8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report: September 22, 2015

Date of earliest event reported: August 27, 2015

HYDROCARB ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Nevada	000-53313	30-0420930
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

800 Gessner, Suite 375, Houston, Texas	77024
(Address of principal executive offices)	(Zip Code)

(713) 970-1590

Registrant’s telephone number, including area code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On September 14, 2015, Kent P. Watts, the Chief Executive Officer and Chairman of Hydrocarb Energy Corporation (the “Company”, “we” and “us”), subscribed for $350,000 in Convertible Subordinated Promissory Notes and on September 17, 2015 he subscribed for an additional $166,667 in Convertible Promissory Notes (collectively, the “Watts Notes”).  The Watts Notes are due two years from their issuance date, accrue interest which is payable quarterly in arrears, at either a cash interest rate (equal to the WTI Rate described below) or a stock interest rate (12% per annum)(at the option of the holder at the beginning of each quarter), provided no principal or interest on the Watts Notes can be paid in cash until all amounts owed by the Company to its senior lender is paid in full.  In the event the stock interest rate is chosen by Mr. Watts, restricted shares of common stock equal to the total accrued dividend divided by the average of the closing sales prices of the Company’s common stock for the applicable quarter are required to be issued in satisfaction of amounts owed on a quarterly basis.  In the event the cash interest rate is chosen, interest accrues until converted into common stock (as discussed below) or until the Company is able to pay such accrued interest in cash pursuant to the terms of the Watts Notes.  The “WTI Rate” equals an annualized percentage interest rate equal to the average of the closing spot prices for West Texas Intermediate crude oil on each trading day during the immediately prior calendar quarter divided by ten, plus two (the “WTI Interest Rate”). For example, if the average quarterly closing spot Price was $60 for the prior quarter, the applicable interest rate for the next quarter would be 8% per annum ($60 / 10 = 6 + 2 = 8%). Notwithstanding the above, in the event that the average quarterly closing spot price is $40 or less, the WTI Rate for the applicable following quarter is 0%.  All principal and accrued interest on the Watts Notes is convertible into common stock at a conversion price of $0.75 per share at any time. Additionally, the Company may force the conversion of the Watts Notes into common stock in the event the trading price of the Company’s common stock is equal to at least $5.00 per share for at least 20 out of any 30 consecutive trading days.  Any shares of common stock issuable upon conversion of the Watts Notes are subject to a lock-up whereby no shares of common stock can be sold until January 1, 2016, and no more than 2,500 shares of common stock can be sold per day thereafter until the Company’s common stock is listed on the NASDAQ or NYSE market or the trading volume of the Company’s common stock is in excess of 100,000 shares per day. The Watts Notes have standard and customary events of default.

Previously, on August 26, 2015, Mr. S. Chris Herndon, the Company’s director purchased a Convertible Promissory Note in the amount of $100,000 with substantially similar terms as the Watts Notes (the “Herndon Note”).

The description of the Watts Notes and Herndon Note above are qualified in their entirety by the form of Convertible Subordinated Promissory Note attached hereto as Exhibit 10.1, which is incorporated by reference in this Item 1.01.

On September 21, 2015, Mr. Watts and the Company entered into a First Amendment to Exchange Agreement, which amended the Exchange Agreement dated June 10, 2015, which was originally disclosed in the Form 8-K filed by the Company with the Securities and Exchange Commission on June 19, 2015. Pursuant to the original terms of the Exchange Agreement, Mr. Watts exchanged all rights he had to 8,188 shares of Series A 7% Convertible Voting Preferred Stock, and accrued and unpaid dividends which would have been due thereunder, assuming such Series A 7% Convertible Voting Preferred Stock was correctly designated and issued, into 32 units, each consisting of (a) 25,000 shares of the restricted common stock of the Company; and (b) $100,000 in face amount of Convertible Subordinated Promissory Notes. Specifically, Mr. Watts received an aggregate of 800,000 shares of common stock and a Convertible Promissory Note with an aggregate principal amount of $3.2 million and a maturity date of June 10, 2018 (the “Watts Exchange Note”) in connection with the Exchange Agreement.  The First Amendment reduced the total Units due to Mr. Watts to 30 units, and as such, Mr. Watts received Convertible Promissory Notes with a principal amount of $3 million and 750,000 shares of common stock in connection with the exchange originally contemplated by the Exchange Agreement.  The Watts Exchange Note is described in greater detail in the Form 8-K filed by the Company with the Securities and Exchange Commission on June 29, 2015.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information regarding the $1,725,554 in Convertible Subordinated Promissory Notes sold to date as described in Item 1.01 and Item 3.02 below, is incorporated in this Item 2.03 by reference.

Item 3.02 Unregistered Sales of Equity Securities.

As described above in Item 1.01, in September 2015, we sold Mr. Watts $516,667 in Convertible Subordinated Promissory Notes and in August 2015 we sold Mr. Herndon $100,000 in Convertible Subordinated Promissory Notes.  In addition to the Watts Notes and Herndon Note described above, the Company has sold an aggregate of $1,124,165 in Convertible Subordinated Promissory Notes as part of a private offering to accredited investors to date (including the Summers Note, described below).  In the event the $1,725,554 in aggregate outstanding Convertible Subordinated Promissory Notes was converted into common stock (not including any accrued and unpaid interest which is also convertible) an aggregate of 2,321,110 shares of common stock of the Company would be required to be issued upon conversion.

We believe that the issuance of the securities described above was exempt from registration pursuant to (a) Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”); and/or (b) Rule 506 of the Securities Act, and the regulations promulgated thereunder. With respect to the transaction described above, no general solicitation was made either by us or by any person acting on our behalf. The transaction was privately negotiated, and did not involve any kind of public solicitation. No underwriters or agents were involved in the foregoing issuance and the Company paid no underwriting discounts or commissions. The securities sold are subject to transfer restrictions and may not be offered or sold absent registration or pursuant to an exemption therefrom. All recipients (a) were “accredited investors” and/or (b) either received adequate information about us or had access, through employment or other relationships, to such information, to make an informed investment decision regarding the securities.

Effective September 8, 2015, Typenex Co-Investment, LLC (“Typenex”), exercised warrants to purchase 260,788 shares of our common stock which it held (at an exercise price of $1.17 per share – the warrants originally had an exercise price of $2.25 per share, but were subsequently reduced in connection with Typenex’s anti-dilution rights to $1.17 per share, in connection with a convertible note transaction which had a conversion price of $1.17 per share), in a net cashless transaction and on September 18, 2015, in connection with such exercise, we issued 128,048 net shares of common stock to Typenex. We claim an exemption from registration provided by Section 3(a)(9) of the Securities Act, as the security was exchanged by us with our existing security holder in a transaction where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Effective on July 31, 2015, the Board of Directors of the Company issued 3,398 shares of restricted common stock to each of Kent P. Watts, and S. Chris Herndon, members of our Board of Directors in consideration for services rendered to the Company as directors.

Effective September 7, 2015, the Board of Directors increased the number of members of the Company’s Board of Directors from two to three and appointed Clint Summers as a member of the Board of Directors to fill the newly created vacancy, each pursuant to the power provided to the Board of Directors by the Company’s Bylaws and the Nevada Revised Statutes.

Subsequent to the date of Mr. Summers’ appointment as a member of the Board of Directors, on September 7, 2015, Mr. Summers unexpectedly passed away from natural causes.  The Company would like to provide its sincere condolences to Mr. Summer’s family. As a result of Mr. Summers’ passing, the Company continues to maintain a two member Board of Directors.

Mr. Summers’ biographical information is provided below:

Clint Summers, Age 69

From January 1988 until his untimely passing, Mr. Summers served as the owner, Treasurer and President of Express Oil, Inc.  From October 1993 until his untimely passing, Mr. Summers served as the Treasurer and Director of African Outreach Ministries, a 501(c)(3) non-profit which has the goal of establishing Christian churches throughout Africa.  From March 2007 until his untimely passing, Mr. Summers served as the Treasurer and Director of Mission24, Inc., a 501(c)(3) non-profit which has the goal of serving Christian ministers and ministries in transitioning into full-time ministers and supporting various ministries.  From January 2000 until his untimely passing, Mr. Summers served as an accountant and Treasurer of various multi-family housing real estate limited liability companies. Prior to January 1988, Mr. Summers held various accounting and management positions with petrochemical, software development and CPA firms.  Mr. Summers had over 30 years of experience in the petroleum industry. Mr. Summers obtained a Bachelor’s Degree in accounting from Abilene Christian University in Abilene Texas in 1968 and was licensed by the Texas Board of Public Accountancy.

On August 20, 2015 and August 27, 2015, Mr. Summers purchased 166,666 shares of restricted common stock (333,332 shares in aggregate) from Mr. Watts for $0.50 per share in a private transaction.

Mr. Summers was a 20% owner of Duma Holdings, LLC (“Duma Holdings”), which purchased a $350,000 Convertible Secured Promissory Note (the “Duma Holdings Note”)(with a $7,000 original issuance discount) from the Company on July 16, 2015. S. Chris Herndon, a member of our Board of Directors, owns a 20% interest in Duma Holdings.  The Duma Holdings Note (along with any unpaid interest thereon) is convertible at any time, provided the note is converted in full, into (a) 1.75 units (“Units”), each consisting of 25,000 shares of common stock of the Company and $100,000 in face amount of Convertible Subordinated Promissory Notes in the form currently offered by the Company in its ongoing private offering of Units as previously disclosed in the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on June 19, 2015 (which allow the holder thereof the right to convert such notes into common stock at a conversion price of $4 per share, and convert into shares of our to-be designated and approved Series B Convertible Preferred Stock upon designation thereof by the Company, subject to approval of such Series B Convertible Preferred Stock by stockholders at the annual meeting); and (b) 350,000 shares of common stock (393,750 shares of common stock in aggregate when combined with the shares which form part of the Units). The Duma Holdings Note is due and payable by us on November 30, 2015. The Duma Holdings Note accrues interest at the rate of 15% per annum, payable beginning on October 31, 2015, and quarterly thereafter through maturity. The Duma Holdings Note can only be repaid with the prior written approval of Duma Holdings.  The Duma Holdings Note contains usual and customary events of default, representations and warranties.  The payment of the principal and accrued interest due under the Duma Holdings Note is personally guaranteed by Kent P. Watts, our Chief Executive Officer and Michael Watts, his brother, pursuant to separate guaranty agreements (the “Guarantee Agreements”), and secured by a first priority security interest on certain real estate owned by Kent P. Watts pursuant to a Deed of Trust, Assignment of Rents and Security Agreement.

On September 2, 2015, Mr. Summers purchased a Convertible Subordinated Promissory Note from the Company in the aggregate principal amount of $83,333, which has substantially similar terms as the Watts Notes, described in Item 1.01 above.

Item 8.01 Other Events

In July, August and September 2015, Mr. Watts sold an aggregate of 1,396,665 shares of restricted common stock which he held to thirteen purchasers in private transactions for $0.50 per share ($698,333 in aggregate), including 333,332 shares of common stock which were purchased by Mr. Summers as described above.  A closing condition to the sale was that Mr. Watts enter into the voting agreement described below and that Mr. Watts use the funds received to purchase notes as described in Item 1.01 above.

On or around August 25, 2015, Mr. Watts entered into a voting agreement in favor of S. Chris Herndon, a member of the Board of Directors of the Company.  Pursuant to the voting agreement, Mr. Watts provided Mr. Herndon a voting proxy to vote all of the shares of common stock which Mr. Watts owned (approximately 4,946,955 shares as of his entry into the agreement) or which he may acquire in the future, to vote to elect or remove (as applicable) 66.6% of members of the Company’s Board of Directors on any stockholder vote (i.e., 2 out of 3 directors).  The voting agreement was to become effective, only if Mr. Watts had sold $1 million in securities in private transactions on similar terms as described above before September 21, 2015 and was to remain effective from such date, if ever, until the earlier of: (a) August 19, 2017; and (b) the due date of a certain convertible note which a company affiliated with Mr. Herndon (Duma Holdings, LLC) may choose to purchase from the Company in the future as described in greater detail in the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on July 31, 2015.

On or around the same date, Chris Watts, the nephew of Kent P. Watts, and the largest shareholder of the Company, entered into a voting agreement with Mr. Herndon on substantially similar terms as the voting agreement with Kent P. Watts described above.

As a result of Mr. Watts not selling $1 million in securities in private transactions on similar terms as described above before September 21, 2015, the voting agreements were never effective and have since expired.

The Company would also like to disclose that to date, the Company has paid $1,043,098 in connection with the payment of variable conversion rate convertible notes, and prepayment penalties thereon.  To date, none of the Company’s previously issued variable conversion rate convertible notes have converted into common stock.  The Company plans to pay off another $1,232,630 of variable conversion rate convertible notes between September 2015 and the end of January 2016.

Item 9.01 Financial Statements and Exhibits.

Exhibit No.	Description
10.1*	Form of Convertible Subordinated Promissory Note
10.2*	Voting Agreement (August 25, 2015) between Kent P. Watts and S. Chris Herndon
10.3*	Voting Agreement (August 28, 2015) between Christopher Watts and S. Chris Herndon
10.4*	First Amendment to Exchange Agreement between Kent P. Watts and Hydrocarb Energy Corporation (September 21, 2015)

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

Date: September 22, 2015	Hydrocarb Energy Corporation
	/s/ Kent P. Watts
	Kent P. Watts
	Chief Executive Officer

EXHIBIT INDEX

Exhibit No.	Description
10.1*	Form of Convertible Subordinated Promissory Notes
10.2*	Voting Agreement (August 25, 2015) between Kent P. Watts and S. Chris Herndon
10.3*	Voting Agreement (August 28, 2015) between Christopher Watts and S. Chris Herndon
10.4*	First Amendment to Exchange Agreement between Kent P. Watts and Hydrocarb Energy Corporation (September 21, 2015)

* Filed herewith.

EX-10.1

Exhibit 10.1

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

CONVERTIBLE SUBORDINATED PROMISSORY NOTE

Effective ____________________, 2015

FOR VALUE RECEIVED, Hydrocarb Energy Corporation, a Nevada corporation (the “Corporation”), hereby promises to pay to the order of _______________, an _____________ and/or permitted assigns (the “Holder”), the aggregate principal amount of $________________ (the “Principal”), together with interest on the unpaid Principal amount hereof, upon the terms and conditions hereinafter set forth. This Convertible Subordinated Promissory Note is defined herein as the “Note”, or the “Promissory Note”. The “Effective Date” of this Note shall be ______, 2015. The Holder acquired the Note pursuant to the terms of that certain Subscription Agreement entered into between the Corporation and the Holder dated on or around _____, 2015. Purchasers, assignees and transferees of this Note should note that the Principal balance of the Note as set forth above may not accurately reflect the total balance of Principal then owed under this Note due to the provisions of Section 4(b).  The Holder, any purchasers, assignees and transferees of this Note should also thoroughly read and review Section 5 hereof, which sets forth the terms and conditions upon which this Note (and the amount owed hereunder) will automatically convert into to-be-designated shares of Series B Convertible Preferred Stock of the Corporation upon the designation of such Series B Convertible Preferred Stock with the Secretary of State of Nevada.  This Note was issued with an original issue discount equal to 25% of the original Principal amount of the Note.

1.          Payment Terms. The Corporation promises to pay to the Holder the balance of Principal, together with any accrued and unpaid interest due hereunder on _____, 2018 (the “Maturity Date”), unless this Note is earlier (a) prepaid as herein provided; (b) converted into common stock, $0.001 par value per share of the Corporation (“Common Stock”) pursuant to Section 4 below; or (c) subject to an Automatic Preferred Stock Conversion, as described below in Section 5. All payments hereunder shall be made in lawful money of the United States of America. Payment shall be credited first to the accrued Interest then due and payable and the remainder to Principal.

Convertible Subordinated Promissory Note

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2.          Interest. The Principal of this Note shall accrue interest Quarterly in arrears at the Interest Rate (“Interest” and such interest which is accrued and unpaid as of the applicable determination date, “Accrued Interest”). Accrued Interest shall be added to the Principal Amount of this Note until the earlier to occur of (i) the Automatic Preferred Stock Conversion Date, at which time all Accrued Interest shall be subject to Section 5(a) below, and (ii) January 31, 2016 (the “Interest Payable Date”). Beginning on the Interest Payable Date, interest accruing on this Note after such date shall be payable by the Corporation in cash at the end of each Quarter until the earlier of (a) the Maturity Date; (b) the date this Note is repaid in full; and (c) the Automatic Preferred Stock Conversion Date. All past-due Principal and Interest shall bear Interest at the rate of twelve percent 12% per annum until paid in full (the “Default Rate”). The Interest Rate shall be computed on the basis of the actual number of days elapsed and a year of 365 days. The “Interest Rate” means an annualized percentage interest rate equal to the Average Quarterly Closing Spot Price divided by ten (10), plus two (2). For example, if the Average Quarterly Closing Spot Price was $60.00 for the prior Quarter, the applicable Interest Rate for the next Quarter would be 8% per annum ($60.00 / 10 = 6 + 2 = 8%). The Interest Rate shall reset Quarterly, based on the Average Quarterly Closing Spot Price for the prior Quarter. Notwithstanding the above, in the event that the Average Quarterly Closing Spot Price is $50 or less, the Interest Rate for the applicable following Quarter shall be 0%. Notwithstanding the above, the Interest Rate applicable from the Effective Date until the end of the first full Quarter following the Effective Date shall be [___%] per annum. “Average Quarterly Closing Spot Price” means the average of the Closing Spot Prices for each WTI Trading Day for the then prior Quarter. “Closing Spot Price” means the closing WTI Crude Oil Spot Price. “WTI” means West Texas Intermediate crude oil. “WTI Trading Day” means a day that WTI futures are traded on the New York Mercantile Exchange. “Quarter” means any of the following during any calendar year: the three (3) month period ending March 31, June 30, September 30 or December 31.

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

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

Convertible Subordinated Promissory Note

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

3.          Prepayment. This Note may be prepaid by the Corporation in whole or part at any time (each a “Prepayment”), provided that if any Prepayment is made prior to the first anniversary of the Effective Date, the Corporation shall, in addition to paying applicable Principal and Accrued Interest (as applicable, the “Repayment Amount”), pay the Holder an additional 15% premium on such Repayment Amount. Any partial Prepayment shall be applied first to any Accrued Interest and then to any Principal outstanding.

4.          Holder’s Option to Convert This Note Into Shares.

(a)           At any time prior to the earlier of (i) the payment in full by the Corporation of this Note; and (b) the Automatic Preferred Stock Conversion Date, the Holder shall have the option to convert the then outstanding Principal balance and any Accrued Interest under the Note (or any portion thereof), into restricted shares of Common Stock (the “Shares”) of the Corporation (the “Conversion Option”) at the Conversion Price (each a “Conversion”). The “Conversion Price” shall equal $4.00 per Share;

(b)           In order to exercise this Conversion Option, the Holder shall provide the Corporation a written notice of its intentions to exercise this Conversion Option, which notice shall set forth the amount of this Promissory Note to be converted,and the calculation of the Conversion Price, which shall be in the form of Exhibit A, attached hereto (“Notice of Conversion”). Within ten (10) Business Days of the Corporation’s receipt of the Notice of Conversion (reflecting a Conversion Price confirmed by the Corporation), the Corporation shall deliver or cause to be delivered to the Holder, written confirmation that the Shares have been issued in the name of the Holder. If the Corporation reasonably believes that there is an error in Holder’s calculation of the Shares issuable in connection with the Notice of Conversion or the Conversion Price provided for therein, the Corporation shall not be obligated to honor such defective Notice of Conversion and shall promptly notify Holder of such errors. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Note to the Corporation until the Holder has converted the entire amount of this Note, in which case, the Holder shall surrender this Note to the Corporation for cancellation within three (3) Business Days of the date the final Notice of Conversion is delivered to the Corporation. Partial conversions of this Note shall have the effect of lowering the outstanding Principal amount of this Note. The Holder and the Corporation shall maintain records showing the actual Principal Amount of this Note, provided that absent manifest error, the Corporation’s records shall control;

Convertible Subordinated Promissory Note

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

(d)           Conversion calculations pursuant to this Section 4, shall be rounded to the nearest whole share of common stock;

(e)           If the Corporation at any time or from time to time on or after the Effective Date of this Note (the “Original Issuance Date”) effects a subdivision of its outstanding common stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased, and conversely, if the Corporation at any time or from time to time on or after the Original Issuance Date combines its outstanding shares of common stock into a smaller number of shares, the Conversion Price then in effect immediately before the combination shall be proportionately increased; and

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

5.          Automatic Conversion of this Note Into Series B Convertible Preferred Stock.

(a)           The Principal and all accrued and unpaid Interest hereon (collectively, the “Note Balance”), shall automatically and without any required action by Holder, be converted into that number of fully-paid, non-assessable shares of Series B Convertible Preferred Stock as determined by dividing the Note Balance by the Preferred Stock Conversion Price (with any remaining Note Balance being defined herein as the “Remaining Note Balance”), at such time, if ever, as the Series B Preferred Stock Designation has occurred (an “Automatic Preferred Stock Conversion” and the “Automatic Preferred Stock Conversion Shares”). The date of the occurrence of the Series B Preferred Stock Designation shall be defined herein as the “Automatic Preferred Stock Conversion Date”. The “Preferred Stock Conversion Price” shall equal the Original Issue Price of the Series B Preferred Stock as set forth in the form of Certificate of Designations of the Series B Convertible Preferred Stock in substantially the form attached as Exhibit B hereto (the “Designation”), which forms an integral part of this Note. The “Series B Preferred Stock Designation” shall be defined herein as the earlier of (a) the filing by the Corporation with the Secretary of State of Nevada of the Designation; or (b) the filing by the Corporation with the Secretary of State of Nevada of an amendment to the Corporation’s Certificate of Formation with substantially similar terms as the Designation, as applicable.  By accepting this Note, the Holder agrees and confirms that the Corporation does not currently have any preferred stock authorized, and the Series B Preferred Stock Designation and therefore the Automatic Preferred Stock Conversion is contingent upon the shareholders of the Corporation (i) authorizing the Board of Directors’ ability to designate preferred stock of the Corporation; and/or (ii) authorizing an amendment to the Corporation’s Articles of Incorporation, which there can be no assurance will occur.

Convertible Subordinated Promissory Note

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(b)           Following an Automatic Preferred Stock Conversion, the Corporation shall within ten (10) Business Days, notify each Holder that an Automatic Preferred Stock Conversion has occurred, at the address of each Holder which the Corporation then has on record (an “Automatic Preferred Stock Conversion Notice”), provided that the Corporation is not required to receive any confirmation that such Automatic Preferred Stock Conversion Notice was received by a Holder, but instead assuming such Automatic Preferred Stock Conversion Notice was sent to the address which the Corporation then has on record for such Holder, the Automatic Preferred Stock Conversion Notice shall be treated as received by the Holder for all purposes on the third (3rd) Business Day following the date such notice was sent by the Corporation (the “Automatic Preferred Stock Conversion Notice Receipt Date”). Within ten (10) Business Days following the Automatic Preferred Stock Conversion Notice Receipt Date, the Corporation shall (i) issue the Holder the Automatic Preferred Stock Conversion Shares which such Holder is due; and (ii) pay the Holder the Remaining Note Balance; and promptly deliver certificates evidencing such Automatic Preferred Stock Conversion Shares and such Remaining Note Balance to the address of Holder which the Corporation then has on record (a “Delivery”). The Automatic Preferred Stock Conversion Shares issuable in connection with an Automatic Preferred Stock Conversion shall be fully-paid, non-assessable shares of Series B Convertible Preferred Stock. The Automatic Preferred Stock Conversion Shares shall be issued as restricted shares.

(c)           The issuance and Delivery by the Corporation of the Automatic Preferred Stock Conversion Shares and if applicable, the Remaining Note Balance, shall fully discharge the Corporation from any and all further obligations under or in connection with this Note, including, but not limited to the Principal and Accrued Interest due hereunder, and shall automatically, and without any required action by the Corporation or the Holder, result in the cancellation, termination and deemed payment in full of the then Note Balance held by Holder or his, her or its assigns.

(d)           The Corporation shall be authorized to take whatever action necessary, if any, following the issuance and Delivery of the Automatic Preferred Stock Conversion Shares and, if applicable, the Remaining Note Balance, to reflect the cancellation, termination and payment in full of this Note, which shall not require the approval and/or consent of the Holder, and provided that by agreeing to the terms and conditions of this Note, Holder hereby agrees to release the Corporation from any and all liability whatsoever in connection with the cancellation and termination of the Note following an Automatic Preferred Stock Conversion, which as stated above, shall be automatically cancelled upon the issuance of such Automatic Preferred Stock Conversion Shares (a “Cancellation”).

(e)           Notwithstanding the above, the Holder, by accepting this Note hereby covenants that it will, whenever and as reasonably requested by the Corporation, at its sole cost and expense, do, execute, acknowledge and deliver any and all such other and further acts, deeds, assignments, transfers, conveyances, confirmations, powers of attorney and any instruments of further assurance, approvals and consents as the Corporation may reasonably require in order to complete, insure and perfect the Cancellation, if such may be reasonably required by the Corporation.

Convertible Subordinated Promissory Note

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(f)           In the event that the Delivery of any Automatic Preferred Stock Conversion Shares (or if applicable, the Remaining Note Balance) is unsuccessful and/or any Holder fails to accept such Automatic Preferred Stock Conversion Shares (or if applicable, the Remaining Note Balance), such Automatic Preferred Stock Conversion Shares (and if applicable, the Remaining Note Balance) shall be held by the Corporation and/or the Transfer Agent in trust (without accruing interest) and shall be released to such Holder upon reasonable evidence to the Corporation that such Holder is the legal owner of such Automatic Preferred Stock Conversion Shares (and if applicable, the Remaining Note Balance), provided that the Holder’s failure to accept such Automatic Preferred Stock Conversion Shares and if applicable, the Remaining Note Balance and/or the Corporation’s inability to Deliver such shares or cash shall in no event effect the validity of the Cancellation.

(g)           The Automatic Preferred Stock Conversion Right shall supersede and take priority over the Holder’s Conversion Option set forth in Section 4, in the event that there are any conflicts between such rights.

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

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

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

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

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

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

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

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

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

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8.          Subordination.

(a)           Agreement To Subordinate.  The Corporation agrees, and the Holder by accepting the Note agrees, that the payment of all Principal and Interest and all other amounts, if any, owing in respect of the Note (the “Obligations”) is subordinated in right of payment, to the extent and in the manner provided in this Section 8, to the prior payment in full of all existing and future Senior Indebtedness (defined below) of the Corporation and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Note shall in all respects rank pari passu in right of payment with all other indebtedness of the Corporation, and only indebtedness of the Corporation that is Senior Indebtedness shall rank senior to the Note in accordance with the provisions set forth herein.  “Senior Indebtedness” means all present and future obligations of the Corporation to the lenders and the agent for the lenders under that certain Amended and Restated Credit Agreement, originally dated as of August 15, 2014 and amended and restated as of June 10, 2015 by and among the Corporation, the lenders named therein and the agent for lenders named therein (the “A&R Credit Agreement”).

(b)            Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of the assets of the Corporation to creditors upon a total or partial liquidation or a total or partial dissolution of the Corporation or in a reorganization of or similar proceeding relating to the Corporation or its property:

(i)           the holders of Senior Indebtedness of the Corporation shall be entitled to receive payment in full in cash of such Senior Indebtedness (including interest accruing after, or which would accrue but for, the commencement of any such proceeding at the rate specified in the applicable Senior Indebtedness, whether or not a claim for such interest would be allowed) before the Holder of the Note shall be entitled to receive any payment; and

(ii)           until the Senior Indebtedness of the Corporation is paid in full in cash, any payment or distribution to which the Holder of the Note would be entitled but for the subordination provisions of this Indenture shall be made to holders of such Senior Indebtedness as their interests may appear; provided that neither the foregoing restriction nor any other provision of this Section 8 shall in any way restrict any Conversion or any Automatic Preferred Stock Conversion; and

(iii)           if a distribution is made to the Holder of the Note that, due to the subordination provisions, should not have been made to them, the Holder of the Note is required to hold it in trust for the holders of Senior Indebtedness of the Corporation and pay it over to them as their interests may appear.

(c)            No Payments on Note Until Senior Indebtedness is Paid in Full.  The Corporation shall not pay principal of, premium, if any, or interest on the Note (or pay any other Obligations relating to the Note) and may not purchase, redeem or otherwise retire any Note (collectively, “pay the Note”) until the Senior Indebtedness is paid in full; provided that neither the foregoing restriction nor any other provision of this Section 8 shall in any way restrict any Conversion or any Automatic Preferred Stock Conversion.

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(d)  When Distribution Must Be Paid Over. If a distribution is made to the Holder of the Note that, due to the subordination provisions, should not have been made to the Holder, the Holder is required to hold it in trust for the holders of Senior Indebtedness of the Corporation, and pay it over to them as their interests may appear.

(e) Subordination May Not Be Impaired by the Corporation.  No right of any holder of Senior Indebtedness of the Corporation to enforce the subordination of the Indebtedness evidenced by the Note shall be impaired by any act or failure to act by the Corporation or by the Corporation’s failure to comply with this Note.

(f) Reliance by Holders of Senior Indebtedness of the Corporation on Subordination Provisions. The Holder by accepting the Note acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of the Corporation, whether such Senior Indebtedness was acquired before or after the issuance of the Note, to consent to the issuance of the Note, and to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of such Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in consenting to the issuance of the Note and in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness.

Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness of the Corporation may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the subordination provided in this Section 8 or the obligations hereunder of the Holder to the holders of the Senior Indebtedness of the Corporation, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness of the Corporation, or otherwise amend or supplement in any manner Senior Indebtedness of the Corporation, or any instrument evidencing the same or any agreement under which Senior Indebtedness of the Corporation is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness of the Corporation; (iii) release any Person liable in any manner for the payment or collection of Senior Indebtedness of the Corporation; and (iv) exercise or refrain from exercising any rights against the Corporation and any other Person.

(g)  No part of this Section 8 may be amended without the consent of the holders of the Senior Indebtedness.

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

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

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

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

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

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

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15.          No Third Party Benefit. The provisions and covenants set forth in this Note are made solely for the benefit of the parties to this Note and are not for the benefit of any other person, and no other person shall have any right to enforce these provisions and covenants against any party to this Note, except that the holders of Senior Indebtedness are entitled to enforce their rights under Section 8.

16.          Jurisdiction, Venue and Jury Trial Waiver. In any actions predicated upon this Note, venue is properly laid in Texas and the Circuit Court in and for Harris County, Texas, shall have exclusive full subject matter and personal jurisdiction over the parties to determine all issues arising out of or in connection with the execution and enforcement of this Note, provided that the holders of Senior Indebtedness are entitled to enforce their rights under Section 8 in the venue specified in the Amended & Restated Credit Agreement.

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

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

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19.          Cumulative Rights. No delay on the part of Holder or any other holder of this Note in the exercise of any power or right under this Note, shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or exercise of any other power or right. Enforcement by the Holder or any other holder of this Note of any security for the payment hereof shall not constitute any election by it of remedies so as to preclude the exercise of any other remedy available to it.

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

If to the Corporation:

Hydrocarb Energy Corporation

Attn: Kent P. Watts

800 Gessner Road, Suite 375

Houston, Texas 77024

With a copy to:

The Loev Law Firm, PC

Attn: David M. Loev, Esq.

6300 West Loop South, Suite 280

Bellaire, Texas 77401

Phone: (713) 524-4110

Fax: (713) 524-4122

If to the Holder:

To the address of Holder set forth in the Subscription Agreement.

or at such other address or number as shall be designated by either of the parties in a notice to the other party given in accordance with this Section 20, provided that at least ten (10) days prior written notice shall be given for any change. Except as otherwise provided in this Note, all such communications shall be deemed to have been duly given: (A) in the case of a notice sent by regular or registered or certified mail, three business days after it is duly deposited in the mails; (B) in the case of a notice delivered by hand, when personally delivered; (C) in the case of a notice sent by facsimile, upon transmission subject to telephone confirmation of receipt; and (D) in the case of a notice sent by overnight mail or overnight courier service, the next business day after such notice is mailed or delivered to such courier, in each case given or addressed as aforesaid.

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

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

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

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

“Corporation”

HYDROCARB ENERGY CORPORATION

By:______________________

Its:______________________

Printed Name:______________________

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EXHIBIT A

Conversion Election Form

____________, 20__

Hydrocarb Energy Corporation

Attn: Kent P. Watts

800 Gessner Road, Suite 375

Houston, Texas 77024

Re:           Conversion of Convertible Subordinated Promissory Note

Ladies and Gentlemen:

You are hereby notified that, pursuant to, and upon the terms and conditions of that certain Convertible Subordinated Promissory Note of Hydrocarb Energy Corporation (the “Corporation”) dated ______, 2015 in the amount of $________ (the “Note”), held by us, we hereby elect to exercise our Conversion Option (as such term in defined in the Note), in connection with $__________ of the amount currently owed under the Note (including $___________ of accrued interest), effective as of the date of this writing, which amount will convert into ________________ shares of the common stock of the Corporation (the “Conversion”), based on the Conversion Price (as defined in the Note). Please issue certificate(s) for the applicable securities issuable upon the Conversion, in the name of the person provided below.

Very truly yours,

___________________________

Name:

If on behalf of Entity:

Entity Name:______________

Signatory’s Position with Entity:

_____________________________

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

______________________________________________

Name

______________________________________________

Address

______________________________________________

Social Security No./EIN of Shareholder

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

Attn:___________________________________________

Address:________________________________________

EXHIBIT B

[SERIES B CONVERTIBLE PREFERRED STOCK DESIGNATION]

[Provided Separately]

EX-10.2

Exhibit 10.2

VOTING AGREEMENT

           This Voting Agreement, dated as of August [ ], 2015, (this “Agreement”), is entered into by and among S. Chris Herndon, an individual (“Voting Proxy”), and the undersigned stockholder of Hydrocarb Energy Corp. (the “Stockholder” and the “Company”), each a “Party” and collectively the “Parties”.

RECITALS:

A. The Stockholder currently owns that number of shares of the common stock of the Company as set forth on the signature page hereof (collectively, the “Shares”); and

B. The Stockholder desires to provide Voting Proxy a voting proxy to vote the Shares at any meeting of the Company, pursuant to any consent to action without meeting of the Company, and/or any other event which may require or may allow for the vote of the Shares, pursuant to the terms and conditions below.

NOW, THEREFORE, for $10 and in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:

1.           The Shares. Any interest or other voting securities, or the voting rights relating thereto, of the Company that may be owned, held or subsequently acquired in any manner, legally or beneficially, directly or indirectly, of record or otherwise, by the Stockholder, other than the Shares, at any time during the term of this Agreement as (a) a result of the ownership of the Shares whether issued incident to any split, dividend, conversion, increase in capitalization, recapitalization, merger, consolidation, reorganization, or other transaction; and (b) any additional voting shares or other voting securities of the Company, or the voting rights relating thereto, that may be owned, held or subsequently acquired in any manner, legally or beneficially, directly or indirectly, of record or otherwise, by the Stockholder from time to time during the Term of this Agreement; shall be included within the term “Shares” as used herein and shall be subject to the terms of this Agreement.

2.           Due Authority. The Stockholder represents that he has full power and authority to execute and deliver this Agreement and to perform his obligations hereunder and consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by or on behalf of the Stockholder and constitutes a legal, valid and binding obligation of Stockholder, enforceable against him in accordance with its terms.

3.           No Conflict; Consents.

(a)           The execution and delivery of this Agreement by the Stockholder does not, and the performance of this Agreement by the Stockholder will not, require any consent, approval, authorization or permit of, filing with (except for applicable requirements, if any, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), or notification to, any government or regulatory authority by the Stockholder.

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(b)           No other person or entity has, or will have during the Term (as defined below), any right, directly or indirectly, to vote or control or affect the voting of the Shares.

4.           Title to Shares; Certificate Form. Stockholder is owner of the Shares free and clear of any proxy or voting restriction other than pursuant to this Agreement; and has sole voting power with respect to the Shares.

5.           Covenants of Stockholder. Stockholder hereby covenants and agrees as follows:

(a)           Transfer of Shares. During the Term (as defined below) Stockholder shall not, and shall not permit anyone else to, (i) sell, transfer, encumber, pledge, assign or otherwise dispose of any of the Shares, (ii) deposit the Shares into a voting trust or enter into a voting agreement or arrangement with respect to the Shares or grant any proxy or power of attorney with respect thereto, or (iii) enter into any contract, option or other legally binding undertaking providing for any transaction provided in (i) or (ii) hereof (each a “Transaction”), unless (A) the Shares are sold in the open market, or in an arms-length transaction with a non-affiliated party which transaction(s) the Stockholder shall have the right, without required approval of the Voting Proxy, and without limitation, to affect during the Term; (B) such Stockholder has received the prior written authorization for such Transaction from Voting Proxy; or (C) unless the proposed transferee or pledgee shall have entered into a written agreement with Voting Proxy, containing terms and conditions satisfactory to Voting Proxy, in which such transferee or pledgee shall agree to be bound by all the terms and conditions of this Agreement.

(b)           Proxy. Stockholder, by this Agreement, hereby constitutes and appoints Voting Proxy, with full power of substitution, during and for the Term, as Stockholder’s true and lawful attorney and irrevocable proxy, for and in Stockholder’s name, place and stead, to vote the Shares owned or held by Stockholder as Stockholder’s proxy in connection with the election or removal of the Board Percentage of the directors of the Company, in all proceedings in which the vote or written consent of Stockholder may be required or authorized by law during the Term (including, but not limited to actual meetings of the Stockholder of the Company and written consents to action) regardless of whether such Stockholder actually attends any applicable meeting or signs any applicable consent, or not. Stockholder intends the foregoing proxy to be, and it shall be, irrevocable and coupled with an interest during the Term. All action to be taken on any question shall be determined by Voting Proxy, in his sole discretion. The “Board Percentage” equals a number of members of the board of directors of the Company equal to the then total members (or positions open for nomination) of the Company’s Board of Directors multiplied by 0.6666 and rounded up to the nearest whole number.  For example, if the Company has three (3) directors, the Voting Proxy will have the right to vote the Shares to appoint (or remove) two (2) of the three (3) directors (three (3) directors multiplied by 0.6666 = two (2)). For the sake of clarity, and in an abundance of caution, the Stockholder shall have the right, in his sole discretion to vote the Shares for any remaining directors not covered by the Board Percentage or for any other proposals voted upon by the stockholders of the Company or for which the vote of stockholders is requested at any meeting or in connection with any action(s) taken via written consent.

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(c)                 Term. For the purposes of this Agreement, “Term” means the period from the date that the persons who have purchased restricted common stock from Kent P. Watts, pursuant to the Stock Purchase Agreement dated on or around the date hereof, have purchased in aggregate (including shares sold pursuant to the Stock Purchase Agreement) $1 million of shares of common stock from Mr. Watts (the “Minimum Purchase”) until the earlier of (a) August 19, 2017; (b) the due date of a convertible promissory note that Mr. Herndon (or any entity which Mr. Herndon is deemed to beneficially own), directly or indirectly, purchases from the Company in the Company’s ongoing private placement of convertible promissory notes, which convertible promissory notes are convertible into the Company’s common stock at a conversion price of $0.75 per share; and (c) the date that Voting Proxy provides the Stockholder at least ten (10) days written notice of his intent to terminate this Agreement.  For the sake of clarity and in an abundance of caution, this Agreement shall be of no force and effect until or unless the Minimum Purchase is made and shall be of no force and effect unless the Minimum Purchase is made by September 21, 2015 (the “Deadline”).  In the event the Minimum Purchase is not made by the Deadline, this Agreement and all rights hereunder shall expire and terminate.

(d)                 Agreements. Stockholder agrees that he will not enter into any agreement or understanding with any person or entity or take any action during the Term which will permit any person or entity to vote or give instructions to vote the Shares in any manner inconsistent with the terms of this Agreement. Stockholder further agrees to take such further action and execute and deliver, and cause others to execute and deliver such other instruments as may be necessary to effectuate the intent of this Agreement, including without limitation, proxies and other documents permitting Voting Proxy to vote the Shares or to direct the record owners thereof to vote the Shares in accordance with this Agreement (including where and if applicable, receiving voting proxies from or providing voting proxies to, the Stockholder’s brokers). Without limiting the foregoing, Stockholder shall deliver to Voting Proxy a duly executed Voting Proxy in the form attached hereto as Exhibit A simultaneously with the execution hereof.

(e)                 Legend. At the request of Voting Proxy, the Stockholder shall promptly provide all certificates evidencing the Shares to the Company’s transfer agent for reissuance with a legend describing this Voting Agreement, and the restrictions on Transfer of the Shares as described herein.

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6.           Reservation of Rights. All other rights and privileges of ownership of the Shares shall be reserved to and retained by Stockholder, except to the extent expressly set forth herein.

7.           Specific Performance. Each Party hereto acknowledges that a remedy at law for any breach or attempted breach of terms and provisions of this Agreement may be inadequate, and such Parties therefore agree that the non-breaching Party shall be entitled to specific performance and injunctive and other equitable relief in the event of any such breach or attempted breach.

8.           Successors and Assigns. This Agreement shall be binding upon the Parties hereto and their respective heirs, legal representatives, successors and permitted assigns.  The Voting Proxy shall have no right to assign his rights under this Agreement to any other person.

9.           Waiver. The waiver by either Party to this Agreement of a breach or violation or any provision hereof shall not operate as or be construed to be a waiver of any subsequent breach hereof.

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

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

12.           Amendment. No modification, amendment, addition to, or termination of this Agreement, nor waiver of any of its provisions, shall be valid or enforceable unless in writing and signed by all the Parties hereto.

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

14.           Review and Construction of Documents. The Parties each represent, that (a) before executing this Agreement, said Party has fully informed itself of the terms, contents, conditions and effects of this Agreement; (b) said Party has relied solely and completely upon its own judgment in executing this Agreement; (c) said Party has had the opportunity to seek and has obtained the advice of its own legal, tax and business advisors before executing this Agreement; (d) said Party has acted voluntarily and of its own free will in executing this Agreement; and (e) this Agreement is the result of arm’s length negotiations conducted by and among the Parties and their respective counsel.

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

16.           Counterparts and Signatures. This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments hereto or thereto, may be executed in one or more counterparts, all of which shall constitute one and the same instrument. Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .peg or similar attachment to electronic mail (any such delivery, an “Electronic Delivery”) shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party, each other party shall re execute the original form of this Agreement and deliver such form to all other parties. No party shall raise the use of Electronic Delivery to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract, and each such party forever waives any such defense, except to the extent such defense relates to lack of authenticity.

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

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement effective as of the date set forth below, to be effective as provided above.

(“Stockholder”)

By: /s/ Kent P. Watts

Printed Name: Kent P. Watts

Shares of common stock of the Company held: 5,613,618 1

Date: 8/25/2015

(“Voting Proxy”)

/s/ S. Chris Herndon

S. Chris Herndon

Date: 8/25/15

 

1 If held indirectly, please spell out name of holder of Shares and Shares held by each indirect party.

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EXHIBIT A

VOTING PROXY

The undersigned stockholder (the “Stockholder”) of common stock of Hydrocarb Energy Corp., a Nevada corporation (the “Company”), who beneficially owns that number of shares of the common stock (the “Shares”) of the Company as set forth below, of the date hereof, hereby appoints S. Chris Herndon, as proxy (the “Proxy”), with full power of substitution, for and in the name of the undersigned, to vote the Shares (and such other shares as he may come to own or have voting control over, as described in greater detail in the Voting Agreement, which this Voting Proxy is attached to as Exhibit A), as his proxy in all proceedings in which the vote or written consent of Stockholder may be required or authorized by law (including, but not limited to actual meetings of the Stockholder of the Company and written consents to action), as if the undersigned were present and voting such Shares, in connection with the election or removal of the Board Percentage of the directors of the Company, in his sole discretion as the Stockholder’s true and lawful attorney and irrevocable proxy, for and in Stockholder’s name, place and stead, to vote the Shares owned or held by Stockholder as Stockholder’s proxy regardless of whether such Stockholder actually attends any applicable meeting or signs any applicable consent, or not in connection with the Board Percentage.  The “Board Percentage” equals a number of members of the board of directors of the Company equal to the then total members (or positions open for nomination at the applicable meeting or as of the applicable consent) of the Company’s Board of Directors multiplied by 0.6666 and rounded up to the nearest whole number.  For example, if the Company has three (3) directors, the Voting Proxy will have the right to vote the Shares to appoint (or remove) two (2) of the three (3) directors (three (3) directors multiplied by 0.6666 = two (2)). All action to be taken on any question shall be determined by Proxy, in his sole discretion. For the sake of clarity, and in an abundance of caution, the Stockholder shall have the right, in his sole discretion to vote the Shares for any remaining directors not covered by the Board Percentage or for any other proposals voted upon by the stockholders of the Company or for which the vote of stockholders is requested at any meeting or in connection with any action(s) taken via written consent.

The undersigned hereby affirms that this Proxy is coupled with an interest and ratifies and confirms all that the Proxy may lawfully do or cause to be done by virtue hereof. This Voting Proxy shall be in effect during the Term. “Term” means the period from the date that the persons who have purchased restricted common stock from Kent P. Watts, pursuant to the Stock Purchase Agreement dated on or around the date hereof, have purchased in aggregate (including shares sold pursuant to the Stock Purchase Agreement) $1 million of shares of common stock from Mr. Watts (the “MinimumPurchase”) until the earlier of (a) August 19, 2017; (b) the due date of a convertible promissory note that Mr. Herndon (or any entity which Mr. Herndon is deemed to beneficially own), directly or indirectly, purchases from the Company in the Company’s ongoing private placement of convertible promissory notes, which convertible promissory notes are convertible into the Company’s common stock at a conversion price of $0.75 per share; and (c) the date that the Proxy provides the Stockholder at least ten (10) days written notice of his intent to terminate this Voting Proxy.  For the sake of clarity and in an abundance of caution, this Voting Proxy shall be of no force and effect until or unless the Minimum Purchase is made and shall be of no force and effect unless the Minimum Purchase is made by September 21, 2015 (the “Deadline”).  In the event the Minimum Purchase is not made by the Deadline, this Voting Proxy and all rights hereunder shall expire and terminate.

Executed this __________ day of August, 2015.

By:_______________________

Printed Name:_________________

_________________ shares of Common Stock 2

 

2 If held indirectly, please spell out name of holder of Shares and Shares held by each indirect party.

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EX-10.3

Exhibit 10.3

VOTING AGREEMENT

           This Voting Agreement, dated as of August [ ], 2015, (this “Agreement”), is entered into by and among S. Chris Herndon, an individual (“Voting Proxy”), and the undersigned stockholder of Hydrocarb Energy Corp. (the “Stockholder” and the “Company”), each a “Party” and collectively the “Parties”.

RECITALS:

A. The Stockholder currently owns that number of shares of the common stock of the Company as set forth on the signature page hereof (collectively, the “Shares”); and

B. The Stockholder desires to provide Voting Proxy a voting proxy to vote the Shares at any meeting of the Company, pursuant to any consent to action without meeting of the Company, and/or any other event which may require or may allow for the vote of the Shares, pursuant to the terms and conditions below.

NOW, THEREFORE, for $10 and in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:

1.           The Shares. Any interest or other voting securities, or the voting rights relating thereto, of the Company that may be owned, held or subsequently acquired in any manner, legally or beneficially, directly or indirectly, of record or otherwise, by the Stockholder, other than the Shares, at any time during the term of this Agreement as (a) a result of the ownership of the Shares whether issued incident to any split, dividend, conversion, increase in capitalization, recapitalization, merger, consolidation, reorganization, or other transaction; and (b) any additional voting shares or other voting securities of the Company, or the voting rights relating thereto, that may be owned, held or subsequently acquired in any manner, legally or beneficially, directly or indirectly, of record or otherwise, by the Stockholder from time to time during the Term of this Agreement; shall be included within the term “Shares” as used herein and shall be subject to the terms of this Agreement.

2.           Due Authority. The Stockholder represents that he has full power and authority to execute and deliver this Agreement and to perform his obligations hereunder and consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by or on behalf of the Stockholder and constitutes a legal, valid and binding obligation of Stockholder, enforceable against him in accordance with its terms.

3.           No Conflict; Consents.

(a)           The execution and delivery of this Agreement by the Stockholder does not, and the performance of this Agreement by the Stockholder will not, require any consent, approval, authorization or permit of, filing with (except for applicable requirements, if any, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), or notification to, any government or regulatory authority by the Stockholder.

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(b)           No other person or entity has, or will have during the Term (as defined below), any right, directly or indirectly, to vote or control or affect the voting of the Shares.

4.           Title to Shares; Certificate Form. Stockholder is owner of the Shares free and clear of any proxy or voting restriction other than pursuant to this Agreement; and has sole voting power with respect to the Shares.

5.           Covenants of Stockholder. Stockholder hereby covenants and agrees as follows:

(a)           Transfer of Shares. During the Term (as defined below) Stockholder shall not, and shall not permit anyone else to, (i) sell, transfer, encumber, pledge, assign or otherwise dispose of any of the Shares, (ii) deposit the Shares into a voting trust or enter into a voting agreement or arrangement with respect to the Shares or grant any proxy or power of attorney with respect thereto, or (iii) enter into any contract, option or other legally binding undertaking providing for any transaction provided in (i) or (ii) hereof (each a “Transaction”), unless (A) the Shares are sold in the open market, or in an arms-length transaction with a non-affiliated party which transaction(s) the Stockholder shall have the right, without required approval of the Voting Proxy, and without limitation, to affect during the Term; (B) such Stockholder has received the prior written authorization for such Transaction from Voting Proxy; or (C) unless the proposed transferee or pledgee shall have entered into a written agreement with Voting Proxy, containing terms and conditions satisfactory to Voting Proxy, in which such transferee or pledgee shall agree to be bound by all the terms and conditions of this Agreement.

(b)           Proxy. Stockholder, by this Agreement, hereby constitutes and appoints Voting Proxy, with full power of substitution, during and for the Term, as Stockholder’s true and lawful attorney and irrevocable proxy, for and in Stockholder’s name, place and stead, to vote the Shares owned or held by Stockholder as Stockholder’s proxy in connection with the election or removal of the Board Percentage of the directors of the Company, in all proceedings in which the vote or written consent of Stockholder may be required or authorized by law during the Term (including, but not limited to actual meetings of the Stockholder of the Company and written consents to action) regardless of whether such Stockholder actually attends any applicable meeting or signs any applicable consent, or not. Stockholder intends the foregoing proxy to be, and it shall be, irrevocable and coupled with an interest during the Term. All action to be taken on any question shall be determined by Voting Proxy, in his sole discretion. The “Board Percentage” equals a number of members of the board of directors of the Company equal to the then total members (or positions open for nomination) of the Company’s Board of Directors multiplied by 0.6666 and rounded up to the nearest whole number.  For example, if the Company has three (3) directors, the Voting Proxy will have the right to vote the Shares to appoint (or remove) two (2) of the three (3) directors (three (3) directors multiplied by 0.6666 = two (2)). For the sake of clarity, and in an abundance of caution, the Stockholder shall have the right, in his sole discretion to vote the Shares for any remaining directors not covered by the Board Percentage or for any other proposals voted upon by the stockholders of the Company or for which the vote of stockholders is requested at any meeting or in connection with any action(s) taken via written consent.

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(c)                 Term. For the purposes of this Agreement, “Term” means the period from the date that the persons who have purchased restricted common stock from Kent P. Watts, pursuant to the Stock Purchase Agreement dated on or around the date hereof, have purchased in aggregate (including shares sold pursuant to the Stock Purchase Agreement) $1 million of shares of common stock from Mr. Watts (the “Minimum Purchase”) until the earlier of (a) August 19, 2017; (b) the due date of a convertible promissory note that Mr. Herndon (or any entity which Mr. Herndon is deemed to beneficially own), directly or indirectly, purchases from the Company in the Company’s ongoing private placement of convertible promissory notes, which convertible promissory notes are convertible into the Company’s common stock at a conversion price of $0.75 per share; and (c) the date that Voting Proxy provides the Stockholder at least ten (10) days written notice of his intent to terminate this Agreement.  For the sake of clarity and in an abundance of caution, this Agreement shall be of no force and effect until or unless the Minimum Purchase is made and shall be of no force and effect unless the Minimum Purchase is made by September 21, 2015 (the “Deadline”).  In the event the Minimum Purchase is not made by the Deadline, this Agreement and all rights hereunder shall expire and terminate.

(d)                 Agreements. Stockholder agrees that he will not enter into any agreement or understanding with any person or entity or take any action during the Term which will permit any person or entity to vote or give instructions to vote the Shares in any manner inconsistent with the terms of this Agreement. Stockholder further agrees to take such further action and execute and deliver, and cause others to execute and deliver such other instruments as may be necessary to effectuate the intent of this Agreement, including without limitation, proxies and other documents permitting Voting Proxy to vote the Shares or to direct the record owners thereof to vote the Shares in accordance with this Agreement (including where and if applicable, receiving voting proxies from or providing voting proxies to, the Stockholder’s brokers). Without limiting the foregoing, Stockholder shall deliver to Voting Proxy a duly executed Voting Proxy in the form attached hereto as Exhibit A simultaneously with the execution hereof.

(e)                 Legend. At the request of Voting Proxy, the Stockholder shall promptly provide all certificates evidencing the Shares to the Company’s transfer agent for reissuance with a legend describing this Voting Agreement, and the restrictions on Transfer of the Shares as described herein.

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6.           Reservation of Rights. All other rights and privileges of ownership of the Shares shall be reserved to and retained by Stockholder, except to the extent expressly set forth herein.

7.           Specific Performance. Each Party hereto acknowledges that a remedy at law for any breach or attempted breach of terms and provisions of this Agreement may be inadequate, and such Parties therefore agree that the non-breaching Party shall be entitled to specific performance and injunctive and other equitable relief in the event of any such breach or attempted breach.

8.           Successors and Assigns. This Agreement shall be binding upon the Parties hereto and their respective heirs, legal representatives, successors and permitted assigns.  The Voting Proxy shall have no right to assign his rights under this Agreement to any other person.

9.           Waiver. The waiver by either Party to this Agreement of a breach or violation or any provision hereof shall not operate as or be construed to be a waiver of any subsequent breach hereof.

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

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

12.           Amendment. No modification, amendment, addition to, or termination of this Agreement, nor waiver of any of its provisions, shall be valid or enforceable unless in writing and signed by all the Parties hereto.

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

14.           Review and Construction of Documents. The Parties each represent, that (a) before executing this Agreement, said Party has fully informed itself of the terms, contents, conditions and effects of this Agreement; (b) said Party has relied solely and completely upon its own judgment in executing this Agreement; (c) said Party has had the opportunity to seek and has obtained the advice of its own legal, tax and business advisors before executing this Agreement; (d) said Party has acted voluntarily and of its own free will in executing this Agreement; and (e) this Agreement is the result of arm’s length negotiations conducted by and among the Parties and their respective counsel.

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

16.           Counterparts and Signatures. This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments hereto or thereto, may be executed in one or more counterparts, all of which shall constitute one and the same instrument. Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .peg or similar attachment to electronic mail (any such delivery, an “Electronic Delivery”) shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party, each other party shall re execute the original form of this Agreement and deliver such form to all other parties. No party shall raise the use of Electronic Delivery to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract, and each such party forever waives any such defense, except to the extent such defense relates to lack of authenticity.

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

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement effective as of the date set forth below, to be effective as provided above.

(“Stockholder”)

By: /s/ Christopher M. Watts

Printed Name: Christopher M. Watts

Shares of common stock of the Company held: 6,241,000 1

Date: Aug. 28, 2015

(“Voting Proxy”)

/s/ S. Chris Herndon

S. Chris Herndon

Date: 8/28/2015

 

1 If held indirectly, please spell out name of holder of Shares and Shares held by each indirect party.

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EXHIBIT A

VOTING PROXY

The undersigned stockholder (the “Stockholder”) of common stock of Hydrocarb Energy Corp., a Nevada corporation (the “Company”), who beneficially owns that number of shares of the common stock (the “Shares”) of the Company as set forth below, of the date hereof, hereby appoints S. Chris Herndon, as proxy (the “Proxy”), with full power of substitution, for and in the name of the undersigned, to vote the Shares (and such other shares as he may come to own or have voting control over, as described in greater detail in the Voting Agreement, which this Voting Proxy is attached to as Exhibit A), as his proxy in all proceedings in which the vote or written consent of Stockholder may be required or authorized by law (including, but not limited to actual meetings of the Stockholder of the Company and written consents to action), as if the undersigned were present and voting such Shares, in connection with the election or removal of the Board Percentage of the directors of the Company, in his sole discretion as the Stockholder’s true and lawful attorney and irrevocable proxy, for and in Stockholder’s name, place and stead, to vote the Shares owned or held by Stockholder as Stockholder’s proxy regardless of whether such Stockholder actually attends any applicable meeting or signs any applicable consent, or not in connection with the Board Percentage.  The “Board Percentage” equals a number of members of the board of directors of the Company equal to the then total members (or positions open for nomination at the applicable meeting or as of the applicable consent) of the Company’s Board of Directors multiplied by 0.6666 and rounded up to the nearest whole number.  For example, if the Company has three (3) directors, the Voting Proxy will have the right to vote the Shares to appoint (or remove) two (2) of the three (3) directors (three (3) directors multiplied by 0.6666 = two (2)). All action to be taken on any question shall be determined by Proxy, in his sole discretion. For the sake of clarity, and in an abundance of caution, the Stockholder shall have the right, in his sole discretion to vote the Shares for any remaining directors not covered by the Board Percentage or for any other proposals voted upon by the stockholders of the Company or for which the vote of stockholders is requested at any meeting or in connection with any action(s) taken via written consent.

The undersigned hereby affirms that this Proxy is coupled with an interest and ratifies and confirms all that the Proxy may lawfully do or cause to be done by virtue hereof. This Voting Proxy shall be in effect during the Term. “Term” means the period from the date that the persons who have purchased restricted common stock from Kent P. Watts, pursuant to the Stock Purchase Agreement dated on or around the date hereof, have purchased in aggregate (including shares sold pursuant to the Stock Purchase Agreement) $1 million of shares of common stock from Mr. Watts (the “MinimumPurchase”) until the earlier of (a) August 19, 2017; (b) the due date of a convertible promissory note that Mr. Herndon (or any entity which Mr. Herndon is deemed to beneficially own), directly or indirectly, purchases from the Company in the Company’s ongoing private placement of convertible promissory notes, which convertible promissory notes are convertible into the Company’s common stock at a conversion price of $0.75 per share; and (c) the date that the Proxy provides the Stockholder at least ten (10) days written notice of his intent to terminate this Voting Proxy.  For the sake of clarity and in an abundance of caution, this Voting Proxy shall be of no force and effect until or unless the Minimum Purchase is made and shall be of no force and effect unless the Minimum Purchase is made by September 21, 2015 (the “Deadline”).  In the event the Minimum Purchase is not made by the Deadline, this Voting Proxy and all rights hereunder shall expire and terminate.

Executed this 28 day of August, 2015.

By: /s/ Christopher M. Watts

Printed Name: Christopher M. Watts

6,241,000 shares of Common Stock 2

 

2 If held indirectly, please spell out name of holder of Shares and Shares held by each indirect party.

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EX-10.4

Exhibit 10.4

FIRST AMENDMENT TO EXCHANGE AGREEMENT

This First Amendment to Exchange Agreement (this “Agreement”) dated September 21, 2015 (the “Execution Date”), is by and between, Hydrocarb Energy Corporation, a Nevada corporation (the “Company”) and Kent P. Watts, an individual (“Watts”), each a “Party” and collectively the “Parties”.

W I T N E S S E T H:

WHEREAS, the Parties previously entered into an Exchange Agreement dated and effective June 10, 2015 (the “Exchange Agreement”, a copy of which is attached as Exhibit A hereto)1;

WHEREAS, pursuant to the Exchange Agreement, Watts exchanged all rights he had to 8,188 shares of Series A 7% Convertible Voting Preferred Stock (which were required to have a face value of $3,275,200)(which were never validly issued or outstanding), and accrued and unpaid dividends, which would have been due thereunder, assuming such Series A 7% Convertible Voting Preferred Stock was correctly designated and issued on December 9, 2013, totaling, $327,879, into 32 units (“Units”), each consisting of (a) 25,000 shares of the restricted common stock of the Company (the “Shares”); and (b) $100,000 in face amount of Convertible Subordinated Promissory Notes;

WHEREAS, specifically pursuant to the Exchange Agreement, Watts received an aggregate of 800,000 shares of common stock and a Convertible Promissory Note with an aggregate principal amount of $3.2 million and a maturity date of June 10, 2018 in connection with the Exchange Agreement;

WHEREAS, the Parties would like to adjust the number of Units issuable to Watts pursuant to the Exchange Agreement to 30 Units (i.e., 750,000 shares of common stock and a Convertible Promissory Note in the aggregate principal amount of $3 million, with such remaining 50,000 shares of common stock and Convertible Promissory Note in the amount of $200,000 being defined herein as the “Cancelled Units”); and

WHEREAS, the Parties now desire to amend the Exchange Agreement to adjust to 30 Units, the number of Units due, pursuant to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants, agreements, and considerations herein contained, and other good and valuable consideration, which consideration the Parties hereby acknowledge and confirm the sufficiency thereof, the Parties hereto agree as follows:

______________________

1 https://www.sec.gov/Archives/edgar/data/1425808/000114036115024911/ex10_3.htm

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1.           Amendment to Exchange Agreement.

(a)           Effective for all purposes as of the Effective Date, the sixth “WHEREAS” of the Exchange Agreement is hereby amended, superseded and replaced in its entirety, by the following:

“WHEREAS, notwithstanding the fact that the Company is seeking shareholder approval for the ratification of the designation of the Series A Preferred Stock at the Company’s 2015 Annual Shareholders Meeting, the Company and Watts desire for Watts to exchange all rights he has to the 8,188 Series A Preferred Stock shares (the “Series A Shares”) and all accrued and unpaid dividends which would have accrued and be due thereon, in the event the Series A Preferred was properly designated and issued, totaling an aggregate of $327,879 as of the date of this Agreement (collectively, the “Accrued Dividends”) into 30 Units (as defined below) which the Company is in the process of offering in a private offering to ‘accredited investors’; and”

(b)           Effective for all purposes as of the Effective Date, Section 2.1 of the Exchange Agreement is hereby amended, superseded and replaced in its entirety, by the following:

“2.1.                      In exchange for the right to receive the Series A Preferred Shares and in full consideration for such Series A Preferred Shares and the Accrued Dividends, the Company agrees to issue Watts an aggregate of 30 “Units”, each consisting of (a) 25,000 shares of the Company’s restricted common stock; and (b) Convertible Subordinated Promissory Notes with a face amount of $100,000 (in the form of Convertible Subordinated Promissory Note being offered by the Company to ‘accredited investors’ in the Company’s current private placement offering of Units)(the “Exchange”). As such, Watts will receive an aggregate of 750,000 shares of common stock (the “Shares”) and a Convertible Subordinated Promissory Note with an aggregate principal amount of $3.0 million and a maturity date of June 10, 2018 (the “Convertible Note” in the form ofExhibit Ahereto) in connection with the Exchange which shall be issued promptly after the Parties entry into this Agreement. The Convertible Note is convertible into common stock of the Company at any time at Watt’s option at a conversion price of $4 per share, and is automatically convertible into shares of Series B Convertible Preferred Stock of the Company upon designation of such Series B Convertible Preferred Stock with the Secretary of State of Nevada.”

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2.           Effective Date. The “Effective Date” of this Agreement shall be July 21, 2015 for all purposes.

3.           Cancellation of Units. Watts shall promptly return any and all certificates, documents, agreements or notes evidencing the 50,000 shares of common stock and $200,000 Convertible Promissory Note relating to the Cancelled Units, to the Company or its Transfer Agent, for cancellation with appropriate stock power (with notarized signature guaranty) and instructions for cancellation (the “Cancellation”). The Company and/or the Company’s Transfer Agent shall be authorized to take whatever action necessary, if any, following the effectiveness of this Agreement to affect the Cancellation and by agreeing to the terms and conditions of this Agreement, Watts agrees to release the Company and the Company’s Transfer Agent from any and all liability whatsoever in connection with the Cancellation. Notwithstanding the above, Watts hereby covenants that he will, whenever and as reasonably requested by the Company and the Transfer Agent, at his sole cost and expense, do, execute, acknowledge and deliver any and all such other and further acts, deeds, assignments, transfers, conveyances, confirmations, powers of attorney and any instruments of further assurance, approvals and consents as the Company or the Transfer Agent may reasonably require in order to complete, insure and perfect the Cancellation, if such may be reasonably required by the Company and/or the Company’s Transfer Agent.  Notwithstanding the above, the Cancellation shall be deemed to have occurred automatically and without any required action by either Party on the Effective Date.

4.           Consideration. Each of the Parties agrees and confirms by signing below that they have received valid consideration in connection with this Agreement and the transactions contemplated herein.

5.           Mutual Representations, Covenants and Warranties. Each of the Parties, for themselves and for the benefit of each of the other Parties hereto, represents, covenants and warranties that:

(a)           Such Party has all requisite power and authority, corporate or otherwise, to execute and deliver this Agreement and to consummate the transactions contemplated hereby and thereby. This Agreement constitutes the legal, valid and binding obligation of such Party enforceable against such Party in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and general equitable principles;

(b)           The execution and delivery by such Party and the consummation of the transactions contemplated hereby and thereby do not and shall not, by the lapse of time, the giving of notice or otherwise: (i) constitute a violation of any law; or

(ii) constitute a breach of any provision contained in, or a default under, any governmental approval, any writ, injunction, order, judgment or decree of any governmental authority or any contract to which such Party is bound or affected; and

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(c)           Any individual executing this Agreement on behalf of an entity has authority to act on behalf of such entity and has been duly and properly authorized to sign this Agreement on behalf of such entity.

6.           Further Assurances. The Parties agree that, from time to time, each of them will take such other action and to execute, acknowledge and deliver such contracts, deeds, or other documents as may be reasonably requested and necessary or appropriate to carry out the purposes and intent of this Agreement and the transactions contemplated herein.

7.           Effect of Agreement. Upon the effectiveness of this Agreement, each reference in the Exchange Agreement to “Agreement,” “hereunder,” “hereof,” “herein” or words of like import shall mean and be a reference to such Exchange Agreement as modified or amended hereby.

8.           Reconfirmation of Representations. Except to the extent amended or modified hereby, each of the Parties hereby reaffirm all terms, conditions, covenants, representations and warranties made in the Exchange Agreement.

9.           Exchange Agreement to Continue in Full Force and Effect. Except as specifically modified or amended herein, the Exchange Agreement and the terms and conditions thereof shall remain in full force and effect.

10.           Benefit and Burden. This Agreement shall inure to the benefit of, and shall be binding upon, the Parties hereto and their successors and permitted assigns.

11.           Entire Agreement. This Agreement sets forth all of the promises, agreements, conditions, understandings, warranties and representations among the Parties with respect to the transactions contemplated hereby and thereby, and supersedes all prior agreements, arrangements and understandings between the Parties, whether written, oral or otherwise.

12.           Construction. In this Agreement words importing the singular number include the plural and vice versa; words importing the masculine gender include the feminine and neuter genders.

13.           Review and Construction of Documents. Watts represents to the Company and the Company represents to Watts, that (a) before executing this Agreement, said Party has fully informed itself of the terms, contents, conditions and effects of this Agreement; (b) said Party has relied solely and completely upon its own judgment in executing this Agreement; (c) said Party has had the opportunity to seek and has obtained the advice of its own legal, tax and business advisors before executing this Agreement; (d) said Party has acted voluntarily and of its own free will in executing this Agreement; and (e) this Agreement is the result of arm’s length negotiations conducted by and among the Parties and their respective counsel.

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14.           Counterparts and Signatures. This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments hereto or thereto, may be executed in one or more counterparts, all of which shall constitute one and the same instrument. Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .peg or similar attachment to electronic mail (any such delivery, an “Electronic Delivery”) shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. No party shall raise the use of Electronic Delivery to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract, and each such party forever waives any such defense, except to the extent such defense relates to lack of authenticity.

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

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Execution Date to be effective as of the Effective Date.

“Company”
	Hydrocarb Energy Corporation
	By: /s/ Christine Spencer
	Its: Chief Accounting Officer

	Printed Name: Christine Spencer
“Watts”

/s/ Kent P. Watts

Kent P. Watts

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