the Company shall only be required
to carry out an Investor Redemption following the occurrence of one or more of
the following "DESIGNATED EVENTS":
(i) the acquisition by any person, including any syndicate or
group deemed to be a "person" under Section 13(d)(3) of the Exchange Act,
of beneficial ownership, directly or indirectly, through a purchase, merger
or other acquisition transaction or series of purchases, mergers or other
acquisition transactions of shares of the Company's capital stock entitling
that person to exercise 50% or more of the total voting power of all shares
of the Company's capital stock entitled to vote generally in elections of
directors, other than any acquisition by (A) the Company, (B) any of the
Company's subsidiaries, (C) any of the Company's employee benefit plans,
(D) ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ or (E) any holders of Notes; or
(ii) one or more persons file a Statement on Schedule TO or a
Statement on Schedule 13D (or any successors thereto) stating that they
have become and actually are beneficial owners of voting stock representing
more than 80%, in the aggregate, of the voting power of all of the
Company's classes of voting stock entitled to vote generally in the
election of the members of the Company's board of directors; or
(iii) the consolidation or merger of the Company with or into
any other person, any merger of another person into the Company, or any
conveyance, transfer, sale, lease or other disposition of all or
substantially all of the Company's properties and assets to another person,
other than:
2
(A) any transaction: (i) that does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of the Company's capital stock; and (ii) pursuant to which
holders of the Company's capital stock immediately prior to such
transaction have the right to exercise, directly or indirectly, 50% or
more of the total voting power of all shares of the Company's capital
stock entitled to vote generally in elections of directors of the
continuing or surviving person immediately after giving effect to such
issuance; or
(B) any merger solely for the purpose of changing the
Company's jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding shares of
common stock solely into shares of common stock of the surviving
entity.
Section 3. Defaults.
The occurrence of any of the following shall constitute an "EVENT OF
DEFAULT" under this Note:
(a) The Company shall fail to pay (i) when due any principal or
interest payment hereof on the due date hereunder or (ii) any other payment
required under the terms of this Note on the date due and such payment
shall not have been made within five (5) days of Company's receipt of
Investor's written notice to Company of such failure to pay; or
(b) The Company shall fail to observe or perform any other
covenant, obligation, condition or agreement contained in this Note (other
than those specified in Section 3(a)) and such failure shall continue for
ten (10) days after written notice thereof is delivered to the Company; or
(c) Any representation, warranty, certificate, or other statement
(financial or otherwise) made or furnished by or on behalf of the Company
to the Investor in writing in connection with this Note, or as an
inducement to the Investor to purchase this Note, shall be false,
incorrect, incomplete or misleading in any material respect when made or
furnished; or
(d) The Company shall (i) fail to make any payment when due under
the terms of any bond, debenture, note or other evidence of indebtedness to
be paid by the Company (excluding this Note, which default is addressed by
Section 3(a) above, but including any other evidence of indebtedness of the
Company to the Investor) and such failure shall continue beyond any period
of grace provided with respect thereto, or (ii) default in the observance
or performance of any other agreement, term or condition contained in any
such bond, debenture, note or other evidence of indebtedness, and the
effect of such failure or default is to cause, or permit the holder thereof
to cause, indebtedness in an aggregate amount of One Million Dollars
($1,000,000) or more to become due prior to its stated date of maturity; or
3
(e) The Company shall (i) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian of itself or of all or a
substantial part of its property, (ii) be unable, or admit in writing its
inability, to pay its debts generally as they mature, (iii) make a general
assignment for the benefit of its or any of its creditors, (iv) be
dissolved or liquidated in full or in part (v) commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or consent to any such relief or to
the appointment of or taking possession of its property by any official in
an involuntary case or other proceeding commenced against it, or (vi) take
any action for the purpose of effecting any of the foregoing; or
(f) Proceedings for the appointment of a receiver, trustee,
liquidator or custodian of the Company or of all or a substantial part of
the property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Company or
the debts thereof under any bankruptcy, insolvency or other similar law now
or hereafter in effect shall be commenced and an order for relief entered
or such proceeding shall not be dismissed or discharged within thirty (30)
days of commencement; or
(g) One or more judgments for the payment of money in an amount in
excess of One Million Five Hundred Thousand Dollars ($1,500,000) in the
aggregate, outstanding at any one time, shall be rendered against the
Company and the same shall remain undischarged for a period of thirty (30)
days during which execution shall not be effectively stayed, or any
judgment, writ, assessment, warrant of attachment, or execution or similar
process shall be issued or levied against a substantial part of the
property of the Company and such judgment, writ, or similar process shall
not be released, stayed, vacated or otherwise dismissed within thirty (30)
days after issue or levy.
Section 4. Rights Of Investor Upon Default.
Upon the occurrence or existence of any Event of Default (other than
an Event of Default referred to in Sections 3(f) or 3(g) hereof) and at any time
thereafter during the continuance of such Event of Default, the Investor may, by
written notice to the Company, declare all outstanding amounts payable by the
Company hereunder to be immediately due and payable without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein to the contrary notwithstanding. Upon the
occurrence or existence of any Event of Default described in Sections 3(f) or
3(g) hereof, immediately and without notice, all outstanding amounts payable by
the Company hereunder shall automatically become immediately due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein to the contrary
notwithstanding. In addition to the foregoing remedies, upon the occurrence or
existence of any Event of Default, the Investor may exercise any other right,
power or remedy permitted to it by law, either by suit in equity or by action at
law, or both.
4
Section 5. Conversion.
(a) Investor Conversion. At any time, and from time to time, the
Investor may, at its sole and exclusive option, convert all or any part of the
principal (but not interest) outstanding under this Note into fully paid and
nonassessable shares of common stock (the "Common Stock") of the Company at a
conversion price per share of Common Stock equal to $1.00, subject to adjustment
as provided in Section 6 hereof (the "Conversion Price").
(b) Automatic Conversion. The entire principal outstanding under
this Note (but not interest) shall be automatically converted into shares of
Common Stock, at the Conversion Price upon the closing of an underwritten public
offering (a "PUBLIC OFFERING") of Common Stock in which (i) gross proceeds to
the Company are equal to or greater than $5 million and (ii) the price-per-share
of the Common Stock sold in the Public Offering is equal to or greater than 150%
of the then applicable Conversion Price.
(c) Company Conversion. At any time after May 1, 2006 and prior
to the Maturity Date, the Company may, at its sole option and effective upon the
date (the "COMPANY CONVERSION DATE") on which written notice (the "COMPANY
CONVERSION NOTICE") of conversion is sent to the Investor, cause all or part of
the principal outstanding under this Note (but not interest) to be converted
into shares of Common Stock, at the Conversion Price, provided that the Market
Price (as defined below) of the Common Stock on the Company Conversion Date, and
for at least 20 of the 30 trading days ending on the Company Conversion Date, is
in excess of 200% of the then applicable Conversion Price. For purposes hereof,
"MARKET PRICE" shall mean the closing sale price of the Common Stock (or if no
closing sale price is reported, the average of the closing bid and closing ask
prices or, if more than one in either case, the average of the average closing
bid and average closing ask prices) on such date as reported in composite
transactions for the principal United States securities exchange on which the
common stock is traded or, if the common stock is not listed on a United States
national or regional securities exchange, as reported by the Nasdaq System or by
the National Quotation Bureau Incorporated. In the absence of such a quotation,
the Company's board of directors will determine the closing sale price on the
basis it considers appropriate.
(d) MECHANICS AND EFFECT OF CONVERSION . No fractional shares of
Common Stock shall be issued upon conversion of this Note. Upon the conversion
of the entire principal outstanding under this Note, in lieu of the Company
issuing any fractional shares to the Investor in cash, the Company shall pay to
the Investor the amount of outstanding principal that is not so converted. On
partial conversion of this Note, the Company shall issue to the Investor (i) the
shares of Common Stock into which a portion of this Note is converted and (ii) a
new subordinated convertible promissory note having identical terms to this
Note, except that the principal amount thereof shall equal the difference
between (A) the principal amount of this Note immediately prior to such
conversion minus (B) the portion of such principal amount converted into Common
Stock. Upon conversion of this Note pursuant to this Section 5, the Investor
shall surrender this Note, duly endorsed, at the principal office of the
Company. At its expense, the Company shall, as soon as practicable thereafter,
issue and deliver to the Investor at such principal office a certificate or
certificates for the number of shares of Common Stock, to which the Investor
shall be entitled upon such conversion (bearing such legends as are required by
applicable state and federal securities laws in the opinion of counsel to the
Company), together
5
with any other securities and property to which the Investor is entitled upon
such conversion under the terms of this Note.
(e) Reservation Of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of capital stock of the Company, solely for the purpose of effecting the
conversion of this Note, such number of its shares of capital stock of the
Company as shall from time to time be sufficient to effect the conversion of
this Note; and if at any time the number of authorized but unissued shares of
capital stock of the Company shall not be sufficient to effect the conversion of
this Note, the Company hereby covenants and agrees to take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of capital stock to such number of shares as shall be
sufficient for such purpose.
(f) Payment Of Expenses And Taxes On Conversion. The Company
shall pay all expenses, taxes and other charges payable in connection with the
preparation, execution, issuance and delivery of stock certificates and new
promissory notes pursuant to this Section 5 hereof, except that, in the event
such stock certificates or new promissory notes shall be registered in a name or
names other than the name of the holder of this Note, funds sufficient to pay
all stock transfer fees, which shall be payable upon the execution and delivery
of such stock certificate or certificates or new promissory notes, shall be paid
by the holder hereof to the Company at the time of delivering this Note to the
Company upon conversion.
Section 6. Conversion Price Adjustments.
(a) Adjustment For Stock Splits And Combinations. If the Company
shall at any time or from time to time after the date of original issuance of
this Note (the "Date of Original Issue") effect a stock split or subdivision of
the outstanding Common Stock, the Conversion Price in effect immediately before
that subdivision shall be proportionately decreased, and, conversely, if the
Company shall at any time or from time to time after the Date of Original Issue
combine the outstanding shares of Common Stock (including by way of reverse
stock split)into a smaller number of shares, the Conversion Price in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this Section 6(a) shall become effective at the close of
business on the date the stock split, subdivision or combination becomes
effective.
(b) Adjustment For Common Stock Dividends And Distributions.
If the Company at any time or from time to time after the Date of Original Issue
issues, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable solely in
additional shares of Common Stock, the Conversion Price that is then in effect
shall be decreased as of the time of such issuance or, in the event such record
date is fixed, as of the close of business on such record date, by multiplying
the Conversion Price by a fraction (i) the numerator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and (ii) the
denominator of which is the sum of the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution; provided, however, that if
such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on
6
the date fixed therefor, the Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter the Conversion Price
shall be adjusted pursuant to this Section 6(b) to reflect the actual payment of
such dividend or distribution.
(c) Adjustments For Other Dividends And Distributions. If the
Company at any time or from time to time after the Date of Original Issue
issues, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock or in other property, in each such
event provision shall be made so that the Investor shall receive upon conversion
hereof, in addition to the number of shares of Common Stock receivable hereupon,
the amount of securities of the Company or other property which such Investor
would have received had this Note been converted into Common Stock on the date
of such event and had it thereafter, during the period from the date of such
event to and including the conversion date, retained such securities or other
property receivable by it as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 6 with respect to
the rights of the Investor or with respect to such other securities or other
property by their terms. As used herein, the term "other property" does not
include cash.
(d) Adjustment For Reclassification, Exchange And Substitution.
If at any time or from time to time after the Date of Original Issue, the Common
Stock issuable upon the conversion of this Note is changed into the same or a
different number of shares of any class or series of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 6), then
in any such event the Investor shall have the right thereafter to convert this
Note into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Common Stock into which this Note could have
been converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
(e) Sale Of Shares Below Market Price.
(i) If at any time or from time to time after the Date of
Original Issue and before the Maturity Date, the Company issues or sells,
or is deemed by the provisions of clause (iii) of this Section 6(e) to have
issued or sold, Additional Shares of Common Stock (as hereinafter defined),
other than a subdivision or combination of shares of Common Stock or as a
dividend or other distribution of Common Stock as provided for elsewhere in
this Section 6, for an Effective Price (as hereinafter defined) less than
the Conversion Price, as adjusted hereunder (such lower price, the "BASE
CONVERSION PRICE"), then and in each such case the then existing Conversion
Price shall be reduced as of the close of business on the date of such
issue or sale to a price equal to 100% of the Base Conversion Price.
(ii) For the purpose of making any adjustment required under
this Section 6(e):
7
(A) "Additional Shares Of Common Stock" means all shares
of Common Stock issued by the Company, whether or not
subsequently reacquired or retired by the Company, or capital
stock of the Company issued upon the exercise or conversion of
Convertible Securities, other than shares of Common Stock issued
or issuable:
(1) Convertible Securities outstanding as of the Date
of Original Issue; or
(2) to employees, officers or directors of the
Company, pursuant to stock purchase or stock option
plans or other arrangements that are approved by the
Company's Board of Directors and issued pursuant to a
registration on, and in strict conformity with the
eligibility requirements of, Form S-8; or
(3) to consultants of the Company, pursuant to stock
purchase or stock option plans or other arrangements
that are approved by the Company's Board of Directors
and issued pursuant to a registration on, and in strict
conformity with the eligibility requirements of, Form
S-8; or
(B) "Aggregate Consideration Received" by the Company
for any issue or sale of securities shall (1) to the extent it
consists of cash, be computed at the gross amount of cash
received by the Company before deduction of any underwriting or
similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale and without
deduction of any expenses payable by the Company, (2) to the
extent it consists of property other than cash, be computed at
the fair value of that property as determined in good faith by
the Board of Directors of the Company, and (3) if Additional
Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of
the Company for a consideration which covers both, be computed as
the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors of
the Company to be allocable to such Additional Shares of Common
Stock or Convertible Securities.
(C) "Convertible Securities" means stock or other
securities (including options, warrants and other rights) of the
Company ultimately convertible into or exercisable for shares of
Common Stock.
(D) "Effective Price" of Additional Shares of Common
Stock means the quotient determined by dividing the total number
of Additional Shares of Common Stock issued or sold, or deemed to
have been issued or sold by the Company under this Section 6(e),
into the Aggregate Consideration Received, or deemed to have been
received by the
8
Company for such issue under this Section 6(e), for such
Additional Shares of Common Stock.
(iii) For the purpose of making any adjustment to the
Conversion Price required under this Section 6(e), if the Company issues or
sells any Convertible Securities and if the Effective Price of the shares
of Common Stock issuable upon conversion of the Convertible Securities is
less than the Conversion Price, the Company shall be deemed to have issued
at the time of the issuance of such Convertible Securities that number of
Additional Shares of Common Stock equal to the maximum number of shares of
Common Stock issuable upon conversion thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the
issuance of such Convertible Securities, plus the minimum amounts of
consideration, if any, payable to the Company (other than by cancellation
of liabilities or obligations evidenced by such Convertible Securities)
upon the conversion thereof; provided that:
(A) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum
amounts of consideration without reference to such clauses;
(B) if the minimum amount of consideration payable to the
Company upon the conversion of Convertible Securities is reduced over
time or on the occurrence or non-occurrence of specified events other
than by reason of antidilution adjustments, the Effective Price shall
be recalculated using the figure to which such minimum amount of
consideration is reduced;
(C) if the minimum amount of consideration payable to the
Company upon the conversion of Convertible Securities is subsequently
increased, the Effective Price shall be again recalculated using the
increased minimum amount of consideration payable to the Company upon
the conversion of Convertible Securities; and
(D) no further adjustment of the Conversion Price, adjusted
or subject to adjustment upon the issuance of such Convertible
Securities, shall be made as a result of the actual issuance of shares
of Common Stock on the conversion of any such Convertible Securities,
unless the actual Aggregate Consideration Received is different than
that previously deemed to be received prior to such issuance. If the
conversion privilege represented by any such Convertible Securities
shall expire without having been exercised, the Conversion Price
adjusted upon the issuance of such Convertible Securities shall be
readjusted to the Conversion Price which would have been in effect had
an adjustment been made on the basis that the only shares of Common
Stock so issued were the shares of Common Stock, if any, actually
issued or sold on the exercise of such rights of conversion of such
Convertible Securities, and such shares of Common Stock, if any, were
issued or sold for the consideration received for issuing or selling
the Convertible Securities actually converted, plus the consideration,
if any, actually received by the Company (other than by cancellation
of liabilities or obligations evidenced by
9
such Convertible Securities) on the conversion of such Convertible
Securities, provided that such readjustment shall not apply to prior
conversions of this Note.
(f) Certificate Of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for the number of shares of Common Stock or
other securities issuable upon conversion of this Note, the Company, at its own
expense, shall cause its Treasurer to compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to the Investor at the Investor's address as shown in the
Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. No adjustment in the Conversion Price shall be required
to be made unless it would result in an increase or decrease of at least one
cent, but any adjustments not made because of this sentence shall be carried
forward and taken into account in any subsequent adjustment otherwise required
hereunder.
(g) Notices Of Record Date. Upon (i) the establishment by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other Company, or any
transfer of all or substantially all the assets of the Company to any other
person or any voluntary or involuntary dissolution, liquidation or winding up of
the Company, the Company shall mail to the Investor at least 20 days prior to
the record date specified therein a notice specifying (A) the date on which any
such record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (B) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (C) the date, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities), shall be entitled to exchange their shares of Common Stock
(or other securities), for securities or other property deliverable upon such
reorganization, reclassification transfer, consolidation, merger, dissolution,
liquidation or winding up.
(h) No Impairment. The Company shall not amend its Articles of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but shall at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to protect the
conversion rights of the Investor against dilution or other impairment as
provided herein.
Section 7. Ranking.
This Note is a subordinated unsecured general obligation of the
Company. The Note ranks junior in right of payment to all of the Company's other
existing and future senior unsecured indebtedness and will be senior in right of
payment only to future indebtedness of the Company that expressly makes, by the
terms thereof, such indebtedness subordinate to this Note. This Note is
effectively subordinated to any of the Company's existing and future secured
indebtedness to the extent of the assets securing such indebtedness.
10
Section 8. Defenses.
The obligations of the Company under this Note shall not be subject to
reduction, limitation, impairment, termination, defense, set-off, counterclaim
or recoupment for any reason.
Section 9. Exchange or Replacement of Notes.
(a) The Investor may, at its option, in person or by duly
authorized attorney, surrender this Note for exchange, at the principal business
office of the Company, and receive in exchange therefore, a new Note in the same
principal amount as the unpaid principal amount of this Note and bearing
interest at the same annual rate as this Note, each such new Note to be dated as
of the date of this Note and to be in such principal amount as remains unpaid
and payable to such person or persons, or order, as the Investor may designate
in writing.
(b) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction, or mutilation of this Note and (in the case of
loss, theft or destruction) of an indemnity reasonably satisfactory to it, and
upon surrender and cancellation of this Note, if mutilated, the Company will
deliver a new Note of like tenor in lieu of this Note. Any Note delivered in
accordance with the provisions of this Section 9 shall be dated as of the date
of this Note.
Section 10. Attorneys' and Collection Fees.
Should the indebtedness evidenced by this Note or any part hereof be
collected at law or in equity or in bankruptcy, receivership or other court
proceedings, the Company agrees to pay, in addition to the principal and
interest due and payable hereon, all costs of collection, including reasonable
attorneys' fees and expenses, incurred by the Investor in collecting or
enforcing this Note.
Section 11. Waivers.
The Company hereby waives presentment, demand for payment, notice of
dishonor, notice of protest and all other notices or demands in connection with
the delivery, acceptance, performance or default of this Note. No delay by the
Investor in exercising any power or right hereunder shall operate as a waiver of
any power or right, nor shall any single or partial exercise of any power or
right preclude other or further exercise thereof, or the exercise thereof, or
the exercise of any other power or right hereunder or otherwise; and no waiver
whatsoever or modification of the terms hereof shall be valid unless set forth
in writing by the Investor and then only to the extent set forth therein.
Section 12. Amendments.
This Note may not be amended without the express written consent of
both the Company and the Investor.
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Section 13. Governing Law.
This Note is made and delivered in, and shall be governed by and
construed in accordance with the laws of the State of Texas (without giving
effect to principles of conflicts of laws of the State of Texas or any other
state). Any action to enforce the terms of this Note shall be exclusively
brought in the state and/or federal courts in ▇▇▇▇▇▇ County, Texas.
Section 14. Successors and Assigns.
The rights and obligations of the Company and the Investor under this
Note shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties. Notwithstanding the foregoing,
neither this Note nor any of the rights, interests or obligations hereunder may
be assigned, by operation of law or otherwise, in whole or in part, by the
Company, without the prior written consent of the Investor
Section 15. Notices.
All notices, requests, demands and other communications to any party
hereunder shall be in writing (including facsimile or similar writing) and shall
be given to such party at its address or facsimile number set forth below or
such other address or facsimile number as such party may hereafter specify by
notice to the other parties listed below:
(a) If to the Company: Houston American Energy Corp.
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(b) If to the Investor: At the address shown on the signature
page
Each such notice, request or other communication shall be effective (i) upon
receipt (provided, however, that notices received on a Saturday, Sunday or legal
holiday or after 5:00 p.m. on any other day will be deemed to have been received
on the next business day), if given by legible facsimile transmission with proof
from sender of confirmation of receipt, or (ii) if given by any other means,
when delivered at the address specified in this Section 14.
Section 16. No Rights of Stockholders.
Except as otherwise provided herein, this Note shall not entitle the
Investor to any of the rights of a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other distributions, or
to receive any notice of, or to attend, meetings of stockholders or any other
proceedings of the Company, unless and to the extent converted into shares of
Common Stock in accordance with the terms hereof.
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Section 17. Entire Agreement.
This Note, the Note Purchase Agreement and the Registration Rights
Agreement constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereto and thereof.
Section 18. Headings.
The headings used in this Note are used for convenience only and are
not to be considered in construing or interpreting this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by
its duly authorized officer as of the date indicated below.
HOUSTON AMERICAN ENERGY CORP.
Date: _____________, 2005
By: _____________________________
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: President
Note No. _____________________
Amount: $____________________
Investor Name: _____________________
Address: _____________________
_____________________
Telephone: _____________________
Facsimile: _____________________
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ANNEX A
CONVERSION NOTICE
(To be Executed by the Registered Holder
in order to Convert the Note)
The undersigned hereby irrevocably elects to convert the above Note No. _____
into shares of Common Stock, $0.001 par value per share, of Houston American
Energy Corp. according to the provisions hereof, as of the date written below.
Conversion calculations: _____________________________________________
Date of Conversion Notice
_____________________________________________
Principal Amount of Note to be Converted
_____________________________________________
Conversion Price
_____________________________________________
Number of Shares to be Issued Upon
Conversion
_____________________________________________
Signature
_____________________________________________
Name
_____________________________________________
Address
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