HYDROCARB ENERGY CORPORATION 8-K/A


 


Exhibit 10.2


 


 


 


NEITHER THE ISSUANCE NOR
SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


 





	Principal Amount: $200,000	Issue Date: November 12, 2015
	Purchase Price: $200,000	 



 


 


 


8% SHORT TERM CASH REDEEMABLE NOTE


 


FOR VALUE
RECEIVED, HYDROCARB ENERGY CORPORATION, a Nevada corporation (hereinafter called the “Borrower”), hereby
promises to pay to the order of DARLING CAPITAL, LLC a New York limited liability company, or registered assigns (the “Holder”)
the sum of Two Hundred Thousand ($200,000.00) as set forth herein, on September 12, 2016 (the “Maturity Date”), and
to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per
annum from November 12, 2015 until the Note plus any and all accrued interest is paid in full. The Holder will have the option
to extend the Maturity Date an additional nine (9) months. The Holder must inform the Borrower, in writing, within thirty (30)
days from the original Maturity Date of its intent to extend the Maturity Date. Interest shall commence accruing on the date that
the Note is fully paid and shall be computed on the basis of a 360-day year and the actual number of days elapsed. Any amount of
principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum
or the maximum rate permitted under applicable law from the due date thereof until the same is paid (“Default Interest”).
All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”)
in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made
at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of
this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the
same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which
is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes
of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any
day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required
by law or executive order to remain closed.


 


This Note is free from
all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other
similar rights of shareholders of the


 


Borrower and will not impose personal
liability upon the holder thereof.


 


The following terms shall apply to this Note:






    	 		 



    	 



    

   


ARTICLE I. CONVERSION RIGHTS


 1.1.             
Conversion Right. The Holder shall have the right upon the occurrence of a Pre-Payment Default, to convert all or
any part of the outstanding and unpaid principal amount of this Note into fully paid and non- assessable shares of Common Stock,
as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such
Common Stock shall hereafter be changed or reclassified at the Conversion Price determined as provided herein (a “Conversion”);
provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of
that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a
limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made,
would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock.
For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder,
except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations
on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior written notice
to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date,
as determined by the Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion
Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice
of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice
of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice)
to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term
“Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this
Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s
option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4)
at the Holder’s option, any amounts owed to the Holder pursuant to Section 1.4(g) hereof.


1.2.             
Conversion Price.


a)                 Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall equal the
Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights
offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations,
recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price”
shall mean the greater of 60% multiplied by the Market Price (as defined herein) and $.001 per share. “Market Price”
means the lowest closing bid Price (as defined below) for the Common Stock during the Fifteen (15) Trading Day period immediately
preceding the Conversion Date (the “Look Back Period”). “Trading Price” means, for any security as of any
date, the closing stock price on the OTCQB Market, or applicable trading market (the “OTCPink”) as reported by a reliable
reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg); provided that if the closing bid
price for the common stock on the Clearing date (defined below) is lower than the closing bid price, then the purchase
price shall be adjusted such that the discount shall be taken from the closing bid price on the Clearing Date, and
the Borrower shall issue additional shares to Holder to reflect such adjusted Conversion Price. For purposes of this
Agreement, the Clearing Date shall be the latest date on which (i) the conversion shares are transferred to and deposited
into the Holder’s brokerage account by the Borrower’s representatives or transfer agent and (ii) Holder’s
broker has confirmed with Holder that the Holder may execute trades of the conversion shares. If such events occur after
5:30 PM Eastern Standard Time, the events shall be deemed to have occurred on the next trading day. There shall be an initial floor
at $0.30 per share. If the Borrower’s stock price closes below $0.30 per share, the Holder may not submit a notice of conversion
for 10 trading days after the drop. However, if the stock price closes back above the floor price, then the Holder may submit a
conversion notice and does not need to wait the balance of the 10 days. This process shall be repeated with lower floors of $0.15
per share and $0.075 per share. If the stock price closes below a lower priced floor during the 10 day period the Holder does not
need to wait an additional 10 days to submit the notice of conversion Finally, after the 10 days blackout period, the Holder shall
have a 3 day grace period to submit a conversion notice even if the price of the Borrower’s stock was to close below the
next lower floor level. Upon the exercise of any conversion, the Holder shall duly notify the Borrower whether principal or interest
is being converted. If the Borrower’s Common stock is chilled for deposit at DTC, becomes chilled at any point while this
Agreement remains outstanding or deposit otherwise additional fees due to a Yield Sign, Stop Sign or other trading restrictions,
an additional 10% discount will be attributed to the Conversion Price defined hereof. For purposes of this agreement, “Trading
Day” shall mean any day on which the Common Stock is tradable for any period on the OTCPink, or on the principal securities
exchange or other securities market on which the Common Stock is then being traded. The Borrower shall bear any and all miscellaneous
expenses that may arise as a result of conversion of the note and the delivery of shares of common stock thereunder including but
not limited to transfer agent fees, rule 144 legal opinion fees and deposit fees. All accrued conversion expenses paid by the holder
shall be added to the amount being converted under the note. No fractional shares or scrip representing fractions of shares will
be issued on conversion, but the number of shares issuable shall be rounded up or down, as the case may be, to the nearest whole
share.






    	 		 



    	 



    




b)                 The
Borrower acknowledges that it will take all reasonable steps necessary or appropriate to issue and deliver the Common Stock upon
conversion, including providing a board of directors’ resolution authorizing the issuance of Common Stock. Without in any
way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties
agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (as defined
below), due to the willful acts of the Borrower designed to hinder the delivery of the Common Stock to the Holder, the Borrower
shall pay to the Holder $2,000.00 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common
Stock. 


Such cash
amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of
the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall
be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this
Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The
Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to
frustrate, interfere with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge
that the liquidated damages provision contained in this Section are justified. 


c)                  Conversion
Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower
(i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which
the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially
all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer
to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred
to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall,
effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below),
be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement
Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in Section 1.2(a). For purposes hereof, “Adjusted Conversion
Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which
a public announcement as contemplated by this Section 1.2(c) has been made, the date upon which the Borrower (in the case of clause
(i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination
or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(c) to become operative. 


1.3.             
Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve
from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance
of Common Stock upon the full conversion of this Note issued. The Borrower is required at all times to have authorized and reserved
one and one half times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion
Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from
time to time in accordance with the Borrower’s obligations. Initially, the Borrower shall reserve One Million Two Hundred
Thousand (1,200,000) shares of common stock in the name of the Holder. The Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make
any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible
at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding
Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common
Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to
its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates
for shares of Common Stock in accordance with the terms and conditions of this Note. If, at any time the Borrower does not maintain
the Reserved Amount it will be considered an Event of Default under Section 3.15 of the Note, provided that the Borrower shall
have 10 Business Days to begin to cure the default (during which time, if an authorized share increase is required, the Borrower
will at the minimum file the necessary paperwork with the SEC to start the process to increase its authorized shares, and which
if timely completed, will not constitute an Event of Default).






    	 		 



    	 



    

 


Method of Conversion.


a)                 Mechanics
of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time
to time after the occurrence of a Pre-Payment Default, by (A) submitting to the Borrower a Notice of Conversion (by facsimile,
e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time)
and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower. 


b)                 Surrender
of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance
with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid
principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount
so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower,
so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such
records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding
the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder
first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order
of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes)
may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a
portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount
stated on the face hereof.


c)                 Payment
of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that
of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities
or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are
to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such
tax or shall have established to the satisfaction of the Borrower that such tax has been paid. 


d)                 Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission
or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided
in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”)
(and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with
the terms hereof.






    	 		 



    	 



    




e)                 Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a duly and properly executed
Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion,
the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion,
and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note
being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s
obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence
of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation
of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit
such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of
Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York,
New York time, on such date.


f)                  Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC
through its Deposit Withdrawal Agent Commission (“DWAC”) system.


g)                 Failure
to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including
actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion
of this Note is not delivered by the Deadline the Borrower shall pay to the Holder $2,000.00 per day in cash, for each
day beyond the Deadline that the Borrower fails to deliver such Common Stock through willful acts designed to hinder the delivery
of Common Stock to the Holder. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which
it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the
month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon
in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance
with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting
from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly
the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified. 


1.4.             
Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred
unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer
agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions
of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant
to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor
rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the
Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited
Investor. (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon
conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common
Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not
been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend
substantially in the following form, as appropriate:






    	 		 



    	 



    

 


“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN
A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”


legend set forth above shall
be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower
or its transfer agent shall have received an opinion of counsel form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under
the Act, which opinion shall be accepted by the Borrower so that the sale or transfer is or (ii) in the case of the Common Stock
issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement
filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of
a particular date that can then be immediately sold. In the event that the Borrower does not reasonably accept the opinion of
counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as
Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of this Note. 


1.5.             
Effect of Certain Events.


a)                 Effect
of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all
of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more
than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the
Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be
deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder
upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III)
or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability
company, partnership, association, trust or other entity or organization. 


b)                 Adjustment
Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all
of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar
event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares
of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of
all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower,
then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion,
such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted
in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such
case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that
the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares
issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities
or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section
1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least
fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no
such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor
or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions
shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.



    	 		 



    	 



    

 


c)                 Adjustment
Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or
distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this
Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such
Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such
Distribution. 


d)                 Purchase
Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights
to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of
any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately
before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 


e)                 Notice
of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described
in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish
to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment
or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number
of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion
of the Note. 


1.6.             
Intentionally left blank. 


1.7.             
Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other
than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the
Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights
as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates
for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because
of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect
to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a
holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to
such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder
or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted.
In all cases, the Holder shall retain all of its rights and remedies for the Borrower’s failure to convert this Note.


 



    	 		 



    	 



    




1.8.             
Prepayment. The Company shall pay this Note in full, together will any and all accrued and unpaid interest, subject
to the terms of this Section 1.8, on the date which occurs 180 days after the issuance date hereof (the “Prepayment
Date”). In the event the Note is not prepaid in full on or before the Prepayment Date, as such may be extended by
any side letters or other agreements relating there-to, it shall be deemed a “Pre-Payment Default” hereunder.
Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date,
the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the
Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section Any notice of prepayment
hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses
and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall
be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the
“Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below)
to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to
the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder
an amount as follows: (i) if the redemption is within the first 60 days this note is in effect of either an amount in cash (the
“Optional Prepayment Amount”) equal to 115%, multiplied by the sum of: (w) the then outstanding principal amount of
this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date
plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to
the Holder pursuant to Section 1.4(g) hereof, or the current total value of the shares had this note been completely converted
with all the discounts and terms included herein and the shares sold on the market, whichever is greater. (ii) if the redemption
is after the 61st day this note is in effect, but less than the 120th day this note is in effect, then either an amount in cash
(the “Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount
of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment
Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed
to the Holder pursuant to Section 1.4(g) hereof, or the current total value of the shares had this note been completely converted
with all the discounts and terms included herein and the shares sold on the market, whichever is greater. (iii) if the redemption
is after the 121st day this note is in effect, but before the Prepayment Date, then either an amount in cash (the “Optional
Prepayment Amount”) equal to 145%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus
(x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y)
Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant
to Section 1.4(g) hereof, or the current total value of the shares had this note been completely converted with all the discounts
and terms included herein and the shares sold on the market, whichever is greater. If the Borrower delivers an Optional Prepayment
Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the
Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.8


After the Prepayment
Date, the Borrower shall have no right of prepayment, except as otherwise agreed.





ARTICLE II. CERTAIN COVENANTS


2.1.             
Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower
shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution
(whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely
in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment
or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which
is approved by a majority of the Borrower’s disinterested directors.


2.2.             
Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower
shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for
property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock
of the Borrower or any warrants, rights or options to purchase or acquire any such shares.


 



    	 		 



    	 



    




2.3.             
Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without
the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary
course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition. 


2.4.             
Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without
the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation,
including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits
or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the
date hereof, (b) made in the ordinary course of business or (c) not in excess of $25,000.


2.5.             
Timely reporting obligation So long as the Borrower shall have any obligation under this Note the borrower shall
remain current in its fillings with the SEC, as required under the Exchange Act.





ARTICLE III. EVENTS OF DEFAULT





If any of the following events of default
(each, an “Event of Default”) shall occur: 


3.1.             
Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due
on this Note, whether at maturity, upon acceleration or otherwise. 


3.2.             
Conversion and the Shares. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens
in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder
in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or
in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant
to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or
hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of
Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note,
or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing)
any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of
Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or
makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph)
and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall
not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an
obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this
Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent.
If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion,
such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder.


3.3.             
Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in
this Note and any collateral documents and such breach continues for a period of ten (10) days after written notice thereof to
the Borrower from the Holder.


3.4.             
Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement,
statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material
respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of
the Holder with respect to this Note.


3.5.             
Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property
or business, or such a receiver or trustee shall otherwise be appointed.


3.6.             
Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary
of the Borrower or any of its property or other assets for more than $250,000, and shall remain unvacated, unbonded or unstayed
for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.






    	 		 



    	 



    

 


3.7.             
Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or
involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower
or any subsidiary of the Borrower


3.8.             
Delisting of Common Stock. The Borrower shall either fail to maintain the listing of the Common Stock on at least
one of the OTCPink or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, or the New York
Stock Exchange, or if the OTC or equivalent market shall display any type of caution indicator on the listing, such as a “Yield
sign”, “Stop sign”, “Skull and bones” or other.


3.9.             
Failure to Comply with the Exchange Act. The Borrower shall fail to comply in any material respect with the periodic
reporting requirements or obligations of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements
or obligations of the Exchange Act.


3.10.           
Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.


3.11.           
Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable
to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as
a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.


3.12.           
Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real
property or other assets which are necessary to conduct its business (whether now or in the future).


3.13.          
 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for
any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result
of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the
rights of the Holder with respect to this Note.


3.14.          
 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written
notice to the Holder.


3.15.           
Reserve Increase and Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer
agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent
Instructions (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount)
signed by the successor transfer agent to Borrower and the Borrower. Additionally, In the event that the Reserved Amount has been
depleted and Borrower Fails to cause the increase of the number of shares within 3 business days of written request of the reserve
being depleted.


3.16.          
Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion
documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements,
after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default
under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights
and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement
or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the
Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory
notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this
Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future
debt of Borrower to the Holder.


 



    	 		 



    	 



    




 


Upon
the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to
pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable
and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default
Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2
and 3.17, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION
OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO : (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon
the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure
to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to
Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the
delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event
of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest
thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable
and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater
of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest
on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y)
Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant
to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the
amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or the “parity
value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable
upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately
preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable
Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case
such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during
the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without
demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation,
legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at
law or in equity If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount
is due and payable, then the default amount shall be added to the principal balance of the note and the Holder shall have the right
at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares),
to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect. Upon an Event of Default, interest
shall be accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then
at the highest rate of interest permitted by law.


3.17             Conversion
Price If the value of the Common Stock is below $0.001 per share upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Note,






    	 		 



    	 



    

 


ARTICLE IV. REPRESENTATIONS OF HOLDER


4.1               Representations
of Holder. Holder hereby represents and warrants to the Company that: 


 


a.                   Holder
is an “accredited investor,” as such term is defined in Regulation D of the Securities Act of 1933, as amended (the
“1933 Act”), and will acquire this Note and the shares of Common Stock issuable upon conversion hereof (collectively,
the “Securities”) for its own account and not with a view to a sale or distribution thereof as that term is used in
Section 2(a)(11) of the 1933 Act, in a manner which would require registration under the 1933 Act or any state securities laws.
Holder has such knowledge and experience in financial and business matters that such Holder is capable of evaluating the merits
and risks of the Securities. Holder can bear the economic risk of the Securities, has knowledge and experience in financial business
matters and is capable of bearing and managing the risk of investment in the Securities. Holder recognizes that the Securities
have not been registered under the 1933 Act, nor under the securities laws of any state and, therefore, cannot be resold unless
the resale of the Securities is registered under the 1933 Act or unless an exemption from registration is available. Holder has
carefully considered and has, to the extent Holder believes such discussion necessary, discussed with its professional, legal,
tax and financial advisors, the suitability of an investment in the Securities for its particular tax and financial situation
and its advisers, if such advisors were deemed necessary, and has determined that the Securities are a suitable investment for
it. Holder has not been offered the Securities by any form of general solicitation or advertising, including, but not limited
to, advertisements, articles, notices or other communications published in any newspaper, magazine, or other similar media or
television or radio broadcast or any seminar or meeting where, to Holders’ knowledge, those individuals that have attended
have been invited by any such or similar means of general solicitation or advertising. Holder has had an opportunity to ask questions
of and receive satisfactory answers from the Company, or any person or persons acting on behalf of the Company, concerning the
terms and conditions of the Securities and the Company, and all such questions have been answered to the full satisfaction of
Holder. The Company has not supplied Holder any information regarding the Securities or an investment in the Securities other
than as contained in this Note, and Holder is relying on its own investigation and evaluation of the Company and the Securities
and not on any other information.


 


b.                  
The Holder is a corporation duly organized, validly existing and in good standing under the laws of the state of its
incorporation and has all requisite corporate power and authority to carry on its business as now conducted. The Holder is
duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would
have a material adverse effect on its business or properties.


c.                   All
corporate action has been taken on the part of the Holder, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Note. The Holder has taken all corporate action required to make all of
the obligations of the Holder reflected in the provisions of this Agreement, valid and enforceable obligations.


d.                   Each certificate or instrument representing Securities will be endorsed with the following legend (or a substantially
similar legend), unless or until registered under the 1933 Act:


THE SECURITIES EVIDENCED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE
IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
WHICH IS REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.


e.                   Holder, its successors and assigns, agree that so long as the Note remains outstanding, the Holder shall not enter
into or effect “short sales” of the Common Stock or hedging transaction which establishes a short position with respect
to the Common Stock of the Company. The Company acknowledges and agrees that upon delivery of a Conversion Notice by the Holder,
the Holder immediately owns the shares of Common Stock described in the Conversion Notice and any sale of those shares issuable
under such Conversion Notice would not be considered short sales.






    	 		 



    	 



    

 


ARTICLE V. MISCELLANEOUS


5.1.           
  Failure or Indulgence Not Waiver. No failure or delay on the part of the
Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges.
All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.


5.2              Notices.
All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or transmitted by hand
delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective
(a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at
the address or number designated below (if delivered on a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be: If to the Borrower, to: HYDROCARB ENERGY CORPORATION, 800 Gessner Suite 375
Houston, TX 77024 Email: If to the Holder:  Darling Capital, LLC, 767 3rd Avenue, Suite 25-1A, New York, NY 10017. Email:
 Yehuda@darlingcapital.net


 


5.3.             
Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower
and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument
as originally executed, or if later amended or supplemented, then as so amended or supplemented.


5.4.             
Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be
the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor”
(as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as
collateral in connection with a bona fide margin account or other lending arrangement.


5.5.             
Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs
of collection, including reasonable attorneys’ fees.


5.6.             
Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York
without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction.
Any action brought by either party against the other concerning the transactions contemplated by this Agreement must be brought
only in the civil or state courts of New York or in the federal courts located in the State and county of New York. Both parties
and the individual signing this Agreement on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision
of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative
to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other
provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking
other legal action against the Borrower in any other jurisdiction to collect on the Borrower’s obligations to Holder, to
realize on any collateral or any other security for such obligations, or to enforce a judgment or other decision in favor of the
Holder. This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to
any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and
Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or
statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which
may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed
a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from
this Note.


 



    	 		 



    	 



    




 


5.7.             
Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding
principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest
on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this
Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty
and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the
sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant
to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to
the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of
Common Stock.


5.8.             
Disclosure. Upon receipt or delivery by the Borrower of any notice in accordance with the terms of this Note, unless
the Borrower has in good faith determined that the matters relating to such notice do not constitute material, non-public information
relating to the Borrower or any of its Subsidiaries, the Borrower shall within one (1) Trading Day after any such receipt or delivery,
publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Borrower
believes that a notice contains material, non- public information relating to the Borrower or any of its Subsidiaries, the Borrower
so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information
relating to the Borrower or its Subsidiaries.


5.9.             
Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a
Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the
Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any
other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to
vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any
proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty
(20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right
or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to
the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder
hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 5.9.


5.10.          
 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm
to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges
that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach
or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other
available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity
of showing economic loss and without any bond or other security being required.


5.11.          
 Other Noteholders. The note herein is pursuant to the agreement in which JMJ Financial shall have their convertible
note(s) from Hydrocarb Energy Corporation paid off in full in a cash payment and retired, and shall be unable to convert any portion
of their note(s). In the event that these terms are not met, this note shall bear interest of twenty two percent (22%) per annum
beginning on the date of commencement of this note.


 



    	 		 



    	 



    







IN WITNESS WHEREOF, Borrower
has caused this Note to be signed in its name by its duly authorized officer this day of November 12, 2015. 


	 	HYDROCARB ENERGY CORPORATION,
	 	 
	 	By: 	/s/ Kent Patrick Watts
	 	Name:

        Title:
	Kent Patrick Watts
CEO.



 





 


 



    	 		 



    	 



    




EXHIBIT A


 


NOTICE OF CONVERSION


 


 


TO:  HYDROCARB ENERGY CORPORATION,


 


VIA EMAIL Attn: CFO or President


 


The undersigned
hereby irrevocably elects to exercise the right, represented by the PROMISSORY NOTE dated as of November 12, 2015 issued by HYDROCARB
ENERGY CORPORATION, (the “Note”) to convert $105 principal plus accrued interest equal to $ into ______________ shares
(“Conversion Shares”) of the Common Stock, $0.001 par lue (“Common Stock”).


 


 


 


Dated:





Holder’s Signature:


 


_______________________


By: Yehuda Marrus, Director


 


 


Holder’s Address:

Darling Capital, LLC

767 3rd Avenue, 25th Floor

New York, NY 10017 


Please send shares to:

TBD






    	 		 



    	 



    

 


DISBURSEMENT
AUTHORIZATION

(MEMORANDUM)


 


 


TO: DARLING CAPITAL, LLC





FROM: HYDROCARB ENERGY CORP. DATE:
November 12, 2015





RE: Disbursement of Funds


 


 


In
connection with the funding of an aggregate of $200,000.00 pursuant to that certain 8% SHORT TERM CASH REDEEMABLE NOTE dated as
of November 12, 2015 (the “Agreement”), you are hereby directed to disburse such funds as follows:





	 	1.	$14,000.00 to Anubis Capital Partners for 3rd  party due diligence fees in accordance with the wire transfer instructions attached as Schedule A, hereto; and








	 	2.	$186,000.00 to Hydrocarb Energy Corp. in accordance with the wire transfer instructions attached as Schedule B, hereto;


 


  


	 	 	 
	 	 	Name: Kent Patrick Watts
	 	 	Title: CEO








    	 		 



    	 



    

 


 


EXHIBIT A


ANUBIS CAPITAL
PARTNERS WIRING INFO


 


 


Independent Bank


654 North Denton Tap Rd.


Coppell, TX 75019


 


 


	Routing No:	#########
	Acct No.:	##########
	 	 
	Beneficiary:	Anubis Capital Partners

2550 Midway Road Suite 198


	 	Carrolton, TX 75006