Document:

ex10-3.htm

Exhibit 10.3

Stock Pledge Agreement

This STOCK PLEDGE AGREEMENT (this “Agreement”) is entered into as of October 16, 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 $1,730,000.00 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 2,100,000 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”.  All of the Pledged Shares were previously pledged to Secured Party by the Pledgor pursuant to a Pledge Agreement entered into to secure amounts owed by the Company under the March Note (the “March Pledge Agreement”), which March Pledge Agreement is cancelled and terminated in connection with the parties entry into this Agreement.

 

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 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.

 

  

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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, and with the termination of the March Pledge Agreement, 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).

 

  

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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.

 

(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 1.5 times the then outstanding balance of the Note (the “Required Market Value”) on any Trading Day after November 1, 2015, 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, or to cause an affiliate or other third party 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, affiliate or other third party, 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 occurs or 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. Notwithstanding the foregoing, (i) at any time on or before November 1, 2015, the Pledgor may pledge Additional Collateral in any amount without needing the Secured Party’s consent; and (ii) only shares of Company’s Common Stock that have been issued for at least twelve (12) months prior to the date of the pledge may be pledged as Additional Collateral.

 

  

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(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.

 

(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.           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.

 

7.           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.

 

8.           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.

 

9.           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.

 

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

 

10.1.           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.

 

10.2.           In addition to the designation of the Secured Party as the Pledgor’s attorney-in-fact in Section 10.1, 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.

 

  

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

 

11.1.           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.

 

11.2.           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.

 

11.3.           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.

 

  

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11.4.           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.

 

11.5.           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 11 and that such failure would not be adequately compensable in damages, and therefore agrees that the Pledgor’s agreements contained in this Section 11 may be specifically enforced.

11.6.           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 11.1, ANY REQUIREMENT OF NOTICE, DEMAND, OR ADVERTISEMENT FOR SALE.

 

12.           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 11 shall be applied from time to time by the Secured Party as follows:

 

  

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12.1.           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;

 

12.2.           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

 

12.3.           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.

 

13.           Indemnity and Expenses. The Pledgor agrees:

 

13.1.           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

 

13.2.           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 13.2 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.

 

14.           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.

 

15.           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.

 

  

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16.           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

	 	 
	 	 	 	 
	 	 	 	 

17.           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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18.           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:

 

18.1.           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;

 

18.2.           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;

 

18.3.           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

 

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

 

19.           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.

 

20.           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.

 

21.           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.

 

22.           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.

 

23.           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.

 

  

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24.           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.

 

25.           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 (which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) 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.

 

26.           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. The Pledgor and the Secured Party agree that, to the extent necessary to give full effect to the provisions of this Section 26, Transaction Documents are hereby amended to reflect and incorporate the cross default attributes of the Transaction Documents.

 

27.           Governing Law; Venue. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Utah. 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 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.

 

28.           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.

 

  

10

  

29.           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]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

11

  

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 M. Watts

 

Printed Name: Christopher M. 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 – 2,100,000 shares of Common Stock of Hydrocarb Energy Corporation held by CW Navigation, Inc. and evidenced by the following stock certificates:

Share Amount: 100,000

Certificate Number: 1031

Jurisdiction of Organization: Nevada

Date Issued:  March 5, 2015 (originally issued as part of Certificate #1009 on December 4, 2013)

Share Amount: 500,000

Certificate Number: 1032

Jurisdiction of Organization: Nevada

Date Issued:  March 5, 2015 (originally issued as part of Certificate #1009 on December 4, 2013)

Share Amount: 500,000

Certificate Number: 1033

Jurisdiction of Organization: Nevada

Date Issued:  March 5, 2015 (originally issued as part of Certificate #1009 on December 4, 2013)

Share Amount: 500,000

Certificate Number: 1035

Jurisdiction of Organization: Nevada

Date Issued:  March 16, 2015 (originally issued as part of Certificate #1009 on December 4, 2013)

Share Amount: 500,000

Certificate Number: 1040

Jurisdiction of Organization: Nevada

Date Issued:  March 20, 2015 (originally issued as part of Certificate #1009 on December 4, 2013)ex10-4.htm

Exhibit 10.4

 

 

 

SUBORDINATION AND POSTPONEMENT AGREEMENT

 

THIS SUBORDINATION AND POSTPONEMENT AGREEMENT (this “Agreement”) dated as of October 16, 2015 is by and among Hydrocarb Energy Corporation, a Nevada corporation (“Borrower”), Shadow Tree Capital Management LLC, a Delaware limited liability company, as agent for the Senior Lenders defined below (in such capacity, together with its successors in such capacity, “Agent”), and Typenex Co-Investment, LLC, a Utah limited liability company (“Subordinated Lender”).

 

W I T N E S S E T H:

 

WHEREAS, Borrower and Agent are party to a Credit Agreement dated as of August 15, 2014 (such agreement, as it may be amended, restated or replaced from time to time, the “Credit Agreement”) pursuant to which the lenders party thereto (the “Senior Lenders”) have advanced to Borrower certain secured loans and may advance to Borrower certain additional secured loans (any and all such loans advanced now or in the future pursuant to the Credit Agreement, and any and all payment obligations pursuant to any such loans and under the terms of the Credit Agreement, the “Senior Secured Loans”);

 

WHEREAS, pursuant to the terms of the Credit Agreement, Borrower and Agent have agreed that Borrower shall raise certain additional capital investments in the form of equity or subordinated debt or a combination thereof and on terms acceptable to Agent;

 

WHEREAS, Subordinated Lender is willing to make a loan to Borrower in the original principal amount of $1,730,000.00 and to be evidenced by a certain Secured Convertible Promissory Note, Pledge Agreement, Securities Purchase Agreement, and certain other documents entered into in conjunction therewith (such loan and governing documents in the form and on the terms appended to this Agreement as Exhibit “A”, the “Subordinated Loan”), and is willing to make the Subordinated Loan subject to the terms of this Agreement, and Agent, on behalf of the Senior Lenders, is willing to permit Borrower to accept the Subordinated Loan on the terms set forth in the Subordinated Loan and in this Agreement;

 

NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged by each party to this Agreement, the undersigned parties hereto agree as follows:

 

1.           In this Agreement:

 

“Agent” has the meaning set forth in the preamble hereto.

 

“Affected Collateral” has the meaning set forth in Section 7 of this Agreement.

 

“Borrower” has the meaning set forth in the preamble hereto.

 

“Credit Agreement” has the meaning set forth in the first Whereas clause at the forepart of this Agreement.

 

“Enforcement Action” shall mean for Subordinated Lender to make demand for payment of or accelerate the maturity of the Subordinated Loan, take possession of or collect any of the collateral for the Junior Obligations, commence the enforcement (by judicial proceedings or otherwise) of any of the rights and remedies existing or available under any of the Subordinated Loan documents, at law or in equity against Borrower. Notwithstanding the foregoing, the term Enforcement Action shall not include an action by Subordinated Lender (a) for specific performance of Borrower’s obligations to deliver shares of common stock of Borrower pursuant to the Subordinated Loan documents, or (b) to foreclose on the Pledged Shares following a breach by Borrower of its obligations pursuant to the Subordinated Loan documents.

 

 

 

 

 

  

  

  

 

 

 

“Insolvency Proceeding” means any receivership, bankruptcy, liquidation, proposal, winding-up or similar proceeding.

 

“Junior Obligations” means all present and future obligations of Borrower to the Subordinated Lender for any reason whatsoever (including costs of enforcement).

 

“Junior Security” has the meaning set forth in Section 7 of this Agreement.

 

“Lenders” means Agent on the one hand, and the Subordinated Lender on the other hand; and “Lender” means either of them as the context requires.

 

“March Note” means that certain Secured Convertible Promissory Note issued by Borrower to Subordinated Lender on March 5, 2015 in the original principal amount of $350,000.00.

 

“Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization or any other entity or organization, including a government agency or political subdivision thereof.

 

“Pledged Shares” means the shares of common stock of Borrower pledged by an affiliate of Borrower as collateral for the Subordinated Loan.

 

“Prior Subordination Agreement” means that certain Subordination and Postponement Agreement dated March 5, 2015 by and among Borrower, Agent and Subordinated Lender.

 

“Senior Lenders” has the meaning set forth in the first Whereas clause at the forepart of this Agreement.

 

“Senior Obligations” means all present and future obligations of Borrower to Senior Lenders and/or Agent for any reason whatsoever (including costs of enforcement), and includes, but is not limited to, the Senior Secured Loans.

 

“Senior Secured Loans” has the meaning set forth in the first Whereas clause at the forepart of this Agreement.

 

“Senior Security” means all present and future security granted by Borrower to Senior Lenders as security for the payment and performance of the Senior Obligations.

 

“Standstill Notice” has the meaning set forth in Section 8 of this Agreement.

 

“Standstill Period” has the meaning set forth in Section 8 of this Agreement.

 

“Subordinated Lender” has the meaning set forth in the preamble hereto.

 

“Subordinated Loan” has the meaning set forth in the third Whereas clause at the forepart of this Agreement.

 

2.           Agent, on behalf of Agent and the Senior Lenders, hereby consents to the creation of the Junior Obligations by Borrower on the terms set forth in the Subordinated Loan (i.e., as set forth in Exhibit A) and in this Agreement.  The Subordinated Lender hereby consents and agrees to the subordination in right of payment of the Junior Obligations to the Senior Obligations on the terms set forth in this Agreement.

 

3.           Except to the extent permitted pursuant to Section 4, payment of the Junior Obligations is hereby subordinated and postponed to payment of the Senior Obligations.  For greater certainty, except to the extent permitted pursuant to Section 4, the Subordinated Lender hereby agrees that it shall not receive any cash payments of principal, interest or any other amounts in respect of the Junior Obligations, or exercise any right of set-off which it now has or hereafter may have in respect of the Junior Obligations, until the Senior Obligations have been paid and satisfied in full. Other than payments in the form of common stock of Borrower permitted pursuant to Section 4 and such cash payments as may be permitted pursuant to Section 4 and Section 5, if any amount in respect of the Junior Obligations is received by any Subordinated Lender in contravention of the foregoing provisions, such amount shall be held by such Subordinated Lender in trust for Agent and shall be immediately paid to Agent in precisely the form received (except for endorsement or assignment by Subordinated Lender to Agent where necessary).  In the event of the failure of Subordinated Lender to make any such endorsement or assignment to Agent, Agent or any of its officers or employees is hereby irrevocably authorized to make same as attorney-in-fact for Subordinated Lender.

 

 

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4.           Notwithstanding anything to the contrary contained herein, at any time, pursuant to the terms of the Subordinated Loan, Borrower may pay to the Subordinated Lender, and the Subordinated Lender may receive from Borrower, payments of interest on and principal of the Junior Obligations in the form of shares of common stock of Borrower.

 

5.           The parties acknowledge that the effect of the terms of this Agreement, and Section 3 in particular, is to prohibit Borrower from making any payment with respect to the Junior Obligations other than in the form of shares of common stock of Borrower, unless the Senior Obligations first are paid in full or the Agent first consents in writing.  If Borrower shall raise new capital in the form of equity or subordinated debt or a combination thereof on terms acceptable to the Agent, and provided that Borrower is not in default under any terms of the Credit Agreement, Agent may, in its sole and unfettered discretion and acting solely in its own interests and the interests of the Senior Lenders, decide to consent to the use of the proceeds of such new capital raise to pay some portion or all of the Junior Obligations in cash without requiring that the Senior Obligations first be paid in full.

 

6.           Borrower agrees not to pay any principal, interest or other amounts in respect of the Junior Obligations in contravention of the provisions of Sections 3 and 4.

 

7.           If for any reason whatsoever the Senior Security becomes unperfected or unenforceable against any property, assets or undertaking of Borrower (the “Affected Collateral”), and if for any reason whatsoever Subordinated Lender shall be granted, by judicial action or otherwise, a security interest in the Affected Collateral (“Junior Security”), the security interest in the Affected Collateral constituted by the Junior Security shall be held by Subordinated Lender in trust for Agent and shall be assigned and transferred to Agent promptly upon request by Agent; and if Subordinated Lender receives any proceeds in respect of its said security interest in the Affected Collateral, Subordinated Lender shall promptly account to Agent for all such proceeds, shall hold such proceeds in trust for Agent, and shall immediately pay such proceeds to Agent in cash.

 

8.           Until the Senior Obligations have been paid and satisfied in full in cash, Subordinated Lender may not and shall not: (i) except as permitted below, commence any Enforcement Action of any kind whatsoever against Borrower or any of its assets (including any collateral) to recover all or any part of the Junior Obligations other than in the form of common stock of Borrower; (2) enforce any Junior Security; or (3) join with any creditor in bringing any proceeding against Borrower under any liquidation, conservatorship, bankruptcy, reorganization, rearrangement, debtor’s relief, or other insolvency law now or hereafter existing. If an event of default has occurred under the Subordinated Loan, subject to the limitations set forth herein, Subordinated Lender may commence an Enforcement Action at any time after sixty (60) days (the “Standstill Period”) after Agent has received a written notice (a “Standstill Notice”) from Subordinated Lender of such default, which default was not cured or waived prior to Subordinated Lender’s taking the actions described herein.  In the event Borrower is the subject of a bankruptcy proceeding or any other proceeding that limits Senior Lenders’ ability to exercise their remedies, the running of the Standstill Period shall be tolled until the lifting of the automatic stay or the removal of any other limitation on Senior Lenders’ ability to exercise their remedies in order to permit Senior Lenders to foreclose their liens, provided further that when such automatic stay is lifted or such other limitation is removed, Subordinated Lender shall not take any action described herein until a new Standstill Period, beginning with the lifting of such automatic stay or the removal of such limitation, has expired. If Senior Lenders receive a Standstill Notice and the default described therein is cured or waived before the expiration of such Standstill Period, and before Subordinated Lender may take any Enforcement Action, then Agent must receive another Standstill Notice and a new Standstill Period (subject to tolling and other provisions of this Section 8) must have expired before Subordinated Lender may commence an Enforcement Action.

 

 

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9.           So long as any Senior Obligations remain unpaid, and except as provided herein, Subordinated Lender and Borrower will not (i) establish a sinking fund for the payment or prepayment of or otherwise arrange for the defeasance of any Junior Obligations; (ii) amend, modify or alter in any way the terms of the Junior Obligations, the Subordinated Loan documents, or any document, agreement, instrument or certificate relating thereto in a manner to shorten the maturity thereof or to cause any installment thereof to be due on an earlier date or to change the amount of any installment payment thereof or to increase the interest rate thereon or to otherwise materially and adversely affect Senior Lenders, or (iii) (as to Subordinated Lender) exercise any remedies with respect to any of the Junior Obligations or any collateral other than the Pledged Shares at any time securing payment or performance thereof, except as permitted in Section 8 hereto.  Subordinated Lender agrees that it will not challenge, object to or in any respect inhibit or otherwise interfere with Senior Lenders’ enforcement of any of their rights or remedies in respect of the Senior Obligations or this Agreement.

 

10.           Agent may continue, without notice to Subordinated Lender, to lend monies, extend credit and make other accommodations to or for the account of Borrower in reliance upon this Agreement. All payments received by Agent in respect of the Senior Obligations may be applied, reversed, and reapplied, in whole or in part, to any of the Senior Obligations, without impairing or affecting this agreement.

 

11.           Subordinated Lender assumes responsibility for keeping itself informed of the financial condition of Borrower and any guarantors of the Senior Obligations and the Junior Obligations and of all other circumstances bearing upon the risk of nonpayment of the Senior Obligations or the Junior Obligations; and agrees that Agent shall have no duty to advise Subordinated Lender of information known to Agent regarding any such condition or circumstances.  If Agent, in its sole discretion, undertakes, at any time or from time to time, to provide any such information to Subordinated Lender, Agent shall be under no obligation to subsequently update any such information or to provide any other information to Subordinated Lender on any subsequent occasion.

 

12.           Borrower consents to each Lender providing information regarding Borrower to the other Lenders from time to time if it wishes to do so.

 

13.           Borrower acknowledges receipt of notice of and consents to the terms contained herein, and also agrees to hold its properties and assets in accordance with the priorities set out herein.

 

14.           No waiver shall be deemed to be made by Agent of any of its rights hereunder unless the same shall be in writing signed on behalf of Agent and each such waiver, if any, shall be a waiver only with respect to the specific matter or matters to which the waiver relates and shall in no way impair the rights of Agent or the obligations of Subordinated Lender to Agent in any other respect at any other time.

 

15.           Subordinated Lender agrees not to transfer, assign, encumber or otherwise deal with its interest in the Junior Obligations and any Junior Security, or enter into any agreement to do so, unless the transferee executes and delivers to Agent a joinder agreement substantially in the form of Exhibit “B” attached hereto.  Any purported transfer, assignment or encumbrance of an interest in the Junior Obligations or any Junior Security in violation of the terms of this Section 15 shall be null and void.

 

 

 

 

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16.           Upon payment and satisfaction of the Senior Obligations in full, Agent shall, at the expense of Borrower and reasonably promptly after receipt of a written request from Borrower and Subordinated Lender, execute and deliver a release of this agreement, together with any other documents and assurances as may be reasonably required in connection with such release.

 

17.           All communications provided for or permitted hereunder shall be in writing and delivered to the addressee by prepaid private courier or sent by email to the applicable address and to the attention of the officer of the addressee as follows:

 

to Subordinated Lender, at:

 

Typenex Co-Investment, LLC

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

Attn:  John Fife

Email: jfife@chicagoventure.com

 

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

 

Hansen Black Anderson Ashcraft PLLC

3051 West Maple Loop Drive, Suite 325

Lehi, Utah 84043

Att:  Jonathan K. Hansen, Esq.

Email:  jhansen@hbaalaw.com

to Borrower, at:

 

c/o HydroCarb Energy Corporation

800 Gessner, Suite 375

Houston, TX 77024

Attention: Charles Dommer

Email: cdommer@hydrocarb.com

 

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

 

James Wes Christian

Christian, Smith & Jewell, L.L.P.

2302 Fannin, Suite 500

Houston, TX 77002

Email: jchristian@csj-law.com

to Agent, at:

Shadow Tree Capital Management LLC

7 Renaissance Square, 5th Floor

White Plains, NY 10601

Attention: Eric Keiter

Email: ekeiter@shadowtreecapital.com

 

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

Marino Partners LLP

15 Fisher Lane, Suite. 200

White Plains, NY 10528

Attention: Robert Cromwell

Email: rcromwell@marinollp.com

Any communication transmitted by prepaid private courier shall be deemed to have been validly and effectively given or delivered on the business day after which it is submitted for delivery.  Any communication transmitted by email shall be deemed to have been validly and effectively given or delivered on the day on which it is transmitted to the recipient’s email account at the host server, if transmitted on a business day on or before 5:00 p.m. (local time of the intended recipient), and otherwise on the next following business day.  Any party may change its address for service by notice given in the foregoing manner

 

18.           THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OR POLICIES OF CONFLICTS OF LAWS OF SUCH STATE.  ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE STATE AND FEDERAL COURTS LOCATED IN WESTCHESTER COUNTY, NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.  EACH PARTY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PERSON AT THE ADDRESS SPECIFIED IN SECTION 13.01, SUCH SERVICE TO BECOME EFFECTIVE UPON SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE OR BORROWER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

 

19.           This Agreement shall enure only to the benefit of the Lenders and their respective successors and permitted assigns and shall not enure to the benefit of any other person.  For greater certainty and without limiting the generality of the foregoing, the terms and conditions contained in this Agreement may not be relied upon by Borrower, any person claiming through Borrower (including a receiver or trustee in bankruptcy of Borrower) or any person other than the Lenders. This Agreement shall not apply so as to diminish the rights of the respective Lenders (as such rights would have existed but for the provisions of this agreement) against Borrower (including any person claiming through Borrower such as a receiver or trustee in bankruptcy of Borrower) or any other person. Borrower and Subordinated Lender hereby consent to the assignment by Agent of its benefits and obligations under this Agreement to any other party.

 

20.           Senior Lender acknowledges that cash payments were made by Borrower to Subordinated Lender under the March Note and Senior Lender waives any claims it may have under the Prior Subordination Agreement with respect to such cash payments. The parties agree that upon cancellation of the March Note, the Prior Subordination Agreement shall be cancelled, null and void and of no further force and effect, and no party thereto shall have any further liability or obligation thereunder.

 

[The balance of this page is intentionally blank. Signature page follows.]

 

 

 

 

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IN WITNESS WHEREOF the parties hereto have executed this Agreement effective as of the date first set forth above.

 

	
SHADOW TREE CAPITAL MANAGEMENT LLC,

AGENT FOR THE SENIOR LENDERS

	  
	  	  	  
	  	  	  
	
By:

	/s/ Samuel A. Gradess	  
	  	
Name: Samuel A. Gradess

Title: Manager

	  

TYPENEX CO-INVESTMENT, LLC

By: Red Cliffs Investments, Inc., its Manager

	
By:

	/s/ John Fife	  
	  	
Name: John Fife

Title: President

	  
	  	  	  	  
	
HYDROCARB ENERGY CORPORATION

	  
	  	  	  
	  	  	  
	
By:

	/s/ Kent P. Watts	  
	  	
Name: Kent P. Watts

Title: CEO

	  

 

 

 

 

 

 

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EXHIBIT “A”

 

 

FORM OF THE SUBORDINATED LOAN GOVERNING DOCUMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

 

 

EXHIBIT “B”

 

 

JOINDER AGREEMENT

 

We refer to the Subordination and Postponement Agreement made among Hydrocarb Energy Corporation, a Nevada corporation (the “Borrower”), Shadow Tree Capital Management LLC, a Delaware limited liability company, as agent for certain senior lenders (the “Agent”), and __________________, a _________ __________ (“Subordinated Lender”) dated as of _______, 2015 (the “Agreement”). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, we hereby agree to become a party to the Agreement as a Subordinated Lender, hereby agree to the status and treatment of all present and future obligations of Borrower to us as “Junior Obligations” under the terms of the Agreement, and hereby agree to observe and perform all of our obligations as the Subordinated Lender under the terms of the Agreement.

 

DATED this ______ day of ______________________________, _______.

 

IF SUBORDINATED LENDER IS NOT AN INDIVIDUAL:

 

	
Legal Name of Subordinated Lender (Please print):

	  
	  
	  
	  
	  
	  
	
By:

	  
	  	
Authorized Signatory

 

IF SUBORDINATED LENDER IS AN INDIVIDUAL:

 

	  	  	  
	  	  	  
	
Name of Subordinated Lender (Please print)

	  	
Signature

	  	  	  
	  	  	  
	
Witness

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