S
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Nevada
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98-0454144
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|
(State or other jurisdiction of incorporation of organization)
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(I.R.S. Employer Identification No.)
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800 Gessner, Suite 200, Houston, Texas
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77024
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(Address of Principal Executive Offices)
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(Zip Code)
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Large accelerated filer £
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Accelerated filer £
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Non-accelerated filer £ (do not check if a smaller reporting company)
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Smaller reporting company S
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●
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our capital needs;
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●
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business plans; and
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●
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expectations.
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●
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our need for additional financing;
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●
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our exploration activities may not result in commercially exploitable quantities of oil and gas on our properties;
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●
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the risks inherent in the exploration for oil and gas such as weather, accidents, equipment failures and governmental restrictions;
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●
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our limited operating history;
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●
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our history of operating losses;
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●
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the potential for environmental damage;
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●
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our lack of insurance coverage;
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●
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the competitive environment in which we operate;
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●
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the level of government regulation, including environmental regulation;
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●
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changes in governmental regulation and administrative practices;
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●
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our dependence on key personnel;
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●
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conflicts of interest of our directors and officers;
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●
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our ability to fully implement our business plan;
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●
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our ability to effectively manage our growth; and
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●
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other regulatory, legislative and judicial developments.
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PAGE
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|||
ITEM 1.
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5
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||
ITEM 1A.
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10
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||
ITEM 1B.
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14
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||
ITEM 2.
|
14
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||
ITEM 3.
|
15
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||
ITEM 4.
|
15
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||
ITEM 5.
|
16
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||
ITEM 6.
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19
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ITEM 7.
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19
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||
ITEM 7A.
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24
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||
ITEM 8.
|
25
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||
ITEM 9.
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59
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||
ITEM 9A.
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59
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||
ITEM 9B.
|
60
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||
ITEM 10.
|
60
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||
ITEM 11.
|
63
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||
ITEM 12.
|
66
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||
ITEM 13.
|
67
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||
ITEM 14.
|
68
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||
ITEM 15.
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69
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ITEM 1.
|
Number of Operating Wells
|
||||
Oil
|
Gas
|
|||
Gross
|
Net
|
Gross
|
Net
|
|
Illinois
|
2
|
0.20
|
0
|
0.00
|
Texas
|
24
|
22.81
|
12
|
9.07
|
26
|
23.01
|
12
|
9.07
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For the Year Ended
July 31, 2011
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For the Year Ended
July 31, 2010
|
|||||||
Production Data
|
||||||||
Oil (MBbls)
|
28.2
|
6.4
|
||||||
Natural gas (MMcf)
|
59.5
|
15.7
|
||||||
Total (MMcfe)
|
228.6
|
54.4
|
||||||
Average Prices:
|
||||||||
Oil (per Bbl)
|
$
|
110.65
|
$
|
72.89
|
||||
Natural gas (per Mcf)
|
$
|
4.95
|
$
|
3.95
|
||||
Total (per Mcfe)
|
$
|
14.93
|
$
|
9.78
|
||||
Average Costs (per Mcfe):
|
||||||||
Lease operating expenses(1)
|
$
|
7.43
|
$
|
10.49
|
(1)
|
Taxes, transportation and production-related administrative expenditures are included in lease operating expenses.
|
Summary of Oil and Gas Reserves as of July 31, 2011 Based on Average Fiscal-Year Prices
|
||||||||||||
Oil (bbls)
|
Gas (Mcf)
|
Equivalent (Mcfe)
|
||||||||||
Proved developed producing
|
248.47 | 864.84 | 2,355.66 | |||||||||
Proved developed non-producing
|
226.86 | 3,734.34 | 5,095.50 | |||||||||
Total Proved developed reserves
|
475.33 | 4,599.18 | 7,541.16 | |||||||||
Proved undeveloped reserves
|
743.62 | 7,691.91 | 12,423.63 |
Gross (1)
|
Net
|
|||||||
Developed Acreage
|
||||||||
Illinois
|
80 | 8 | ||||||
Texas
|
20,480 | 18,862 | ||||||
Undeveloped Acreage
|
||||||||
Illinois
|
157 | 88 | ||||||
Texas
|
2,509 | 1141 | ||||||
Total
|
23,226 | 20,099 |
(1)
|
The gross acreage cited includes leasehold acreage to be earned under the farm-out agreements.
|
ITEM 1A.
|
|
●
|
the extent of domestic production;
|
|
●
|
the amount of imports of foreign oil and gas;
|
|
●
|
the market demand on a regional, national and worldwide basis;
|
|
●
|
domestic and foreign economic conditions that determine levels of industrial production;
|
|
●
|
political events in foreign oil-producing regions; and
|
|
●
|
variations in governmental regulations and tax laws or the imposition of new governmental requirements upon the oil and gas industry.
|
|
●
|
from a well or drilling equipment at a drill site;
|
|
●
|
from a leak in storage tanks, pipelines or other gathering and transportation facilities;
|
|
●
|
from damage to oil or natural gas wells resulting from accidents during normal operations; or
|
|
●
|
from blowouts, cratering or explosions.
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ITEM 1B.
|
ITEM 2.
|
ITEM 3.
|
ITEM 4.
|
Quarter Ended
|
High
|
Low
|
||||||
July 31, 2011
|
$
|
0.15
|
$
|
0.08
|
||||
April 30, 2011
|
$
|
0.20
|
$
|
0.09
|
||||
January 31, 2011
|
$
|
0.21
|
$
|
0.12
|
||||
October 31,2010
|
$
|
0.26
|
$
|
0.11
|
||||
July 31, 2010
|
$
|
0.30
|
$
|
0.16
|
||||
April 30, 2010
|
$
|
0.44
|
$
|
0.215
|
||||
January 31, 2010
|
$
|
0.49
|
$
|
0.235
|
||||
October 31,2009
|
$
|
0.455
|
$
|
0.15
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
|
Weighted average exercise price of outstanding options, warrants and rights
(b)
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
(c)
|
|||||||||||
(a)
|
Equity compensation plans approved by security holders
|
N/A
|
$
|
N/A
|
N/A
|
||||||||
(b)
|
Equity compensation plans not approved by security holders
|
||||||||||||
1. 2009 Stock Incentive Plan
|
6,130,000
|
$ |
0.10
|
3,585,715
|
|||||||||
2. 2010 Stock Incentive Plan
|
1,400,000
|
$ |
0.10
|
3,600,000
|
|||||||||
3. 2011 Stock Incentive Plan
|
20,000,000
|
$ |
0.10
|
5,000,000
|
|||||||||
4. Compensation Warrants
|
63,613,000
|
$ |
0.10
|
N/A
|
ITEM 6.
|
Year Ended
July 31, 2011
|
Year Ended
July 31, 2010
|
Increase/
(Decrease)
|
%
change
|
|||||||||||||
Revenues
|
$
|
3,412,791
|
$
|
531,736
|
$
|
2,881,055
|
$
|
542
|
%
|
|||||||
Operating expenses
|
||||||||||||||||
Lease operating expense
|
1,698,191
|
571,009
|
1,127,182
|
197
|
%
|
|||||||||||
Depreciation, depletion, and amortization
|
304,851
|
92,944
|
211,907
|
228
|
%
|
|||||||||||
Accretion
|
213,866
|
23,632
|
190,234
|
805
|
%
|
|||||||||||
Impairment
|
140,029
|
—
|
140,029
|
100
|
%
|
|||||||||||
Consulting fees
|
582,650
|
2,155,850
|
(1,573,200
|
)
|
(73)
|
%
|
||||||||||
Consulting fees – related party
|
2,965,559
|
—
|
2,965,559
|
100
|
%
|
|||||||||||
Acquisition-related costs
|
2,617,099
|
—
|
2,617,099
|
100
|
%
|
|||||||||||
Share return and settlement
|
1,800,000
|
—
|
1,800,000
|
100
|
%
|
|||||||||||
Warrant modification expense
|
—
|
743,189
|
(743,189
|
)
|
(100)
|
%
|
||||||||||
General and administrative expense
|
1,966,715
|
1,557,291
|
409,424
|
26
|
%
|
|||||||||||
Total operating expenses
|
12,288,960
|
5,143,915
|
7,145,045
|
139
|
%
|
|||||||||||
Loss from operations
|
(8,876,169
|
)
|
(4,612,179
|
)
|
(4,263,990
|
)
|
92
|
%
|
||||||||
Interest expense, net
|
(151,549
|
)
|
(68,359
|
)
|
(83,190
|
)
|
122
|
%
|
||||||||
Gain (loss) on settlement of debt
|
(50,737
|
)
|
12,559
|
(63,296
|
)
|
(504)
|
%
|
|||||||||
Gain (loss) on derivative warrant liability
|
(1,206,788
|
)
|
1,176,103
|
(2,382,891
|
)
|
(203)
|
%
|
|||||||||
Net loss
|
$
|
(10,285,243
|
)
|
$
|
(3,491,876
|
)
|
$
|
(6,793,367
|
)
|
195
|
%
|
|
·
|
Revenues, lease operating expense, depreciation, depletion, and amortization expense, and accretion expense increased substantially because of the inclusion of the results of our new subsidiary, GBE. We purchased GBE on February 15, 2011. Our consolidated financial statements include GBE’s results from February 15, 2011 through July 31, 2011. Through GBE, we produced from approximately 26 active oil and gas wells in four fields. This represents a substantial increase in our operations.
|
|
·
|
We recorded an impairment charge during the year ended July 31, 2011 because the net book value of our oil and gas properties exceeded the ceiling by $140,029 on January 31, 2011.
|
|
·
|
Consulting fees reduced because we incurred expenses in 2010 for investor relations programs that we did not continue in 2011.
|
|
·
|
Consulting fees – related party increased due to our granting warrants as compensation to a company for investor relations and public relations services. This company is a related party, as it is controlled by the father-in-law of our CEO, Jeremy Driver.
|
|
·
|
Acquisition related costs in 2011 were attributable to stock granted to consultants as finders’ fees for their role in effecting the acquisition of GBE and we also paid due diligence fees.
|
|
·
|
Share return and settlement in 2011 related to a settlement with an officer and a director, Amiel David and Alan Gaines, in which they received cash and warrants and returned the stock previously granted to them in conjunction with the acquisition of GBE.
|
|
·
|
Warrant modification expense was $743,189 in the year ended July 31, 2010. The modification expense is a result of a modification of original terms of certain investor warrants. The modification extended the term of a total of 5,577,939 outstanding warrants resulting in an incremental cost of $743,189. The $743,189 represents the estimated incremental fair market value of the awards immediately prior to and subsequent to the modification.
|
|
·
|
We opened a new location in Houston, Texas, hired additional accounting staff, and hired an operations manager and regulatory manager for GBE, which increased our general and administrative expense.
|
|
·
|
GBE maintains a letter of credit to satisfy a Texas Railroad Commission requirement and has a line of credit with a commercial bank. Because of these arrangements, interest expense increased.
|
|
·
|
During 2011, we settled certain of our accounts payable by the issuance of common stock that, at the date of issuance, had a fair value in excess of the amount of debt being settled. We therefore recognized a net loss on the settlements of $50,737.
|
|
·
|
We continue to re-measure our derivative warrants at fair value at every reporting date. Because the February 2011 private placement triggered the warrant ratchet provisions, we had more warrants outstanding with a lower exercise price as of July 31, 2011; this increased the loss on derivative warrant liability during the year ended July 31, 2011.
|
July 31, 2011
|
July 31, 2010
|
|||||||
Cash reserves
|
$
|
1,082,099
|
$
|
247,851
|
||||
Working capital (deficit)
|
$
|
(3,773,504
|
)
|
$
|
(1,655,780
|
)
|
|
●
|
Level 1 inputs consist of unadjusted quoted prices for identical instruments in active markets.
|
|
●
|
Level 2 inputs consist of quoted prices for similar instruments.
|
|
●
|
Level 3 valuations are derived from inputs which are significant and unobservable and have the lowest priority.
|
Carrying Value at
|
Fair Value Measurement at July 31, 2011
|
|||||||||||||||
July 31, 2011
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Derivative warrant liability
|
$
|
2,543,223
|
-
|
$
|
-
|
$ |
2,543,223
|
Beginning balance – July 31, 2010
|
$
|
1,502,700
|
||
Reduced for warrants exercised
|
(166,265
|
)
|
||
Unrealized loss on changes in fair value of derivative liability
|
1,206,788
|
|||
Change in fair value of derivative liability
|
1,040,523
|
|||
At July 31, 2011
|
$
|
2,543,223
|
ITEM 8.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|||||
|
|
2011
|
|
2010
|
|
|||
Assets
|
|
|
|
|
|
|||
Current assets
|
|
|
|
|
|
|||
Cash and cash equivalents
|
|
$
|
1,082,099
|
|
|
$
|
247,851
|
|
Oil and gas revenues receivable
|
|
|
875,918
|
|
|
|
6,580
|
|
Accounts receivable – related party
|
|
|
69,880
|
|
|
|
28,975
|
|
Other current assets
|
292,973
|
251,328
|
||||||
Other receivables, net
|
|
|
225,057
|
|
|
|
—
|
|
Total current assets
|
|
|
2,545,927
|
|
|
|
534,734
|
|
|
|
|
|
|
|
|
|
|
Oil and gas property, accounted for using the full cost method of accounting
|
|
|
|
|
|
|
|
|
Evaluated property, net of accumulated depletion of $567,189 and $265,872, respectively, and accumulated impairment of $373,335 and $233,306, respectively
|
|
|
7,395,198
|
|
|
|
1,193,680
|
|
Unevaluated property
|
|
|
—
|
|
|
|
734,533
|
|
Note receivable
|
45,355
|
—
|
||||||
Restricted cash
|
6,716,850
|
40,000
|
||||||
Other assets
|
|
|
210,587
|
|
|
|
19,317
|
|
Property and equipment, net of accumulated depreciation of $11,158 and $7,624, respectively
|
|
|
22,857
|
|
|
|
5,747
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
16,936,774
|
|
|
$
|
2,528,011
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,676,816
|
|
|
$
|
583,250
|
|
Line of credit
|
1,360,573
|
—
|
||||||
Notes payable, net of unamortized discount of $0 and $45,436, respectively
|
|
|
255,596
|
|
|
|
104,564
|
|
Asset retirement obligations – short term
|
468,500
|
—
|
||||||
Derivative warrant liability
|
|
|
2,543,223
|
|
|
|
1,502,700
|
|
Due to related parties
|
|
|
14,723
|
|
|
|
—
|
|
Total current liabilities
|
|
|
6,319,431
|
|
|
|
2,190,514
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations – long term
|
|
|
3,987,428
|
|
|
|
57,623
|
|
Total liabilities
|
|
|
10,306,859
|
|
|
|
2,248,137
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
||||||||
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock, $.001 par; 500,000,000 shares authorized shares; 169,770,770 and 52,432,486 shares issued and outstanding, respectively
|
|
|
169,771
|
|
|
|
52,432
|
|
Additional paid-in capital
|
|
|
27,807,540
|
|
|
|
11,289,595
|
|
Accumulated deficit
|
|
|
(21,347,396
|
)
|
|
|
(11,062,153
|
)
|
Total stockholders’ equity
|
|
|
6,629,915
|
|
|
279,874
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
16,936,774
|
|
|
$
|
2,528,011
|
|
|
Years Ended July 31,
|
|||||||
2011
|
2010
|
|||||||
Revenues
|
$ | 3,412,791 | $ | 531,736 | ||||
|
||||||||
Operating expenses
|
||||||||
Lease operating expense
|
1,698,191 | 571,009 | ||||||
Depreciation, depletion, and amortization
|
304,851 | 92,944 | ||||||
Accretion
|
213,866 | 23,632 | ||||||
Impairment
|
140,029 | — | ||||||
Consulting fees
|
582,650 | 2,155,850 | ||||||
Consulting fees – related party
|
2,965,559 | — | ||||||
Acquisition-related costs
|
2,617,099 | — | ||||||
Share return and settlement
|
1,800,000 | — | ||||||
Warrant modification expense
|
— | 743,189 | ||||||
General and administrative expense
|
1,966,715 | 1,557,291 | ||||||
Total operating expenses
|
12,288,960 | 5,143,915 | ||||||
|
||||||||
Loss from operations
|
(8,876,169 | ) | (4,612,179 | ) | ||||
|
||||||||
Interest expense, net
|
(151,549 | ) | (68,359 | ) | ||||
Gain (loss) on settlement of debt
|
(50,737 | ) | 12,559 | |||||
Gain (loss) on derivative warrant liability
|
(1,206,788 | ) | 1,176,103 | |||||
|
||||||||
Net loss
|
$ | (10,285,243 | ) | $ | (3,491,876 | ) | ||
|
||||||||
|
||||||||
Basic and diluted loss per common share
|
$ | (0.09 | ) | $ | (0. 08 | ) | ||
|
||||||||
Weighted average shares outstanding (basic and diluted)
|
109,941,421 | 45,642,982 |
|
Common Stock |
|
|
Additional Paid-in
|
|
Accumulated
|
|
|
|
|
||||||||||
|
Shares |
|
Amount
|
|
|
Capital
|
|
Deficit
|
|
|
Total
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at July 31, 2009
|
30,933,990
|
|
$
|
30,934
|
|
|
$
|
8,080,773
|
|
$
|
(7,570,277
|
)
|
|
$
|
541,430
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Common stock issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock issued for cash, net of share issuance costs, and warrants exercised for cash
|
17,975,870
|
|
|
17,976
|
|
|
|
1,122,703
|
|
|
—
|
|
|
|
1,140,679
|
|
||||
Debt, net of amounts allocated to derivative warrants
|
1,093,749
|
|
|
1,093
|
|
|
|
142,708
|
|
|
—
|
|
|
|
143,801
|
|
||||
Services
|
1,493,294
|
|
|
1,493
|
|
|
|
517,622
|
|
|
—
|
|
|
|
519,115
|
|
||||
Debt – related party, net of amounts allocated to derivative warrants
|
935,583
|
|
|
936
|
|
|
|
(936
|
)
|
|
—
|
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Share-based compensation: amortization of fair value of stock options
|
—
|
|
|
—
|
|
|
|
639,469
|
|
|
—
|
|
|
|
639,469
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Warrants issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
With debt
|
—
|
|
|
—
|
|
|
|
28,067
|
|
|
—
|
|
|
|
28,067
|
|
||||
With debt – related party
|
—
|
|
|
—
|
|
|
|
16,000
|
|
|
—
|
|
|
|
16,000
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Warrant extension modification
|
__
|
|
|
__
|
|
|
|
743,189
|
|
|
__
|
|
|
|
743,189
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net loss
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(3,491,876
|
)
|
|
|
(3,491,876
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at July 31, 2010
|
52,432,486
|
|
52,432
|
|
|
11,289,595
|
|
(11,062,153
|
)
|
|
279,874
|
|||||||||
Common stock issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock issued for cash, net of share issuance costs, and for warrants exercised for cash
|
94,760,000
|
|
|
94,760
|
|
|
|
9,304,224
|
|
|
—
|
|
|
|
9,398,984
|
|
||||
Debt
|
1,795,360
|
|
|
1,796
|
|
|
|
229,491
|
|
|
—
|
|
|
|
231,287
|
|
||||
Debt – related party
|
1,618,290
|
1,618
|
160,211
|
—
|
|
161,829
|
||||||||||||||
Services
|
16,414,634
|
|
|
16,415
|
|
|
|
2,638,551
|
|
|
—
|
|
|
|
2,654,966
|
|
||||
Deemed dividend
|
17,750,000
|
|
|
17,750
|
|
|
|
2,822,250
|
|
—
|
|
|
|
2,840,000
|
|
|||||
Deemed dividend
|
—
|
—
|
(2,840,000
|
)
|
—
|
(2,840,000
|
)
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Share return and settlement
|
(15,000,000
|
)
|
(15,000
|
)
|
771,250
|
—
|
756,250
|
|||||||||||||
Share-based compensation:
|
|
|||||||||||||||||||
Amortization of fair value of stock options
|
—
|
|
|
—
|
|
|
|
466,409
|
|
|
—
|
|
|
|
466,409
|
|||||
Warrants granted to related party
|
—
|
|
|
—
|
|
|
|
2,965,559
|
|
|
—
|
|
|
|
2,965,559
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net loss
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(10,285,243
|
)
|
|
|
(10,285,243
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at July 31, 2011
|
169,770,770
|
|
$
|
169,771
|
|
|
$
|
27,807,540
|
|
$
|
(21,347,396
|
)
|
|
$
|
6,629,915
|
|
|
Years Ended July 31,
|
|
|||||
|
|
2011
|
|
|
2010
|
|
||
Cash Flows From Operating Activities
|
|
|
|
|
|
|
||
Net loss
|
|
$
|
(10,285,243
|
)
|
|
$
|
(3,491,876
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
304,851
|
|
|
|
92,943
|
|
Impairment
|
140,029
|
—
|
||||||
Accretion
|
|
|
213,866
|
|
|
|
23,632
|
|
Write-off of reclamation deposit
|
19,317
|
—
|
||||||
Realized loss on retirement of assets
|
|
|
—
|
|
|
|
7,560
|
|
Amortization of debt discount and loan origination fees
|
|
|
30,684
|
|
|
|
85,865
|
|
Warrants granted to related party
|
2,965,559
|
—
|
||||||
Common stock issued for services
|
|
|
108,624
|
|
|
|
519,115
|
|
Acquisition-related costs paid in common stock
|
2,546,342
|
—
|
||||||
Share based compensation- amortization of the fair value of stock options
|
|
|
466,409
|
|
|
|
639,469
|
|
Share return and settlement, net of cash payment of $1,043,750
|
756,250
|
—
|
||||||
Warrant modification
|
—
|
743,189
|
||||||
Derivative warrants granted for services
|
|
|
—
|
|
|
|
12,170
|
|
(Gain) loss on derivative warrant liability
|
|
|
1,206,788
|
|
|
(1,176,103
|
)
|
|
(Gain) loss on settlement of accounts payable
|
|
|
50,737
|
|
|
(12,559
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(543,012
|
)
|
|
|
(5,873
|
)
|
Accounts payable and accrued expenses
|
|
|
(210,238
|
)
|
|
|
125,833
|
|
Settlement of asset retirement obligations
|
(135,318
|
) |
—
|
|||||
Other changes in due to (from) related parties
|
(40,905
|
)
|
10,643
|
|||||
Other assets
|
|
|
139,059
|
|
|
(206,850
|
)
|
|
Net cash used in operating activities
|
|
|
(2,266,201
|
)
|
|
|
(2,632,842
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of oil and gas properties
|
|
|
(360,143
|
)
|
|
|
(571,403
|
)
|
Purchases of property and equipment
|
(16,050
|
)
|
(4,009
|
)
|
||||
Proceeds from sale of oil and gas properties
|
1,425,000
|
—
|
||||||
Purchase of Galveston Bay Energy, LLC, including restricted cash of $6,675,487
|
|
|
(8,500,000
|
)
|
|
|
—
|
|
Net cash used in investment activities
|
|
|
(7,451,193
|
)
|
|
|
(575,412
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of common stock for cash, net of share issuance costs and amounts allocated to derivative warrants and from exercise of warrants
|
|
|
9,232,719
|
|
|
|
3,497,312
|
|
Proceeds from notes payable
|
|
|
1,548,300
|
|
|
|
100,000
|
|
Payments on notes payable
|
|
|
(229,377
|
)
|
|
|
(100,000
|
)
|
Proceeds from notes payable to related parties
|
|
|
—
|
|
|
|
100,500
|
|
Payments on notes payable to related parties
|
|
|
—
|
|
|
(160,500
|
)
|
|
Net cash provided by financing activities
|
|
|
10,551,642
|
|
|
|
3,437,312
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
834,248
|
|
|
|
229,058
|
|
Cash at beginning of period
|
|
|
247,851
|
|
|
|
18,793
|
|
Cash at end of period
|
|
$
|
1,082,099
|
|
|
$
|
247,851
|
|
|
|
Years Ended July 31,
|
|
|||||
|
|
2011
|
|
|
2010
|
|
||
|
|
|
|
|
|
|
||
Supplemental Disclosures:
|
|
|
|
|
|
|
||
Interest paid in cash
|
|
$
|
162,511
|
|
|
$
|
20,867
|
|
Income taxes paid in cash
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing
|
|
|
|
|
|
|
|
|
Accounts payable for oil and gas assets
|
|
$
|
54,256
|
|
|
$
|
84,519
|
|
Asset retirement obligation assumed
|
5,843,330
|
11,329
|
||||||
Asset retirement obligation sold
|
1,523,573
|
—
|
||||||
Payment for sale of working interest paid to the seller (See Note 2 – Acquisition of Galveston Bay Energy, LLC)
|
1,400,000
|
—
|
||||||
Note receivable for sale of oil and gas property
|
50,000
|
—
|
||||||
Note payable for insurance
|
159,973
|
—
|
||||||
Loan origination fees
|
60,573
|
—
|
||||||
Non-cash capitalized interest
|
|
|
51,671
|
|
|
|
50,883
|
|
Stock and derivative warrants for accounts and notes payable
|
|
|
231,287
|
|
|
|
266,685
|
|
Stock and derivative warrants for accounts and note payable to related parties
|
|
|
161,829
|
|
|
|
187,116
|
|
Debt discount
|
|
|
—
|
|
|
|
44,067
|
|
Reclassification due to exercise of warrants classified as a derivative
|
|
|
166,265
|
|
|
702,299
|
|
|
●
|
Level 1 inputs consist of unadjusted quoted prices for identical instruments in active markets.
|
|
●
|
Level 2 inputs consist of quoted prices for similar instruments.
|
|
●
|
Level 3 valuations are derived from inputs which are significant and unobservable and have the lowest priority.
|
Recognized Amount of Identifiable Assets Acquired and Liabilities Assumed
|
||||
Restricted Cash
|
$
|
6,675,487
|
||
Accounts receivable and other current assets
|
590,312
|
|||
Prepaid land use fees
|
159,218
|
|||
Property and equipment
|
4,594
|
|||
Oil and Gas Property, accounted for using the full cost basis of accounting:
|
||||
Evaluated property
|
9,840,834
|
|||
Accounts payable and accrued expenses
|
(1,527,115
|
) | ||
Asset retirement obligations
|
(5,843,330
|
) | ||
Total Identifiable Net Assets
|
$
|
9,900,000
|
|
●
|
On February 15, 2011, we granted 914,634 shares of common stock to a consultant for his role in bringing us the opportunity to make the acquisition. The shares were valued at $146,341 based on the closing stock price on the grant date and recorded in expense as acquisition-related costs.
|
|
●
|
On February 15, 2011, we granted 15 million shares of common stock to Alan D. Gaines in part as compensation for bringing us the opportunity to make the acquisition described above and in part as new director and officer compensation. 50% of shares vested that date and are valued at $1,200,000 based on the closing stock price on the grant date and recorded in expense as acquisition-related costs. Our agreement with Mr. Gaines provided for a proportional increase in the shares awarded if we raise in excess of $11 million within three months of the closing of the GBE transaction, inclusive of the $9,239,000 raised in the 2011 private placement. The remaining shares were scheduled to vest as follows: 3,750,000 on February 15, 2012 and 3,750,000 on February 15, 2013. However, Mr. Gaines returned the stock he received and forfeited the unvested stock when he separated from Strategic in April 2011.
|
|
●
|
On February 15, 2011, we granted 15 million shares of common stock to Amiel David in part as compensation for bringing us the opportunity to make the acquisition described above and in part as new director and officer compensation. 50% of shares vested on that date and are valued at $1,200,000 based on the closing stock price on the grant date and recorded in expense as acquisition-related costs. Our agreement with Mr. David provides for a proportional increase in the shares awarded if we raise in excess of $11 million within three months of the closing of the GBE transaction, inclusive of the $9,239,000 raised in the 2011 private placement. The remaining shares were scheduled to vest as follows: 3,750,000 on February 15, 2012 and 3,750,000 on February 15, 2013. However, Mr. David returned the stock he received and forfeited the unvested stock when he separated from Strategic in April 2011.
|
July 31,
|
||||||||
2011
|
2010
|
|||||||
Revenues
|
$
|
5,409,007
|
$
|
2,625,186
|
||||
Loss from operations
|
(9,821,277
|
)
|
(6,906,519
|
)
|
||||
Net loss
|
(11,230,351
|
)
|
(5,798,775
|
)
|
||||
Loss per share, basic and diluted
|
(0.10
|
)
|
(0.04
|
)
|
|
|
July 31,
|
|
|||||
|
|
2011
|
|
|
2010
|
|
||
Evaluated Properties
|
|
|
|
|
|
|
||
Costs subject to depletion
|
|
$
|
7,962,387
|
|
|
$
|
1,459,552
|
|
Depletion
|
|
|
(567,189
|
)
|
|
|
(265,872
|
)
|
Total evaluated properties
|
|
|
7,395,198
|
|
|
|
1,193,680
|
|
|
|
|
|
|
|
|
|
|
Unevaluated properties
|
|
|
—
|
|
|
|
734,533
|
|
Net oil and gas properties
|
|
$
|
7,395,198
|
|
|
$
|
1,928,213
|
|
●
|
In August 2010, we entered into an agreement with a consultant to assist in marketing our Kenedy Ranch lease to investors. Under the terms of the agreement, the consultant would receive a 5% working interest, carried to the casing point, carved out from our retained portion of the lease. In September 2010 we assigned 81.25% working interest in the Kenedy Ranch lease to Chinn Exploration Company (“Chinn”) for $200,000 cash. The agreement provided that Chinn would operate the property and would drill a test well within 18 months of the date of the agreement. We retained an 18.75% working interest and our marketing consultant received a 5% working interest carved out from our interest. Thus, after compensation of the consultant, our working interest in Kenedy Ranch was 13.75%. The cash proceeds we received in conjunction with this agreement were treated as a reduction of capitalized cost in accordance with rules governing full cost companies. We declined to participate further in the project and thus determined that reserves would not be assigned. We reclassified the net accumulated costs, $166,361, which includes capitalized interest of $46,969, and is net of the $200,000 of cost recovery to evaluated property.
|
●
|
As of December 31, 2010, we had drilled two dry holes on our Koliba lease. We determined that we would not perform further exploration activities and reclassified the accumulated costs, $103,681, including capitalized interest of $7,110, to evaluated property.
|
●
|
During the quarter ended January 31, 2011, we determined that we would not pursue further exploration activities on multiple leases in Texas, Louisiana, and Illinois, and reclassified the accumulated costs, $198,705, to evaluated property.
|
●
|
During the fourth quarter of 2011, we reclassified the accumulated costs pertaining to our Markham City North prospect, $282,884, including capitalized interest of $43,529, to evaluated property. In September 2011, the operator of the lease drilled three wells on the lease, one of which is productive. Accordingly, we expect to assign reserves to the prospect.
|
2011
|
2010
|
|||||||
Liability for asset retirement obligation, beginning of period
|
$
|
57,623
|
$
|
22,662
|
||||
Asset retirement obligations assumed – see Note 2
|
|
|
5,843,330
|
|
|
|
10,598
|
|
Asset retirement obligations sold – see Note 3
|
|
|
(1,523,573
|
)
|
|
|
—
|
|
Accretion
|
213,866
|
23,632
|
||||||
Revisions in estimated cash flows
|
—
|
731
|
||||||
Costs incurred
|
|
|
(135,318
|
)
|
|
|
—
|
|
Liability for asset retirement obligation, end of period
|
|
$
|
4,455,928
|
|
|
$
|
57,623
|
|
|
·
|
The stock price on the valuation date would fluctuate with our projected volatility;
|
|
·
|
Warrant holders would exercise at target price multiples of the market price trigger prices. The target price multiple reduces as the warrants approach maturity;
|
|
·
|
Warrant holders would exercise the warrant at maturity if the stock price was above two times the reset exercise price;
|
|
·
|
An annual reset event would occur at 65% discount to market price;
|
|
·
|
The projected volatility was based on historical volatility. Because we do not have sufficient trading history to determine our own historical volatility, we used the volatility of a group of comparable companies combined with our own historical volatility from May 2009, when we began trading.
|
Date of valuation
|
1 year
|
2 year
|
3 year
|
4 year
|
5 year
|
|||||||||||||||
October 15, 2009 (Issuance of warrants to purchase 12,977,500 shares of common stock)
|
121 | % | 255 | % | 304 | % | 320 | % | 331 | % | ||||||||||
November 13, 2009 (issuance of warrants to purchase 6,030,000 shares of common stock)
|
219 | % | 272 | % | 284 | % | 300 | % | 350 | % | ||||||||||
April 12, 2010 (exercise of warrants to purchase 2,775,870 shares of common stock)
|
219 | % | 272 | % | 284 | % | 300 | % | 350 | % | ||||||||||
July 31, 2010 (year end remeasurement)
|
132 | % | 271 | % | 300 | % | 312 | % | 329 | % | ||||||||||
October 13, 2010 (exercise of warrants to purchase 870,000 shares of common stock)
|
132 | % | 271 | % | 300 | % | 312 | % | 329 | % | ||||||||||
July 31, 2011 (year end remeasurement)
|
134 | % | 192 | % | 301 | % | 329 | % | 341 | % |
Carrying Value at
|
Fair Value Measurement at July 31, 2011
|
|
||||||||||||||
July 31, 2011
|
Level 1
|
Level 2
|
Level 3
|
|
||||||||||||
|
||||||||||||||||
Derivative warrant liability
|
$
|
2,543,223
|
-
|
$
|
-
|
$ |
2,543,223
|
|
Beginning balance – July 31, 2010
|
|
$
|
1,502,700
|
|
Reduced for warrants exercised
|
|
|
(166,265
|
)
|
Unrealized loss on changes in fair value of derivative liability
|
|
|
1,206,788
|
|
Change in fair value of derivative liability
|
1,040,523
|
|||
At July 31, 2011
|
|
$
|
2,543,223
|
|
Beginning balance – July 31, 2009
|
|
$
|
-
|
|
Issuance of derivative warrants
|
|
|
3,381,032
|
|
Reduced for warrants exercised
|
|
|
(702,229
|
)
|
Change in fair value of derivative liability
|
|
|
(1,176,103
|
)
|
At July 31, 2010
|
|
$
|
1,502,700
|
|
|
·
|
Receive $1,043,750 cash,
|
|
·
|
Receive warrants to purchase 10,000,000 shares of common stock at an exercise price of $0.10 and a three year term, and
|
|
·
|
Return the 15,000,000 shares of common stock that they had received in February 2011 to Strategic.
|
Transaction
|
Amount
|
Income statement recognition
|
|||
Grant of 15,000,000 vested shares of common stock on February 15, 2011
|
$ | 2,400,000 |
Included in Acquisition-related costs
|
||
Expense associated with the settlement of 15,000,000 shares of previously unvested common stock on April 1, 2011
|
1,800,000 |
Share return and settlement
|
|||
Total expense recognized
|
$ | 4,200,000 |
|
2011
|
|
2010
|
Risk-free interest rate
|
0.18%-2.79%
|
|
0.47%-0.68%
|
Dividend yield
|
0%
|
|
0%
|
Volatility factor
|
138%-153%
|
|
159.50%-162.03%
|
Expected life (years)
|
1-6.5 years
|
|
1.5-2.13 years
|
2011
|
2010
|
|||||||
Number of options granted (1)
|
14,900,000 | 2,600,000 | ||||||
Compensation expense recognized (1)
|
$ | 313,284 | $ | 639,469 | ||||
Weighted average fair value of options granted
|
$ | 0.10 | $ | 0.20 |
(1)
|
Excluding those options deemed re-issued in the repricing discussed below
|
|
·
|
A summary of the grants made during the years ended July 31, 2011 and 2010 follows: In April 2011, options to purchase 12,500,000 shares of common stock with an exercise price of $0.10 per share and a term of ten years were granted to an officer and director of the company. The options vest 20% each six months over the 30 months following the award.
|
|
·
|
In April 2011, options to purchase 1,000,000 shares of common stock with an exercise price of $0.10 per share and a term of ten years were granted to a director who also provides consulting services to us. The options vest 20% each six months over the 30 months following the award.
|
|
·
|
In August 2010, options to purchase 1,400,000 shares of common stock with an exercise price of $0.20 per share and a term of three years were granted to one of our officers. The options vest 25% each six months over the 18 months following the award with the first 25% or 350,000 shares vesting immediately.
|
|
·
|
In November 2009, options to purchase 2,500,000 shares of common stock with an exercise price of $0.20 per share and a term of three years were granted to our new CEO. The initial fair value of the options was $770,020. Options to purchase 625,000 shares (25% of the award) vested immediately; the remaining options vest 25% each six months over the following 18 months. The expected term of the options that vested immediately, computed using the simplified method, was two years. The expected term of the options with graded vesting, computed using the simplified method, was 2.125 years.
|
|
·
|
In November 2009, options to purchase 100,000 shares of common stock with an exercise price of $.20 per share and a term of three years were granted to employee consultant as a signing bonus. The fair value of the options was $31,445. The options vest 25% each six months over the 24 months following the award. The expected term of the options, computed using the simplified method, was two years.
|
2011
|
2010
|
|||||||
Number of options granted
|
6,500,000 | - | ||||||
Compensation expense recognized
|
$ | 64,366 | - | |||||
Weighted average fair value of options granted
|
$ | 0.10 | - |
Risk-free interest rate
|
Dividend yield
|
Volatility factor
|
Expected life
(years)
|
|||||||||||||
250,000 options with an exercise price of $.35 per share and remaining expected term of 3 years
|
2.14 | % | 0.00 | % | 150.23 | % | 3 | |||||||||
2,100,000 options with an exercise price of $.35 per share and remaining expected term of 3 years
|
2.14 | % | 0.00 | % | 150.23 | % | 3 | |||||||||
1,180,100 options with an exercise price of $.35 per share and remaining expected term of 4 years
|
2.14 | % | 0.00 | % | 139.20 | % | 4 | |||||||||
1,925,000 options with an exercise price of $.20 per share and remaining expected term of 1 year
|
2.14 | % | 0.00 | % | 150.23 | % | 1 |
Options
|
Weighted Average
Share Price
|
Aggregate intrinsic
value
|
Weighted average remaining contractual
life (years)
|
|||||||||||||
Outstanding at year ended July 31, 2009
|
6,530,000
|
$
|
0.34
|
$
|
62,500
|
8.16
|
||||||||||
Granted
|
2,600,000
|
0.20
|
||||||||||||||
Exercised
|
-
|
-
|
||||||||||||||
Expired
|
(425,000
|
)
|
0.35
|
|||||||||||||
Outstanding at year ended July 31, 2010
|
8,705,000
|
0.30
|
$
|
20,000
|
5.40
|
|||||||||||
Granted
|
28,930,000
|
0.10
|
||||||||||||||
Exercised
|
-
|
-
|
||||||||||||||
Expired
|
(10,105,000
|
)
|
-
|
|||||||||||||
Outstanding at year ended July 31,2011
|
|
|
27,530,000
|
|
|
$
|
0.10
|
|
|
$
|
1,101,200
|
|
|
|
8.14
|
|
Options outstanding and exercisable as of July 31, 2011:
|
|
||||||||||
Exercise Price
|
|
|
Outstanding Number of
Shares
|
|
Remaining Life
|
|
Exercisable Number of
Shares
|
|
|||
$ |
0.10
|
|
|
|
20,000,000
|
|
9.73 years
|
|
|
-
|
|
0.10
|
|
|
|
1,180,000
|
|
7.81 years
|
|
|
1,180,000
|
||
|
0.10
|
|
|
|
2,350,000
|
|
5.93 years
|
|
|
2,350,000
|
|
0.10
|
1,400,000
|
2.05 years
|
700,000
|
||||||||
|
0.10
|
|
|
|
2,600,000
|
|
1.33 years
|
|
|
2,575,000
|
|
|
|
|
|
|
27,530,000
|
|
|
|
|
6,805,000
|
|
Options outstanding and exercisable as of July 31, 2010:
|
|
||||||||||
Exercise Price
|
|
|
Outstanding Number of
Shares
|
|
Remaining Life
|
|
Exercisable Number of
Shares
|
|
|||
$ |
0.10
|
|
|
|
250,000
|
|
6.93 years
|
|
|
250,000
|
|
|
0.20
|
|
|
|
2,600,000
|
|
2.33 years
|
|
|
1,275,000
|
|
|
0.35
|
|
|
|
425,000
|
|
1 year or less
|
|
|
425,000
|
|
|
0.35
|
|
|
|
500,000
|
|
1.63 years
|
|
|
500,000
|
|
|
0.35
|
|
|
|
3,200,000
|
|
6.93 years
|
|
|
3,200,000
|
|
|
0.35
|
|
|
|
1,730,000
|
|
8.81 years
|
|
|
1,535,000
|
|
|
|
|
|
|
8,705,000
|
|
|
|
|
7,185,000
|
|
|
|
Before
|
After
|
Risk-free interest rate
|
|
0.47%
|
0.47%
|
Dividend yield
|
|
0%
|
0%
|
Volatility factor
|
|
154.60%
|
154.60%
|
Remaining term (years)
|
|
0
|
1
|
|
|
Before
|
After
|
Risk-free interest rate
|
|
0.35%
|
0.35%
|
Dividend yield
|
|
0%
|
0%
|
Volatility factor
|
|
162.97%
|
162.97%
|
Remaining term (years)
|
|
0
|
1
|
|
|
Warrants
|
|
|
Weighted Average Share Price
|
|
|
Aggregate intrinsic value
|
|
|
Weighted average remaining contractual life (years)
|
|
||||
Outstanding at year ended July 31, 2009
|
|
|
6,360,279
|
|
|
$
|
0.91
|
|
|
|
-
|
|
|
|
.20
|
|
Granted
|
|
|
44,732,437
|
|
|
|
0.37
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(2,775,870
|
)
|
|
|
0.23
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(24,717,779
|
)
|
|
|
0.49
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at year ended July 31, 2010
|
|
|
23,599,067
|
|
|
|
0.42
|
|
|
|
-
|
|
|
|
3.02
|
|
Granted
|
|
|
77,410,369
|
|
|
|
0.10
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(870,000
|
)
|
|
|
0.10
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(6,177,939
|
)
|
|
|
0.92
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at year ended July 31,2011
|
|
|
93,961,497
|
|
|
$
|
0.10
|
|
|
$ |
3,710,880
|
|
|
|
3.83
|
|
Exercise Price
|
Outstanding Number of Shares
|
Remaining Life
|
Exercisable Number of Shares
|
||||||||
$ |
0.10
|
50,000,000
|
4.55 years
|
20,000,000
|
|||||||
0.10
|
31,343,999
|
3.21 years
|
31,343,999
|
||||||||
0.10
|
10,000,000
|
2.67 years
|
10,000,000
|
||||||||
0.10
|
128,000
|
2.58 years
|
128,000
|
||||||||
0.10
|
1,300,000
|
2.55 years
|
1,300,000
|
||||||||
0.40
|
939,498
|
1.15 years
|
939,498
|
||||||||
0.25
|
200,000
|
1.09 years
|
200,000
|
||||||||
1.00
|
50,000
|
.03 years
|
50,000
|
||||||||
93,961,497
|
63,961,497
|
Exercise Price
|
Outstanding Number of Shares
|
Remaining Life
|
Exercisable Number of Shares
|
||||||||
$ |
0.23
|
16,231,630
|
4.21 years
|
16,231,630
|
|||||||
0.25
|
200,000
|
2.09 years
|
200,000
|
||||||||
0.35
|
346,143
|
1 year or less
|
346,143
|
||||||||
0.40
|
939,498
|
2.15 years
|
939,498
|
||||||||
0.60
|
673,558
|
1 year or less
|
673,558
|
||||||||
1.00
|
5,158,238
|
1 year or less
|
5,158,238
|
||||||||
1.00
|
50,000
|
1.03 years
|
50,000
|
||||||||
23,599,067
|
23,599,067
|
July 31, 2011
|
July 31, 2010
|
|||||||
Note payable to a director, interest rate 6% per annum, due on demand after February 2011
|
$ | 6,423 | $ | - | ||||
Note payable to an officer and director, interest rate 6% per annum, due on demand after February 2011
|
8,300 | - | ||||||
Notes payable to related parties
|
$ | 14,723 | $ | - |
July 31,
|
||||||||
2011
|
2010
|
|||||||
US statutory federal rate
|
35.00
|
%
|
35.00
|
%
|
||||
State income tax rate
|
.99
|
%
|
.99
|
%
|
||||
Net operating loss for which no tax benefit is currently available
|
(35.99
|
)%
|
(35.99
|
)%
|
||||
—
|
%
|
—
|
%
|
July 31,
|
||||||||
2011
|
2010
|
|||||||
Stock based compensation
|
$
|
1,189,058
|
$
|
770,040
|
||||
Property, including depreciable property
|
(987,913
|
)
|
(58,951
|
)
|
||||
Asset retirement obligation
|
1,559,575
|
20,168
|
||||||
Net operating loss carry-forward
|
1,258,483
|
2,537,892
|
||||||
Other
|
220,103
|
131,944
|
||||||
3,239,306
|
3,401,093
|
|||||||
Valuation allowance for deferred tax assets
|
(3,239,306
|
)
|
(3,401,093
|
)
|
||||
$
|
—
|
$
|
—
|
2012
|
2013
|
2014
|
Total
|
|||||||||||||
Operating leases
|
$ | 116,061 | $ | 119,265 | $ | 100,848 | $ | 336,174 | ||||||||
Line of credit
|
1,405,925 | 1,405,925 | ||||||||||||||
Notes payable
|
279,795 | 279,795 | ||||||||||||||
Notes payable – related party
|
15,384 | 15,384 | ||||||||||||||
Total
|
$ | 1,817,165 | $ | 119,265 | $ | 100,848 | $ | 2,037,278 |
At July 31,
|
||||||||
2011
|
2010
|
|||||||
Line of credit origination fees
|
$
|
42,019
|
$
|
-
|
||||
Prepaid letter of credit fees
|
92,773
|
-
|
||||||
Prepaid insurance
|
132,482
|
-
|
||||||
Prepaid rent
|
-
|
1,328
|
||||||
Prepaid land use fees
|
25,699
|
-
|
||||||
Prepaid consulting – investor response program
|
-
|
250,000
|
||||||
Total other current assets
|
$
|
292,973
|
$
|
251,328
|
at July 31,
|
|||||||||
Approximate Life
|
2011
|
2010
|
|||||||
Furniture and fixtures
|
5 years
|
$
|
5,597
|
$
|
5,597
|
||||
Marine vessels
|
5 years
|
17,614
|
-
|
||||||
Computer equipment and software
|
2 years
|
10,804
|
7,774
|
||||||
Total property and equipment
|
34,015
|
13,371
|
|||||||
Less accumulated depreciation
|
(11,158
|
)
|
(7,624
|
)
|
|||||
Net book value
|
$
|
22,857
|
$
|
5,747
|
At July 31,
|
||||||||
2011
|
2010
|
|||||||
Trade payables
|
$
|
943,320
|
$
|
583,250
|
||||
Accrued payroll
|
84,256
|
-
|
||||||
Revenue payable
|
567,367
|
-
|
||||||
Taxes payable
|
81,873
|
-
|
||||||
Total accounts payable and accrued expenses
|
$
|
1,676,816
|
$
|
583,250
|
Recognized Amount of Identifiable Assets Acquired and Liabilities Assumed
|
||||
Available for sale securities
|
$ | 3,900,000 | ||
Oil and Gas Property, accounted for using the full cost basis of accounting:
|
||||
Evaluated property
|
4,089,083 | |||
Asset retirement obligations
|
(1,539,083 | ) | ||
Total Identifiable Net Assets
|
$ | 6,450,000 |
Oil
(Barrels)
|
Gas
(MCF)
|
Total
(MCFE)
|
||||||||||
Balance – July 31, 2009
|
115,069
|
196,390
|
886,804
|
|||||||||
Revisions of previous estimates
|
(19,610
|
)
|
(17,423
|
)
|
(135,083
|
)
|
||||||
Purchase of reserves in place
|
8,140
|
-
|
48,840
|
|||||||||
Production
|
(6,449
|
)
|
(15,727
|
)
|
(54,421
|
)
|
||||||
Balance – July 31, 2010
|
97,150
|
163,240
|
746,140
|
|||||||||
Revisions of previous estimates
|
10,547
|
90,277
|
153,559
|
|||||||||
Purchase of reserves in place
|
1,562,974
|
16,489,482
|
25,867,326
|
|||||||||
Sale of reserves in place
|
(423,541
|
)
|
(4,122,370
|
)
|
(6,663,616
|
)
|
||||||
Production
|
(28,180
|
)
|
(59,539
|
)
|
(228,619
|
)
|
||||||
Balance – July 31, 2011
|
1,218,950
|
12,561,090
|
19,874,790
|
Proved Reserves as of July 31, 2011
|
||||||||||||
Oil
(Barrels)
|
Gas
(MCF)
|
Total
(MCFE)
|
||||||||||
Proved developed producing
|
248,470
|
864,840
|
2,355,660
|
|||||||||
Proved developed non-producing
|
226,860
|
3,734,340
|
5,095,500
|
|||||||||
Proved undeveloped
|
743,620
|
7,961,910
|
12,423,630
|
|||||||||
Total Proved reserves
|
1,218,950
|
12,561,090
|
19,874,790
|
Proved Reserves as of July 31, 2010
|
||||||||||||
Oil
(Barrels)
|
Gas
(MCF)
|
Total
(MCFE)
|
||||||||||
Proved developed producing
|
59,220
|
122,550
|
477,870
|
|||||||||
Proved developed non-producing
|
37,930
|
40,690
|
268,270
|
|||||||||
Proved undeveloped
|
-
|
-
|
-
|
|||||||||
Total Proved reserves
|
97,150
|
163,240
|
746,140
|
2011
|
2010
|
|||||||
Unevaluated properties
|
$
|
-
|
$
|
734,533
|
||||
Evaluated properties
|
8,335,722
|
1,692,858
|
||||||
Less impairment
|
(373,335
|
)
|
(233,306
|
)
|
||||
7,962,387
|
2,194,085
|
|||||||
Less depreciation, depletion, and amortization
|
(567,189
|
)
|
(265,872
|
)
|
||||
Net capitalized cost
|
$
|
7,395,198
|
1,928,213
|
2011
|
2010
|
|||||||
Property acquisition
|
||||||||
Unproved
|
$
|
118,803
|
$
|
388,248
|
||||
Proved
|
9,867,137
|
68,250
|
||||||
Exploration
|
284,570
|
295,771
|
||||||
Development
|
36,394
|
75,697
|
||||||
Cost recovery
|
(4,398,573
|
)
|
(92,362
|
)
|
||||
Total costs incurred
|
$
|
5,908,331
|
$
|
735,604
|
United States
|
||||
Balance at July 31, 2009
|
$
|
295,454
|
||
Additional Cost Incurred
|
639,969
|
|||
Cost Recovery
|
(92,362
|
)
|
||
Costs Transferred to DD&A Pool
|
(108,528
|
)
|
||
Balance at July 31, 2010
|
734,533
|
|||
Additional Costs Incurred
|
217,098
|
|||
Cost Recovery
|
(200,000
|
)
|
||
Costs Transferred to DD&A Pool
|
(751,631
|
)
|
||
Balance at July 31, 2010
|
$
|
-
|
|
●
|
future costs and selling prices will probably differ from those required to be used in these calculations;
|
|
●
|
due to future market conditions and governmental regulations, actual rates of production in future years may vary significantly from the rate of production assumed in the calculations;
|
|
●
|
a 10% discount rate may not be reasonable as a measure of the relative risk inherent in realizing future net oil and natural gas revenues; and
|
|
●
|
future net revenues may be subject to different rates of income taxation.
|
2011
|
2010
|
|||||||
Future cash inflows
|
$
|
172,677,470
|
$
|
7,767,660
|
||||
Future production costs
|
(48,521,190
|
)
|
(4,405,336
|
)
|
||||
Future development costs
|
(27,834,490
|
)
|
(150,000
|
)
|
||||
Future income tax expenses
|
(33,712,626
|
)
|
—
|
|||||
Future net cash flows
|
62,609,164
|
3,212,324
|
||||||
10% annual discount for estimated timing of cash flows
|
(26,492,946
|
)
|
(1,463,695
|
)
|
||||
Future net cash flows at end of year
|
$
|
36,116,218
|
$
|
1,748,629
|
2011
|
2010
|
|||||||
Standardized measure of discounted future net cash flows at beginning of year
|
$
|
1,748,629
|
$
|
2,091,860
|
||||
Net changes in prices and production costs
|
9,808,683
|
(95,884
|
)
|
|||||
Changes in estimated future development costs
|
(93,997
|
)
|
(27,452
|
)
|
||||
Sales of oil and gas produced, net of production costs
|
(1,757,237
|
)
|
(245,237
|
)
|
||||
Purchases of minerals in place
|
62,840,899
|
119,805
|
||||||
Sales of minerals in place
|
(18,720,719
|
)
|
—
|
|||||
Revisions of previous quantity estimates
|
553,357
|
(331,359
|
)
|
|||||
Development costs incurred
|
—
|
27,709
|
||||||
Change in income taxes
|
(19,447,193
|
)
|
—
|
|||||
Accretion of discount
|
1,183,796
|
209,187
|
||||||
Standardized measure of discounted future net cash flows at year end
|
$
|
36,116,218
|
$
|
1,748,629
|
2011
|
2010
|
|||||||
Net revenues from production
|
$
|
3,412,791
|
$
|
531,736
|
||||
Expenses
|
||||||||
Oil and gas operating
|
1,698,191
|
571,009
|
||||||
Impairment
|
140,029
|
-
|
||||||
Accretion
|
213,866
|
23,632
|
||||||
Operating expenses
|
2,052,086
|
594,641
|
||||||
Depreciation, depletion and amortization
|
304,851
|
92,944
|
||||||
Total expenses
|
2,356,937
|
687,585
|
||||||
Income (loss) before income tax
|
1,055,854
|
(155,849
|
)
|
|||||
Income tax expenses
|
(369,549
|
)
|
—
|
|||||
Results of operations
|
$
|
686,305
|
$
|
(155,849
|
)
|
|||
Depreciation, depletion and amortization rate per net equivalent MCFE
|
$
|
1.33
|
$
|
1.71
|
ITEM 9A.
|
ITEM 9B.
|
Name
|
Age
|
Position with the Company
|
Jeremy G. Driver
|
34
|
President, Chief Executive Officer, Chairman and a director
|
Sarah Berel-Harrop
|
44
|
Secretary, Treasurer and Chief Financial Officer
|
Leonard Garcia
|
61
|
Director
|
Steven L. Carter
|
52
|
Vice President of Operations and a director
|
|
1.
|
A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
|
|
2.
|
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
3.
|
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
|
|
i.
|
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
|
|
ii.
|
Engaging in any type of business practice; or
|
|
iii.
|
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
|
|
4.
|
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3)(i) above, or to be associated with persons engaged in any such activity;
|
|
5.
|
Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
|
|
6.
|
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
|
|
7.
|
Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
|
|
i.
|
Any Federal or State securities or commodities law or regulation; or
|
|
ii.
|
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
|
|
iii.
|
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
8.
|
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
|
1.
|
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
|
|
2.
|
compliance with applicable governmental laws, rules and regulations;
|
|
3.
|
the prompt internal reporting of violations of the code to the appropriate person or persons identified in the code; and
|
|
4.
|
accountability for adherence to the code.
|
Name
|
Number of forms
filed late
|
Number of
transactions
reported late
|
||
Amiel David
|
1
|
1
|
||
Alan D. Gaines
|
1
|
1
|
||
Johnathan Lindsay
|
2
|
3
|
||
Leonard Garcia
|
1
|
1
|
||
Steven Carter
|
2
|
2
|
||
Jeremy Driver
|
3
|
12
|
ITEM 11.
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards
($)
|
Option Awards
($)
|
Non-Equity Incentive Plan Compen-
sation
($)
|
Non-qualified Deferred Compen-
sation Earnings
($)
|
All Other Compen-
sation
($)
|
Total
($)
|
||||||||||||||||||||||||
Randall Reneau(1) Former President, CEO & Principal Executive
|
2011
|
N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Officer
|
2010
|
$ | 72,486 | $ | 8,000 | $ | 27,428 |
Nil
|
Nil
|
Nil
|
Nil
|
$ | 107,914 | ||||||||||||||||||||
Johnathan Lindsay(2) Former Secretary, Treasurer, CFO & Principal Accounting
|
2011
|
$ | 52,694 |
Nil
|
$ | 60,000 | $ | 7,951 |
Nil
|
Nil
|
Nil
|
$ | 120,645 | ||||||||||||||||||||
Officer
|
2010
|
$ | 94,000 | $ | 8,000 | $ | 27,428 |
Nil
|
Nil
|
Nil
|
Nil
|
$ | 129,428 | ||||||||||||||||||||
Steven Carter (3) Vice President of
|
2011
|
$ | 129,167 |
Nil
|
Nil
|
$ | 1,442,119 |
Nil
|
Nil
|
Nil
|
$ | 1,571,286 | |||||||||||||||||||||
Operations
|
2010
|
$ | 120,000 | $ | 10,000 | $ | 34,285 |
Nil
|
Nil
|
Nil
|
Nil
|
$ | 164,285 | ||||||||||||||||||||
Jeremy G. Driver (4)
|
2011
|
$ | 104,364 |
Nil
|
Nil
|
$ | 31,239 |
Nil
|
Nil
|
Nil
|
$ | 135,603 | |||||||||||||||||||||
President and CEO
|
2010
|
$ | 92,752 |
Nil
|
Nil
|
$ | 770,020 |
Nil
|
Nil
|
Nil
|
$ | 862,772 | |||||||||||||||||||||
Sarah Berel-Harrop(5) Secretary, Treasurer
|
2011
|
$ | 92,744 |
Nil
|
$ | 27,150 | $ | 296,440 |
Nil
|
Nil
|
Nil
|
$ | 416,334 | ||||||||||||||||||||
and CFO
|
2010
|
N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Amiel David (6)
|
2011
|
$ | 543,750 |
Nil
|
$ | 1,556,250 |
Nil
|
Nil
|
Nil
|
Nil
|
$ | 2,100,000 | |||||||||||||||||||||
Former President
|
2010
|
N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
(1)
|
Randall Reneau resigned as our President and CEO in December 2009. Randall Reneau received varying amounts per month for the fiscal year ending July 31, 2010 for the provision of management consulting services provided by Mr. Reneau to us on a monthly basis and from time to time. In December 2009, Mr. Reneau received a stock bonus of 68,571 shares of common stock. The stock was valued at $0.40 per share, the market closing price on the date of grant.
|
(2)
|
Johnathan Lindsay resigned as our Secretary, Treasurer and CFO on May 25, 2011. Johnathan Lindsay received varying amounts per month for the fiscal years ending July 31, 2009 and 2010 for the provision of management consulting services provided by Mr. Lindsay to us on a monthly basis and from time to time. In December 2009, Mr. Lindsay received a stock bonus of 68,571 shares of common stock. The stock was valued at $0.40 per share, the market closing price on the date of grant. Additionally, during the year ended July 31, 2011, Strategic repriced outstanding options to purchase 900,000 shares of common stock from an exercise price of $.35 per share to $0.10 per share. We reflected $12,193, the difference between the fair value of the outstanding award and the fair value of the repriced award as of the date of modification as compensation during the year ended July 31, 2011. The fair values were determined using the Black-Sholes option pricing method.
|
(3)
|
During the year ended July 31, 2011, Mr. Carter was awarded options to purchase 12,500,000 shares of common stock, with a ten year term, and exercisable at $0.10 per share. 1/5 of the options vest each six months, beginning six months after the date of grant. As of July 31, 2011, none of these options had vested. Mr. Carter also received options to purchase 1,400,000 shares of common stock with a three year term, exercisable at $.35 per share. ¼ of the shares vest each month beginning with the date of grant. This option and options to purchase 600,000 shares at $.35 per share (total 2,000,000 shares) were repriced and the new exercise price was $0.10 per share. The aggregate fair value on the dates of grant of the options, computed using the Black-Sholes option pricing method, was $1,408,779. The difference between the fair value of the outstanding award and the fair value of the repriced award as of the date of modification was $33,339. During the year, options to purchase 700,000 shares vested and we recorded $251,018 as compensation expense associated with Mr. Carter’s awards.
|
(4)
|
During the year ended July 31, 2011, Strategic repriced outstanding options to purchase 2,500,000 shares of common stock from an exercise price of $.35 per share to $0.10 per share. We reflected $31,239, the difference between the fair value of the outstanding award and the fair value of the repriced award as of the date of modification as compensation during the year ended July 31, 2011. The fair values were determined using the Black-Sholes option pricing method. Additionally, we recognized $68,015 in expense during the year ended July 31, 2011 associated with options granted in November 2009. The aggregate grant date fair value of the options granted in November 2009, valued using the Black-Sholes option pricing method, was $770,020.
|
(5)
|
Sarah Berel-Harrop was appointed as our Secretary, Treasurer and CFO on May 25, 2011. During the year ended July 31, 2011, she received 204,000 shares of common stock valued using the market closing price on the dates of grant. Option awards include the aggregate grant date fair value of options to purchase 3,000,000 shares of common stock, with a ten year term, and exercisable at $0.10 per share. 1/5 of the options vest each six months, beginning six months after the date of grant. As of July 31, 2011, none of the options had vested and we had recognized $29,708 of expense associated with these options.
|
(6)
|
Amiel David served as President from February 15, 2011 until April 1, 2011. See Note 8 – Share Return and Settlement in our Consolidated Financial Statements for details of his compensation during the year.
|
Option Awards
|
Stock Awards
|
||||||||
Name
|
Number of Securities
Underlying
Unexer-cised
Options
(#)
(exercise-able)
|
Number of Securities
Underlying
Unexer-cised
Options
(#)
(unexer-ciseable)
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexer-cised Unearned Options
(#)
|
Option ExercisePrice
($)
|
Option Expiration
Date
|
Number of Shares or Units of Stock That Have Not Vested
(#)
|
Market Value of Shares or Units of Stock That Have Not Vested
($)
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That
Have Not Vested
(#)
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
|
Randall Reneau
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
Johnathan Lindsay
|
300,000
300,000
|
N/A
N/A
|
N/A
N/A
|
0.10
0.10
|
07/05/17
05/21/19
|
N/A
|
N/A
|
N/A
|
N/A
|
Steven L. Carter
|
600,000
700,000
N/A
|
N/A
N/A
N/A
|
N/A
700,000
12,500,000
|
0.10
0.10
0.10
|
07/05/17
08/16/2013
04/21/2011
|
N/A
|
N/A
|
N/A
|
N/A
|
Jeremy G. Driver
|
2,500,000
|
N/A
|
N/A
|
0.10
|
11/27/12
|
N/A
|
N/A
|
N/A
|
N/A
|
Sarah Berel-Harrop
|
N/A
|
N/A
|
3,000,000
|
0.10
|
04/21/2021
|
N/A
|
N/A
|
N/A
|
N/A
|
Amiel David(1)
|
5,000,000
|
N/A
|
N/A
|
0.10
|
04/01/2014
|
N/A
|
N/A
|
N/A
|
N/A
|
(1)
|
Warrants issued with settlement as described in Note 8 – Share Return and Settlement in our Consolidated Financial Statements.
|
Name
|
Year
|
Fees
Earned or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity Incentive
Plan
Compen-
sation
($)
|
Non-
qualified Deferred Compen-
sation
Earnings
($)
|
All Other
Compen-
sation
($)
|
Total
($)
|
||||||||||||
Leonard Garcia (1)
|
2011
|
$ | 8,389 | $ | 10,423 | $ | 111,006 |
Nil
|
Nil
|
Nil
|
$ | 129,818 | ||||||||
Alan Lindsay (2)
|
2011
|
$ | (22,351 | ) | $ | 70,290 |
Nil
|
Nil
|
Nil
|
Nil
|
$ | 47,939 | ||||||||
Randall Reneau (3)
|
2011
|
Nil
|
$ | 34,155 | $ | 12,193 |
Nil
|
Nil
|
Nil
|
$ | 46,348 | |||||||||
Alan D. Gaines (4)
|
2011
|
$ | 500,000 | $ | 1,600,000 |
Nil
|
Nil
|
Nil
|
Nil
|
$ | 2,100,000 |
(1)
|
Leonard Garcia received varying amounts per month for the fiscal year ended July 31, 2011 for the provision of land work management consulting services provided by Mr. Garcia to us on a monthly basis and from time to time. Option awards include the aggregate grant date fair value of options to purchase 1,000,000 shares of common stock, with a ten year term, and exercisable at $0.10 per share. As of July 31, 2011, none of the options had vested and we had recognized $9,903 of expense associated with these options. We valued the options at $98,813 using the Black-Sholes option pricing method. Additionally, during the year, Strategic repriced outstanding options to purchase 900,000 shares of common stock from an exercise price of $.35 per share to $0.10 per share. We reflected $12,193, the difference between the fair value of the outstanding award and the fair value of the repriced award as of the date of modification as compensation during the year ended July 31, 2011. The fair value was determined using the Black-Sholes option pricing method.
|
(2)
|
Alan Lindsay resigned as a director on December 31, 2010. He received stock in February 2011 that, in part, settled fees that were earned and reported as “Fees Earned or Paid in Cash” during 2010. The full value of the stock award is shown in 2011 and the amount reported last year has been shown as a reduction of compensation in order not to double count this compensation.
|
(3)
|
Randall Reneau resigned as a director on February 28, 2011. During the year, Strategic repriced outstanding options to purchase 900,000 shares of common stock from an exercise price of $.35 per share to $0.10 per share. We reflected $12,193, the difference between the fair value of the outstanding award and the fair value of the repriced award as of the date of modification as compensation during the year ended July 31, 2011. The fair values were determined using the Black-Sholes option pricing method.
|
(4)
|
Alan D. Gaines served as a director from February 15, 2011 until April 1, 2011. See Note 8 – Share Return and Settlement in our Consolidated Financial Statements for details of his compensation during the year.
|
|
●
|
to pay Mr. Driver a monthly fee of $8,333.33;
|
|
●
|
to pay Mr. Driver a one-time signing bonus of $20,000;
|
|
●
|
to provide Mr. Driver with industry standard bonuses, from time to time, based, in part, on the performance of the Company and the achievement by Mr. Driver of reasonable management objectives, as determined by the Company’s Board of Directors in good faith;
|
|
●
|
to provide Mr. Driver with three weeks paid vacation;
|
|
●
|
to provide Mr. Driver with a monthly benefits stipend of $450 together with full participation, at the Company’s expense, in the Company’s current medical services and life insurance benefits programs for management and employees; and
|
|
●
|
to grant Mr. Driver incentive stock options to purchase not less than an aggregate of 2,500,000 common shares of the Company, at an exercise price $0.20 per optioned common share, vesting as to one-quarter of said stock options on the date of grant (that being as to 625,000) and on each day which is six months thereafter in succession for each remaining one-quarter of the optioned common shares, and all being exercisable for a period of three years from the date of grant and in accordance with the provisions of the Company’s current Stock Incentive Plan.
|
Title of Class
|
Name and Address of
Beneficial Owner(1)
|
Amount and Nature
of Beneficial Owner
|
Percent of Class(2)
|
|||
Directors and Officers:
|
||||||
Common Stock
|
Jeremy Glenn Driver
800 Gessner, Suite 200
Houston, Texas, U.S.A., 77024
|
51,716,667(3)
|
19.0%
|
|||
Common Stock
|
Steven L. Carter
800 Gessner, Suite 200
Houston, Texas, U.S.A., 77024
|
4,735,713(4)
|
1.7%
|
|||
Common Stock
|
Leonard Garcia
800 Gessner, Suite 200
Houston, Texas, U.S.A., 77024
|
2,246,079(5)
|
Less than 1%
|
|||
Common Stock
|
Sarah Berel-Harrop
800 Gessner, Suite 200
Houston, Texas, U.S.A., 77024
|
819,000(6)
|
Less than 1%
|
|||
Common Stock
|
Directors and officers together (4 persons)
|
59,517,459(7)
|
21.4%
|
|||
Major Stockholders:
|
||||||
Common Stock
|
CW Navigation Inc.
14019 SW Frwy #301-600
Sugar Land, Texas, U.S.A. 77478
|
49,191,667
|
18.3%
|
|||
Common Stock
|
KW Navigation Inc.
14019 SW Frwy #301-600
Sugar Land, Texas, U.S.A. 77478
|
49,191,666
|
18.3%
|
(1)
|
Under Rule 13d-3 of the Exchange Act a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and/or (ii) investment power, which includes the power to dispose or direct the disposition of shares. In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares within 60 days of the date as of which the information is provided.
|
(2)
|
Based on the 269,417,069 shares of our common stock issued and outstanding as of November 14, 2011.
|
(3)
|
This figure includes (i) 49,216,667 shares of common stock held by KD Navigation Inc. and (ii) vested stock options to purchase 2,500,000 shares of our common stock.
|
(4)
|
This figure includes (i) 585,713 shares of common stock and (ii) vested stock options to purchase 4,150,000 shares of our common stock.
|
(5)
|
This figure includes (i) 1,096,254 shares of common stock, (ii) vested stock options to purchase ,900,000 shares of our common stock, and (iii) stock purchase warrants to purchase 49,825 shares of our common stock.
|
(6)
|
This figure includes (i) 219,000 shares of common stock and (ii) vested stock options to purchase 600,000 shares of our common stock.
|
(7)
|
This figure includes (i) 51,117,634 shares of common stock, (ii) vested stock options to purchase 8,350,000 shares of our common stock, and (iii) stock purchase warrants to purchase 49,825 shares of our common stock.
|
|
1.
|
any of our directors or officers;
|
|
2.
|
any person proposed as a nominee for election as a director;
|
|
3.
|
any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; or
|
|
4.
|
any member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the above persons.
|
Year Ended
July 31, 2011
|
Year Ended
July 31, 2010
|
|||||||
Audit Fees
|
$
|
163,250
|
$
|
35,000
|
||||
Audit-Related Fees
|
- |
-
|
||||||
Tax Fees
|
8,775 |
-
|
||||||
Total
|
$
|
172,025
|
$
|
35,000
|
Exhibit Number
|
Description of Exhibit
|
|
3.1 (1)
|
Articles of Incorporation and amendments thereto, dated July 19, 2005, October 18, 2005 and September 5, 2006
|
|
3.2 (1)
|
Bylaws
|
|
4.1 (2)
|
Form of Warrant Certificate issued to Subscribers pursuant to the October 15, 2009 Private Placement
|
|
4.2 (3)
|
Form of Warrant Certificate issued to Subscribers pursuant to the November 13, 2009 Private Placement
|
|
10.1 (1)
|
Sale Contract for Oil and Gas Leases between Energy Program Accompany, LLC and Penasco Petroleum, Inc., dated August 24, 2006 (regarding the Holt, McKay and Strahan Leases)
|
|
10.2 (1)
|
Letter Agreement between Penasco Petroleum, Inc. and Tradestar Resources Corporation, dated September 1, 2006
|
|
10.3 (1)
|
Assignment, Bill of Sale and Conveyance between OPEX Energy LLC and Penasco Petroleum, Inc., dated effective August 1, 2006 (regarding the Welder Lease)
|
|
10.4 (1)
|
Participation Agreement between Rockwell Energy, LLC and the Company, dated October 2005 (regarding the Janssen Lease)
|
|
10.5 (1)
|
Oil, Gas and Mineral Lease between Henry J. Janssen Jr. and Penasco Petroleum, Inc., dated July 2006 (regarding the Janssen Lease)
|
|
10.6 (1)
|
Assignment and Bill of Sale between Penasco Petroleum, Inc. and ETG Energy Resources, dated October 2006, and Assignment between ETG Energy Resources and Penasco Petroleum, Inc., dated December 2006 (regarding the Janssen Lease)
|
|
10.7 (1)
|
Ratification Letter between Marmik Oil Company and Penasco Petroleum, Inc., dated October 2007 (regarding Little Mule Creek Project)
|
|
10.8 (1)
|
Assignment between Marmik Oil Company and Penasco Petroleum, Inc., dated November 2007 (regarding Little Mule Creek Project)
|
|
10.9 (4)
|
2009 Restated Stock Incentive Plan
|
|
10.10 (1)
|
Consulting Services and Options Agreement between the Company and Jim Thomas, dated April 2006, and Amended and Restated Consulting Services and Option Agreement between the Company and Jim Thomas, dated November 2007
|
|
10.11 (1)
|
Consulting Services and Options Agreement between the Company and Kyle Combest, dated August 2006
|
|
10.12 (1)
|
Professional Services Retainer Contract between the Company and Steven Carter, dated December 2006
|
|
10.13 (2)
|
Form of Securities Purchase Agreement regarding October 15, 2009 Private Placement
|
|
10.14 (2)
|
Form of Registration Rights Agreement regarding October 15, 2009 Private Placement
|
|
10.15 (3)
|
Form of Securities Purchase Agreement regarding November 13, 2009 Private Placement
|
|
10.16 (3)
|
Form of Registration Rights Agreement regarding November 13, 2009 Private Placement
|
|
10.17 (5)
|
Executive Services Consulting Agreement between the Company and Jeremy Glenn Driver dated for reference effective on December 1, 2009
|
|
10.18 (6)
|
Assignment of Oil and Gas Lease between Penasco Petroleum, Inc. and Chinn Exploration Company, dated September 13, 2010
|
|
10.19(7)
|
Purchase and Sale Agreement by and among ERG Resources, LLC, Galveston Bay Energy, LLC and Strategic American Oil Corporation, dated January 18, 2011, as amended February 14, 2011
|
|
10.20(7)
|
Geoserve Marketing, LLC Agreement, dated February 15, 2011
|
|
10.21(7)
|
SPE Navigation 1, LLC Agreement to acquire work interest., dated February 15, 2011
|
|
10.22(8)
|
Purchase and Sale Agreement among CW Navigation, Inc., KD Navigation, Inc., and KW Navigation In. (as the Seller parties), SPE Navigation I, LLC and Strategic American Oil Corporation, executed September 22, 2011
|
|
2010 Stock Incentive Plan
|
||
2011 Stock Incentive Plan
|
||
Farm-Out Agreement with Core Minerals, January 2011, as amended March 9, 2011
|
||
14.1 (4)
|
Code of Conduct
|
|
Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
|
||
Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
|
||
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350
|
||
Report of Ralph E DavisAssociates, Inc., dated September 27, 2011
|
*
|
Filed herewith.
|
(1)
|
Filed as an exhibit to our registration statement on Form S-1/A (Amendment No.1) filed with the Securities and Exchange Commission on February 8, 2008.
|
(2)
|
Filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 16, 2009.
|
(3)
|
Filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on November 16, 2009.
|
(4)
|
Filed as an exhibit to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 12, 2009.
|
(5)
|
Filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 3, 2009.
|
(6)
|
Filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 20, 2010.
|
(7)
|
Filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 22, 2011.
|
(8)
|
Filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 22, 2011.
|
By:
|
/s/ Jeremy Glenn Driver
|
|
Jeremy Glenn Driver
|
||
President, Chief Executive Officer, Principal Executive
|
||
Officer and a director
|
||
Date: November 15, 2011
|
||
By:
|
/s/ Sarah Berel-Harrop
|
|
Sarah Berel-Harrop
|
||
Secretary, Treasurer and Chief Financial Officer
|
||
Date: November 15, 2011
|
By:
|
/s/ Jeremy Glenn Driver
|
|
Jeremy Glenn Driver
|
||
President, Chief Executive Officer, Principal Executive
|
||
Officer and a director
|
||
Date: November 15, 2011
|
||
By:
|
/s/ Sarah Berel-Harrop
|
|
Sarah Berel-Harrop
|
||
Secretary, Treasurer and Chief Financial Officer
|
||
Date: November 15, 2011
|
||
By:
|
/s/ Leonard Garcia
|
|
Leonard Garcia
|
||
A director
|
||
Date: November 15, 2011
|
||
By:
|
/s/ Steven L. Carter
|
|
Steven L. Carter
|
||
Vice President of Operations and a director
|
||
Date: November 15, 2011
|
1.
|
PURPOSE
|
2.
|
DEFINITIONS
|
|
(a)
|
“Administrator” means the Committee or otherwise the Board;
|
|
(b)
|
“Affiliate” and “Associate” have the meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act;
|
|
(c)
|
“Applicable Laws” means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate laws, state or provincial securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein;
|
|
(d)
|
“Award” means the grant of an Option, SAR, Restricted Stock, unrestricted Shares, Restricted Stock Unit, Deferred Stock Unit or other right or benefit under this Plan;
|
|
(e)
|
“Award Agreement” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto;
|
(f)
|
“Award Right” means each right to acquire a Share pursuant to an Award;
|
(g)
|
“Board” means the Board of Directors of the Company;
|
|
(h)
|
“Cause” means, with respect to the termination by the Company or a Related Entity of the Grantee’s Continuous Service, that such termination is for “Cause” as such term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee’s:
|
|
(i)
|
refusal or failure to act in accordance with any specific, lawful direction or order of the Company or a Related Entity;
|
|
(ii)
|
unfitness or unavailability for service or unsatisfactory performance (other than as a result of Disability);
|
|
(iii)
|
performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity;
|
|
(iv)
|
dishonesty, intentional misconduct or material breach of any agreement with the Company or a Related Entity; or
|
|
(v)
|
commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person;
|
|
(i)
|
“Change of Control” means, except as provided below, a change in ownership or control of the Company effected through any of the following transactions:
|
|
(i)
|
the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s shareholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such shareholders accept;
|
|
(ii)
|
a change in the composition of the Board over a period of 36 months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors;
|
|
(iii)
|
the sale or exchange by the Company (in one or a series of transactions) of all or substantially all of its assets to any other person or entity; or
|
|
(iv)
|
approval by the shareholders of the Company of a plan to dissolve and liquidate the Company.
|
|
(i)
|
the closing of any public offering of the Company’s securities pursuant to an effective registration statement filed under the United States Securities Act of 1933, as amended;
|
|
(ii)
|
the closing of a public offering of the Company’s securities through the facilities of any stock exchange; or
|
|
(iii)
|
with respect to an Award that is subject to Section 409A of the Code, and payment or settlement of such Award is to be accelerated in connection with an event that would otherwise constitute a Change of Control, no event set forth previously in this definition shall constitute a Change of Control for purposes of this Plan or any Award Agreement unless such event also constitutes a “change in the ownership”, a “change in the effective control” or a “change in the ownership of a substantial portion of the assets of the corporation” as defined under Section 409A of the Code and Treasury guidance formulated thereunder, which guidance currently provides that:
|
|
(A)
|
a change in ownership of a corporation shall be deemed to have occurred if any one person or more than one person acting as a group acquires stock of a corporation that constitutes more than 50% of the total Fair Market Value or total voting power of the stock of the corporation. Stock acquired by any person or group of people who already owns more than 50% of such total Fair Market Value or total voting power of stock shall not trigger a change in ownership;
|
|
(B)
|
a change in the effective control of a corporation generally shall be deemed to have occurred if within a 12-month period either:
|
|
(I)
|
any one person or more than one person acting as a group acquires ownership of stock possessing 35% or more of the total voting power of the stock of the corporation; or
|
|
(II)
|
a majority of the members of the corporation’s board of directors is replaced by directors whose appointment or election is not endorsed by a majority of the members of the corporation’s board of directors prior to the date of the appointment or election; and
|
|
(C)
|
a change in the ownership of a substantial portion of the corporation’s assets generally is deemed to occur if within a 12-month period any person, or more than one person acting as a group, acquires assets from the corporation that have a total gross fair market value at least equal to 40% of the total gross fair market value of all the corporation’s assets immediately prior to such acquisition. The gross fair market value of assets is determined without regard to any liabilities;
|
(j)
|
“Code” means the United States Internal Revenue Code of 1986, as amended;
|
|
(k)
|
“Committee” means the Compensation Committee or any other committee appointed by the Board to administer this Plan in accordance with the provisions of this Plan; provided, however, that:
|
|
(i)
|
where available, the Committee shall consist of two or more members of the Board;
|
|
(ii)
|
where available, the directors appointed to serve on the Committee shall be “non-employee directors” (within the meaning of Rule 16b-3 promulgated under the Exchange Act) and “outside directors” (within the meaning of Section 162(m) of the Code) to the extent that Rule 16b-3 and, if necessary for relief from the limitation under Section 162(m) of the Code and such relief is sought by the Company, Section 162(m) of the Code, respectively, are applicable;
|
|
(iii)
|
the mere fact that a Committee member shall fail to qualify under either of the foregoing requirements set forth in Section 2.1(k)(ii) shall not invalidate any Award made by the Committee which Award is otherwise validly made under the Plan; and
|
|
(iv)
|
members of the Committee may be appointed from time to time by, and shall serve at the pleasure of, the Board;
|
(l)
|
“Common Stock” means the common stock of the Company;
|
(m)
|
“Company” means Strategic American Oil Corporation, a Nevada corporation;
|
(n)
|
“Consultant” means any person (other than an Employee) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity;
|
|
(o)
|
“Continuing Directors” means members of the Board who either (i) have been Board members continuously for a period of at least 36 months, or (ii) have been Board members for less than 36 months and were appointed or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such appointment or nomination was approved by the Board;
|
|
(p)
|
“Continuous Service” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant that is not interrupted or terminated. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers between locations of the Company or among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). An approved leave of absence shall include sick leave, maternity or paternity leave, military leave, or any other authorized personal leave. For purposes of Incentive Stock Options, no such leave may exceed 90 calendar days, unless reemployment upon expiration of such leave is guaranteed by statute or contract;
|
(q)
|
“Corporate Transaction” means any of the following transactions:
|
|
(i)
|
a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the jurisdiction in which the Company is organized;
|
|
(ii)
|
the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company’s subsidiary corporations) in connection with the complete liquidation or dissolution of the Company; or
|
|
(iii)
|
any reverse merger in which the Company is the surviving entity but in which securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger;
|
|
(r)
|
“Covered Employee” means an Employee who is a “covered employee” under Section 162(m)(3) of the Code;
|
|
(s)
|
“Deferred Stock Units” means Awards that are granted to Directors and are subject to the additional provisions set out in Subpart A which is attached hereto and which forms a material part hereof;
|
|
(t)
|
“Director” means a member of the Board or the board of directors of any Related Entity;
|
|
(u)
|
“Disability” or “Disabled” means that a Grantee is unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment. A Grantee shall not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion. Notwithstanding the above, (i) with respect to an Incentive Stock Option, Disability or Disabled shall mean permanent and total disability as defined in Section 22(e)(3) of the Code and (ii) to the extent an Option is subject to Section 409A of the Code, and payment or settlement of the Option is to be accelerated solely as a result of the Eligible Participant’s Disability, Disability shall have the meaning ascribed thereto under Section 409A of the Code and the Treasury guidance promulgated thereunder;
|
|
(v)
|
“Disinterested Shareholder Approval” means approval by a majority of the votes cast by all the Company’s shareholders at a duly constituted shareholders’ meeting, excluding votes attached to shares beneficially owned by Insiders;
|
|
(w)
|
“Eligible Participant” means any person who is an Officer, a Director, an Employee or a Consultant, including individuals who are foreign nationals or are employed or reside outside the United States;
|
|
(x)
|
“Employee” means any person who is a full-time or part-time employee of the Company or any Related Entity;
|
|
(y)
|
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended;
|
|
(z)
|
“Fair Market Value” means, as of any date, the value of a Share determined in good faith by the Administrator. By way of illustration, but not limitation, for the purpose of this definition, good faith shall be met if the Administrator employs the following methods:
|
|
(i)
|
Listed Stock. If the Common Stock is traded on any established stock exchange or quoted on a national market system, Fair Market Value shall be (A) the closing sales price for the Common Stock as quoted on that stock exchange or system for the date the value is to be determined (the “Value Date”) as reported in The Wall Street Journal or a similar publication, or (B) if the rules of the applicable stock exchange require, the volume-weighted average trading price for five days prior to the date the Board approves the grant of the Award. If no sales are reported as having occurred on the Value Date, Fair Market Value shall be that closing sales price for the last preceding trading day on which sales of Common Stock is reported as having occurred. If no sales are reported as having occurred during the five trading days before the Value Date, Fair Market Value shall be the closing bid for Common Stock on the Value Date. If the Common Stock is listed on multiple exchanges or systems, Fair Market Value shall be based on sales or bids on the primary exchange or system on which Common Stock is traded or quoted. If the rules of any applicable stock exchange or system require a different method of calculating Fair Market Value, then such method as is required by those rules;
|
|
(ii)
|
Stock Quoted by Securities Dealer. If Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported on any established stock exchange or quoted on a national market system, Fair Market Value shall be the mean between the high bid and low asked prices on the Value Date. If no prices are quoted for the Value Date, Fair Market Value shall be the mean between the high bid and low asked prices on the last preceding trading day on which any bid and asked prices were quoted;
|
|
(iii)
|
No Established Market. If Common Stock is not traded on any established stock exchange or quoted on a national market system and is not quoted by a recognized securities dealer, the Administrator will determine Fair Market Value in good faith. The Administrator will consider the following factors, and any others it considers significant, in determining Fair Market Value: (A) the price at which other securities of the Company have been issued to purchasers other than Employees, Directors, or Consultants; (B) the Company’s net worth, prospective earning power, dividend-paying capacity, and non-operating assets, if any; and (C) any other relevant factors, including the economic outlook for the Company and the Company’s industry, the Company’s position in that industry, the Company’s goodwill and other intellectual property, and the values of securities of other businesses in the same industry;
|
|
(iv)
|
Additional Valuation. For publicly traded companies, any valuation method permitted under Section 20.2031-2 of the Estate Tax Regulations; or
|
|
(v)
|
Non-Publicly Traded Stock. For non-publicly traded stock, the Fair Market Value of the Common Stock at the Grant Date based on an average of the Fair Market Values as of such date set forth in the opinions of completely independent and well-qualified experts (the Participant’s status as a majority or minority shareholder may be taken into consideration).
|
|
Regardless of whether the Common Stock offered under the Award is publicly traded, a good faith attempt under this definition shall not be met unless the Fair Market Value of the Common Stock on the Grant Date is determined with regard to nonlapse restrictions (as defined in Section 1.83-3(h) of the Treasury Regulations) and without regard to lapse restrictions (as defined in Section 1.83-3(i) of the Treasury Regulations);
|
|
(aa)
|
“Grantee” means an Eligible Participant who receives an Award pursuant to an Award Agreement;
|
|
(bb)
|
“Grant Date” means the date the Administrator approves that grant of an Award. However, if the Administrator specifies that an Award’s Grant Date is a future date or the date on which a condition is satisfied, the Grant Date for such Award is that future date or the date that the condition is satisfied;
|
|
(cc)
|
“Incentive Stock Option” means an Option within the meaning of Section 422 of the Code;
|
(dd)
|
“Insider” means:
|
(i)
|
a Director or Senior Officer of the Company;
|
|
(ii)
|
a Director or Senior Officer of a person that is itself an Insider or Subsidiary of the Company;
|
(iii)
|
a person that has
|
(A)
|
direct or indirect beneficial ownership of,
|
(B)
|
control or direction over, or
|
|
(C)
|
a combination of direct or indirect beneficial ownership of and control or direction over,
|
securities of the Company carrying more than 10% of the voting rights attached to all the Company’s outstanding voting securities, excluding, for the purpose of the calculation of the percentage held, any securities held by the person as underwriter in the course of a distribution; or
|
|
(iv)
|
the Company itself, if it has purchased, redeemed or otherwise acquired any securities of its own issue, for so long as it continues to hold those securities;
|
|
(ee)
|
“Named Executive Officer” means, if applicable, an Eligible Participant who, as of the date of vesting and/or payout of an Award, is one of the group of Covered Employees as defined;
|
|
(ff)
|
“Non-Qualified Stock Option” means an Option which is not an Incentive Stock Option;
|
|
(gg)
|
“Officer” means a person who is an officer, including a Senior Officer, of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder;
|
|
(hh)
|
“Option” means an option to purchase Shares pursuant to an Award Agreement granted under the Plan;
|
|
(ii)
|
“Parent” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code;
|
|
(jj)
|
“Performance-Based Compensation” means compensation qualifying as “performance-based compensation” under Section 162(m) of the Code;
|
(kk)
|
“Plan” means this 2010 Stock Incentive Plan as amended from time to time;
|
|
(ll)
|
“Related Entity” means any Parent or Subsidiary, and includes any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds a greater than 50% ownership interest, directly or indirectly;
|
|
(mm)
|
“Related Entity Disposition” means the sale, distribution or other disposition by the Company of all or substantially all of the Company’s interests in any Related Entity effected by a sale, merger or consolidation or other transaction involving that Related Entity or the sale of all or substantially all of the assets of that Related Entity;
|
|
(nn)
|
“Restricted Stock” means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as, established by the Administrator and specified in the related Award Agreement;
|
|
(oo)
|
“Restricted Stock Unit” means a notional account established pursuant to an Award granted to a Grantee, as described in this Plan, that is (i) valued solely by reference to Shares, (ii) subject to restrictions specified in the Award Agreement, and (iii) payable only in Shares;
|
|
(pp)
|
“Restriction Period” means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance objectives, or the occurrence of other events as determined by the Administrator, in its sole discretion) or the Restricted Stock is not vested;
|
|
(qq)
|
“SAR” means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock;
|
|
(rr)
|
“SEC” means the United States Securities Exchange Commission;
|
(ss)
|
“Senior Officer” means:
|
|
(i)
|
the chair or vice chair of the Board, the president, the chief executive officer, the chief financial officer, a vice-president, the secretary, the treasurer or the general manager of the Company or a Related Entity;
|
|
(ii)
|
any individual who performs functions for a person similar to those normally performed by an individual occupying any office specified in Section 2.1(ss)(i) above; and
|
|
(iii)
|
the five highest paid employees of the Company or a Related Entity, including any individual referred to in Section 2.1(ss)(i) or 2.1(ss)(ii) and excluding a commissioned salesperson who does not act in a managerial capacity;
|
(tt)
|
“Share” means a share of the Common Stock; and
|
|
(uu)
|
“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.
|
3.
|
STOCK SUBJECT TO THE PLAN
|
3.1
|
(a)
|
Subject to the provisions of Section 18, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) under this Plan is 5,000,000 (the “Maximum Number”). See Section 29 for Reservation of Shares.
|
|
(b)
|
Shares that have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan except that Shares (i) covered by an Award (or portion of an Award) which is forfeited or cancelled, expires or is settled in cash, or (ii) withheld to satisfy a Grantee’s minimum tax withholding obligations, shall be deemed not to have been issued for purposes of determining the Maximum Number of Shares which may be issued under the Plan. Also, only the net numbers of Shares that are issued pursuant to the exercise of an Award shall be counted against the Maximum Number.
|
|
(c)
|
However, in the event that prior to the Award’s cancellation, termination, expiration, forfeiture or lapse, the holder of the Award at any time received one or more elements of beneficial ownership pursuant to such Award (as defined by the SEC, pursuant to any rule or interpretations promulgated under Section 16 of the Exchange Act), the Shares subject to such Award shall not again be made available for regrant under the Plan.
|
3.2
|
Subject to Section 15.1(b) and 15.1(c), no Insider of the Company is eligible to receive an Award where:
|
(a)
|
the Insider is not a Director or Senior Officer of the Company;
|
|
(b)
|
any Award, together with all of the Company’s other previously established or proposed Awards under the Plan could result at any time in:
|
|
(i)
|
the number of Shares reserved for issuance pursuant to Options granted to Insiders exceeding 50% of the outstanding issue of Common Stock; or
|
|
(ii)
|
the issuance to Insiders pursuant to the exercise of Options, within a one year period of a number of Shares exceeding 50% of the outstanding issue of the Common Stock;
|
|
(a)
|
Options and SARs. Notwithstanding any provision in the Plan to the contrary (but subject to adjustment as provided in Section 18), the maximum number of Shares with respect to one or more Options and/or Stock Appreciation Rights that may be granted during any one calendar year under the Plan to any one Grantee shall be 2,500,000; all of which may be granted as Incentive Stock Options); and
|
|
(b)
|
Other Awards. The maximum aggregate grant with respect to Awards of Restricted Stock, unrestricted Shares, Restricted Stock Units and Deferred Stock Units (or used to provide a basis of measurement for or to determine the value of Restricted Stock Units and Deferred Stock Units) in any one calendar year to any one Grantee (determined on the date of payment of settlement) shall be 2,500,000.
|
4.
|
ADMINISTRATION
|
4.1
|
Authority to control and manage the operation and administration of this Plan shall be vested in the Administrator.
|
|
(a)
|
to construe and interpret this Plan and any agreements defining the rights and obligations of the Company and Grantees under this Plan;
|
|
(b)
|
to select the Eligible Participants to whom Awards may be granted from time to time hereunder;
|
(c)
|
to determine whether and to what extent Awards are granted hereunder;
|
|
(d)
|
to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;
|
|
(e)
|
to approve forms of Award Agreements for use under the Plan, which need not be identical for each Grantee;
|
|
(f)
|
to determine the terms and conditions of any Award granted under the Plan, including, but not limited to, the exercise price, grant price or purchase price based on the Fair Market Value of the same, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of the Award, and acceleration or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines that is not inconsistent with any rule or regulation under any tax or securities laws or includes an alternative right that does not disqualify an Incentive Stock Option under applicable regulations;
|
|
(g)
|
to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee’s rights under an existing Award shall not be made without the Grantee’s consent unless as a result of a change in Applicable Law;
|
|
(h)
|
to suspend the right of a holder to exercise all or part of an Award for any reason that the Administrator considers in the best interest of the Company;
|
|
(i)
|
subject to regulatory approval, amend or suspend the Plan, or revoke or alter any action taken in connection therewith, except that no general amendment or suspension of the Plan, shall, without the written consent of all Grantees, alter or impair any Award granted under the Plan unless as a result of a change in the Applicable Law;
|
|
(j)
|
to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan;
|
(k)
|
to further define the terms used in this Plan;
|
|
(l)
|
to correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award Agreement;
|
(m)
|
to provide for rights of refusal and/or repurchase rights;
|
|
(n)
|
to amend outstanding Award Agreements to provide for, among other things, any change or modification which the Administrator could have provided for upon the grant of an Award or in furtherance of the powers provided for herein that does not disqualify an Incentive Stock Option under applicable regulations unless the Grantee so consents;
|
|
(o)
|
to prescribe, amend and rescind rules and regulations relating to the administration of this Plan; and
|
|
(p)
|
to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.
|
5.
|
ELIGIBILITY
|
6.
|
AWARDS
|
(a)
|
Shares, including unrestricted Shares;
|
(b)
|
Options;
|
|
(c)
|
SARs or similar rights with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions;
|
|
(d)
|
any other security with the value derived from the value of the Shares, such as Restricted Stock and Restricted Stock Units;
|
(e)
|
Deferred Stock Units;
|
(f)
|
Dividend Equivalent Rights, as defined in Section 13; or
|
(g)
|
any combination of the foregoing.
|
7.
|
GRANT OF OPTIONS; TERMS AND CONDITIONS OF GRANT
|
7.1
|
(a)
|
One or more Options may be granted to any Eligible Participant. Subject to the express provisions of this Plan, the Administrator shall determine from the Eligible Participants those individuals to whom Options under this Plan may be granted. The Shares underlying a grant of an Option may be in the form of Restricted Stock or unrestricted Stock.
|
|
(b)
|
Further, subject to the express provisions of this Plan, the Administrator shall specify the Grant Date, the number of Shares covered by the Option, the exercise price and the terms and conditions for exercise of the Options. As soon as practicable after the Grant Date, the Company shall provide the Grantee with a written Award Agreement in the form approved by the Administrator, which sets out the Grant Date, the number of Shares covered by the Option, the exercise price and the terms and conditions for exercise of the Option.
|
|
(c)
|
The Administrator may, in its absolute discretion, grant Options under this Plan at any time and from time to time before the expiration of this Plan.
|
|
(a)
|
Exercise of Option. The Administrator may determine in its discretion whether any Option shall be subject to vesting and the terms and conditions of any such vesting. The Award Agreement shall contain any such vesting schedule;
|
|
(b)
|
Option Term. Each Option and all rights or obligations thereunder shall expire on such date as shall be determined by the Administrator, but not later than ten years after the Grant Date (five years in the case of an Incentive Stock Option when the Optionee beneficially owns more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary (a “Ten Percent Stockholder”), as determined with reference to Rule 13d-3 of the Exchange Act), and shall be subject to earlier termination as hereinafter provided;
|
|
(c)
|
Exercise Price. The Exercise Price of any Option shall be determined by the Administrator when the Option is granted, at such Exercise Price as may be determined by the Administrator in the Administrator’s sole and absolute discretion; provided, however, that the Exercise Price may not be less than 100% of the Fair Market Value of the Shares on the Grant Date with respect to any Incentive Stock Options which are granted and, provided further, that the Exercise Price of any Incentive Stock Option granted to a Ten Percent Stockholder shall not be less than 110% of the Fair Market Value of the Shares on the Grant Date. Payment for the Shares purchased shall be made in accordance with Section 16 of this Plan. The Administrator is authorized to issue Options, whether Incentive Stock Options or Non-qualified Stock Options, at an option price lower than or in excess of the Fair Market Value on the Grant Date, to determine the terms and conditions of any Award granted under the Plan, including, but not limited to, the exercise price, grant price or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of the Award, and acceleration or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines that is not inconsistent with any rule or regulation under any tax or securities laws or includes an alternative right that does not disqualify an Incentive Stock Option under applicable regulations;
|
|
(d)
|
Method of Exercise. Options may be exercised only by delivery to the Company of a stock option exercise agreement (the “Exercise Agreement”) in a form approved by the Administrator (which need not be the same for each Grantee), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding the Grantee’s investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased;
|
|
(I)
|
Termination of Continuous Services. If for any reason other than Disability or death, a Grantee terminates Continuous Services with the Company or a Subsidiary, vested Options held at the date of such termination may be exercised, in whole or in part, either (i) at any time within three months after the date of such termination, or (ii) during any greater or lesser period as specified in the Award Agreement or (iii) during any greater or lesser period as may be determined by the Administrator, in its sole and absolute discretion, prior the date of such termination (but in no event after the earlier of (A) the expiration date of the Option as set forth in the Award Agreement and (B) ten years from the Grant Date (five years for a Ten Percent Stockholder if the Option is an Incentive Stock Option)).
|
|
(II)
|
Continuation of Services as Consultant/Advisor. If a Grantee granted an Incentive Stock Option terminates employment but continues as a Consultant (no termination of Continuous Services), the Grantee need not exercise an Incentive Stock Option within either of the termination periods provided for immediately hereinabove but shall be entitled to exercise, in whole or in part, either (i) at any time within three months after the then date of termination of Continuous Services to the Company or a Subsidiary, or (ii) during any greater or lesser period as specified in the Award Agreement or (iii) during any greater or lesser period as may be determined by the Administrator, in its sole and absolute discretion, prior the date of such then termination of Continuous Services to the Company or the Subsidiary (one year in the event of Disability or death) (but in no event after the earlier of (A) the expiration date of the Option as set forth in the Award Agreement and (B) ten years from the Grant Date (five years for a Ten Percent Stockholder if the Option is an Incentive Stock Option)). However, if the Grantee does not exercise within three months of termination of employment, pursuant to Section 422 of the Code the Option shall not qualify as an Incentive Stock Option.
|
|
(B)
|
Disability and Death. If a Grantee becomes Disabled while rendering Continuous Services to the Company or a Subsidiary, or dies while employed by the Company or Subsidiary or within three months thereafter, vested Options then held may be exercised by the Grantee, the Grantee’s personal representative, or by the person to whom the Option is transferred by the laws of descent and distribution, in whole or in part, at any time within one year after the termination because of the Disability or death or any lesser period specified in the Award Agreement (but in no event after the earlier of (i) the expiration date of the Option as set forth in the Award Agreement, and (ii) ten years from the Grant Date (five years for a Ten Percent Stockholder if the Option is an Incentive Stock Option).
|
7.3
|
(a)
|
Threshold. The aggregate Fair Market Value (determined as of the Grant Date) of the Shares for which Incentive Stock Options may first become exercisable by any Grantee during any calendar year under this Plan, together with that of Shares subject to Incentive Stock Options first exercisable by such Grantee under any other plan of the Company or any Parent or Subsidiary, shall not exceed $100,000. For purposes of this Section 7.3(a), all Options in excess of the $100,000 threshold shall be treated as Non-Qualified Stock Options notwithstanding the designation as Incentive Stock Options. For this purpose, Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted.
|
|
(b)
|
Compliance with Section 422 of the Code. There shall be imposed in the Award Agreement relating to Incentive Stock Options such terms and conditions as are required in order that the Option be an “incentive stock option” as that term is defined in Section 422 of the Code.
|
|
(c)
|
Requirement of Employment. No Incentive Stock Option may be granted to any person who is not an Employee of the Company or a Parent or Subsidiary of the Company.
|
8.
|
RESTRICTED STOCK AWARDS
|
|
(b)
|
Purchase Price. A purchase price, as specified in the Award Agreement related to such Restricted Stock, equal to not be less than 100% of the Fair Market Value of the Shares underlying the Restricted Stock on the date of issuance.
|
9.
|
UNRESTRICTED STOCK AWARDS
|
10.
|
RESTRICTED STOCK UNITS
|
(a)
|
Services. Services rendered to the Company or an Affiliate (i.e. bonus); and/or
|
|
(b)
|
Purchase Price. A purchase price as specified in the Award Agreement related to such Restricted Stock Units, equal to not be less than 100% of the Fair Market Value of the Shares underlying the Restricted Stock Units on the date of issuance.
|
(a)
|
a specific date or date determinable by a fixed schedule;
|
|
(b)
|
upon the Eligible Participant’s termination of Continuous Services to the extent the same constitutes a separation from services for purposes of Section 409A of the Code except that if an Eligible Participant is a “key employee” as defined in Section 409A of the Code for such purposes, then payment or settlement shall occur 6 months following such separation of service;
|
(c)
|
as a result of the Eligible Participant’s death or Disability; or
|
|
(d)
|
in connection with or as a result of a Change of Control in compliance with Section 409A of the Code.
|
11.
|
DIRECTOR SHARES AND DIRECTOR DEFERRED STOCK UNITS
|
12.
|
STOCK APPRECIATION RIGHTS
|
13.
|
DIVIDEND EQUIVALENT RIGHT
|
14.
|
TERMS AND CONDITIONS OF AWARDS
|
14.3
|
(a)
|
Limits on Transfer. No right or interest of a Grantee in any unexercised or restricted Award may be pledged, encumbered or hypothecated to or in favor of any party other than to the Company or a Related Entity or Affiliate. No Award shall be sold, assigned, transferred or disposed of by a Grantee other than by the laws of descent and distribution or, in the case of an Incentive Stock Option, pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award under the Plan; provided, however, that the Administrator may (but need not) permit other transfers where the Administrator concludes that such transferability (i) does not result in accelerated taxation or other adverse tax consequences, (ii) does not cause any Option intended to be an Incentive Stock Option to fail to be described in Section 422(b) of the Code, and (iii) is otherwise appropriate and desirable, taking into account any factors deemed relevant, including, without limitation, state or federal tax or securities laws applicable to transferable Awards.
|
|
(b)
|
Beneficiaries. Notwithstanding Section 14.3(a), a Grantee may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Grantee and to receive any distribution with respect to any Award upon the Grantee’s death. A beneficiary, legal guardian, legal representative or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Grantee, except to the extent the Plan and such Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator. If no beneficiary has been designated or survives the Grantee, payment shall be made to the Grantee’s estate. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Grantee at any time, provided the change or revocation is filed with the Administrator.
|
15.
|
ADDITIONAL TERMS IF THE COMPANY BECOMES LISTED ON A STOCK EXCHANGE
|
|
(a)
|
the exercise price of an Award must not be lower than 100% of the Fair Market Value (without discount) of the Shares on the stock exchange at the time the Award is granted;
|
|
(b)
|
the number of securities issuable to Insiders, at any time, under all of the Company’s security based compensation arrangements (whether entered into prior to or subsequent to such listing), cannot exceed 10% of the Company’s total issued and outstanding Common Stock, unless the Company obtains Disinterested Shareholder Approval; and
|
|
(c)
|
the number of securities issued to Insiders, within any one year period, under all of the Company’s security based compensation arrangements (whether entered into prior to or subsequent to such listing), cannot exceed 10% of the issued and outstanding Common Stock, unless the Company obtains Disinterested Shareholder Approval.
|
16.
|
PAYMENT FOR SHARE PURCHASES
|
|
(a)
|
Cash. By cash, cashier’s check or wire transfer or, at the discretion of the Administrator expressly for the Grantee and where permitted by law as follows:
|
|
(b)
|
Surrender of Shares. By surrender of shares of Common Stock of the Company that have been owned by the Grantee for more than six months, or lesser period if the surrender of shares is otherwise exempt from Section 16 of the Exchange Act, (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares);
|
|
(c)
|
Deemed Net-Stock Exercise. By forfeiture of Shares equal to the value of the exercise price pursuant to a “deemed net-stock exercise” by requiring the Grantee to accept that number of Shares determined in accordance with the following formula, rounded down to the nearest whole integer:
|
|
a =
|
net Shares to be issued to Grantee;
|
|
b =
|
number of Awards being exercised;
|
|
c =
|
Fair Market Value of a Share; and
|
|
d =
|
Exercise price of the Awards;
|
|
(d)
|
Cashless Exercise. By a “cashless exercise”, in which event the Company shall issue to the Grantee the number of Shares of Common Stock determined as follows:
|
a =
|
net Shares to be issued to Grantee;
|
b =
|
number of Awards being exercised;
|
c =
|
the average of the “Closing Sale Prices” of the Shares of Common Stock (as reported by Bloomberg Financial Markets) for at least the two trading days ending on the date immediately preceding the Exercise Date; and
|
d =
|
Exercise price of the Awards;
|
|
(e)
|
Broker-Assisted. By delivering a properly executed exercise notice to the Company together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay the exercise price and the amount of any required tax or other withholding obligations.
|
17.
|
WITHHOLDING TAXES
|
18.
|
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
|
19.
|
CORPORATE TRANSACTIONS/CHANGES IN CONTROL/RELATED ENTITY DISPOSITIONS
|
|
(a)
|
to release the Awards from restrictions on transfer and repurchase or forfeiture rights of such Awards on such terms and conditions as the Administrator may specify; and
|
|
(b)
|
to condition any such Award’s vesting and exercisability or release from such limitations upon the subsequent termination of the Continuous Service of the Grantee within a specified period following the effective date of the Corporate Transaction, Change in Control or Related Entity Disposition.
|
20.
|
PRIVILEGES OF STOCK OWNERSHIP
|
21.
|
RESTRICTION ON SHARES
|
22.
|
CERTIFICATES
|
23.
|
ESCROW; PLEDGE OF SHARES
|
24.
|
SECURITIES LAW AND OTHER REGULATORY COMPLIANCE
|
25.
|
NO OBLIGATION TO EMPLOY
|
26.
|
EFFECTIVE DATE AND TERM OF PLAN
|
27.
|
SHAREHOLDER APPROVAL
|
28.
|
AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN OR AWARDS
|
29.
|
RESERVATION OF SHARES
|
30.
|
EXCHANGE AND BUYOUT OF AWARDS
|
31.
|
APPLICABLE TRADING POLICY
|
32.
|
GOVERNING LAW
|
33.
|
MISCELLANEOUS
|
|
(a)
|
a specific date or date determinable by a fixed schedule;
|
|
(b)
|
upon the Eligible Director’s termination of Continuous Services to the extent the same constitutes a separation from services for the purposes of Section 409A of the Code except that if an Eligible Director is a “key employee” as defined in Section 409A of the Code for such purposes, then payment or settlement shall occur 6 months following such separation of service;
|
|
(c)
|
as a result of the Eligible Director’s death or Disability; or
|
|
(d)
|
in connection with or as a result of a Change in Control in compliance with 409A of the Code.
|
1.
|
PURPOSE
|
2.
|
DEFINITIONS
|
|
(a)
|
“Administrator” means the Committee or otherwise the Board;
|
|
(b)
|
“Affiliate” and “Associate” have the meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act;
|
|
(c)
|
“Applicable Laws” means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate laws, state or provincial securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein;
|
|
(d)
|
“Award” means the grant of an Option, SAR, Restricted Stock, unrestricted Shares, Restricted Stock Unit, Deferred Stock Unit or other right or benefit under this Plan;
|
|
(e)
|
“Award Agreement” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto;
|
|
(f)
|
“Award Right” means each right to acquire a Share pursuant to an Award;
|
|
(g)
|
“Board” means the Board of Directors of the Company;
|
|
(h)
|
“Cause” means, with respect to the termination by the Company or a Related Entity of the Grantee’s Continuous Service, that such termination is for “Cause” as such term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee’s:
|
|
(i)
|
refusal or failure to act in accordance with any specific, lawful direction or order of the Company or a Related Entity;
|
|
(ii)
|
unfitness or unavailability for service or unsatisfactory performance (other than as a result of Disability);
|
|
(iii)
|
performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity;
|
|
(iv)
|
dishonesty, intentional misconduct or material breach of any agreement with the Company or a Related Entity; or
|
|
(v)
|
commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person;
|
|
(i)
|
“Change of Control” means, except as provided below, a change in ownership or control of the Company effected through any of the following transactions:
|
|
(i)
|
the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s shareholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such shareholders accept;
|
|
(ii)
|
a change in the composition of the Board over a period of 36 months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors;
|
|
(iii)
|
the sale or exchange by the Company (in one or a series of transactions) of all or substantially all of its assets to any other person or entity; or
|
|
(iv)
|
approval by the shareholders of the Company of a plan to dissolve and liquidate the Company.
|
|
Notwithstanding the foregoing, the following transactions shall not constitute a “Change of Control”:
|
|
(i)
|
the closing of any public offering of the Company’s securities pursuant to an effective registration statement filed under the United States Securities Act of 1933, as amended;
|
|
(ii)
|
the closing of a public offering of the Company’s securities through the facilities of any stock exchange; or
|
|
(iii)
|
with respect to an Award that is subject to Section 409A of the Code, and payment or settlement of such Award is to be accelerated in connection with an event that would otherwise constitute a Change of Control, no event set forth previously in this definition shall constitute a Change of Control for purposes of this Plan or any Award Agreement unless such event also constitutes a “change in the ownership”, a “change in the effective control” or a “change in the ownership of a substantial portion of the assets of the corporation” as defined under Section 409A of the Code and Treasury guidance formulated thereunder, which guidance currently provides that:
|
|
(A)
|
a change in ownership of a corporation shall be deemed to have occurred if any one person or more than one person acting as a group acquires stock of a corporation that constitutes more than 50% of the total Fair Market Value or total voting power of the stock of the corporation. Stock acquired by any person or group of people who already owns more than 50% of such total Fair Market Value or total voting power of stock shall not trigger a change in ownership;
|
|
(B)
|
a change in the effective control of a corporation generally shall be deemed to have occurred if within a 12-month period either:
|
|
(I)
|
any one person or more than one person acting as a group acquires ownership of stock possessing 35% or more of the total voting power of the stock of the corporation; or
|
|
(II)
|
a majority of the members of the corporation’s board of directors is replaced by directors whose appointment or election is not endorsed by a majority of the members of the corporation’s board of directors prior to the date of the appointment or election; and
|
|
(C)
|
a change in the ownership of a substantial portion of the corporation’s assets generally is deemed to occur if within a 12-month period any person, or more than one person acting as a group, acquires assets from the corporation that have a total gross fair market value at least equal to 40% of the total gross fair market value of all the corporation’s assets immediately prior to such acquisition. The gross fair market value of assets is determined without regard to any liabilities;
|
(j)
|
“Code” means the United States Internal Revenue Code of 1986, as amended;
|
|
(k)
|
“Committee” means the Compensation Committee or any other committee appointed by the Board to administer this Plan in accordance with the provisions of this Plan; provided, however, that:
|
|
(i)
|
where available, the Committee shall consist of two or more members of the Board;
|
|
(ii)
|
where available, the directors appointed to serve on the Committee shall be “non-employee directors” (within the meaning of Rule 16b-3 promulgated under the Exchange Act) and “outside directors” (within the meaning of Section 162(m) of the Code) to the extent that Rule 16b-3 and, if necessary for relief from the limitation under Section 162(m) of the Code and such relief is sought by the Company, Section 162(m) of the Code, respectively, are applicable;
|
|
(iii)
|
the mere fact that a Committee member shall fail to qualify under either of the foregoing requirements set forth in Section 2.1(k)(ii) shall not invalidate any Award made by the Committee which Award is otherwise validly made under the Plan; and
|
|
(iv)
|
members of the Committee may be appointed from time to time by, and shall serve at the pleasure of, the Board;
|
(l)
|
“Common Stock” means the common stock of the Company;
|
(m)
|
“Company” means Strategic American Oil Corporation, a Nevada corporation;
|
|
(n)
|
“Consultant” means any person (other than an Employee) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity;
|
|
(o)
|
“Continuing Directors” means members of the Board who either (i) have been Board members continuously for a period of at least 36 months, or (ii) have been Board members for less than 36 months and were appointed or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such appointment or nomination was approved by the Board;
|
|
(p)
|
“Continuous Service” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant that is not interrupted or terminated. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers between locations of the Company or among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). An approved leave of absence shall include sick leave, maternity or paternity leave, military leave, or any other authorized personal leave. For purposes of Incentive Stock Options, no such leave may exceed 90 calendar days, unless reemployment upon expiration of such leave is guaranteed by statute or contract;
|
(q)
|
“Corporate Transaction” means any of the following transactions:
|
|
(i)
|
a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the jurisdiction in which the Company is organized;
|
|
(ii)
|
the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company’s subsidiary corporations) in connection with the complete liquidation or dissolution of the Company; or
|
|
(iii)
|
any reverse merger in which the Company is the surviving entity but in which securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger;
|
|
(r)
|
“Covered Employee” means an Employee who is a “covered employee” under Section 162(m)(3) of the Code;
|
|
(s)
|
“Deferred Stock Units” means Awards that are granted to Directors and are subject to the additional provisions set out in Subpart A which is attached hereto and which forms a material part hereof;
|
|
(t)
|
“Director” means a member of the Board or the board of directors of any Related Entity;
|
|
(u)
|
“Disability” or “Disabled” means that a Grantee is unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment. A Grantee shall not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion. Notwithstanding the above, (i) with respect to an Incentive Stock Option, Disability or Disabled shall mean permanent and total disability as defined in Section 22(e)(3) of the Code and (ii) to the extent an Option is subject to Section 409A of the Code, and payment or settlement of the Option is to be accelerated solely as a result of the Eligible Participant’s Disability, Disability shall have the meaning ascribed thereto under Section 409A of the Code and the Treasury guidance promulgated thereunder;
|
|
(v)
|
“Disinterested Shareholder Approval” means approval by a majority of the votes cast by all the Company’s shareholders at a duly constituted shareholders’ meeting, excluding votes attached to shares beneficially owned by Insiders;
|
|
(w)
|
“Eligible Participant” means any person who is an Officer, a Director, an Employee or a Consultant, including individuals who are foreign nationals or are employed or reside outside the United States;
|
|
(x)
|
“Employee” means any person who is a full-time or part-time employee of the Company or any Related Entity;
|
|
(y)
|
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended;
|
|
(z)
|
“Fair Market Value” means, as of any date, the value of a Share determined in good faith by the Administrator. By way of illustration, but not limitation, for the purpose of this definition, good faith shall be met if the Administrator employs the following methods:
|
|
(i)
|
Listed Stock. If the Common Stock is traded on any established stock exchange or quoted on a national market system, Fair Market Value shall be (A) the closing sales price for the Common Stock as quoted on that stock exchange or system for the date the value is to be determined (the “Value Date”) as reported in The Wall Street Journal or a similar publication, or (B) if the rules of the applicable stock exchange require, the volume-weighted average trading price for five days prior to the date the Board approves the grant of the Award. If no sales are reported as having occurred on the Value Date, Fair Market Value shall be that closing sales price for the last preceding trading day on which sales of Common Stock is reported as having occurred. If no sales are reported as having occurred during the five trading days before the Value Date, Fair Market Value shall be the closing bid for Common Stock on the Value Date. If the Common Stock is listed on multiple exchanges or systems, Fair Market Value shall be based on sales or bids on the primary exchange or system on which Common Stock is traded or quoted. If the rules of any applicable stock exchange or system require a different method of calculating Fair Market Value, then such method as is required by those rules;
|
|
(ii)
|
Stock Quoted by Securities Dealer. If Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported on any established stock exchange or quoted on a national market system, Fair Market Value shall be the mean between the high bid and low asked prices on the Value Date. If no prices are quoted for the Value Date, Fair Market Value shall be the mean between the high bid and low asked prices on the last preceding trading day on which any bid and asked prices were quoted;
|
|
(iii)
|
No Established Market. If Common Stock is not traded on any established stock exchange or quoted on a national market system and is not quoted by a recognized securities dealer, the Administrator will determine Fair Market Value in good faith. The Administrator will consider the following factors, and any others it considers significant, in determining Fair Market Value: (A) the price at which other securities of the Company have been issued to purchasers other than Employees, Directors, or Consultants; (B) the Company’s net worth, prospective earning power, dividend-paying capacity, and non-operating assets, if any; and (C) any other relevant factors, including the economic outlook for the Company and the Company’s industry, the Company’s position in that industry, the Company’s goodwill and other intellectual property, and the values of securities of other businesses in the same industry;
|
|
(iv)
|
Additional Valuation. For publicly traded companies, any valuation method permitted under Section 20.2031-2 of the Estate Tax Regulations; or
|
|
(v)
|
Non-Publicly Traded Stock. For non-publicly traded stock, the Fair Market Value of the Common Stock at the Grant Date based on an average of the Fair Market Values as of such date set forth in the opinions of completely independent and well-qualified experts (the Participant’s status as a majority or minority shareholder may be taken into consideration).
|
Regardless of whether the Common Stock offered under the Award is publicly traded, a good faith attempt under this definition shall not be met unless the Fair Market Value of the Common Stock on the Grant Date is determined with regard to nonlapse restrictions (as defined in Section 1.83-3(h) of the Treasury Regulations) and without regard to lapse restrictions (as defined in Section 1.83-3(i) of the Treasury Regulations);
|
|
(aa)
|
“Grantee” means an Eligible Participant who receives an Award pursuant to an Award Agreement;
|
|
(bb)
|
“Grant Date” means the date the Administrator approves that grant of an Award. However, if the Administrator specifies that an Award’s Grant Date is a future date or the date on which a condition is satisfied, the Grant Date for such Award is that future date or the date that the condition is satisfied;
|
|
(cc)
|
“Incentive Stock Option” means an Option within the meaning of Section 422 of the Code;
|
(dd)
|
“Insider” means:
|
(i)
|
a Director or Senior Officer of the Company;
|
|
(ii)
|
a Director or Senior Officer of a person that is itself an Insider or Subsidiary of the Company;
|
(iii)
|
a person that has
|
(A)
|
direct or indirect beneficial ownership of,
|
(B)
|
control or direction over, or
|
|
(C)
|
a combination of direct or indirect beneficial ownership of and control or direction over,
|
|
securities of the Company carrying more than 10% of the voting rights attached to all the Company’s outstanding voting securities, excluding, for the purpose of the calculation of the percentage held, any securities held by the person as underwriter in the course of a distribution; or
|
|
(iv)
|
the Company itself, if it has purchased, redeemed or otherwise acquired any securities of its own issue, for so long as it continues to hold those securities;
|
|
(ee)
|
“Named Executive Officer” means, if applicable, an Eligible Participant who, as of the date of vesting and/or payout of an Award, is one of the group of Covered Employees as defined;
|
|
(ff)
|
“Non-Qualified Stock Option” means an Option which is not an Incentive Stock Option;
|
|
(gg)
|
“Officer” means a person who is an officer, including a Senior Officer, of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder;
|
|
(hh)
|
“Option” means an option to purchase Shares pursuant to an Award Agreement granted under the Plan;
|
|
(ii)
|
“Parent” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code;
|
|
(jj)
|
“Performance-Based Compensation” means compensation qualifying as “performance-based compensation” under Section 162(m) of the Code;
|
(kk)
|
“Plan” means this 2011 Stock Incentive Plan as amended from time to time;
|
|
(ll)
|
“Related Entity” means any Parent or Subsidiary, and includes any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds a greater than 50% ownership interest, directly or indirectly;
|
|
(mm)
|
“Related Entity Disposition” means the sale, distribution or other disposition by the Company of all or substantially all of the Company’s interests in any Related Entity effected by a sale, merger or consolidation or other transaction involving that Related Entity or the sale of all or substantially all of the assets of that Related Entity;
|
|
(nn)
|
“Restricted Stock” means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as, established by the Administrator and specified in the related Award Agreement;
|
|
(oo)
|
“Restricted Stock Unit” means a notional account established pursuant to an Award granted to a Grantee, as described in this Plan, that is (i) valued solely by reference to Shares, (ii) subject to restrictions specified in the Award Agreement, and (iii) payable only in Shares;
|
|
(pp)
|
“Restriction Period” means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance objectives, or the occurrence of other events as determined by the Administrator, in its sole discretion) or the Restricted Stock is not vested;
|
|
(qq)
|
“SAR” means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock;
|
|
(rr)
|
“SEC” means the United States Securities Exchange Commission;
|
(ss)
|
“Senior Officer” means:
|
|
(i)
|
the chair or vice chair of the Board, the president, the chief executive officer, the chief financial officer, a vice-president, the secretary, the treasurer or the general manager of the Company or a Related Entity;
|
|
(ii)
|
any individual who performs functions for a person similar to those normally performed by an individual occupying any office specified in Section 2.1(ss)(i) above; and
|
|
(iii)
|
the five highest paid employees of the Company or a Related Entity, including any individual referred to in Section 2.1(ss)(i) or 2.1(ss)(ii) and excluding a commissioned salesperson who does not act in a managerial capacity;
|
(tt)
|
“Share” means a share of the Common Stock; and
|
|
(uu)
|
“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.
|
3.
|
STOCK SUBJECT TO THE PLAN
|
|
Number of Shares Available
|
3.1
|
(a)
|
Subject to the provisions of Section 18, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) under this Plan is 25,000,000 (the “Maximum Number”). See Section 29 for Reservation of Shares.
|
|
(b)
|
Shares that have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan except that Shares (i) covered by an Award (or portion of an Award) which is forfeited or cancelled, expires or is settled in cash, or (ii) withheld to satisfy a Grantee’s minimum tax withholding obligations, shall be deemed not to have been issued for purposes of determining the Maximum Number of Shares which may be issued under the Plan. Also, only the net numbers of Shares that are issued pursuant to the exercise of an Award shall be counted against the Maximum Number.
|
|
(c)
|
However, in the event that prior to the Award’s cancellation, termination, expiration, forfeiture or lapse, the holder of the Award at any time received one or more elements of beneficial ownership pursuant to such Award (as defined by the SEC, pursuant to any rule or interpretations promulgated under Section 16 of the Exchange Act), the Shares subject to such Award shall not again be made available for regrant under the Plan.
|
|
Shares to Insiders
|
3.2
|
|
Subject to Section 15.1(b) and 15.1(c), no Insider of the Company is eligible to receive an Award where:
|
(a)
|
the Insider is not a Director or Senior Officer of the Company;
|
|
(b)
|
any Award, together with all of the Company’s other previously established or proposed Awards under the Plan could result at any time in:
|
|
(i)
|
the number of Shares reserved for issuance pursuant to Options granted to Insiders exceeding 50% of the outstanding issue of Common Stock; or
|
|
(ii)
|
the issuance to Insiders pursuant to the exercise of Options, within a one year period of a number of Shares exceeding 50% of the outstanding issue of the Common Stock;
|
|
|
Limitations on Award
|
|
(a)
|
Options and SARs. Notwithstanding any provision in the Plan to the contrary (but subject to adjustment as provided in Section 18), the maximum number of Shares with respect to one or more Options and/or Stock Appreciation Rights that may be granted during any one calendar year under the Plan to any one Grantee shall be 12,500,000; all of which may be granted as Incentive Stock Options); and
|
|
(b)
|
Other Awards. The maximum aggregate grant with respect to Awards of Restricted Stock, unrestricted Shares, Restricted Stock Units and Deferred Stock Units (or used to provide a basis of measurement for or to determine the value of Restricted Stock Units and Deferred Stock Units) in any one calendar year to any one Grantee (determined on the date of payment of settlement) shall be 12,500,000.
|
4.
|
ADMINISTRATION
|
|
Authority of Plan Administrator
|
|
(a)
|
to construe and interpret this Plan and any agreements defining the rights and obligations of the Company and Grantees under this Plan;
|
|
(b)
|
to select the Eligible Participants to whom Awards may be granted from time to time hereunder;
|
|
(c)
|
to determine whether and to what extent Awards are granted hereunder;
|
|
(d)
|
to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;
|
|
(e)
|
to approve forms of Award Agreements for use under the Plan, which need not be identical for each Grantee;
|
|
(f)
|
to determine the terms and conditions of any Award granted under the Plan, including, but not limited to, the exercise price, grant price or purchase price based on the Fair Market Value of the same, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of the Award, and acceleration or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines that is not inconsistent with any rule or regulation under any tax or securities laws or includes an alternative right that does not disqualify an Incentive Stock Option under applicable regulations;
|
|
(g)
|
to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee’s rights under an existing Award shall not be made without the Grantee’s consent unless as a result of a change in Applicable Law;
|
|
(h)
|
to suspend the right of a holder to exercise all or part of an Award for any reason that the Administrator considers in the best interest of the Company;
|
|
(i)
|
subject to regulatory approval, amend or suspend the Plan, or revoke or alter any action taken in connection therewith, except that no general amendment or suspension of the Plan, shall, without the written consent of all Grantees, alter or impair any Award granted under the Plan unless as a result of a change in the Applicable Law;
|
|
(j)
|
to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan;
|
|
(k)
|
to further define the terms used in this Plan;
|
|
(l)
|
to correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award Agreement;
|
(m)
|
to provide for rights of refusal and/or repurchase rights;
|
|
(n)
|
to amend outstanding Award Agreements to provide for, among other things, any change or modification which the Administrator could have provided for upon the grant of an Award or in furtherance of the powers provided for herein that does not disqualify an Incentive Stock Option under applicable regulations unless the Grantee so consents;
|
|
(o)
|
to prescribe, amend and rescind rules and regulations relating to the administration of this Plan; and
|
|
(p)
|
to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.
|
|
|
Effect of Administrator’s Decision
|
|
|
Action by Committee
|
|
|
Limitation on Liability
|
5.
|
ELIGIBILITY
|
6.
|
AWARDS
|
|
|
Type of Awards
|
|
(a)
|
Shares, including unrestricted Shares;
|
|
(b
|
Options;
|
|
(c)
|
SARs or similar rights with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions;
|
|
(d)
|
any other security with the value derived from the value of the Shares, such as Restricted Stock and Restricted Stock Units;
|
(e)
|
Deferred Stock Units;
|
(f)
|
Dividend Equivalent Rights, as defined in Section 13; or
|
(g)
|
any combination of the foregoing.
|
|
Designation of Award
|
7.
|
GRANT OF OPTIONS; TERMS AND CONDITIONS OF GRANT
|
|
Grant of Options
|
7.1
|
(a)
|
One or more Options may be granted to any Eligible Participant. Subject to the express provisions of this Plan, the Administrator shall determine from the Eligible Participants those individuals to whom Options under this Plan may be granted. The Shares underlying a grant of an Option may be in the form of Restricted Stock or unrestricted Stock.
|
|
(b)
|
Further, subject to the express provisions of this Plan, the Administrator shall specify the Grant Date, the number of Shares covered by the Option, the exercise price and the terms and conditions for exercise of the Options. As soon as practicable after the Grant Date, the Company shall provide the Grantee with a written Award Agreement in the form approved by the Administrator, which sets out the Grant Date, the number of Shares covered by the Option, the exercise price and the terms and conditions for exercise of the Option.
|
|
(c)
|
The Administrator may, in its absolute discretion, grant Options under this Plan at any time and from time to time before the expiration of this Plan.
|
|
(a)
|
Exercise of Option. The Administrator may determine in its discretion whether any Option shall be subject to vesting and the terms and conditions of any such vesting. The Award Agreement shall contain any such vesting schedule;
|
|
(b)
|
Option Term. Each Option and all rights or obligations thereunder shall expire on such date as shall be determined by the Administrator, but not later than ten years after the Grant Date (five years in the case of an Incentive Stock Option when the Optionee beneficially owns more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary (a “Ten Percent Stockholder”), as determined with reference to Rule 13d-3 of the Exchange Act), and shall be subject to earlier termination as hereinafter provided;
|
|
(c)
|
Exercise Price. The Exercise Price of any Option shall be determined by the Administrator when the Option is granted, at such Exercise Price as may be determined by the Administrator in the Administrator’s sole and absolute discretion; provided, however, that the Exercise Price may not be less than 100% of the Fair Market Value of the Shares on the Grant Date with respect to any Incentive Stock Options which are granted and, provided further, that the Exercise Price of any Incentive Stock Option granted to a Ten Percent Stockholder shall not be less than 110% of the Fair Market Value of the Shares on the Grant Date. Payment for the Shares purchased shall be made in accordance with Section 16 of this Plan. The Administrator is authorized to issue Options, whether Incentive Stock Options or Non-qualified Stock Options, at an option price lower than or in excess of the Fair Market Value on the Grant Date, to determine the terms and conditions of any Award granted under the Plan, including, but not limited to, the exercise price, grant price or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of the Award, and acceleration or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines that is not inconsistent with any rule or regulation under any tax or securities laws or includes an alternative right that does not disqualify an Incentive Stock Option under applicable regulations;
|
|
(d)
|
Method of Exercise. Options may be exercised only by delivery to the Company of a stock option exercise agreement (the “Exercise Agreement”) in a form approved by the Administrator (which need not be the same for each Grantee), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding the Grantee’s investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased;
|
(e)
|
Exercise After Certain Events.
|
|
(I)
|
Termination of Continuous Services. If for any reason other than Disability or death, a Grantee terminates Continuous Services with the Company or a Subsidiary, vested Options held at the date of such termination may be exercised, in whole or in part, either (i) at any time within three months after the date of such termination, or (ii) during any greater or lesser period as specified in the Award Agreement or (iii) during any greater or lesser period as may be determined by the Administrator, in its sole and absolute discretion, prior the date of such termination (but in no event after the earlier of (A) the expiration date of the Option as set forth in the Award Agreement and (B) ten years from the Grant Date (five years for a Ten Percent Stockholder if the Option is an Incentive Stock Option)).
|
|
(II)
|
Continuation of Services as Consultant/Advisor. If a Grantee granted an Incentive Stock Option terminates employment but continues as a Consultant (no termination of Continuous Services), the Grantee need not exercise an Incentive Stock Option within either of the termination periods provided for immediately hereinabove but shall be entitled to exercise, in whole or in part, either (i) at any time within three months after the then date of termination of Continuous Services to the Company or a Subsidiary, or (ii) during any greater or lesser period as specified in the Award Agreement or (iii) during any greater or lesser period as may be determined by the Administrator, in its sole and absolute discretion, prior the date of such then termination of Continuous Services to the Company or the Subsidiary (one year in the event of Disability or death) (but in no event after the earlier of (A) the expiration date of the Option as set forth in the Award Agreement and (B) ten years from the Grant Date (five years for a Ten Percent Stockholder if the Option is an Incentive Stock Option)). However, if the Grantee does not exercise within three months of termination of employment, pursuant to Section 422 of the Code the Option shall not qualify as an Incentive Stock Option.
|
|
(B)
|
Disability and Death. If a Grantee becomes Disabled while rendering Continuous Services to the Company or a Subsidiary, or dies while employed by the Company or Subsidiary or within three months thereafter, vested Options then held may be exercised by the Grantee, the Grantee’s personal representative, or by the person to whom the Option is transferred by the laws of descent and distribution, in whole or in part, at any time within one year after the termination because of the Disability or death or any lesser period specified in the Award Agreement (but in no event after the earlier of (i) the expiration date of the Option as set forth in the Award Agreement, and (ii) ten years from the Grant Date (five years for a Ten Percent Stockholder if the Option is an Incentive Stock Option).
|
|
Limitations on Grant of Incentive Stock Options
|
7.3
|
(a)
|
Threshold. The aggregate Fair Market Value (determined as of the Grant Date) of the Shares for which Incentive Stock Options may first become exercisable by any Grantee during any calendar year under this Plan, together with that of Shares subject to Incentive Stock Options first exercisable by such Grantee under any other plan of the Company or any Parent or Subsidiary, shall not exceed $100,000. For purposes of this Section 7.3(a), all Options in excess of the $100,000 threshold shall be treated as Non-Qualified Stock Options notwithstanding the designation as Incentive Stock Options. For this purpose, Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted.
|
|
(b)
|
Compliance with Section 422 of the Code. There shall be imposed in the Award Agreement relating to Incentive Stock Options such terms and conditions as are required in order that the Option be an “incentive stock option” as that term is defined in Section 422 of the Code.
|
|
(c)
|
Requirement of Employment. No Incentive Stock Option may be granted to any person who is not an Employee of the Company or a Parent or Subsidiary of the Company.
|
8.
|
RESTRICTED STOCK AWARDS
|
|
Grant of Restricted Stock Awards
|
|
Consideration
|
(a)
|
Services. Services rendered to the Company or an Affiliate (i.e. bonus); and/or
|
|
(b)
|
Purchase Price. A purchase price, as specified in the Award Agreement related to such Restricted Stock, equal to not be less than 100% of the Fair Market Value of the Shares underlying the Restricted Stock on the date of issuance.
|
|
Voting and Dividends
|
|
Forfeiture
|
|
Certificates for Restricted Stock
|
9.
|
UNRESTRICTED STOCK AWARDS
|
10.
|
RESTRICTED STOCK UNITS
|
|
Grant of Restricted Stock Units
|
|
Number of Restricted Stock Units
|
|
Consideration
|
|
(a)
|
Services. Services rendered to the Company or an Affiliate (i.e. bonus); and/or
|
|
(b)
|
Purchase Price. A purchase price as specified in the Award Agreement related to such Restricted Stock Units, equal to not be less than 100% of the Fair Market Value of the Shares underlying the Restricted Stock Units on the date of issuance.
|
|
No Voting Rights
|
|
Dividend Equivalency
|
|
Creditor’s Rights
|
|
Settlement of Restricted Stock Units
|
(a)
|
a specific date or date determinable by a fixed schedule;
|
|
(b)
|
upon the Eligible Participant’s termination of Continuous Services to the extent the same constitutes a separation from services for purposes of Section 409A of the Code except that if an Eligible Participant is a “key employee” as defined in Section 409A of the Code for such purposes, then payment or settlement shall occur 6 months following such separation of service;
|
(c)
|
as a result of the Eligible Participant’s death or Disability; or
|
|
(d)
|
in connection with or as a result of a Change of Control in compliance with Section 409A of the Code.
|
|
Forfeiture
|
11.
|
DIRECTOR SHARES AND DIRECTOR DEFERRED STOCK UNITS
|
12.
|
STOCK APPRECIATION RIGHTS
|
|
Awards of SARs
|
|
Term
|
|
Exercise
|
|
Number of Shares or Amount of Cash
|
|
Effect of Exercise
|
|
Forfeiture
|
13.
|
DIVIDEND EQUIVALENT RIGHT
|
14.
|
TERMS AND CONDITIONS OF AWARDS
|
|
In General
|
|
Term of Award
|
|
Transferability
|
14.3
|
(a)
|
Limits on Transfer. No right or interest of a Grantee in any unexercised or restricted Award may be pledged, encumbered or hypothecated to or in favor of any party other than to the Company or a Related Entity or Affiliate. No Award shall be sold, assigned, transferred or disposed of by a Grantee other than by the laws of descent and distribution or, in the case of an Incentive Stock Option, pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award under the Plan; provided, however, that the Administrator may (but need not) permit other transfers where the Administrator concludes that such transferability (i) does not result in accelerated taxation or other adverse tax consequences, (ii) does not cause any Option intended to be an Incentive Stock Option to fail to be described in Section 422(b) of the Code, and (iii) is otherwise appropriate and desirable, taking into account any factors deemed relevant, including, without limitation, state or federal tax or securities laws applicable to transferable Awards.
|
|
(b)
|
Beneficiaries. Notwithstanding Section 14.3(a), a Grantee may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Grantee and to receive any distribution with respect to any Award upon the Grantee’s death. A beneficiary, legal guardian, legal representative or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Grantee, except to the extent the Plan and such Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator. If no beneficiary has been designated or survives the Grantee, payment shall be made to the Grantee’s estate. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Grantee at any time, provided the change or revocation is filed with the Administrator.
|
|
Performance Goals
|
|
Acceleration
|
|
Compliance with Section 162(m) of the Code
|
|
Compliance with Section 409A of the Code
|
|
Section 280G of the Code
|
|
Exercise of Award Following Termination of Continuous Service
|
|
Cancellation of Awards
|
15.
|
ADDITIONAL TERMS IF THE COMPANY BECOMES LISTED ON A STOCK EXCHANGE
|
|
(a)
|
the exercise price of an Award must not be lower than 100% of the Fair Market Value (without discount) of the Shares on the stock exchange at the time the Award is granted;
|
|
(b)
|
the number of securities issuable to Insiders, at any time, under all of the Company’s security based compensation arrangements (whether entered into prior to or subsequent to such listing), cannot exceed 20% of the Company’s total issued and outstanding Common Stock, unless the Company obtains Disinterested Shareholder Approval; and
|
|
(c)
|
the number of securities issued to Insiders, within any one year period, under all of the Company’s security based compensation arrangements (whether entered into prior to or subsequent to such listing), cannot exceed 20% of the issued and outstanding Common Stock, unless the Company obtains Disinterested Shareholder Approval.
|
16.
|
PAYMENT FOR SHARE PURCHASES
|
|
Payment
|
|
(a)
|
Cash. By cash, cashier’s check or wire transfer or, at the discretion of the Administrator expressly for the Grantee and where permitted by law as follows:
|
|
(b)
|
Surrender of Shares. By surrender of shares of Common Stock of the Company that have been owned by the Grantee for more than six months, or lesser period if the surrender of shares is otherwise exempt from Section 16 of the Exchange Act, (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares);
|
|
(c)
|
Deemed Net-Stock Exercise. By forfeiture of Shares equal to the value of the exercise price pursuant to a “deemed net-stock exercise” by requiring the Grantee to accept that number of Shares determined in accordance with the following formula, rounded down to the nearest whole integer:
|
|
a =
|
net Shares to be issued to Grantee;
|
|
b =
|
number of Awards being exercised;
|
|
c =
|
Fair Market Value of a Share; and
|
|
d =
|
Exercise price of the Awards;
|
|
(d)
|
Cashless Exercise. By a “cashless exercise”, in which event the Company shall issue to the Grantee the number of Shares of Common Stock determined as follows:
|
|
a =
|
the net Shares to be issued to Grantee;
|
|
b =
|
the number of Awards being exercised;
|
|
c =
|
the average of the “Closing Sale Prices” of the Shares of Common Stock (as reported by Bloomberg Financial Markets) for at least the two trading days ending on the date immediately preceding the Exercise Date; and
|
|
d =
|
the Exercise price of the Award.
|
|
For purposes of such an Award, “Closing Sale Price” means, for any security as of any date, the last trade price for such security on the principal securities exchange or trading market for such security, as reported by Bloomberg Financial Markets, or, if such exchange or trading market begins to operate on an extended hours basis and does not designate the last trade price, then the last trade price of such security prior to 4:00 p.m., New York City time, as reported by Bloomberg Financial Markets, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg Financial Markets, or, if no last trade price is reported for such security by Bloomberg Financial Markets, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Grantee. If the Company and the Grantee are unable to agree upon the fair market value of such security, then the Company shall, within two business days submit via facsimile (a) the disputed determination of the Closing Sale Price to an independent, reputable investment bank selected by the Company and approved by the Grantee or (b) the disputed arithmetic calculation of the Shares of Common Stock to the Company's independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Grantee of the results no later than ten business days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Shares of Common Stock issued in a cashless exercise transaction shall be deemed to have been acquired by the Grantee, and the holding period for the shares shall be deemed to have commenced, on the date the Award was originally issued (provided that the United States Securities and Exchange Commission continues to take the position that such treatment is proper at the time of such exercise); or
|
|
(e)
|
Broker-Assisted. By delivering a properly executed exercise notice to the Company together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay the exercise price and the amount of any required tax or other withholding obligations.
|
|
Combination of Methods
|
17.
|
WITHHOLDING TAXES
|
|
Withholding Generally
|
|
Stock for Withholding
|
18.
|
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
|
|
In General
|
|
Company’s Right to Effect Changes in Capitalization
|
19.
|
CORPORATE TRANSACTIONS/CHANGES IN CONTROL/RELATED ENTITY DISPOSITIONS
|
|
Company is Not the Survivor
|
|
(a)
|
to release the Awards from restrictions on transfer and repurchase or forfeiture rights of such Awards on such terms and conditions as the Administrator may specify; and
|
|
(b)
|
to condition any such Award’s vesting and exercisability or release from such limitations upon the subsequent termination of the Continuous Service of the Grantee within a specified period following the effective date of the Corporate Transaction, Change in Control or Related Entity Disposition.
|
|
Company is the Survivor
|
|
Change in Control
|
20.
|
PRIVILEGES OF STOCK OWNERSHIP
|
21.
|
RESTRICTION ON SHARES
|
22.
|
CERTIFICATES
|
23.
|
ESCROW; PLEDGE OF SHARES
|
24.
|
SECURITIES LAW AND OTHER REGULATORY COMPLIANCE
|
|
Compliance With Applicable Law
|
|
Investment Representation
|
25.
|
NO OBLIGATION TO EMPLOY
|
26.
|
EFFECTIVE DATE AND TERM OF PLAN
|
27.
|
SHAREHOLDER APPROVAL
|
28.
|
AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN OR AWARDS
|
29.
|
RESERVATION OF SHARES
|
30.
|
EXCHANGE AND BUYOUT OF AWARDS
|
31.
|
APPLICABLE TRADING POLICY
|
32.
|
GOVERNING LAW
|
33.
|
MISCELLANEOUS
|
(a)
|
the dollar amount or percentage of Eligible Remuneration to be deferred; and
|
(b)
|
the deferral period.
|
|
(a)
|
a specific date or date determinable by a fixed schedule;
|
|
(b)
|
upon the Eligible Director’s termination of Continuous Services to the extent the same constitutes a separation from services for the purposes of Section 409A of the Code except that if an Eligible Director is a “key employee” as defined in Section 409A of the Code for such purposes, then payment or settlement shall occur 6 months following such separation of service;
|
|
(c)
|
as a result of the Eligible Director’s death or Disability; or
|
|
(d)
|
in connection with or as a result of a Change in Control in compliance with 409A of the Code.
|
I.
|
Assignment. Farmor shall assign, upon execution of this Agreement, all of those interests that it may have in those oil and gas leases which comprise the Prospect unto Farmee, reserving unto itself an undivided Ten Percent (10%) working interest in said leases ("Retained Working Interest") by way of an assignment in substantially the same form as that attached to this Agreement as Exhibit 'B,' which shall be free and clear of all encumbrances, including any and all overriding royalty interests created by it. The assignment shall be made expressly subject to this Agreement and any other agreements that may exist between the Parties. Farmee shall be the named operator of the Prospect, and all activities, other than those expressly required under this Agreement, shall be conducted pursuant to that joint operating agreement attached to this Agreement as Exhibit 'C' (the "JOA"). Any additional assignments of interest in the Prospect that may be made by the Parties to any third parties, which are expressly allowed, shall also be made subject to this Agreement, and any exhibits to this Agreement, including the JOA, and all provisions thereof.
|
II.
|
Evaluation. Farmee agrees that after the assignment of the leases described above that it shall commence evaluating the Prospect, including shooting additional seismic data, as may be necessary, and gathering and interpreting certain geological, geophysical, and technical data and information, and developing a strategy which it shall utilize in the development of the Prospect ("Evaluation Period.)" Farmee shall evaluate the Prospect during the Evaluation Period in its own sole and exclusive discretion and using its reasonable judgment, but shall provide Farmor will periodic updates with the information that it so acquires.
|
III.
|
Initial Well. At the termination of the Evaluation Period by Farmee, or on or before June 30, 2011 whichever occurs first, Farmee agrees that it shall spud the initial well somewhere within the Prospect at a location of Farmee's sole and exclusive discretion and to a depth that will penetrate the McCloskey formation (the "Initial Well"). Should Farmee be unwilling or unable to spud the Initial Well before the deadline, then the penalties outlined below within Article V regarding the reassignment obligations of Farmee shall control.
|
IV.
|
Development. In the development of the Prospect, Farmee shall be required to spend One Million and Three Hundred and Fifty Thousand Dollars ($1,350,000) ("Earning Threshold") on all developmental activities on the Prospect, including all leasing, legal, regulatory and land activities, geophysical and geological testing, or other seismic acquisition, and in the drilling, testing, and completing of the Initial Well or any subsequent wells thereto, including for drilling any water injection or supply wells, and in all costs associated with waterflooding the Prospect, if any, but exclusive of any Farmee administrative costs, overhead, and employee salaries , except for those such administrative costs, overhead and employee salaries which would otherwise be chargeable pursuant to the JOA in connection with the drilling, completion or reworking of any wells on the Prospect (collectively, "Capital Costs"). Farmor's working interest shall be a carried working interest while Farmee is developing the Prospect and all Capital Costs shall be borne by Farmee, until the Earning Threshold is met. Farmee shall have complete control of the development of the Prospect, including deciding what further testing may be required, if any, the method and manner of conducting any further tests on the Prospect, any and all leasing and land activities conducted on the Prospect, the location, depth and completion of any and all wells drilled on the Prospect, including the Initial Well, and any other activities which Farmee may choose to commence on the Prospect. Farmee shall be required to expend the Earning Threshold within twenty four (24) months of the Effective Date, or until the Earning Threshold is exhausted if prior to twenty four (24) months, whichever occurs first(the "Development Period") or it shall be subject to the penalties contained below within Article V concerning the reassignment obligations of Farmee, which shall be the only penalties for failure to expend the Earning Threshold during the Development Period. Farmee agrees to use its best efforts to pay all lease renewals or extensions on any of the leases assigned by Farmor during the Development Period so as to keep said oil and gas leases in full force and effect, or by acquiring new leases on the acreage, if required, with all costs associated therewith being added to the Capital Costs. Farmee agrees that it shall provide to Farmor periodic updates on the status of activities conducted by Farmee during the Development Period, including the Capital Costs which up to that time have been expended by Farmee in the development of the Prospect. After the Earning Threshold is met, or at the expiration of the Development Period, then all further costs associated with the Prospect would be borne by the Parties and their respective working interests at that time and would be pursuant to the JOA. Should any of the wells drilled on the Prospect, if any, be capable of being produced and are so produced then the operating costs associated therewith would be borne by the Parties and their respective working interests pursuant to the JOA, and would not be added to the Capital Costs of Farmee.
|
V.
|
Reassignment Penalty. Should Farmee be unwilling or unable to spud the Initial Well or should Farmee fail to expend the Earning Threshold during the Development Period or that portion before April 1, 2012, as outlined below, then Farmee will be required to reassign to Farmor an interest in the Prospect as follows:
|
a.
|
If Farmee is unwilling or unable to spud the Initial Well by June 30, 2011, Farmee loses all of its right, title, and interest in the Prospect and will assign all of its interest back to Farmor; and,
|
b.
|
If Farmee fails to expend at least half of the Earning Threshold ($675,000) by April 1, 2012, then Farmee loses 50% of the right, title and interest in the Prospect and will assign 50% of the interest in the Prospect back to Farmor, which will result in Farmor owning a total of an undivided Fifty Percent (50%) working interest in the Prospect and Farmee owning a total of an undivided Fifty Percent (50%) working interest in the Prospect; and,
|
c.
|
If Farmee fails to expend the Earning Threshold during the remainder of the Development Period, then Farmee will be required to reassign to Farmor an interest in the Prospect which shall be equal to the proportion of the Earning Threshold which up to that time Farmee has not spent, after taking into account any interest in the Prospect which has previously been reassigned to Farmor pursuant to paragraph b. above. (For example, should Farmee expend one-quarter (1/4) of the Earning Threshold on the Prospect before the expiration of the Development Period, then it shall assign back to Farmor three-quarters (3/4) of the working interest in the Prospect which it was initially assigned, after taking into account any interest reassigned in paragraph b.).
|
VI.
|
Carried Interest Back In. If and when the net proceeds to Farmee attributable to production from the Initial Well, and any additional wells on the Prospect, if so drilled and completed, after deducting applicable operating costs, equals those Capital Costs which have actually been incurred by Farmee in the development of the Prospect during the Development Period up to the Earning Threshold, or when the gross production attributable to the Prospect equals 29,000 barrels of oil, whichever occurs first (the "Payout") then the Retained Working Interest shall be converted into a Twenty-Five Percent (25%) working interest in the Prospect and all wells and other equipment located thereon ("Payout Working Interest"). The conversion of said working interest will occur the first day of the month following the month the Prospect has reached Payout. The JOA between the Parties shall be amended to reflect the change in working interest percentages between the Parties, and all costs thereafter shall be split between the Parties' adjusted working interest percentages. It being understood that Farmor shall only be entitled to up to a Twenty-Five Percent (25%) working interest in the Prospect at Payout, and should Farmor have been reassigned any working interest pursuant to Article V above, then the total working interest attributable to Farmor shall not exceed Twenty-Five Percent (25%) at Payout, and the Payout Working Interest shall be proportionately reduced in such an event accordingly, unless Farmor has received greater than a Twenty-Five Percent (25%) working interest before Payout, in which case Farmor's working interest shall not change at the Payout. Farmee agrees that it shall provide to Farmor, as often as reasonably possible, as much information as it may have in order to establish if and when Payout has occurred, and that Farmor, at its sole cost and expense, may audit the records of Farmor to determine if and when Payout has occurred.
|
VII.
|
Area of Mutual Interest. The Parties agree that they shall enter into an area of mutual interest which shall encompass the Prospect, as otherwise outlined on Exhibit 'D' (the "AMI"), and that if either Party shall acquire any acreage within the AMI not identified on Exhibit "A" within two (2) years of the Effective Date, then it shall for all intents and purposes be treated as though it was made a part of this Agreement as of the Effective Date. Should Farmee acquire any acreage within the AMI during the Evaluation Period or during the Development Period not identified on Exhibit "A", then it shall add all costs for the acquisition of the acreage to the Capital Costs and shall cause Farmor to be assigned its Retained Working Interest, which shall also be subject to the provisions regarding Payout Working Interest. Should either Party acquire the acreage after the Development Period has ended, then the Party that so acquired the acreage shall offer it to the other Party and said Party shall have the option of participating in it for its share of the costs of acquisition of the acreage. Should the Party that was offered the acreage not be willing to bear its proportionate share of costs, then said acreage shall not be added to this Agreement and the Party that acquired the acreage will be free to develop it on its own outside of this Agreement. Should Farmee or Farmor contribute a lease in the AMI which has an eighty percent (80%) or greater net revenue interest, then both the Farmee and Farmor shall share equally (50:50) the difference between the actual net revenue interest and eighty percent (80%) in the form of an overriding royalty interest.
|
FARMOR
|
|
PENASCO PETROLEUM, INC. |
/s/ Jeremy G. Driver | ||
By: | Jeremy G. Driver | |
Its: | President |
FARMEE
|
|
CORE MINERALS MANAGEMENT II, LLC |
/s/ Michael R. McLear | ||
By: | Michael R. McLear | |
Its: | Executive Vice President |
TRACT#
|
TRACT DESCRIPTION
|
GROSS
ACRES
|
MINERAL
ACRES
LEASED
|
MINERAL
ACRES
UNLEASED
|
PERCENT OF
TRACT
LEASED
|
ROYALTY
PAID
|
DATE LEASED
|
TERM
|
49
|
SE 1/4 SE 1/4 13, 2, 4
|
40.00
|
38.685
|
1.315
|
96.713
|
1/8
|
Aug-07
|
5 YR
|
80- HBP
|
E 1/2 NE 1/4 24, 2,4
|
79.00
|
0
|
79.000
|
0.00
|
|||
81
|
N 1/2 SE 1/4 24, 2, 4
|
74.00
|
74.000
|
0.000
|
100.00
|
1/8
|
Jan-09
|
5 YR
|
81-A
|
6 ACRES ACROSS N 1/2 SE 1/4 24, 2, 4
|
6.00
|
0
|
6.000
|
0.00
|
|||
82
|
NW 1/4 NE 1/4 24, 2, 4
|
40.00
|
40.000
|
0.000
|
100.00
|
1/8
|
Jun-09
|
5 YR
|
83
|
W 1/2 SW 1/4 NE 1/4 24,2,4
|
20.00
|
20
|
0.000
|
100.00
|
1/8
|
Jul-10
|
2 YR
|
84
|
E 1/2 SW 1/4 NE 1/4 24, 2, 4
|
20.00
|
20
|
0.000
|
100.00
|
1/8
|
Jul-10
|
2 YR
|
85
|
N 13 1/3 ACRES OF
E 1/2 E 1/2 NW 1/4 24,2,4
|
13.30
|
13.3
|
0.000
|
100.00
|
1/8
|
Nov-09
|
5 YR
|
86
|
S 26.7 ACRES OF E 1/2
E 1/2 NW 1/4 24, 2, 4
|
26.70
|
26.7
|
0.000
|
100.00
|
1/8
|
Nov-09
|
5 YR
|
87
|
NW 1/4 NW 1/4, W 1/2 NE 1/4
NW 1/4, NW 1/4 SE 1/4 NW 1/4 & N 1/2
SW 1/4 NW 1/4 24,2,4
|
90.00
|
15
|
75.000
|
16.667
|
1/8
|
Nov-09
|
|
88
|
20 AC. S. SIDE SW 1/4 NW 1/4,
10 AC. S. END W 1/2 SE 1/4 NW 1/4
24, 2 , 4
|
30.00
|
0
|
30.000
|
0.00
|
|||
89
|
PART N 1/2 SW 1/4 S. OF RR R.O.W.
SW 1/4 SW 1/4, EXC. PART NOT
VACATED IN PEPPLES ADDITION
|
52.00
|
0
|
52.000
|
0.00
|
|||
90
|
SE 1/4 NW 1/4. S 1/2 SW 1/4 SE 1/4, NW 1/4
SW 1/4 SE 1/4 24, 2, 4
|
70.00
|
16.841
|
53.159
|
24.059
|
1/8
|
Dec-08
|
5 YR
|
91
|
SE 1/4 SE 1/4 24, 2, 4
10 AC. NE CORNER SW 1/4 SE 1/4
24, 2, 4
|
50.00
|
40.7947
|
9.2053
|
81.589
|
1/8
|
Dec-08 |
5 YR
|
TRACT#
|
TRACT DESCRIPTION
|
GROSS
ACRES
|
MINERAL
ACRES
LEASED
|
MINERAL
ACRES
UNLEASED
|
PERCENT OF
TRACT
LEASED
|
ROYALTY
PAID
|
DATE LEASED | TERM |
92
|
PART N 1/2 SW 1/4 24, 2, 4 LYING N OF RAILROAD R.O.W.
|
50.00
|
0
|
50.000
|
0.000
|
|||
93
|
SE 1/4 SW 1/4 12,2,4
|
40.00
|
0
|
40.000
|
0.000
|
|||
94
|
N 1/2 NW 1/4 13, 2, 4
|
80.00
|
49.998
|
30.002
|
62.498
|
1/8
|
Jan-08
|
5 YR
|
95
|
SW 1/4 SE 1/4 12, 2, 4 N 1/2 NW 1/4 NE 1/4 13, 2, 4
|
60.00
|
0
|
60.000
|
0.000
|
96
|
SW 1/4 NW 1/4 13,2,4
|
40.00
|
0
|
40.000
|
0.000
|
|||
97
|
SE 1/4 NW 1/4 13, 2, 4
|
40.00
|
23.532
|
16.468
|
58.830
|
1/8
|
Aug-08
|
5 YR
|
98
|
32 AC. SE 1/4 SW 1/4 13, 2, 4
|
32.00
|
32.000
|
0.000
|
100.000
|
1/8
|
0ct-08
|
5 YR
|
99
|
5 AC. SW/C. SE 1/4 SW 1/4 13, 2, 4
|
5.00
|
5.000
|
0.000
|
100.000
|
1/8
|
Jun-09
|
5 YR
|
100
|
3 AC. SE 1/4 SW 1/4 13, 2,4
|
3.00
|
3.000
|
0.000
|
100.000
|
1/8
|
0ct-08
|
5 YR
|
101
|
W 1/2 NW 1/4 SE 1/4 13, 2, 4
5 ACRES SW CORNER NE 1/4 13, 2, 4
|
25.00
|
20.860
|
4.140
|
83.440
|
1/8
|
Nov-08
|
5 YR
|
102
|
E 1/2 NW 1/4 SE 1/4 13, 2, 4
|
20.00
|
15.000
|
5.000
|
75.000
|
1/8
|
Nov-08
|
5 YR
|
103
|
SW 1/4 SE 1/4 13, 2, 4
|
39.75
|
23.582
|
16.168
|
59.326
|
1/8
|
Apr-09
|
5 YR
|
104
|
S 900' E 348' W 678' SW 1/4 SW 1/4
EX RD 13,2,4
|
6.70
|
2.468
|
4.232
|
36.836
|
1/8
|
Jan-09
|
5 YR
|
105
|
PT SW 1/4 SW 1/4 - BEG 60' W
NE COR, S 1290.22', W 20' N 903.75'
W 594.50', N 394.11', E 615.53' TO POB
13,2,4
|
6.00
|
2.206
|
3.794
|
36.767
|
1/8
|
Jan-09
|
5 YR
|
106
|
S 1000' SW1/4SW1/4, EXW 678' &
EX E 80'& EX ROAD 13, 2,4
|
12.75
|
4.686
|
8.064
|
36.753
|
1/8
|
Jan-09
|
5 YR
|
107
|
PT SW 1/4 SW 1/4 - BEG NW COR,
NE 678.04', S 494.14', SW 678.2',
S 494.14', SW 678.2', N 503.02' TO POB
13,2.4
|
7.75
|
2.846
|
4.904
|
36.723
|
1/8
|
Jan-09
|
5 YR
|
108
|
S 900' W 330' SW 1/4 SW 1/4 13, 2, 4
EX RD LYINGS & ADJ
|
6.70
|
2.468
|
4.232
|
36.836
|
1/8
|
Jan-09
|
5 YR
|
109
|
S 400'W 1010' NW 1/4 SW 1/4 &
W 1010' NW 1/4 SW 1/4 EX N 348' &
EXS40'13, 2,4
|
16.50
|
6.069
|
10.431
|
36.782
|
1/8
|
Jan-09
|
5 YR
|
110
|
N 690.24' SW 1/4 SW 1/4 EX N 348' &
EXW 678' S 322.24' 13, 2, 4
|
10.65
|
3.595
|
7.055
|
33.756
|
1/8
|
Jan-09
|
5 YR
|
111
|
N 348' NW 1/4 SW 1/4 EX N 328' W 678'
& N 328' W 678' NW 1/4 SW 1/4 13, 2, 4
|
10.85
|
3.959
|
6.891
|
36.488
|
1/8
|
Jan-09
|
5 YR
|
TRACT #
|
TRACT DESCRIPTION
|
GROSS
ACRES
|
MINERAL
ACRES
LEASED
|
MINERAL
ACRES
UNLEASED
|
PERCENT OF
TRACT
LEASED
|
ROYALTY
PAID
|
DATE LEASED
|
TERM
|
112
|
NE 1/4 & E 40' NW 1/4 SW 1/4 & E 40'
SW 1/4 SW 1/4 & NW 1/4 SW 1/4 EX
N 690.24' & EX W 1010' & EX S 40' E 40'
& W 20' E 80' SW 1/4 SW 1/4 13, 2. 4
|
47.5
|
17.475
|
30.025
|
36.789
|
1/8
|
Jan-09
|
5 YR
|
113
|
25 AC. NE CORNER NE 1/4 SE 1/4 13, 2, 4
|
25
|
23.332
|
1.668
|
93.328
|
1/8
|
Dec-08
|
5 YR
|
114
|
W 15 AC S 1/2 N 1/2 NE 1/4 13, 2, 4
|
15
|
7.500
|
7.500
|
50.000
|
1/8
|
Dec-08
|
5 YR
|
115
|
30.5 AC. S SIDE SE 14/ NE 1/4 &
20.5 AC. E SIDE SW 1/4 NE 1/4 13, 2, 4
|
50.5
|
25.2831
|
25.2169
|
50.066
|
1/8
|
Dec-08
|
5 YR
|
115-A
|
S1/2 N 1/2 NE 1/4, EX. W. 15 AC.
6 N 9.5 AC. SE 1/4 NE 1/4 13, 2, 4
|
34.5
|
17.25
|
17.250
|
50.000
|
1/8
|
Dec-08
|
5 YR
|
118
|
S. 15 AC. E. SIDE NE 1/4 SE 1/4 13, 2, 4
|
15
|
13.500
|
1.500
|
90.000
|
1/8
|
Jun-08
|
5 YR
|
119
|
N 3/4 W 1/2 SW 1/4 NE 1/4 13, 2, 4
|
15
|
7.500
|
7.500
|
50.000
|
1/8
|
Aug-09
|
5 YR
|
120
|
SW/4SW/4 19, 2, 5
|
40
|
0.000
|
40.000
|
0.000
|
121
|
NW/4 SW/4 19, 2, 5
|
40
|
25.000
|
15.000
|
62.500
|
1/8
|
Sep-10
|
5 YR
|
122
|
W/2 SW/4 18, 2, 5
|
80
|
60.000
|
20.000
|
75.000
|
1/8
|
Mar-10
|
5 YR
|
123
|
NW/4 NW/4 18, 2,5
|
40
|
40.000
|
0.000
|
100.000
|
5/32
|
Oct-10
|
3 YR
|
124
|
SW/4 NW/4 18, 2, 5
|
40
|
40.000
|
0.000
|
100.000
|
5/32
|
Nov-10
|
3 YR
|
125
|
4 AC. Begin. @ point 16 rods E. of SW/C
NE/4 SW/4 - N. 40 rods, E. 16 rods, S. 40
rods, W. 16 rods, 18,2,5
|
4
|
4.000
|
0.000
|
100.000
|
1/6
|
Nov-10
|
3 YR
|
126
|
SE/4 NW/4, N/2 NE/4 SW/4 & Part E/2 SW/4
desc. as: Begin SW/C SE/4 SW/4, E. 16 rods, N. 120 rods,
W. 16 rods & S. 120 rods to
P.O.B (12 ac) 72 ac. total, 18,2,5
|
72
|
68.458
|
3.542
|
95.081
|
1/8
5/32 to
Bluford Grain
|
Aug-10
|
5 YR
3 YR TO
B. G.
|
127
|
Pari NE/4 SW/4 desc. as: Begin SE/c &
running W. 48 rods, N. 40 rods, E. 48 rods &
S. 40 rods to P.O.B. (12 ac.) 18, 2, 5
|
12
|
12.000
|
0.000
|
100.000
|
5/32
|
Nov-10
|
3 YR
|
TOTALS:
|
1654.150
|
867.8878
|
786.2622
|
2801.8240
|
||||
DATE OF LEASE COLUMN REFERS TO DATE OF FIRST LEASE, FOR THOSE TRACTS WITH MULTIPLE MINERAL INTEREST OWNERS.
|
ASSIGNOR | |
PENASCO PETROLEUM, INC.
|
BY: ________________________________________ | |
________________________________________ |
ASSIGNEE | |
CORE MINERALS MANAGEMENT II, LLC
|
BY: ________________________________________ | |
________________________________________ |
STATE OF _____________________)
|
|
COUNTY OF _____________________)
|
_________________________________________________ | |
Notary Public in and for the State of _____________________ | |
County of: ________________________________________ | |
Printed Name: ______________________________________ | |
My Commission Expires: ______________________________ |
STATE OF _____________________)
|
|
COUNTY OF _____________________)
|
_________________________________________________ | |
Notary Public in and for the State of _____________________ | |
County of: ________________________________________ | |
Printed Name: ______________________________________ | |
My Commission Expires: ______________________________ |
I.
|
HBP Acreage. There currently exists on the Prospect certain acreage which is held by production by certain third party operators, and in order to sufficiently develop the Prospect, the Parties desire to attempt to purchase that certain acreage, which is generally defined as the Eastern Half of the Northeast Quarter of Section 24, Township 2 South, Range 4 East, and with all the wells located thereon being the "HBP Acreage." The Parties acknowledge that Farmee will use reasonable efforts to purchase said HBP Acreage from the third parties, but shall not be under any obligation to do so. If Farmee is successful in it attempts to acquire the HBP Acreage, then it shall be added to the Farmout Agreement and become part of the Prospect.
|
II.
|
Initial Well Requirement. Furthermore, the Parties acknowledge that in attempting to purchase the HBP Acreage, that Farmee will incur significant cost and expense, and therefore, the Parties desire to provide that should Farmee be successful in its attempts to purchase the HBP Acreage, that the Initial Well requirement, as provided in the Farmout Agreement, shall be deemed satisfied. All other requirements of Farmee shall remain unchanged. Should Farmee be unsuccessful in acquiring the HBP Acreage, then the Initial Well requirement shall remain unchanged, but the deadline to drill the Initial Well shall be extended by that certain time while Farmee is attempting in good faith to negotiate for the HBP Acreage with said third party operator, however, in no event shall the deadline to drill the Initial Well be extended beyond September 30, 2011. Once Farmee has terminated any negotiations with the third parties to acquire the HBP Acreage, it shall notify Farmor of the fact, and the new deadline to drill the Initial Well shall be determined.
|
III.
|
Capital Costs and Working Interest. The Parties further agree that all costs associated with the attempted procurement of the HBP Acreage shall be deemed Capital Costs required to be spent by Farmee in the development of the Prospect. Furthermore, if Farmee is successful in its attempts to acquire the HBP Acreage, it shall assign to Farmor that certain Retained Working Interest in the HBP Acreage, which shall be subject to all other provisions of the Farmout Agreement, including those concerning Payout.
|
FARMOR
|
|
PENASCO PETROLEUM, INC. |
/s/ Jeremy G. Driver | ||
By: | Jeremy G. Driver | |
Its: | CEO |
FARMEE
|
|
CORE MINERALS MANAGEMENT II, LLC |
/s/ Mike McLear | ||
By: | Mike McLear | |
Its: | Executive O.P. |
1.
|
I have reviewed this annual report on Form 10-K of Strategic American Oil Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
|
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 15, 2011 | |
/s/ Jeremy Glenn Driver | |
Jeremy Glenn Driver | |
President, Chief Executive Officer, Principal Executive Officer and a director |
1.
|
I have reviewed this annual report on Form 10-K of Strategic American Oil Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
|
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 15, 2011 | |
/s/ Sarah Berel-Harrop | |
Sarah Berel-Harrop | |
Secretary, Treasurer and Chief Financial Officer |
Date: November 15, 2011 | |
/s/ Jeremy Glenn Driver | |
Jeremy Glenn Driver | |
President, Chief Executive Officer and a director |
/s/ Sarah Berel-Harrop | |
Sarah Berel-Harrop | |
Secretary, Treasurer and Chief Financial Officer |
Ralph E Davis Associates, Inc. |
1717 St James Place |
Houston, Tx 77056 |
Strategic American Oil Corporation |
800 Gessner Rd., Suite 200 |
Houston, TX 77024 |
Attention: | Mr. Jeremy G. Driver |
President and CEO |
Re: Oil, Condensate and Natural Gas Reserves |
SEC Non-Escalated Analysis |
Strategic American Oil Corporation |
As of August 1, 2011 |
Strategic American Oil Corporation | September 27, 2011 |
SEC Non-Escalated Analysis | Page 2 of 6 |
Oil, Condensate and Natural Gas Reserves | |
Mr. Jeremy G. Driver |
|
Estimated Net Reserves
|
Estimated Future Net Income *
|
||||||||||||||
Reserve Category
|
Oil
|
Gas
|
Undiscounted
|
Discounted@10%
|
||||||||||||
MBbls
|
MMCF
|
US $1000.
|
US $1000.
|
|||||||||||||
PROVED RESERVES
|
||||||||||||||||
Producing
|
248.77 | 864.83 | $ | 16,510.56 | $ | 12,647.01 | ||||||||||
Shut-In
|
49.13 | 1,286.50 | $ | 6,341.83 | $ | 4,866.00 | ||||||||||
Behind Pipe
|
177.42 | 2,447.84 | $ | 15,866.85 | $ | 9,602.05 | ||||||||||
Undeveloped
|
743.64 | 7,961.92 | $ | 58,623.82 | $ | 31,874.62 | ||||||||||
TOTAL PROVED
|
1,218.96 | 12,561.09 | $ | 97,343.06 | $ | 58,989.68 |
Strategic American Oil Corporation | September 27, 2011 |
SEC Non-Escalated Analysis | Page 3 of 6 |
Oil, Condensate and Natural Gas Reserves | |
Mr. Jeremy G. Driver |
Strategic American Oil Corporation | September 27, 2011 |
SEC Non-Escalated Analysis | Page 4 of 6 |
Oil, Condensate and Natural Gas Reserves | |
Mr. Jeremy G. Driver |
Strategic American Oil Corporation | September 27, 2011 |
SEC Non-Escalated Analysis | Page 5 of 6 |
Oil, Condensate and Natural Gas Reserves | |
Mr. Jeremy G. Driver |
Strategic American Oil Corporation | September 27, 2011 |
SEC Non-Escalated Analysis | Page 6 of 6 |
Oil, Condensate and Natural Gas Reserves | |
Mr. Jeremy G. Driver |
Very truly yours, | |
RALPH E. DAVIS ASSOCIATES, INC. | |
|
s/s Allen C. Barron |
Allen C. Barron, P. E. | |
President |
|
1.
|
I am an employee of Ralph E. Davis Associates, Inc., that has prepared an estimate of the oil and natural gas reserves on specific leaseholds in which Strategic American Oil has certain interests. The effective date of this evaluation is July 1, 2011.
|
|
2.
|
I am Licensed Professional Engineer by the State of Texas, P.E. License number 48284.
|
|
3.
|
I attended the University of Houston in Houston, Texas and graduated with a Bachelor of Science Degree in Chemical Engineering with a Petroleum Engineering option in 1968. I have in excess of forty years experience in the Petroleum Industry of which over thirty years experience are in the conduct of evaluation and engineering studies relating to both domestic U.S. oil and gas fields and international energy assets.
|
|
4.
|
I have prepared reserve evaluation studies and reserve audits for public and private companies for the purpose of reserve certification filings in foreign countries, domestic regulatory filings, financial disclosures and corporate strategic planning. I personally supervised and participated in the evaluation of the Strategic American Oil properties that are the subject of this report.
|
|
5.
|
I do not have, nor do I expect to receive, any direct or indirect interest in the securities of Strategic American Oil or any affiliated companies.
|
|
6.
|
A personal field inspection of the properties was not made, however, such an inspection was not considered necessary in view of the information available from public information, records and the files of the operator of the properties.
|
SIGNED: September 27, 2011 | |||
s/s Allen C. Barron | |||
Allen C. Barron, P.E. | |||
President | |||
Ralph E. Davis Associates, Inc. |