Document:

Exhibit 10.2

 

NOTE SUBSCRIPTION AGREEMENT

IN

HYDROCARB ENERGY CORPORATION

A.            Subscription. This Agreement has been executed by Duma Holdings, LLC, a/an ________LLC______, (Individual/Corporation/LLC/Trust/Partnership) residing and/or having a principal place of business in   Houston, Texas                (Country/State and City) (“Purchaser”, or “Subscriber”) in connection with the subscription to purchase a $350,000 Convertible Secured Promissory Note, which carries a $7,000 original issuance discount (the “Note”), which Note is convertible, pursuant to the terms of such Note, into (i) 1.75 units of Hydrocarb Energy Corporation, a Nevada corporation (the “Company”), with each unit consisting of (a) 25,000 shares of the common stock of the Company (the “Unit Shares”); and (b) $100,000 in face amount of Convertible Subordinated Promissory Notes (each a “Convertible Note”, a form of which has previously been provided to the Purchaser); and (ii) 350,000 shares of common stock of the Company (the “Common Shares” and together with the Note, the Unit Shares, the Convertible Note, and the shares of common stock issuable upon conversion of the Convertible Note, the “Securities”). This Note Subscription Agreement is referred to herein as the “Agreement”.  The “Offering” shall be defined as the purchase by the Purchaser of the Note.

When the context in which words are used in this Agreement indicates that such is the intent, singular words shall include the plural, and vice versa, and masculine words shall include the feminine and neuter genders, and vice versa. Any reference to a person shall include an individual, trust, estate, or any incorporated or unincorporated organization, including general or limited partnerships, limited liability companies, corporations, joint ventures and cooperatives, and all heirs, executors, administrators, legal representatives, successors and assigns of such person where permitted or required by the context. Captions are inserted for convenience only, are not a part of this Agreement, and shall not be used in the interpretation of this Agreement.

It is understood and agreed that the Company shall have the right to accept or reject this subscription (the “Subscription”), in whole or in part, and that the same shall be deemed to be accepted by the Company only when it is signed by the Company.

B.            Representations and Warranties of Subscriber. Subscriber hereby represents and warrants to the Company as follows:

i)             Subscriber is an “Accredited Investor” as such time is defined in Rule 501 of the Securities Act of 1933, as amended (the “Securities Act”, the “Act” or the “1933 Act”), and has completed the Certification of Accredited Investor Status attached hereto as Exhibit A;

ii)            The Subscriber is acquiring the Securities for its own account for long-term investment and not with a view toward resale, fractionalization or division, or distribution thereof, and it does not presently have any reason to anticipate any change in its circumstances, financial or otherwise, or particular occasion or event which would necessitate or require its sale or distribution of the Securities. No one other than the Subscriber has any beneficial interest in said securities. The Subscriber is purchasing the Securities for its account for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof. Subscriber 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 this investment, the Securities and the Offering, and all such questions have been answered to the full satisfaction of Subscriber. The Company has not supplied Subscriber any information other than as contained in this Agreement, and Subscriber is relying on its own investigation and evaluation of the Company and the Securities in making an investment hereunder and not on any other information;

iii)           Subscriber is able to bear the economic risk of the investment in the Securities and Subscriber has sufficient net worth to sustain a loss of Subscriber’s entire investment in the Company without economic hardship if such a loss should occur. No person has made to the Subscriber any written or oral representations: (x) that any person will resell or repurchase any of the Securities; (y) that any person will refund the purchase price of any of the Securities, or (z) as to the future price or value of any of the Securities;

 

Page 1 of 7

Note Subscription Agreement

Hydrocarb Energy Corporation

iv)           The undersigned recognizes that the investment herein is a speculative venture and that the total amount of funds tendered to purchase Securities is placed at the risk of the business and may be completely lost. The Subscriber: (i) if a natural person, represents that the Subscriber has reached the age of 21 and has full authority, legal capacity and competence to enter into, execute and deliver this Agreement and all other related agreements or certificates and to take all actions required pursuant hereto and thereto and to carry out the provisions hereof and thereof, or (ii) if a corporation, partnership, or limited liability company or partnership, or association, joint stock company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring the Securities and such entity is duly organized, validly existing and in good standing under the laws of the state of its organization. Subscriber is a bona fide resident and domiciliary of the state set forth herein. Any individual executing this Agreement on behalf of an entity has authority to act on behalf of such entity and has been duly and properly authorized to sign this Agreement on behalf of such entity, provided further that such entity has validly authorized and approved such entity’s entry into this Agreement and the transactions contemplated herein. The purchase of Securities as an investment involves special risks;

v)            Subscriber acknowledges and is aware of the following:

(1)            There are substantial restrictions on the transferability of the Securities; the Securities will not be, and investors in the Company have no right to require that the Securities be registered under the 1933 Act; there may not be any public market for the Securities; Subscriber may not be able to use the provisions of Rule 144 of the 1933 Act with respect to the resale of the Securities; and accordingly, Subscriber may have to hold the Securities indefinitely and it may not be possible for Subscriber to liquidate Subscriber’s investment in the Company. Subscriber agrees that the Securities shall not be sold, transferred, pledged or hypothecated unless such sale is exempt from registration under the 1933 Act. Subscriber also acknowledges that Subscriber shall be responsible for compliance with all conditions on transfer imposed by any blue sky or securities law administrator and for any expenses incurred by the Company for legal or accounting services in connection with reviewing a proposed transfer; and

(2)            No federal or state agency has made any finding or determination as to the fairness of the Offering of the Securities for investment or any recommendation or endorsement of the Securities; and

(3)            The Securities have not been approved or registered under any Blue Sky law or with any State Securities Division, and as such, there may be restrictions on the sale or transfer of such Securities under State law.

vi)            The Subscriber has carefully considered and has, to the extent it believes such discussion is 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 that the Subscriber and its advisers, if such advisors were deemed necessary, have determined that the Securities are a suitable investment for it;

vii)          The Subscriber has not become aware of this Offering and has not been offered 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 the Subscriber's knowledge, those individuals that have attended have been invited by any such or similar means of general solicitation or advertising;

viii)        The Subscriber realizes that the Securities cannot readily be sold and will be restricted securities and therefore the Securities must not be purchased unless the Subscriber has liquid assets sufficient to assure that such purchase will cause no undue financial difficulties and the Subscriber can provide for current needs and possible personal contingencies;

ix)            The Subscriber (i) has at least five years’ investment experience in investments similar to the Securities, including investments in securities listed on the OTC Pink Sheet market, (ii) has adequate means of providing for its current financial needs and possible personal contingencies and does not have a need for liquidity of this investment in the Securities for the foreseeable future; (iii) can afford (a) to hold the Securities for an indefinite period of time; and (b) to sustain a complete loss of the entire amount of the purchase price for the Securities; (iii) has not made an overall commitment to investments which are not readily marketable which is disproportionate so as to cause such overall commitment to become excessive, and (iv) is fully aware that the purchase of the Securities is a high risk investment;

 

Page 2 of 7

Note Subscription Agreement

Hydrocarb Energy Corporation

x)             The Subscriber understands that the Securities are being offered and sold to he, she, or it in reliance on specific exemptions from or non-application of the registration requirements of federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Subscriber set forth herein in order to determine the applicability of such exemptions and the suitability of the Subscriber to acquire the Securities. All information which the Subscriber has provided to the Company concerning the undersigned's financial position and knowledge of financial and business matters is correct and complete as of the date hereof, and if there should be any material change in such information prior to acceptance of this Agreement by the Company, the undersigned will immediately provide the Company with such information;

xi)            The Subscriber has the requisite power and authority to enter into and perform the transactions contemplated by this Agreement and the purchase of the Securities. The execution, delivery and performance of this Agreement by the Subscriber and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate, partnership or other entity action, and no further consent or authorization of the Subscriber or its Board of Directors, managers, stockholders, members, trustees, holders or partners, as the case may be, as required. When executed and delivered by the Subscriber, this Agreement shall constitute a valid and binding obligation of the Subscriber enforceable against the Subscriber in accordance with its terms;

xii)           The Subscriber has not agreed to act with any of the other investors for the purpose of acquiring, holding, voting or disposing of the Securities purchased hereunder for purposes of Section 13(d) under the Securities Exchange Act of 1934, as amended, and the Subscriber is acting independently with respect to its investment in the Securities;

xiii)          The Subscriber confirms and certifies that:

		(a)	The Subscription hereunder is irrevocable by Subscriber, except as required by law, Subscriber is not entitled to cancel, terminate or revoke this Agreement or any agreements of Subscriber hereunder.

		(b)	No federal or state agency has made any findings or determination as to the fairness of the terms of this Offering for investment purposes; or any recommendations or endorsements of the Securities. The Offering is intended to be exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act and the provisions of Rule 506 of Regulation D and/or Regulation S thereunder, which is in part dependent upon the truth, completeness and accuracy of the statements made by the Subscriber herein.

 

		(c)	Subscriber is in receipt of and has carefully read and reviewed and understands the Convertible Secured Promissory Note attached hereto as Exhibit B and the Information For Residents of Certain States, attached hereto as Exhibit C.

 

		(d)	It is understood that in order not to jeopardize the Offering’s exempt status under Section 4(2) of the Securities Act and Regulation D or Regulation S, any transferee may, at a minimum, be required to fulfill the investor suitability requirements thereunder.

		(e)	No person or entity acting on behalf, or under the authority, of Subscriber is or will be entitled to any broker’s, finder’s or similar fee or commission in connection with this subscription.

		(f)	Subscriber, as required by the Internal Revenue Code, certifies under penalty of perjury that 1) the Social Security Number or Federal Identification Number provided below is correct and 2) Subscriber is not subject to backup withholding either because Subscriber has not been notified that Subscriber is subject to backup withholding as a result of a failure to report interest or dividends, or because the Internal Revenue Service has notified Subscriber that Subscriber is no longer subject to backup withholding.

 

Page 3 of 7

Note Subscription Agreement

Hydrocarb Energy Corporation

		(g)	IN MAKING AN INVESTMENT DECISION, SUBSCRIBER MUST RELY ON ITS OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

		(h)	THIS SUBSCRIPTION DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY STATE OR JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT PERMITTED UNDER APPLICABLE LAW OR TO ANY FIRM OR INDIVIDUAL THAT DOES NOT POSSESS THE QUALIFICATIONS PRESCRIBED IN THIS SUBSCRIPTION.

xiv)         The Subscriber confirms and acknowledges that this is a “best efforts, no minimum” Offering; that the Company need not raise any certain level of funding; that regardless of the amount of funding raised in the Offering, the Company will not return any of the undersigned’s investment herein assuming the Subscription is accepted by the Company; and the Company is not required to use the funds raised in this Offering for any particular purpose or towards any specific use of proceeds. The Subscriber further confirms that the Company may undertake additional offerings in the future and/or may issue shares to consultants or employees at offering prices below that of the Offering, which may cause dilution to the Subscriber.

C.             Indemnification. Subscriber acknowledges that Subscriber understands the meaning and legal consequences of the representations and warranties in paragraph B hereof, and Subscriber hereby agrees to indemnify and hold harmless the Company and its affiliates, partners, officers, directors, agents, attorneys, and employees from and against any and all loss, damage or liability due to or arising out of a breach of any such representations or warranties and the breach of any representations and warranties whatsoever made herein. Notwithstanding the foregoing, however, no representation, warranty, acknowledgment or agreement made herein by Subscriber shall in any manner be deemed to constitute a waiver of any rights granted to Subscriber under federal or state securities laws. The representations and warranties set forth herein shall survive the date upon which the Subscriber becomes a shareholder of the Company and/or the date of this Agreement in the event the Company does not accept the Subscriber’s subscription. No representation, warranty or covenant in this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were or are to be made, not misleading.

D.            Compliance with Securities Laws. Subscriber understands and agrees that a legend has been or will be placed on any certificate(s) or other document(s) evidencing the Securities in substantially the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) THEY SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES ACT, OR (II) THE CORPORATION SHALL HAVE BEEN FURNISHED WITH AN OPINION OF COUNSEL, SATISFACTORY TO COUNSEL FOR THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED UNDER ANY SUCH ACTS.”

E.             Confidentiality. Subscriber agrees to maintain in confidence all information furnished by the Company or its agents that may be deemed to be material nonpublic information, including, but not limited to the fact that the Offering is being made and the terms and conditions of this Offering and the Securities.

 

Page 4 of 7

Note Subscription Agreement

Hydrocarb Energy Corporation

F.             Governing Law. This Agreement shall be interpreted in accordance with the laws of the State of Texas. In the event of a dispute concerning this Agreement, the parties agree that venue lies in a court of competent jurisdiction in any Texas court.

G.            U.S.A. Patriot Act and Anti-Money Laundering Representations. Subscriber represents and warrants that Subscriber is not and is not acting as an agent, representative, intermediary or nominee for, a person identified on the list of blocked persons maintained by the Office of Foreign Assets Control, U.S. Department of Treasury. In addition, Subscriber is in full compliance with all applicable U.S. laws, regulations, directives, and executive orders imposing economic sanctions, embargoes, export controls or anti-money laundering requirements, including but not limited to the following laws: (1) the International Emergency Economic Powers Act, 50 U.S.C. 1701-1706; (2) the National Emergencies Act, 50 U.S.C. 1601-1651; (3) section 5 of the United Nations Participation Act of 1945, 22 U.S.C. 287c; (4) Section 321 of the Antiterrorism Act, 18 U.S.C. 2332d; (5) the Export Administration Act of 1979, as amended, 50 U.S.C. app. 2401-2420; (6) the Trading with the Enemy Act, 50 U.S.C. app. 1 et seq.; (7) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56; and (8) Executive Order 13224 (Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) of September 23, 2001. The Subscriber represents that the amounts invested by it in the Company in the Offering were not and are not directly or indirectly derived from activities that contravene federal, state or international laws and regulations, including anti-money laundering laws and regulations. To the best of the Subscriber’s knowledge, none of: (1) the Subscriber; (2) any person controlling or controlled by the Subscriber; (3) if the Subscriber is a privately-held entity, any person having a beneficial interest in the Subscriber; or (4) any person for whom the Subscriber is acting as agent or nominee in connection with this investment is a country, territory, individual or entity named on an Office of Foreign Assets Control (“OFAC”) list, or a person or entity prohibited under the OFAC Programs.

H.            Entire Agreement.  This Subscription is the entire and fully integrated agreement of the parties regarding the subject matter hereof, and there are no oral representations, warranties, agreements, or promises pertaining to this Subscription or the Securities.

I.              Construction. The parties acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by the parties hereto. All references in this Agreement as to gender shall be interpreted in the applicable gender of the parties.

J.              Purchase Payment.  The purchase price for the Note shall be paid to the Company in cash, check or via wire transfer simultaneously with the undersigned’s entry into this Agreement.

K.            Construction of Terms. As used in this Agreement, the terms “herein,” “herewith,” “hereof” and “hereunder” are references to this Agreement, taken as a whole; the term “includes” or “including” shall mean “including, without limitation;” the word “or” is not exclusive; and references to a “Section,” “subsection,” “clause,” “Exhibit,” “Appendix,” “Schedule,” “Annex” or “Attachment” shall mean a Section, subsection, clause, Exhibit, Appendix, Schedule, Annex or Attachment of this Agreement, as the case may be, unless in any such case the context requires otherwise. Exhibits, Appendices, Schedules, Annexes or Attachments to any document shall be deemed incorporated by reference in such document. All references to or definitions of any agreement, instrument or other document (a) shall include all documents, instruments or agreements issued or executed in replacement thereof, and (b) except as otherwise expressly provided, shall mean such agreement, instrument or document, or replacement or predecessor thereto, as modified, amended, supplemented and restated through the date as of which such reference is made.

L.            Effect of Facsimile and Photocopied Signatures. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. A copy of this Agreement signed by one party and (a) faxed to another party or (b) scanned and emailed to another party, shall be deemed to have been executed and delivered by the signing party as though an original. A photocopy or PDF of this Agreement shall be effective as an original for all purposes.

 

Page 5 of 7

Note Subscription Agreement

Hydrocarb Energy Corporation

M.          Severability. The holding of any provision of this Note Subscription Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of this Note Subscription Agreement, which shall remain in full force and effect.

N.            Further Assurances. The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Note Subscription Agreement.

O.            Collection of Personal Information. The undersigned (on its own behalf and, if applicable, on behalf of any person for whose benefit the undersigned is subscribing) acknowledges and consents to the fact the Company is collecting the undersigned’s (and any beneficial purchaser’s) personal information pursuant to this Agreement. The undersigned (on its own behalf and, if applicable, on behalf of any person for whose benefit the undersigned is subscribing) acknowledges and consents to the Company retaining the personal information for as long as permitted or required by applicable law or business practices. The undersigned (on its own behalf and, if applicable, on behalf of any person for whose benefit the undersigned is subscribing) further acknowledges and consents to the fact the Company may be required by applicable securities laws and stock exchange rules to provide regulatory authorities any personal information provided by the undersigned respecting itself (and any beneficial purchaser). By executing this Agreement, the undersigned is deemed to be consenting to the foregoing collection, use and disclosure of the undersigned’s (and any beneficial purchaser’s) personal information. The undersigned also consents to the filing of copies or originals of any of the undersigned’s documents described herein as may be required to be filed with any stock exchange or securities regulatory authority in connection with the transactions contemplated hereby. The undersigned represents and warrants that it has the authority to provide the consents and acknowledgments set out in this paragraph on behalf of all beneficial purchasers.

“PURCHASER”

Subscribed For a Convertible Secured Promissory Note in the principal amount of $350,000.

Business Address (including zip code):   3602 Aspenwood Dr., Richmond, Texas 77406

All communications to be sent to Business Address

Name Securities should be registered in:   Duma Holdings, LLC

The undersigned hereby represents, warrants and covenants that the undersigned has been duly authorized by all requisite action on the part of the Limited Liability Company listed below (“Company”) to acquire the Securities and, further, that the Company has all requisite authority to acquire such Securities.

The officer signing below represents and warrants that each of the above representations or agreements or understandings set forth herein applies to that Company and that he has authority under the articles of organization, operating agreement, and resolutions of the managers and/or members of such Company to execute this Note Subscription Agreement. Such officer encloses a true copy of the articles of organization, operating agreement and, as necessary, the resolutions of the managers and/or members authorizing a purchase of the investment herein, in each case as amended to date.

 

	
DUMA HOLDINGS, LLC

	
 

	
 

	
 

	
/s/ S. Chris Herndon

	
 

	
 

	
 

	
Name: S. CHRIS HERNDON

	
 

	
 

	
 

	Title: MANAGER	

 

Page 6 of 7

Note Subscription Agreement

Hydrocarb Energy Corporation

ACCEPTED BY THE COMPANY this the __16th____ day of July 2015.

 

Hydrocarb Energy Corporation

 

	
/s/ Kent P. Watts

	
 

	
 

	
 

	
Name: Kent P. Watts

	
 

	
 

	
 

	Title: Chief Executive Officer	

 

 

Page 7 of 7

Note Subscription Agreement

Hydrocarb Energy CorporationExhibit 10.3

 

THIS NOTE, AND THE UNITS AND SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE (COLLECTIVELY, THE “SECURITIES”) HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT” OR THE “SECURITIES ACT”) SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE AND ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE (EXCEPT AS OTHERWISE PROVIDED BELOW).

CONVERTIBLE SECURED PROMISSORY NOTE

Effective July 16, 2015

FOR VALUE RECEIVED, Hydrocarb Energy Corporation, a Nevada corporation (the “Corporation”), hereby promises to pay to the order of Duma Holdings, LLC, a Texas limited liability company and/or permitted assigns (the “Holder”), the aggregate principal amount of $350,000 (the “Principal”), together with interest on the unpaid Principal amount hereof, upon the terms and conditions hereinafter set forth. This Convertible Secured Promissory Note is defined herein as the “Note”, or the “Promissory Note”. The “Effective Date” of this Note shall be July 16, 2015. The Holder acquired the Note pursuant to the terms of that certain Note Subscription Agreement entered into between the Corporation and the Holder dated on or around July 16, 2015. The Holder, any purchasers, assignees and transferees of this Note should thoroughly read and review Section 4 hereof, which sets forth the terms and conditions upon which this Note (and the amount owed hereunder) can be converted into Units and Common Shares (each as defined below).  This Note was issued with an original issue discount equal to 2% of the original Principal amount of the Note.

1.                   Payment Terms. The Corporation promises to pay to the Holder the balance of Principal, together with any accrued and unpaid interest due hereunder on November 30, 2015 (the “Maturity Date”), unless this Note is earlier (a) prepaid as herein provided; or (b) converted into Units and Common Shares pursuant to Section 4 below. All payments hereunder shall be made in lawful money of the United States of America. Payment shall be credited first to the accrued Interest then due and payable and the remainder to Principal.

  

2.                  Interest. The Principal amount of this Note shall accrue interest at the Interest Rate (“Interest” and such interest which is accrued and unpaid as of the applicable determination date, “Accrued Interest”). Accrued Interest shall be added to the Principal Amount of this Note until the earlier to occur of (i) the Conversion Date, at which time all Accrued Interest shall be subject to Section 4 below, and (ii) October 31, 2015 (the “Interest Payable Date”). Beginning on the Interest Payable Date, interest accruing on this Note after such date shall be payable by the Corporation in cash at the end of each Quarter until the earlier of (a) the Maturity Date; (b) the date this Note is repaid in full; and (c) the Conversion Date. All past-due Principal and Interest shall bear Interest at the rate of 18% per annum until paid in full (the “Default Rate”). The Interest Rate shall be computed on the basis of the actual number of days elapsed and a year of 365 days. The “Interest Rate” means 15% per annum. “Quarter” means any of the following during any calendar year: the three (3) month period ending January 31, April 30, July 31 or October 31.

 

(a)             Notwithstanding any provision in this Note, the total liability for payments of Interest and payments in the nature of interest, including all charges, fees, exactions, or other sums which may at any time be deemed to be interest, shall not exceed the limit imposed by the usury laws of the State of Nevada or the applicable laws of the United States of America, whichever shall be higher (the “Maximum Rate”).

(b)             In the event the total liability for payments of Interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions or other sums which may at any time be deemed to be interest, which for any month or other interest payment period exceeds the Maximum Rate, all sums in excess of those lawfully collectible as interest for the period in question (and without further agreement or notice by, among or to the Holder the undersigned) shall be applied to the reduction of the Principal balance, with the same force and effect as though the undersigned had specifically designated such excess sums to be so applied to the reduction of the Principal balance and the Holder had agreed to accept such sums as a premium-free prepayment of Principal; provided, however, that the Holder may, at any time and from time to time, elect, by notice in writing to the undersigned, to waive, reduce or limit the collection of any sums in excess of those lawfully collectible as interest rather than accept such sums as a prepayment of the Principal balance. The undersigned does not intend or expect to pay nor does the Holder intend or expect to charge, accept or collect any interest under this Note greater than the Maximum Rate.

(c)              If any payment of Principal or interest on this Note shall become due on a Saturday, Sunday or any other day on which national banks are not open for business, such payment shall be made on the next succeeding Business Day. “Business Day” means a day other than (i) a Saturday, (ii) a Sunday or (iii) a day on which commercial banks in Houston, Texas, are authorized or required to be closed for business.

3.                  Prepayment. This Note may be prepaid by the Corporation in whole or part at any time (each a “Prepayment”), only with the prior written approval of the Holder. Any partial Prepayment shall be applied first to any Accrued Interest and then to any Principal outstanding.

 

4.                   Holder’s Option to Convert This Note.

(a)              At any time prior to the earlier of the payment in full by the Corporation of this Note, the Holder shall have the option to convert the then outstanding Principal balance and all Accrued Interest under the Note, into (i) 1.75 units of the Corporation, with each unit consisting of (a) 25,000 shares of the common stock, $0.001 par value per share (the “Common Stock”) of the Corporation (the “Unit Shares”); and (b) $100,000 in face amount of Convertible Subordinated Promissory Notes (each a “Convertible Note” and together with the Unit Shares, the “Units”, which shall be in the form of Units offered by the Corporation to investors beginning in June 2015); and (ii) 350,000 shares of Common Stock (the “Common Shares”, the “Conversion Option” and the “Conversion”). Upon any Conversion, all Principal and Accrued Interest shall be deemed paid in full by the Corporation upon issuance of the Units and Common Shares.

 

Page 2 of 10

Convertible Secured Promissory Note

(b)              In order to exercise this Conversion Option, the Holder shall provide the Corporation a written notice of its intentions to exercise this Conversion Option, which shall be in the form of Exhibit A, attached hereto (“Notice of Conversion”). Within ten (10) Business Days of the Corporation’s receipt of the Notice of Conversion and an original copy of this Note, the Corporation shall deliver or cause to be delivered to the Holder, written confirmation that the Units and Common Shares have been issued in the name of the Holder;

 

(c)              In the event of the exercise of the Conversion Option, the Holder shall cooperate with the Corporation to promptly take any and all additional actions required or requested to make Holder a unitholder/stockholder of the Corporation including, without limitation, in connection with the issuance of the Units and Common Shares and providing the Corporation or its legal counsel or Transfer Agent, representations as to financial condition, investment intent and sophisticated investor status as are reasonably requested or required;

 

(d)              If the Corporation at any time or from time to time on or after the Effective Date of this Note (the “Original Issuance Date”) effects a subdivision of its outstanding Common Stock, the Common Shares due immediately before that subdivision shall be proportionately decreased, and conversely, if the Corporation at any time or from time to time on or after the Original Issuance Date combines its outstanding shares of Common Stock into a smaller number of shares, the Common Shares then due before the combination shall be proportionately increased; and

 

(e)              On the date of any Conversion, all rights of any Holder with respect to the amount of this Note converted, will terminate, except only for the rights of any such Holder to receive certificates (if applicable) for the number of Units and Common Shares which this Note has been Converted.

 

5.                   Representations and Warranties of the Corporation. The Corporation represents and warrants to Holder as follows:

(a)              The execution and delivery by the Corporation of this Note (i) are within the Corporation’s corporate power and authority, and (ii) have been duly authorized by all necessary corporate action. Further, the undersigned is a duly authorized representative of the Corporation who has been authorized by a resolution of the Board of Directors to exercise any and all documents necessary to effectuate the transaction contemplated hereby.

 

Page 3 of 10

Convertible Secured Promissory Note

(b)             This Note is a legally binding obligation of the Corporation, enforceable against the Corporation in accordance with the terms hereof, except to the extent that (i) such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights, and (ii) the availability of the remedy of specific performance or injunctive or other equitable relief is subject to the discretion of the court before which any proceeding therefore may be brought.

 

6.                   Events of Default. If an Event of Default (as defined herein or below) occurs (unless all Events of Default have been cured or waived by Holder), Holder may, by written notice to the Corporation, declare the Principal amount then outstanding of, and the Accrued Interest and all other amounts payable on, this Note to be immediately due and payable, or exercise any other rights and remedies provided by law or equity. The following events shall constitute events of default (“Events of Default”) under this Note, and/or any other Events of Default defined elsewhere in this Note shall occur:

(a)              the Corporation shall fail to pay, when and as due, the Principal or Interest payable hereunder on the due date of such payment, and such payment is not made within ten (10) days following the receipt of written notice of such failure by the Holder to the Corporation; or

 

(b)              the Corporation shall have breached in any respect any material covenant in this Note, and, with respect to breaches capable of being cured, such breach shall not have been cured within ten (10) days following the receipt of written notice of such breach by the Holder to the Corporation; or

 

(c)              the Corporation shall: (i) make an assignment for the benefit of creditors, file a petition in bankruptcy, petition or apply to any tribunal for the appointment of a custodian, receiver or a trustee for it or a substantial portion of its assets; (ii) commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation or statute of any jurisdiction, whether now or hereafter in effect; (iii) have filed against it any such petition or application in which an order for relief is entered or which remains undismissed for a period of ninety (90) days or more; (iv) indicate its consent to, approval of or acquiescence in any such petition, application, proceeding or order for relief or the appointment of a custodian, receiver or trustee for it or a substantial portion of its assets; or (v) suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of ninety (90) days or more; or

 

(d)              the Corporation shall take any action authorizing, or in furtherance of, any of the foregoing.

 

In case any one or more Events of Default shall occur and be continuing and Holder has provided the Corporation written notice of such Event of Default, Holder may proceed to protect and enforce its rights by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or for an injunction against a violation of any of the terms hereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. In case of a default in the payment of any Principal of or premium, if any, or Interest on this Note, the Corporation will pay to Holder such further amount as shall be sufficient to cover the reasonable cost and expenses of collection, including, without limitation, reasonable attorneys’ fees, expenses and disbursements. No course of dealing and no delay on the part of Holder in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice Holder’s rights, powers or remedies. No right, power or remedy conferred by this Note upon Holder shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise.

 

Page 4 of 10

Convertible Secured Promissory Note

7.                 Security. The Principal and Accrued Interest due pursuant to the terms of this Note are (a) personally guaranteed by Kent Watts, the Corporation’s Chief Executive Officer and Michael Watts, his brother, pursuant to separate guarantee agreements entered into between such individuals and the Holder; and (b) secured by a first priority security interest on certain real estate owned by Kent Watts pursuant to a Deed of Trust, Assignment of Rents and Security Agreement  (the “Security Agreement”) entered into separately herewith.

The Security Agreement shall be released upon receipt of payment of entire balance of Principal, together with any accrued and unpaid interest due hereunder or the completion of the Conversion pursuant to Section 4 above.

8.                  Certain Waivers by the Corporation. Except as expressly provided otherwise in this Note, the Corporation and every endorser or guarantor, if any, of this Note waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assent to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral available to Holder, if any, and to the addition or release of any other party or person primarily or secondarily liable.

9.                  Assignment and Transfer by Holder. If and whenever this Note shall be assigned and transferred, or negotiated, including transfers to substitute or successor trustees, in each case subject to applicable law and an exemption from registration for such transfer, which shall be approved by the Corporation subject to the Holder providing the Corporation a legal opinion for such transfer, which opinion shall be reasonably accepted by the Corporation, the holder hereof shall be deemed the “Holder” for all purposes under this Note.

10.                Amendment. This Note may not be changed orally, but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

11.               Costs and Fees. Anything else in this Note to the contrary notwithstanding, in any action arising out of this Note, the prevailing party shall be entitled to collect from the non-prevailing party all of its attorneys’ fees. For the purposes of this Note, the party who receives or is awarded a substantial portion of the damages or claims sought in any proceeding shall be deemed the “prevailing” party and attorneys’ fees shall mean the reasonable fees charged by an attorney or a law firm for legal services and the services of any legal assistants, and costs of litigation, including, but not limited to, fees and costs at trial and appellate levels.

 

Page 5 of 10

Convertible Secured Promissory Note

12.               Governing Law. It is the intention of the parties hereto that the terms and provisions of this Note are to be construed in accordance with and governed by the laws of the State of Texas, except as such laws may be preempted by any federal law controlling the rate of Interest which may be charged on account of this Note.

13.              Construction. When used in this Note, unless a contrary intention appears: (i) a term has the meaning assigned to it; (ii) “or” is not exclusive; (iii) “including” means including without limitation; (iv) words in the singular include the plural and words in the plural include the singular, and words importing the masculine gender include the feminine and neuter genders; (v) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; (vi) the words “hereof”, “herein” and “hereunder” and words of similar import when used in this Note shall refer to this Note as a whole and not to any particular provision hereof; (vii) references contained herein to Article, Section, Schedule and Exhibit, as applicable, are references to Articles, Sections, Schedules and Exhibits in this Note unless otherwise specified; (viii) references to “writing” include printing, typing, lithography and other means of reproducing words in a visible form, including, but not limited to email; (ix) references to “dollars”, “Dollars” or “$” in this Note shall mean United States dollars; (x) reference to a particular statute, regulation or Law means such statute, regulation or Law as amended or otherwise modified from time to time; (xi) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein); (xii) unless otherwise stated in this Note, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”; (xiii) references to “days” shall mean calendar days; and (xiv) the paragraph headings contained in this Note are for convenience only, and shall in no manner be construed as part of this Note.

14.               No Third Party Benefit. The provisions and covenants set forth in this Note are made solely for the benefit of the parties to this Note and are not for the benefit of any other person, and no other person shall have any right to enforce these provisions and covenants against any party to this Note.

15.               Jurisdiction, Venue and Jury Trial Waiver. In any actions predicated upon this Note, venue is properly laid in Texas and the Circuit Court in and for Harris County, Texas, shall have exclusive full subject matter and personal jurisdiction over the parties to determine all issues arising out of or in connection with the execution and enforcement of this Note.

 

16.               Interpretation. The term “Corporation” as used herein in every instance shall include the Corporation’s successors, legal representatives and assigns, including all subsequent grantees, either voluntarily by act of the Corporation or involuntarily by operation of law and shall denote the singular and/or plural and the masculine and/or feminine and natural and/or artificial persons, whenever and wherever the contexts so requires or properly applies. The term “Holder” as used herein in every instance shall include the Holder’s successors, legal representatives and assigns (as permitted pursuant to the terms of this Note), as well as all subsequent assignees, endorsees and holders of this Note (subject to the provisions of this Note providing for transfers and assignments by Holder), either voluntarily by act of the parties or involuntarily by operation of law.

 

Page 6 of 10

Convertible Secured Promissory Note

17.               WAIVER OF JURY TRIAL. THE COMPANY AND HOLDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS, (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THE COMPANY ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL INDUCEMENT TO THE HOLDER IN EXTENDING CREDIT TO THE COMPANY, THAT THE HOLDER WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS JURY TRIAL WAIVER, AND THAT THE COMPANY HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY TRIAL WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.

18.               Cumulative Rights. No delay on the part of Holder or any other holder of this Note in the exercise of any power or right under this Note, shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or exercise of any other power or right.

19.                Notices. Any and all notices, requests or other communications hereunder shall be given in writing and delivered by: (a) regular, overnight or registered or certified mail (return receipt requested), with first class postage prepaid; (b) hand delivery; (c) facsimile transmission; or (d) overnight courier service, to the parties at the following addresses or facsimile numbers:

If to the Corporation:

Hydrocarb Energy Corporation

Attn: Kent P. Watts

800 Gessner Road, Suite 375

Houston, Texas 77024

 

With a copy to:

The Loev Law Firm, PC

Attn: David M. Loev, Esq.

6300 West Loop South, Suite 280

 

Page 7 of 10 

Convertible Secured Promissory Note

Bellaire, Texas 77401

Phone: (713) 524-4110

Fax: (713) 524-4122

If to the Holder:

Duma Holdings, LLC

Attn: S. Chris Herndon

2602 Aspenwood Dr.

Richmond, Texas 77406

With a copy to:

Christian, Smith & Jewell, LLP

Attn: James W. Christian

2302 Fannin, Suite 500

Houston, Texas 77002

or at such other address or number as shall be designated by either of the parties in a notice to the other party given in accordance with this Section 19, provided that at least ten (10) days prior written notice shall be given for any change. Except as otherwise provided in this Note, all such communications shall be deemed to have been duly given: (A) in the case of a notice sent by regular or registered or certified mail, three business days after it is duly deposited in the mails; (B) in the case of a notice delivered by hand, when personally delivered; (C) in the case of a notice sent by facsimile, upon transmission subject to telephone confirmation of receipt; and (D) in the case of a notice sent by overnight mail or overnight courier service, the next business day after such notice is mailed or delivered to such courier, in each case given or addressed as aforesaid.

20.               Severability. If any term or other provision of this Note is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Note shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Note so as to affect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

21.               Entire Agreement. This Note constitutes the sole and only agreement of the parties hereto and supersedes any prior understanding or written or oral agreements between the parties respecting the subject matter hereof.

 

Page 8 of 10

Convertible Secured Promissory Note

[Remainder of page left intentionally blank. Signature page follows.]

 

Page 9 of 10

Convertible Secured Promissory Note

IN WITNESS WHEREOF, the undersigned has caused this Convertible Secured Promissory Note to be executed and delivered as of the date first above written, to be effective as of the Effective Date set forth above.

	 	
“Corporation”

	 
	 	 	 	 
	 	
HYDROCARB ENERGY CORPORATION

	 
	 	 	 	 
	 	 	 	 
	 	
By:

	
/s/ Kent P. Watts

	 

	 	
Its:

	
CEO

	 

	 	
Printed Name:

	
Kent P.Watts

	 

 

Page 10 of 10

Convertible Secured Promissory Note

EXHIBIT A

Conversion Election Form

____________, 20__

Hydrocarb Energy Corporation

Attn: Kent P. Watts

800 Gessner Road, Suite 375

Houston, Texas 77024

	
Re:

	
Conversion of Convertible Secured Promissory Note

Ladies and Gentlemen:

You are hereby notified that, pursuant to, and upon the terms and conditions of that certain Convertible Secured Promissory Note of Hydrocarb Energy Corporation (the “Corporation”) dated July 16, 2015 in the amount of $350,000 (the “Note”), held by us, we hereby elect to exercise our Conversion Option (as such term in defined in the Note). Please issue certificate(s) for the applicable securities issuable upon the Conversion, in the name of the person provided below.

	 	
Very truly yours,

	 
	 	 	 
	 	   	 
	 	
Name:

	 
	 	 	 
	 	
If on behalf of Entity:

	 

 

	 	
Entity Name:

	   	 

 

	 	
Signatory’s Position with Entity:

	 
	 	  	

	
Please issue certificate(s) for common stock as follows:

	 
	    	 
	
Name

	 
	   	 
	
Address

	 
	   	 
	
Social Security No./EIN of Shareholder

	 

Please send the certificate(s) evidencing the common stock to:

	
Attn:

	

	

	
Address:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00247-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00247-of-00352.parquet"}]]