Document:

Exhibit 10.10

 

THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HYDROCARB ENERGY CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.

HYDROCARB ENERGY CORPORATION

WARRANT TO PURCHASE SHARES OF COMMON STOCK

1.            Issuance. In consideration of good and valuable consideration as set forth in the Purchase Agreement (defined below), including without limitation the Purchase Price (as defined in the Purchase Agreement), the receipt and sufficiency of which are hereby acknowledged by Hydrocarb Energy Corporation, a Nevada corporation (“Company”); Typenex Co-Investment, LLC, a Utah limited liability company, its successors and/or registered assigns (“Investor”), is hereby granted the right to purchase at any time on or after the Issue Date (as defined below) until the date which is the last calendar day of the month in which the fifth anniversary of the Issue Date occurs (the “Expiration Date”), a number of fully paid and non-assessable shares (the “Warrant Shares”) of Company’s common stock, par value $0.001 per share (the “Common Stock”), equal to $87,500.00 divided by the Market Price (as defined in the Note, as of the Issue Date), as such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant to Purchase Shares of Common Stock (this “Warrant”).  This Warrant is being issued pursuant to the terms of that certain Securities Purchase Agreement dated March 5, 2015, to which Company and Investor are parties (as the same may be amended from time to time, the “Purchase Agreement”).

 

This Warrant was issued to Investor on March 5, 2015 (the “Issue Date”). For the avoidance of doubt, the Purchase Price constitutes payment in full for this Warrant.

 

2.            Exercise of Warrant.

 

2.1.            General.

 

              (a)            This Warrant is exercisable in whole or in part at any time and from time to time commencing on the Issue Date and ending on the Expiration Date. Such exercise shall be effectuated by submitting to Company (either by delivery to Company or by email or facsimile transmission) a completed and duly executed Notice of Exercise substantially in the form attached to this Warrant as Exhibit A (the “Notice of Exercise”). The date such Notice of Exercise is either faxed, emailed or delivered to Company shall be the “Exercise Date,” provided that, if such exercise represents the full exercise of the outstanding balance of the Warrant, Investor shall tender this Warrant to Company within five (5) Trading Days thereafter, but only if the Warrant Shares to be delivered pursuant to the Notice of Exercise have been delivered to Investor as of such date.  The Notice of Exercise shall be executed by Investor and shall indicate (i) the number of Delivery Shares (as defined below) to be issued pursuant to such exercise, and (ii) if applicable (as provided below), whether the exercise is a cashless exercise.

 

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For purposes of this Warrant, the term “Trading Day” means any day during which the principal market on which the Common Stock is traded (the “Principal Market”) shall be open for business.

 

(b)            Notwithstanding any other provision contained herein or in any other Transaction Document  to the contrary, at any time prior to the Expiration Date, Investor may elect a “cashless” exercise of this Warrant for any Warrant Shares whereby Investor shall be entitled to receive a number of shares of Common Stock equal to (i) the excess of the Current Market Value (as defined below) over the aggregate Exercise Price of the Exercise Shares (as defined below), divided by (ii) the Adjusted Price (as defined below).

 

For the purposes of this Warrant, the following terms shall have the following meanings:

 

“Adjusted Price” shall mean the lower of (i) the Lender Conversion Price (as defined in the Note), as such Lender Conversion Price may be adjusted from time to time pursuant to the terms of the Note (solely for the purpose of determining the then-current Lender Conversion Price under this definition of “Adjusted Price,” each cashless exercise of this Warrant shall be deemed a conversion under the Note), and (ii) the Market Price (as defined in the Note), without regard to whether the Note remains outstanding or has been fully repaid, cancelled or otherwise retired, on any relevant Exercise Date.

 

“Current Market Value” shall mean an amount equal to the Trade Price, multiplied by the number of Exercise Shares specified in the applicable Notice of Exercise.

 

“Closing Price” shall mean the 4:00 P.M. last sale price of the Common Stock on the Principal Market on the relevant Trading Day(s), as reported by Bloomberg LP (or if that service is not then reporting the relevant information regarding the Common Stock, a comparable reporting service of national reputation selected by Investor and reasonably acceptable to Company) (“Bloomberg”) for the relevant date.

 

“Delivery Shares” means those shares of Common Stock issuable and deliverable upon the exercise of this Warrant.

 

“Exercise Price” shall mean $2.25 per share of Common Stock, as the same may be adjusted from time to time pursuant to the terms and conditions of this Warrant.

 

“Exercise Shares” shall mean those Warrant Shares subject to an exercise of the Warrant by Investor.  By way of illustration only and without limiting the foregoing, if (i) the Warrant is initially exercisable for 4,180,000 Warrant Shares and Investor has not previously exercised the Warrant, and (ii) Investor were to make a cashless exercise with respect to 5,000 Warrant Shares pursuant to which 6,000 Delivery Shares would be issuable to Investor, then (1) the Warrant shall be deemed to have been exercised with respect to 5,000 Exercise Shares, (2) the Warrant would remain exercisable for 4,175,000 Warrant Shares, and (3) the Warrant shall be deemed to have been exercised with respect to 6,000 Delivery Shares.

 

“Note” shall mean that certain Secured Convertible Promissory Note issued by Company to Investor pursuant to the Purchase Agreement, as the same may be amended from time to time, and including any promissory note(s) that replace or are exchanged for such referenced promissory note.

 

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“Trade Price” shall mean the higher of: (i) the Closing Price of the Common Stock on the Issue Date; and (ii) the VWAP (as defined below) of the Common Stock for the Trading Day that is two (2) Trading Days prior to the Exercise Date.

 

“Transaction Documents” or “Transaction Document” shall have the meaning set forth in the Purchase Agreement.

 

“VWAP” shall mean the volume-weighted average price of the Common Stock on the Principal Market for a particular Trading Day or set of Trading Days, as the case may be, as reported by Bloomberg.

 

  (c)            If the Notice of Exercise form elects a “cash” exercise (or if the cashless exercise referred to in the immediately preceding subsection (b) is not available in accordance with the terms hereof), the Exercise Price per share of Common Stock for the Delivery Shares shall be payable, at the election of Investor, in cash or by certified or official bank check or by wire transfer in accordance with instructions provided by Company at the request of Investor.                              

 

  (d)            Upon the appropriate payment to Company, if any, of the Exercise Price for the Delivery Shares, Company shall promptly, but in no case later than the date that is three (3) Trading Days following the date the Exercise Price is paid to Company (or with respect to a “cashless exercise,” the date that is three (3) Trading Days following the Exercise Date) (the “Delivery Date”), deliver or cause Company’s Transfer Agent to deliver the applicable Delivery Shares electronically via the Deposit/Withdrawal at Custodian (“DWAC”) system to the account designated by Investor on the Notice of Exercise.  If for any reason Company is not able to so deliver the Delivery Shares via the DWAC system, notwithstanding its best efforts to do so, such shall constitute a breach of this Warrant (and thus an Event of Default under the Note), and Company shall instead, on or before the applicable date set forth above in this subsection, issue and deliver to Investor or its broker (as designated in the Notice of Exercise), via reputable overnight courier, a certificate, registered in the name of Investor or its designee, representing the applicable number of Delivery Shares. For the avoidance of doubt, Company has not met its obligation to deliver Delivery Shares within the required timeframe set forth above unless Investor or its broker, as applicable, has actually received the Delivery Shares (whether electronically or in certificated form) no later than the close of business on the latest possible delivery date pursuant to the terms set forth above.

 

                              (e)            If Delivery Shares are delivered later than as required under subsection (d) immediately above, Company agrees to pay, in addition to all other remedies available to Investor in the Transaction Documents, a late charge equal to the greater of (i) $500.00 and (ii) 2% of the product of (1) the sum of the number of shares of Common Stock not issued to Investor on a timely basis and to which Investor is entitled multiplied by (2) the closing bid price of the Common Stock on the Trading Day immediately preceding the last possible date which Company could have issued such shares of Common Stock to Investor without violating this Warrant, per Trading Day until such Delivery Shares are delivered (the “Late Fees”). Company shall pay any Late Fees incurred under this subsection in immediately available funds upon demand; provided, however, that, at the option of Investor (without notice to Company), such amount owed may be added to the principal amount of the Note.  Furthermore, in addition to any other remedies which may be available to Investor, in the event that Company fails for any reason to effect delivery of the Delivery Shares as required under subsection (d) immediately above, Investor may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to Company, whereupon Company and Investor shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant, except that the Late Fees described above shall be payable through the date notice of revocation or rescission is given to Company. Finally, as liquidated damages in the event Company fails to deliver any Delivery Shares to Investor for a period of ninety (90) days from the Delivery Date, Investor may elect, in its sole discretion, to stop the accumulation of the Late Fees as of such date and require Company to pay to Investor a cash amount equal to (i) the total amount of all Late Fees that have accumulated prior to the date of Investor’s election, plus (ii) the product of the number of Delivery Shares deliverable to Investor on such date if it were to exercise this Warrant with respect to the remaining number of Exercise Shares as of such date multiplied by the Closing Price of the Common Stock on the Delivery Date (the “Cash Settlement Amount”). At such time that Investor makes an election to require Company to pay to it the Cash Settlement Amount, such obligation of Company shall be a valid and binding obligation of Company and shall for all purposes be deemed to be a debt obligation of Company owed to Investor as of the date it makes such election. Upon Company’s payment of the Cash Settlement Amount to Investor, the Warrant shall be deemed to have been satisfied and Investor shall return the original Warrant to Company for cancellation. In addition, and for the avoidance of doubt, even if Company could not deliver the number of Delivery Shares deliverable to Investor if it were to exercise this Warrant with respect to the remaining number of Exercise Shares on the date of repayment due to the provisions of Section 2.2, the provisions of Section 2.2 will not apply with respect to Company’s payment of the Cash Settlement Amount.

 

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(f)            Investor shall be deemed to be the holder of the Delivery Shares issuable to it in accordance with the provisions of this Section 2.1 on the Exercise Date.

 

2.2.            Ownership Limitation. Notwithstanding anything to the contrary contained in this Warrant or the other Transaction Documents, if at any time Investor shall or would be issued shares of Common Stock under any of the Transaction Documents, but such issuance would cause Investor (together with its affiliates) to own a number of shares exceeding 4.99% of the number of shares of Common Stock outstanding on such date (the “Maximum Percentage”), Company must not issue to Investor shares of the Common Stock which would exceed the Maximum Percentage. The shares of Common Stock issuable to Investor that would cause the Maximum Percentage to be exceeded are referred to herein as the “Ownership Limitation Shares”. Company will reserve the Ownership Limitation Shares for the exclusive benefit of Investor. From time to time, Investor may notify Company in writing of the number of the Ownership Limitation Shares that may be issued to Investor without causing Investor to exceed the Maximum Percentage. Upon receipt of such notice, Company shall be unconditionally obligated to immediately issue such designated shares to Investor, with a corresponding reduction in the number of the Ownership Limitation Shares. Notwithstanding the forgoing, the term “4.99%” above shall be replaced with “9.99%” at such time as the Market Capitalization of the Common Stock is less than $10,000,000.00. Notwithstanding any other provision contained herein, if the term “4.99%” is replaced with “9.99%” pursuant to the preceding sentence, such change to “9.99%” shall be permanent. For purposes of this Warrant, the term “Market Capitalization of the Common Stock” shall mean the product equal to (A) the average VWAP of the Common Stock for the immediately preceding fifteen (15) Trading Days, multiplied by (B) the aggregate number of outstanding shares of Common Stock as reported on Company’s most recently filed Form 10-Q or Form 10-K.  By written notice to Company, Investor may increase, decrease or waive the Maximum Percentage as to itself but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of Investor.

 

3.            Mutilation or Loss of Warrant. Upon receipt by Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, Company will execute and deliver to Investor a new Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void.

 

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4.            Rights of Investor. Investor shall not, by virtue of this Warrant alone, be entitled to any rights of a stockholder in Company, either at law or in equity, and the rights of Investor with respect to or arising under this Warrant are limited to those expressed in this Warrant and are not enforceable against Company except to the extent set forth herein.

 

5.            Protection Against Dilution and Other Adjustments.

 

5.1.            Capital Adjustments.  If Company shall at any time prior to the expiration of this Warrant subdivide the Common Stock, by split‐up or stock split, or otherwise, or combine its Common Stock, or issue additional shares of its Common Stock as a dividend, the number of Warrant Shares issuable upon the exercise of this Warrant shall forthwith be automatically increased proportionately in the case of a subdivision, split or stock dividend, or proportionately decreased in the case of a combination.  Appropriate adjustments shall also be made to the Exercise Price, Lender Conversion Price (in the event of a cashless exercise), and other applicable amounts, but the aggregate purchase price payable for the total number of Warrant Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 5.1 shall become effective automatically at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

 

5.2.            Reclassification, Reorganization and Consolidation.  In case of any reclassification, capital reorganization, or change in the capital stock of Company (other than as a result of a subdivision, combination, or stock dividend provided for in Section 5.1 above), then Company shall make appropriate provision so that Investor shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization, or change by a holder of the same number of shares of Common Stock as were purchasable by Investor immediately prior to such reclassification, reorganization, or change.  In any such case appropriate provisions shall be made with respect to the rights and interest of Investor so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the purchase price per Warrant Share payable hereunder, provided the aggregate purchase price shall remain the same.

 

5.3.            Subsequent Equity Sales. If Company or any subsidiary thereof, as applicable, at any time and from time to time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of, sell or issue (or announce any offer, sale, grant or any option to purchase or other disposition of) any Common Stock (including any Common Stock issued under the Note, whether upon any type of conversion or any Deemed Issuance (as defined in the Note)), preferred shares convertible into Common Stock, or debt, warrants, options or other instruments or securities which are convertible into or exercisable for shares of Common Stock (together herein referred to as “Equity Securities”), at an effective price per share less than the Exercise Price (such lower price, the “Base Share Price” and such issuance collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Equity Securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options, or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then (a) the Exercise Price shall be reduced and only reduced to equal the Base Share Price, and (b) the number of Warrant Shares issuable upon the exercise of this Warrant shall be increased to an amount equal to the number of Warrant Shares Investor could purchase hereunder for an aggregate Exercise Price, as reduced pursuant to subsection (a) above, equal to the aggregate Exercise Price payable immediately prior to such reduction in Exercise Price, provided that the increase in the number of Exercise Shares issuable under to this Warrant made pursuant to this Section 5.3 shall not at any time exceed a number equal to three (3) times the number of Exercise Shares issuable under this Warrant as of the Issue Date (for the avoidance of doubt, the foregoing cap on the number of Exercise Shares issuable hereunder shall only apply to adjustments made pursuant to this Section 5.3 and shall not apply to adjustments made pursuant to Sections 5.1, 5.2 or any other section of this Warrant).  Such adjustments shall be made whenever such Common Stock or Equity Securities are issued. Company shall notify Investor, in writing, no later than the Trading Day following the issuance of any Common Stock or Equity Securities subject to this Section 5.3, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price, or other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not Company provides a Dilutive Issuance Notice pursuant to this Section 5.3, upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance, Investor is entitled to receive the increased number of Warrant Shares provided for in subsection (b) above at an Exercise Price equal to the Base Share Price regardless of whether Investor accurately refers to the Base Share Price in the Notice of Exercise.  Additionally, following the occurrence of a Dilutive Issuance, all references in this Warrant to “Warrant Shares” shall be a reference to the Warrant Shares as increased pursuant to subsection (b) above, and all references in this Warrant to “Exercise Price” shall be a reference to the Exercise Price as reduced pursuant to subsection (a) above, as the same may occur from time to time hereunder.

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5.4.            Notice of Adjustment. Without limiting any other provision contained herein, when any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Warrant, or in the Exercise Price, pursuant to the terms hereof, Company shall promptly notify Investor of such event and of the number of Warrant Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

 

5.5.            Exceptions to Adjustment.  Notwithstanding the provisions of Sections 5.3 and 5.4, no adjustment to the Exercise Price shall be effected as a result of an Excepted Issuance.  “Excepted Issuances” shall mean, collectively, (a) Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as any such issuances are not for the purpose of raising capital and in which holders of such securities or debt are not at any time granted registration rights, and (b) Company’s issuance of Common Stock or the issuance or grant of options to purchase Common Stock to employees, directors, officers and consultants, authorized by Company’s board of directors pursuant to plans or agreements which are authorized, constituted or in effect as of the Issue Date.

 

6.            Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock issuable on the exercise of this Warrant, Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by Company for any additional shares of Common Stock issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. Company will forthwith mail a copy of each such certificate to Investor and any Warrant Agent (as defined below) appointed pursuant to Section 8 hereof.  Nothing in this Section 6 shall be deemed to limit any other provision contained herein.

 

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7.            Transfer to Comply with the Securities Act. This Warrant, and the Warrant Shares, have not been registered under the 1933 Act. None of the Warrant Shares may be sold, transferred, pledged or hypothecated without (a) an effective registration statement under the 1933 Act relating to such security or (b) an opinion of counsel reasonably satisfactory to Company that registration is not required under the 1933 Act; provided, however, that the foregoing restrictions on transfer shall not apply to the transfer of any security to an affiliate of Investor. Until such time as registration has occurred under the 1933 Act, each certificate for this Warrant and any Warrant Shares shall contain a legend, in form and substance satisfactory to counsel for Company, setting forth the restrictions on transfer contained in this Section 7. Any such transfer shall be accompanied by a transferor assignment substantially in the form attached to this Warrant as Exhibit B (the “Transferor Assignment”), executed by the transferor and the transferee and submitted to Company. Upon receipt of the duly executed Transferor Assignment, Company shall register the transferee thereon as the new holder on the books and records of Company and such transferee shall be deemed a “registered holder” or “registered assign” for all purposes hereunder, and shall have all the rights of Investor.

 

8.            Warrant Agent. Company may, by written notice to Investor, appoint an agent (a “Warrant Agent”) for the purpose of issuing shares of Common Stock on the exercise of this Warrant pursuant hereto, exchanging this Warrant pursuant hereto, and replacing this Warrant pursuant hereto, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such Warrant Agent.

 

9.            Transfer on Company’s Books. Until this Warrant is transferred on the books of Company, Company may treat Investor as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

 

10.         Notices.  Any notice required or permitted hereunder shall be given in the manner provided in the subsection titled “Notices” in the Purchase Agreement, the terms of which are incorporated herein by reference.

 

11.         Supplements and Amendments; Whole Agreement. This Warrant may be amended or supplemented only by an instrument in writing signed by the parties hereto. This Warrant, together with the Purchase Agreement and all the other Transaction Documents, taken together, contain the full understanding of the parties hereto with respect to the subject matter hereof and thereof and there are no representations, warranties, agreements or understandings with respect to the subject matter hereof and thereof other than as expressly contained herein and therein.

 

12.         Governing Law.  This Warrant shall be governed by and interpreted in accordance with the laws of the State of Utah, without giving effect to the principles thereof regarding the conflict of laws.

 

13.         Waiver of Jury Trial. COMPANY IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS WARRANT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY.  THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, COMPANY ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY.

 

14.         Purchase Agreement; Arbitration of Disputes; Calculation Disputes. This Warrant is subject to the terms, conditions and general provisions of the Purchase Agreement and the other Transaction Documents, including without limitation the Arbitration Provisions (as defined in the Purchase Agreement) set forth as an exhibit to the Purchase Agreement. In addition, notwithstanding the Arbitration Provisions, in the case of a dispute as to any Calculations (as defined in the Purchase Agreement), such dispute will be resolved in the manner set forth in the Purchase Agreement.

 

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15.         Remedies.  The remedies at law of Investor under this Warrant in the event of any default or threatened default by Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and, without limiting any other remedies available to Investor in the Transaction Documents, at law or equity, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

 

16.         Counterparts. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Signatures delivered via facsimile or email shall be considered original signatures for all purposes hereof.

 

17.         Attorneys’ Fees.  In the event of any arbitration, litigation or dispute arising from this Warrant, the parties agree that the party who is awarded the most money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses paid by said prevailing party in connection with arbitration or litigation without reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses. Nothing herein shall restrict or impair an arbitrator’s or a court’s power to award fees and expenses for frivolous or bad faith pleading.

 

18.         Severability. Whenever possible, each provision of this Warrant shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be invalid or unenforceable in any jurisdiction, such provision shall be modified to achieve the objective of the parties to the fullest extent permitted and such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Warrant or the validity or enforceability of this Warrant in any other jurisdiction.

 

19.         Time of the Essence. Time is expressly made of the essence with respect to each and every provision of this Warrant.

 

20.         Descriptive Headings. Descriptive headings of the sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

 

[Remainder of page intentionally left blank; signature page follows]

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IN WITNESS WHEREOF, Company has caused this Warrant to be duly executed by an officer thereunto duly authorized as of the Issue Date.

 

	 	COMPANY:
	 	
		
Hydrocarb Energy Corporation

		 	 
		
By:

	/s/ Kent P. Watts
		
Printed Name:

	Kent P. Watts
		
Title:

	CEO

 

[Signature Page to Warrant]

EXHIBIT A

NOTICE OF EXERCISE OF WARRANT

TO:            HYDROCARB ENERGY CORPORATION

               ATTN: _______________ 

               VIA FAX TO: (    )______________ EMAIL: ______________

The undersigned hereby irrevocably elects to exercise the right, represented by the Warrant to Purchase Shares of Common Stock dated as of March 5, 2015 (the “Warrant”), to purchase                  shares of the common stock, $0.001 par value (“Common Stock”), of HYDROCARB ENERGY CORPORATION, and tenders herewith payment in accordance with Section 2 of the Warrant, as follows:

_______                          CASH: $__________________________ = (Exercise Price x Delivery Shares)

	_______	Payment is being made by:

	 	_____	enclosed check

		_____	wire transfer

		_____	other

_______                          CASHLESS EXERCISE:

Net number of Delivery Shares to be issued to Investor: ______*

* based on:                          Current Market Value - (Exercise Price x Exercise Shares)

    Adjusted Price

Where:

	 	
Trade Price [“TP”]  

	
=            $____________

	 	
Exercise Shares

	
=             _____________

	 	
Current Market Value [MP x Exercise Shares]        

	
=            $____________

	 	
Exercise Price 

	
=            $____________

	 	
Adjusted Price 

	
=            $____________

Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Warrant.

It is the intention of Investor to comply with the provisions of Section 2.2 of the Warrant regarding certain limits on Investor’s right to receive shares thereunder. Investor believes this exercise complies with the provisions of such Section 2.2. Nonetheless, to the extent that, pursuant to the exercise effected hereby, Investor would receive more shares of Common Stock than permitted under Section 2.2, Company shall not be obligated and shall not issue to Investor such excess shares until such time, if ever, that Investor could receive such excess shares without violating, and in full compliance with, Section 2.2 of the Warrant.

As contemplated by the Warrant, this Notice of Exercise is being sent by email or by facsimile to the fax number and officer indicated above.

If this Notice of Exercise represents the full exercise of the outstanding balance of the Warrant, Investor will surrender (or cause to be surrendered) the Warrant to Company at the address indicated above by express courier within five (5) Trading Days after the Warrant Shares to be delivered pursuant to this Notice of Exercise have been delivered to Investor.

 

Exhibit A to Warrant, Page 1

To the extent the Delivery Shares are not able to be delivered to Investor via the DWAC system, please deliver certificates representing the Delivery Shares to Investor via reputable overnight courier after receipt of this Notice of Exercise (by facsimile transmission or otherwise) to:

	 	
 

	
	 	
 

	
	 	
 

	

 

	
Dated:

	
 

	
	 	 	
	
 

	
	
[Name of Investor]

	
		 	
	
By:

	 	

  

Exhibit A to Warrant, Page 2

EXHIBIT B

FORM OF TRANSFEROR ENDORSEMENT

(To be signed only on transfer of the Warrant)

For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees” the right represented by the Warrant to Purchase Shares of Common Stock dated as of March 5, 2015 (the “Warrant”) to purchase the percentage and number of shares of common stock, $0.001 par value (“Common Stock”), of HYDROCARB ENERGY CORPORATION specified under the headings “Percentage Transferred” and “Number Transferred,” respectively, opposite the name(s) of such person(s), and appoints each such person attorney-in-fact to transfer the undersigned’s respective right on the books of HYDROCARB ENERGY CORPORATION with full power of substitution.

 

	
Transferees 

	
Percentage Transferred

	
Number Transferred

                                                      

Dated:___________, ______

 

	
 

	
 

	
 

	
 

	
[Transferor Name must conform to the name of Investor as specified on the face of the Warrant]

	
 

	
 

	
 

		
 

	
 

	
By: 

	 	
 

	
 

	
Name:

	
 

	
 

 

	Signed in the presence of:	
	 	
	 		
	(Name)		
	 		
	
ACCEPTED AND AGREED:

	
	 	 	
	
 

	
	
[TRANSFEREE]

	
		 	
	
By:

	  	
	Name: 	 	

 

 

Exhibit B to Warrant, Page 1Exhibit 10.11

 

Stock Pledge Agreement

This STOCK PLEDGE AGREEMENT (this “Agreement”) is entered into as of March 5, 2015 (the “Effective Date”) by and between Typenex Co-Investment, LLC, a Utah limited liability company (the “Secured Party”), with an address of 303 East Wacker Drive, Suite 1040, Chicago, Illinois 60601, and CW Navigation, Inc., a Texas corporation (the “Pledgor”), with an address of 14019 Southwest Freeway #301-600, Sugar Land, Texas 77478.

 

A.            Effective as of the date hereof, the Secured Party loaned to Hydrocarb Energy Corporation, a Nevada corporation (“Company”), certain funds (the “Loan”) evidenced by that certain Secured Convertible Promissory Note of even date herewith in the face amount of $350,000.00 made by Company in favor of the Secured Party, a copy of which is attached hereto as Exhibit A (the “Note”).

 

B.            The Pledgor has agreed to pledge certain securities of Company to secure Company’s performance of its obligations under the Note and related documents.

 

C.            The Pledgor is an affiliate of Company and, as such, the Pledgor has a financial interest in Company, and thus will benefit from the Loan.

 

D.            The Secured Party is willing to purchase the Note only upon receiving the Pledgor’s pledge of securities of Company as set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the premises, the mutual covenants and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.            Grant of Security Interest. The Pledgor hereby pledges to the Secured Party as collateral and security for the Secured Obligations (as defined in Section 2) and grants a security interest in 1,100,000 shares of Company’s Common Stock owned by the Pledgor (the “Pledged Shares”), as described more specifically on Schedule 1 attached hereto, all of which Pledged Shares were issued not less than twelve (12) months prior to the date of this Agreement. The Secured Party shall have the right to exercise the rights and remedies set forth herein and in the Transaction Documents (as defined in the Note) if an Event of Default (as defined in the Note) shall occur. The Pledgor is the beneficial and record owner of the Pledged Shares. Such Pledged Shares, together with any additions, replacements, accessions or substitutes therefor or proceeds thereof, are hereinafter referred to collectively as the “Collateral”.

 

2.            Secured Obligations. During the term hereof, the Collateral shall secure the performance by Company of all of its obligations under the Note and the other Transaction Documents (the “Secured Obligations”).

 

3.            Perfection of Security Interests.

 

3.1.            Within five (5) Trading Days (as defined in the Note) after the date of this Agreement, the Pledgor shall (i) deliver the original stock certificates representing the Pledged Shares together with signed irrevocable stock powers with original medallion signature guarantees annexed thereto, to the law firm of Hansen Black Anderson Ashcraft PLLC (“Escrow Agent”), who will hold the Pledged Shares in escrow pursuant to the terms of an Escrow Agreement in the form attached hereto as Exhibit B, and (ii) deliver an irrevocable instruction letter to Company’s transfer agent substantially in the form attached hereto as Exhibit C, duly executed by the Pledgor and the Company (the “Instruction Letter”). The stock powers shall be delivered in a separate envelope from the Pledged Shares. Upon request, the Pledgor agrees to provide to the Secured Party such documents and instruments as may be necessary to convert the Pledged Shares into an electronic format.

 

3.2.            The Pledgor will, at the Pledgor’s own expense, cause to be searched the public records with respect to the Collateral and will execute, deliver, file and record (in such manner and form as the Secured Party may require), or permit the Secured Party to file and record, as the Pledgor’s attorney-in-fact, any financing statements, any carbon, photographic or other reproduction of a financing statement or this Agreement (which shall be sufficient as a financing statement hereunder), any specific assignments or other paper that may be reasonably necessary or desirable, or that the Secured Party may request, in order to create, preserve, perfect or validate any security interest or to enable the Secured Party to exercise and enforce the Secured Party’s rights hereunder with respect to any of the Collateral. The Pledgor hereby appoints the Secured Party as the Pledgor’s attorney-in-fact to execute in the name and on behalf of the Pledgor such additional financing statements as the Secured Party may request.

 

3.3.            The Pledgor hereby authorizes the Secured Party to file one or more UCC-1 financing statements or other appropriate documents with applicable governmental agencies to evidence, perfect, and/or protect the Secured Party’s security interest in the Collateral.

 

4.            Assignment. In connection with the transfer of the Note in accordance with its terms, the Secured Party may assign or transfer any or all of the Secured Party’s security interest granted hereunder. Any such assignee or transferee of the Secured Party shall be vested with all of the rights and powers of the Secured Party hereunder with respect to the Collateral.

 

5.            Representations, Warranties and Covenants of the Pledgor.

 

5.1.            Title. The Pledgor hereby represents and warrants to the Secured Party as follows with respect to the Collateral:

 

(a)            The Pledged Shares have been duly authorized by all necessary corporate action on the part of Company and are duly authorized, validly issued, fully paid and non-assessable, free from all taxes, liens, claims, pledges, mortgages, restrictions, obligations, security interests and encumbrances of any kind, nature and description, and will not subject the Secured Party to personal liability by reason of being the holder thereof;

 

(b)            The Pledgor is the sole owner of the Collateral;

 

(c)            The Pledgor further agrees not to grant or create any security interest, claim, lien, pledge or other encumbrance with respect to such Collateral or attempt to sell, transfer or otherwise dispose of the Collateral, until the Secured Obligations have been paid and performed in full; and

 

(d)            This Agreement constitutes a legal, valid and binding obligation of the Pledgor enforceable in accordance with its terms (except as the enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and similar laws now or hereafter in effect).

 

5.2.            Other.

 

(a)            The Pledgor fully intends to, and further intends to cause Company to, fulfill, and Company has the capability of fulfilling, the Secured Obligations to be performed by Company in accordance with the terms of the Note.

 

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(b)            The Pledgor is not acting, and has not agreed to act, in any plan to sell or dispose of any Pledged Shares in a manner intended to circumvent the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), or any applicable state law.

 

(c)            The Pledgor has been advised by counsel of the elements of a bona-fide pledge for purposes of determining the holding period for restricted securities under Rule 144(d)(3)(iv) under the Securities Act, including the relevant U.S. Securities and Exchange Commission interpretations, and affirms that the pledge of shares by the Pledgor pursuant to this Agreement will constitute a bona-fide pledge of such shares for purposes of such Rule.

 

(d)            All of the Pledged Shares have been issued for not less than twelve (12) months as of the date of this Agreement.

 

(e)            The Pledgor will not consent to or otherwise approve of, or cause Company to consent to or otherwise approve of, or take any action that amends or alters the rights of the Pledged Shares or any other class of securities that is on parity with or senior to the Pledged Shares without the written consent of the Secured Party to such amendment. The Pledgor further covenants and agrees not to take any action that would impair the Secured Party’s rights hereunder or as a holder of the Pledged Shares without the written consent of the Secured Party.

 

(f)            The Pledgor paid full cash consideration for all of the Pledged Shares on or before the date that is twelve (12) months prior to the date of this Agreement.

 

(g)            The Pledged Shares do not conflict with Company’s organizing documents, and are expressly authorized by Company’s certificate (or articles) of incorporation.

 

(h)            In the event the value (determined based on the average closing trade price for Company’s Common Stock (as reported by Bloomberg, L.P.) on its principal trading market for the immediately preceding three (3) Trading Days as of any applicable date of determination (the “Market Price”)) of the Pledged Shares declines below $900,000.00 (the “Required Market Value”) on any Trading Day, such shall constitute a breach of this Agreement and an Event of Default under the Note.  In any such instance or upon the occurrence of any other Event of Default under the Note, within five (5) days of the Secured Party’s delivery to the Pledgor of a written request, the Pledgor covenants and agrees to pledge to the Secured Party sufficient additional shares of Company’s Common Stock or other collateral reasonably acceptable to the Secured Party (the “Additional Collateral”) so as to raise the total market value of the Collateral (valued at the Market Price) above the Required Market Value.  For the avoidance of doubt, the Pledgor shall not have the right to pledge additional collateral except where required to pledge additional collateral by written request submitted by the Secured Party, which request will be submitted in the Secured Party’s sole and absolute discretion. Upon the Secured Party’s receipt of Additional Collateral following any request made pursuant to this Section, the Secured Party agrees to not bring any lawsuit or other legal action against the Pledgor or Company related to the Secured Party’s enforcement of its rights under the Note or any other Transaction Document for a period of fifteen (15) days from the date the Secured Party receives the Additional Collateral. If any Event of Default is continuing following the conclusion of such fifteen (15) day-period, the Secured Party shall be free to bring a lawsuit or take any other legal action against the Pledgor or Company, along with exercising any other rights available to the Secured Party under the Note, any other Transaction Document, at law or in equity, related to the enforcement of its rights under the Note or any other Transaction Document.

 

(i)            Upon request of the Secured Party, the Pledgor covenants to take all such actions and to execute all such certificates, instruments, agreements or documents as may be necessary to cause the Company’s transfer agent to reissue any stock certificate evidencing the Pledged Shares as two or more separate certificates as may be requested by the Secured Party.

 

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(j)            The Pledgor, as an affiliate of Company, has a financial interest in Company, which financial interest is enhanced by the Loan to Company.

 

6.            Covenants of Secured Party.  For a period of six (6) months from the Effective Date, the Secured Party will not directly or through an affiliate engage in any open market Short Sales (as defined below) of the Company’s Common Stock; provided; however, that unless and until the Pledgor  has affirmatively demonstrated by the use of specific evidence that the Secured Party is engaging in open market Short Sales, the Secured Party shall be assumed to be in compliance with the provisions of this Section and the Pledgor shall remain fully obligated to fulfill all of its obligations under this Agreement; and provided, further, that (i) the Pledgor shall under no circumstances be entitled to request or demand that the Secured Party either (A) provide trading or other records of the Secured Party or of any party or (B) affirmatively demonstrate that the Secured Party or any other party has not engaged in any such Short Sales in breach of these provisions as a condition to the Pledgor’s fulfillment of its obligations under this Agreement, (ii) the Pledgor shall not assert the Secured Party’s or any other party’s failure to demonstrate such absence of such Short Sales or provide any trading or other records of the Secured Party or any other party as all or part of a defense to any breach of the Pledgor’s obligations under this Agreement, and (iii) the Pledgor shall have no setoff right with respect to any such Short Sales. As used herein, “Short Sale” has the meaning provided in Rule 3b-3 under the 1934 Act.

 

7.            Collection of Dividends and Interest. During the term of this Agreement the Secured Party is authorized to collect as additional Collateral all dividends, distributions, interest payments, and other amounts that may be, or may become, due on any of the Collateral, to be held under the terms hereof in the same manner as the Collateral.

 

8.            Voting Rights. During the term of this Agreement and until such time as this Agreement has terminated or the Secured Party has exercised the Secured Party’s rights under this Agreement to foreclose the Secured Party’s interest in the Collateral, the Pledgor shall have the right to exercise any voting rights evidenced by, or relating to, the Collateral.

 

9.            Warrants and Options. In the event that, during the term of this Agreement, subscription, spin-off, warrants, dividends, or any other rights or option shall be issued in connection with the Collateral, such warrants, dividends, rights and options shall be immediately delivered to the Secured Party to be held under the terms hereof in the same manner as the Collateral.

 

10.            Preservation of the Value of the Collateral. The Pledgor shall pay all taxes, charges, and assessments against the Collateral and do all acts necessary to preserve and maintain the value thereof.

 

11.            The Secured Party as the Pledgor’s Attorney-in-Fact.

 

11.1.            The Pledgor hereby irrevocably appoints the Secured Party as the Pledgor’s attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor, the Secured Party or otherwise, from time to time at the Secured Party’s discretion, to take any action and to execute any instrument, that the Secured Party may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including: (i) upon the occurrence and during the continuance of an Event of Default, to receive, endorse, and collect all instruments made payable to the Pledgor representing any dividend, interest payment or other distribution in respect of the Collateral or any part thereof to the extent permitted hereunder and to give full discharge for the same and to execute and file governmental notifications and reporting forms; (ii) following the occurrence of an Event of Default, to instruct the Escrow Agent to deliver the Pledged Shares to Company’s transfer agent for reissuance in the name of the Secured Party or its designee, as set forth in more detail in the Instruction Letter; and (iii) to arrange for the transfer of the Collateral on the books of Company or any other person to the name of the Secured Party or to the name of the Secured Party’s nominee.

 

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11.2.            In addition to the designation of the Secured Party as the Pledgor’s attorney-in-fact in Section 11.1, the Pledgor hereby irrevocably appoints the Secured Party as the Pledgor’s agent and attorney-in-fact to make, execute and deliver any and all documents and writings which may be necessary or appropriate for approval of, or be required by, any regulatory authority located in any city, county, state or country where the Pledgor or Company engages in business, in order to transfer or to more effectively transfer any of the Pledged Shares or otherwise enforce the Secured Party’s rights hereunder. The Pledgor hereby acknowledges and agrees that any designation of the Secured Party as the Pledgor’s attorney-in-fact hereunder is coupled with an interest.

 

12.            Remedies upon Default. Upon the occurrence and during the continuance of any Event of Default:

 

12.1.            The Secured Party may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to the Secured Party, all the rights and remedies of a Secured Party on default under applicable law (irrespective of whether such applies to the affected items of Collateral), and the Secured Party may also without notice (except as specified below) (i) instruct Escrow Agent to deliver the Pledged Shares to the Secured Party or its designee, (ii) convert the Collateral into an electronic format to the extent the Collateral is not in an electronic format, (iii) cause Company’s transfer agent to put all certificates evidencing the Pledged Shares, if any, into the Secured Party’s name and instruct Company’s transfer agent to remove all legends from such certificates, and (iv) sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker’s board or at any of the Secured Party’s offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as the Secured Party may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Collateral. To the maximum extent permitted by applicable law, the Secured Party may be the purchaser of any or all of the Collateral at any such sale and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply all or any part of the Secured Obligations as a credit on account of the purchase price of any Collateral payable at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of the Pledgor, and the Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay, or appraisal that the Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten (10) calendar days’ notice to the Pledgor of the time and place of any public sale or the time after which a private sale is to be made shall constitute reasonable notification. The Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. To the maximum extent permitted by law, the Pledgor hereby waives any claims against the Secured Party arising because the price at which any Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale, even if the Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree.

 

12.2.            The Pledgor hereby agrees that any sale or other disposition of the Collateral conducted in conformity with reasonable commercial practices of banks, insurance companies, or other financial institutions in the city and state where the Secured Party is located in disposing of property similar to the Collateral shall be deemed to be commercially reasonable.

 

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12.3.            The Pledgor hereby acknowledges that the sale by the Secured Party of any Collateral pursuant to the terms hereof in compliance with the Securities Act, as well as applicable “Blue Sky” or other state securities laws, may require strict limitations as to the manner in which the Secured Party, or any subsequent transferee of the Collateral, may dispose thereof. The Pledgor acknowledges and agrees that in order to protect the Secured Party’s interest it may be necessary to sell the Collateral at a price less than the maximum price attainable if a sale were delayed or were made in another manner, such as a public offering under the Securities Act. The Pledgor has no objection to a sale in such a manner and agrees that the Secured Party shall have no obligation to obtain the maximum possible price for the Collateral. Without limiting the generality of the foregoing, the Pledgor agrees that, upon the occurrence and during the continuation of an Event of Default, the Secured Party may, subject to applicable law, from time to time attempt to sell all or any part of the Collateral by a private placement, restricting the bidders and prospective purchasers to those who will represent and agree that they are purchasing for investment only and not for distribution. In so doing, the Secured Party may solicit offers to buy the Collateral or any part thereof for cash, from a limited number of investors reasonably believed by the Secured Party to be institutional investors or other accredited investors who might be interested in purchasing the Collateral. If the Secured Party shall solicit such offers, then the acceptance by the Secured Party of one of the offers shall be deemed to be a commercially reasonable method of disposition of the Collateral.

 

12.4.            If the Collateral is traded or listed on an eligible market, OTCQB or OTC Pink, then the sale of the Collateral on the applicable eligible market or in connection with OTCQB or OTC Pink shall be deemed to be a commercially reasonable method of disposition of the Collateral.

 

12.5.            If the Secured Party shall determine to exercise the Secured Party’s right to sell all or any portion of the Collateral pursuant to this Section, then the Pledgor agrees that, upon request of the Secured Party, the Pledgor, at the Pledgor’s own expense, shall:

 

(a)            execute and deliver, or cause the officers and directors of Company to execute and deliver, to any person, entity or governmental authority as the Secured Party may choose, any and all documents and writings which, in the Secured Party’s reasonable judgment, may be necessary or appropriate for approval, or be required by, any regulatory authority located in any city, county, state or country where the Pledgor or Company engage in business, in order to transfer or to more effectively transfer the Collateral or otherwise enforce the Secured Party’s rights hereunder; and

 

(b)            do or cause to be done all such other acts and things as may be necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law.

The Pledgor acknowledges that there is no adequate remedy at law for failure by the Pledgor to comply with the provisions of this Section 12 and that such failure would not be adequately compensable in damages, and therefore agrees that the Pledgor’s agreements contained in this Section 12 may be specifically enforced.

12.6.            THE PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM EXTENT PERMITTED BY LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING PRIOR TO THE TIME THE SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS PROVIDED IN THIS SECTION; (ii) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL THAT THE PLEDGOR NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW OR STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (iii) EXCEPT AS SET FORTH IN SECTION 12.1, ANY REQUIREMENT OF NOTICE, DEMAND, OR ADVERTISEMENT FOR SALE.

 

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13.            Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, any cash held by the Secured Party as Collateral and all cash proceeds received by the Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral pursuant to the exercise by the Secured Party of the Secured Party’s remedies as a secured creditor as provided in Section 12 shall be applied from time to time by the Secured Party as follows:

 

13.1.            First, to the payment of reasonable costs and expenses, including all amounts expended to preserve the value of the Collateral, of foreclosure or suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and advances, including reasonable legal expenses and attorneys’ fees and brokerage commissions related to selling any Collateral, incurred or made hereunder by the Secured Party;

 

13.2.            Second, to the payment to the Secured Party of the amount then owing or unpaid on the Note (to be applied first to any penalties, fees and other expenses incurred thereunder, then to accrued interest and finally to outstanding principal) and under any of the other Transaction Documents; and

 

13.3.            Third, any remaining Collateral that has not been converted to cash proceeds, if any, to the Pledgor, the Pledgor’s assigns, or to whosoever may be lawfully entitled to receive the same. For the avoidance of doubt, any Pledged Shares that are not sold to satisfy the Secured Obligations shall be returned to the Pledgor following the satisfaction of all of the Secured Obligations. Moreover, under no circumstance shall the Secured Party return or be required to return any cash to the Pledgor.

 

14.            Indemnity and Expenses. The Pledgor agrees:

 

14.1.            To indemnify and hold harmless the Secured Party and each of the Secured Party’s agents and affiliates from and against any and all claims, damages, demands, losses, obligations, judgments and liabilities (including, without limitation, reasonable attorneys’ fees and expenses) in any way arising out of or in connection with this Agreement or the Secured Obligations, except to the extent the same shall arise as a result of the gross negligence or willful misconduct of the party seeking to be indemnified; and

 

14.2.            To pay and reimburse the Secured Party upon demand for all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) that the Secured Party may incur in connection with (i) the custody, use or preservation of, or the sale of, collection from or other realization upon, any of the Collateral, including the reasonable expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, (ii) the exercise or enforcement of any rights or remedies granted hereunder, under the Note or otherwise available to the Secured Party (whether at law, in equity or otherwise), or (iii) the failure by the Pledgor to perform or observe any of the provisions hereof. The provisions of this Section 14.2 shall survive the execution and delivery of this Agreement, the repayment of any of the Secured Obligations, the termination of the commitments of the Secured Party under the Note and the termination of this Agreement.

 

15.            Duties of the Secured Party. The powers conferred upon the Secured Party hereunder are solely to protect the Secured Party’s interests in the Collateral and shall not impose on the Secured Party any duty to exercise such powers. Except as provided in Section 9-207 of the Uniform Commercial Code, the Secured Party shall have no duty with respect to the Collateral or any responsibility for taking any necessary steps to preserve rights against any persons with respect to any Collateral.

 

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16.            Amendments; Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Secured Party to exercise, and no delay in exercising any right under this Agreement, any other document or documents delivered in connection with the transactions contemplated by the Note, this Agreement or any other agreement entered into in conjunction herewith or therewith, or otherwise with respect to any of the Secured Obligations, shall operate as a waiver thereof; nor shall any single or partial exercise of any right under this Agreement, any other Transaction Document, or otherwise with respect to any of the Secured Obligations preclude any other or further exercise thereof or the exercise of any other right. The remedies provided for in this Agreement or otherwise with respect to any of the Secured Obligations are cumulative and not exclusive of any remedies provided by other agreement or applicable law.

 

17.            Notices. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of: (a) the date delivered, if delivered by personal delivery as against written receipt therefor or by e-mail to an executive officer, or by facsimile (with successful transmission confirmation), (b) the earlier of the date delivered or the third business day after deposit, postage prepaid, in the United States Postal Service by certified mail, or (c) the earlier of the date delivered or the third business day after mailing by express courier, with delivery costs and fees prepaid, in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by five (5) calendar days’ advance written notice similarly given to each of the other parties hereto):

 

If to the Pledgor:

CW Navigation, Inc.

Attn: President

14019 Southwest Freeway #301-600

Sugar Land, Texas 77478

If to the Secured Party:

Typenex Co-Investment, LLC

Attn: John M. Fife

303 East Wacker Drive, Suite 1040

Chicago, Illinois  60601

 

with a copy to (which shall not constitute notice):

Hansen Black Anderson Ashcraft PLLC

Attn: Jonathan K. Hansen

3051 West Maple Loop Drive, Suite 325

Lehi, Utah 84043

18.            Continuing Security Interest; Term. This Agreement shall create a continuing security interest in the Collateral and shall: (a) remain in full force and effect until the indefeasible payment and performance in full of all the Secured Obligations; (b) be binding upon the Pledgor and the Pledgor’s successors and assigns; and (c) inure to the benefit of the Secured Party and the Secured Party’s successors, transferees, and assigns. Upon the indefeasible payment and performance in full of all of the Secured Obligations, the security interests granted herein shall automatically terminate, all rights to the Collateral shall revert to the Pledgor and the term of this Agreement shall end. Upon any such termination, the Secured Party, at the Pledgor’s expense, shall execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. Such documents shall be prepared by the Pledgor and shall be in form and substance reasonably satisfactory to the Secured Party. Notwithstanding any other provision contained herein, all provisions of this Agreement that by their nature are intended to survive the termination of this Agreement shall so survive such termination.

 

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19.            Security Interest Absolute. To the maximum extent permitted by law, all rights of the Secured Party, all security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of:

 

19.1.            any lack of validity or enforceability of any of the Secured Obligations or any other agreement or instrument relating thereto, including any of the Transaction Documents;

 

19.2.            any change in the time, manner, or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any of the Transaction Documents, or any other agreement or instrument relating thereto;

 

19.3.            any exchange, release, or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty for all or any of the Secured Obligations; or

 

19.4.            any other circumstances that might otherwise constitute a defense available to, or a discharge of, the Pledgor.

 

20.            Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement or be given any substantive effect.

 

21.            Severability. If any part of this Agreement is construed to be in violation of any law, such part shall be modified to achieve the objective of the parties to the fullest extent permitted by law and the balance of this Agreement shall remain in full force and effect.

 

22.            Counterparts; Electronic Execution. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement by facsimile or email shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by facsimile or email also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, or binding effect hereof.

 

23.            Waiver of Marshaling. Each of the Pledgor and the Secured Party acknowledges and agrees that in exercising any rights under or with respect to the Collateral: (a) the Secured Party is under no obligation to marshal any Collateral; (b) may, in the Secured Party’s absolute discretion, realize upon the Collateral in any order and in any manner the Secured Party so elects; and (c) may, in the Secured Party’s absolute discretion, apply the proceeds of any or all of the Collateral to the Secured Obligations in any order and in any manner the Secured Party so elects. The Pledgor and the Secured Party waive any right to require the marshaling of any of the Collateral.

 

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24.            Ownership Limitation. Notwithstanding the provisions of this Agreement, in no event shall the Secured Party own Pledged Shares to the extent that, after taking into account the Common Stock of Company then owned by the Secured Party and the Secured Party’s affiliates, would result in the beneficial ownership by the Secured Party and the Secured Party’s affiliates of Common Stock in excess of 9.99% of the outstanding Common Stock of Company (the “Maximum Percentage”). For purposes of this Section, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act of 1934, as amended. By written notice to the Pledgor, the Secured Party may increase, decrease or waive the Maximum Percentage as to itself but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of the Secured Party.

 

25.            Waiver of Jury Trial. THE PLEDGOR AND THE SECURED PARTY HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE PLEDGOR AND THE SECURED PARTY REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS OR HIS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

26.            Attorneys’ Fees. In the event of any arbitration or action at law or in equity to enforce or interpret the terms of this Agreement, the parties agree that the party who is awarded the most money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses paid by such prevailing party in connection with the arbitration or litigation without reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses. For the avoidance of doubt, if a party is required to deliver shares of stock to the other party, the value of those shares (determined at the Market Price) shall be used as part of the calculation to determine which party is awarded the most money for purposes of determining the prevailing party. Nothing herein shall restrict or impair an arbitrator’s or court’s power to award fees and expenses for frivolous or bad faith pleading.

 

27.            Cross Default; Cross Collateralization. A breach or default by the Pledgor of any covenant or other term or condition contained in this Agreement shall, at the option of the Secured Party, be considered a default under the Purchase Agreement and/or any other agreement between the Pledgor, or Company and the Secured Party. Moreover, a default under the terms of any prior note, loan agreement, warrant, stock pledge agreement or guaranty between or among the Pledgor, Company, and the Secured Party (or any affiliate of any of the foregoing) (collectively, “Prior Agreements”), shall be deemed an Event of Default under the Note and this Agreement and any default under any Transaction Document shall be deemed an Event of Default under the Prior Agreements. The Pledgor and the Secured Party agree that, to the extent necessary to give full effect to the provisions of this Section 27, the Prior Agreements and the Transaction Documents are hereby amended to reflect and incorporate the cross default attributes of the Prior Agreements and the Transaction Documents.

 

28.            Governing Law; Venue. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Utah for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws; provided, however, that enforcement of Secured Party’s rights and remedies against the Collateral as provided herein will be subject to the Uniform Commercial Code (“UCC”) as in effect in the state whose laws would govern the security interest in, including without limitation the perfection thereof, and foreclosure of the applicable Collateral. Except for enforcement actions under the UCC, each party consents to and expressly agrees that venue for the arbitration of any dispute arising out of or relating to this Agreement or the relationship of the parties or their affiliates shall be exclusively in Salt Lake County, Utah, or Utah County, Utah. Without modifying the parties obligations to resolve disputes hereunder pursuant to the Arbitration Provisions (as defined below), for any litigation arising in connection with this Agreement, each party hereto hereby (a) consents to and expressly submits to the exclusive personal jurisdiction of any state court sitting in Salt Lake County, Utah, (b) expressly submits to the venue of any such court for the purposes hereof, and (c) waives any claim of improper venue and any claim or objection that such courts are an inconvenient forum or any other claim or objection to the bringing of any such proceeding in such jurisdictions or to any claim that such venue of the suit, action or proceeding is improper.

 

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29.            Arbitration of Claims. The parties hereto hereby incorporate by this reference the arbitration provisions set forth as an exhibit to the Purchase Agreement (“Arbitration Provisions”). The parties shall submit all Claims (as defined in the Arbitration Provisions) arising under this Agreement or other agreements between the parties and their affiliates to binding arbitration pursuant to the Arbitration Provisions. The parties hereby acknowledge and agree that the Arbitration Provisions are unconditionally binding on the parties hereto and are severable from all other provisions of this Agreement. Any capitalized term not defined in the Arbitration Provisions shall have the meaning set forth in the Purchase Agreement. By executing this Agreement, the Pledgor represents, warrants and covenants that the Pledgor has reviewed the Arbitration Provisions carefully, consulted with legal counsel about such provisions (or waived its right to do so), understands that the Arbitration Provisions are intended to allow for the expeditious and efficient resolution of any dispute hereunder, agrees to the terms and limitations set forth in the Arbitration Provisions, and that the Pledgor will not take a position contrary to the foregoing representations. The Pledgor acknowledges and agrees that Secured Party may rely upon the foregoing representations and covenants of Pledgor regarding the Arbitration Provisions.

 

30.            Recitals. The recitals of this Agreement are contractual in nature and are hereby agreed to and incorporated into this Agreement.

 

[Remainder of page intentionally left blank; signature page to follow]

 

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IN WITNESS WHEREOF, the Pledgor and the Secured Party have made this Agreement effective as of the date first written above.

 

	 	
PLEDGOR:

	 	 	 
	 	
CW Navigation, Inc.

	 	 	 
	 	
By:

	/s/ Christopher Watts
	 	
Printed Name:

	Christopher Watts
	 	
Title:

	President

	 	
SECURED PARTY:

	 	 	 
	 	
Typenex Co-Investment, LLC

	 	 	 
	 	
By:

	
Red Cliffs Investments, Inc., its Manager

	 	
By:

	/s/ John M. Fife 
	 	 	
John M. Fife, President

 

[Signature page to Stock Pledge Agreement]

 

SCHEDULE 1

 

Pledged Shares:  1,100,000 shares of Common Stock of Hydrocarb Energy Corporation

Certificate Number: _____________________

Jurisdiction of Organization: Nevada

Date Acquired:  ________________

 

Certificate Number: _____________________

Jurisdiction of Organization: Nevada

Date Acquired:  ________________

 

Certificate Number: _____________________

Jurisdiction of Organization: Nevada

Date Acquired:  ________________

 

EXHIBIT A

NOTE

 

 

EXHIBIT B

ESCROW AGREEMENT

 

EXHIBIT C

INSTRUCTION LETTER

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