1 0% convertible note

14
Exhibit 10.7 NEITHER THIS NOTE NOR THE SECURITIES THAT MAY BE ISSUED BY THE BORROWER UPON CONVERSION HEREOF (COLLECTIVELY, THE “SECURITIES”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THE SECURITIES NOR ANY INTEREST OR PARTICIPATION THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED: (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT, OR APPLICABLE STATE SECURITIES LAWS; OR (II) IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A FORM ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR; (III) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 UNDER THE 1933 ACT. 10% CONVERTIBLE NOTE MATURITY DATE OF AUGUST 23, 2015 *THE “MATURITY DATE” $137,000 FEBRUARY 23, 2015 *THE “ISSUANCE DATE” FOR VALUE RECEIVED, Hydrocarb Energy Corporation, a Nevada Corporation (the “Company”) doing business in Houston, TX hereby promises to pay to the order of JSJ Investments Inc., an accredited investor and Texas Corporation, or its assigns (the “Holder”) the principal amount of One Hundred & Thirty Seven Thousand Dollars ($137,000), on demand of the Holder at any time on or after August 23, 2015 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of Ten Percent (10%) per annum (the “Interest Rate”) from the date hereof (the “Issuance Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise; provided, that any amount of principal or interest on this Note which is not paid when due shall bear interest at such rate on the unpaid principal balance hereof plus Default Interest from the due date thereof until the same is paid in full. Interest shall commence accruing on the Issuance Date, shall be computed on the basis of a 365-day year and the actual number of days elapsed and shall accrue daily and, after the Maturity Date, compound quarterly. 1. Payments of Principal and Interest. a. Payment of Principal. Until the Ninetieth (90th) day after the Issuance Date the Company may pay the principal at a cash redemption premium of 135%, in addition to outstanding interest, without the Holder’s consent; from the 90th day to the Maturity Date, the Company may pay the principal at a cash redemption premium of 140%, in addition to outstanding interest, without the Holder’s consent. After the Maturity Date the Company may pay the Note’s outstanding principal at a cash redemption premium of 150%, in addition to outstanding interest, but this provision may only be exercised if the consent of the Holder is obtained. The principal and interest balance of this Note shall be paid to the Holder hereof on demand. b. Default Interest. Any amount of principal on this Note which is not paid when due shall bear Ten Percent (10%) interest per annum from the date thereof until the same is paid (“Default Interest”) and the Holder, at the Holder’s sole discretion, may include any accrued but unpaid Default Interest in the Conversion Amount.

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1 0% CONVERTIBLE NOTE

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  • Exhibit 10.7

    NEITHER THIS NOTE NOR THE SECURITIES THAT MAY BE ISSUED BY THE BORROWER UPON CONVERSION HEREOF (COLLECTIVELY, THESECURITIES) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE 1933 ACT), OR THE SECURITIES LAWS OFANY STATE OR OTHER JURISDICTION. NEITHER THE SECURITIES NOR ANY INTEREST OR PARTICIPATION THEREIN MAY BE OFFERED FOR SALE,SOLD, TRANSFERRED OR ASSIGNED: (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933ACT, OR APPLICABLE STATE SECURITIES LAWS; OR (II) IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A FORM ACCEPTABLE TO THE ISSUER,THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR; (III) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144UNDER THE 1933 ACT.

    10% CONVERTIBLE NOTE

    MATURITY DATE OF AUGUST 23, 2015 *THE MATURITY DATE

    $137,000 FEBRUARY 23, 2015 *THE ISSUANCE DATE

    FOR VALUE RECEIVED, Hydrocarb Energy Corporation, a Nevada Corporation (the Company) doing business in Houston, TX hereby promises to pay tothe order of JSJ Investments Inc., an accredited investor and Texas Corporation, or its assigns (the Holder) the principal amount of One Hundred & Thirty SevenThousand Dollars ($137,000), on demand of the Holder at any time on or after August 23, 2015 (the Maturity Date), and to pay interest on the unpaid principalbalance hereof at the rate of Ten Percent (10%) per annum (the Interest Rate) from the date hereof (the Issuance Date) until the same becomes due andpayable, whether at maturity or upon acceleration or by prepayment or otherwise; provided, that any amount of principal or interest on this Note which is not paidwhen due shall bear interest at such rate on the unpaid principal balance hereof plus Default Interest from the due date thereof until the same is paid in full.Interest shall commence accruing on the Issuance Date, shall be computed on the basis of a 365-day year and the actual number of days elapsed and shallaccrue daily and, after the Maturity Date, compound quarterly.

    1. Payments of Principal and Interest.

    a.

    Payment of Principal. Until the Ninetieth (90th) dayafter the Issuance Date the Company may pay theprincipal at a cash redemption premium of 135%, inaddition to outstanding interest, without the Holdersconsent; from the 90th day to the Maturity Date, theCompany may pay the principal at a cash redemptionpremium of 140%, in addition to outstanding interest,without the Holders consent. After the Maturity Datethe Company may pay the Notes outstandingprincipal at a cash redemption premium of 150%, inaddition to outstanding interest, but this provision mayonly be exercised if the consent of the Holder isobtained. The principal and interest balance of thisNote shall be paid to the Holder hereof on demand.

    b.

    Default Interest. Any amount of principal on this Note which is not paid when due shall bear TenPercent (10%) interest per annum from the datethereof until the same is paid (Default Interest) andthe Holder, at the Holders sole discretion, may include any accrued but unpaid Default Interest inthe Conversion Amount.

  • c.

    General Payment Provisions. This Note shall bemade in lawful money of the United States of Americaby check to such account as the Holder may fromtime to time designate by written notice to theCompany in accordance with the provisions of thisNote. Whenever any amount expressed to be due by the terms of this Note is due on any day which isnot a Business Day (as defined below), the sameshall instead be due on the next succeeding daywhich is a Business Day and, in the case of anyinterest payment date which is not the date on whichthis Note is paid in full, the extension of the due datethereof shall not be taken into account for purposes ofdetermining the amount of interest due on such date.For purposes of this Note, Business Day shall meanany day other than a Saturday, Sunday or a day onwhich commercial banks in the State of Texas areauthorized or required by law or executive order toremain closed.

    2.

    Conversion of Note. At any time prior to the MaturityDate, or after the Maturity Date, the ConversionAmount of this Note shall be convertible into shares ofthe Companys common stock, share (the CommonStock), on the terms and conditions set forth in thisParagraph 2.

    1

    a.Certain Defined Terms. For purposes of this Note, thefollowing terms shall have the following meanings:

    i.

    Conversion Amount means the sum of (A) theprincipal amount of this Note to be converted withrespect to which this determination is being made, (B)Interest; and (C) Default Interest, if any, on unpaidinterest and principal, if so included at the Holderssole discretion.

    ii.

    Conversion Price means the lower of: (i) a 42%discount to the lowest trading price during theprevious twenty (20) trading days to the date ofConversion; or (ii) a 42% discount to the lowesttrading price during the previous twenty (20) tradingdays before the date that this note was executed.

    iii.

    Person means an individual, a limited liabilitycompany, a partnership, a joint venture, acorporation, a trust, an unincorporated organization and a government or any department or agencythereof.

    iv.

    Shares means the Shares of the Company intowhich any balance on this Note may be convertedupon submission of a Conversion Notice attachedhereto as Exhibit 1.

    b.

    Holders Conversion Rights. At any time or times onor after the Issuance Date, the Holder shall be entitledto convert all of the outstanding and unpaid principalamount of this Note into fully paid and non-assessable shares of Common Stock in accordancewith the stated Conversion Price.

  • c.

    Fractional Shares. The Company shall not issue anyfraction of a share of Common Stock upon anyconversion; if such issuance would result in theissuance of a fraction of a share of Common Stock,the Company shall round such fraction of a share ofCommon Stock up to the nearest whole share.

    d.

    Conversion Amount. The Conversion Amount shall beconverted pursuant to Rule 144(b)(1)(ii) and Rule144(d)(1)(ii) as promulgated by the Securities andExchange Commission under the Securities Act of1933, as amended, into free trading shares at theConversion Price.

    e.Mechanics of Conversion. The conversion of thisNote shall be conducted in the following manner:

    i.

    Holders Conversion Requirements. To convert thisNote into shares of Common Stock on any date setforth in the Conversion Notice by the Holder (theConversion Date), the Holder hereof shall transmitby email, facsimile or otherwise deliver, for receipt onor prior to 11:59 p.m., Eastern Time, on such date oron the next business day, a copy of a fully executednotice of conversion in the form attached hereto asExhibit 1 to the Company.

    ii.

    Companys Response. Upon receipt by theCompany of a copy of a Conversion Notice, theCompany shall as soon as practicable, but in noevent later than one (1) Business Day after receipt ofsuch Conversion Notice, send, via email, facsimile orovernight courier, a confirmation of receipt of such Conversion Notice to such Holder indicating thatthe Company will process such Conversion Noticein accordance with the terms herein. Within two (2)Business Days after the date the Conversion Notice is delivered, the Company shall have issued and electronically transferred the shares to the Brokerindicated in the Conversion Notice; should theCompany be unable to transfer the shareselectronically, it shall, within two (2) Business Daysafter the date the Conversion was delivered, havesurrendered to FedEx for delivery the next day to theaddress as specified in the Conversion Notice, acertificate, registered in the name of the Holder, forthe number of shares of Common Stock to which theHolder shall be entitled.

    iii.

    Record Holder. The person or persons entitled toreceive the shares of Common Stock issuable upon aconversion of this Note shall be treated for allpurposes as the record holder or holders of suchshares of Common Stock on the Conversion Date.

    iv.

    Timely Response by Company. Upon receipt byCompany of a Conversion Notice, Company shallrespond within one business day to Holder confirmingthe details of the Conversion, and provide within twobusiness days the Shares requested in theConversion Notice.

    2

  • v.

    Penalty for Delinquent Response. If Company fails todeliver for whatever reason (including any neglect orfailure by, e.g., the Company, its counsel or thetransfer agent) to Holder the Shares as requested ina Conversion Notice and within three business daysof the Conversion Date, the Company shall bedeemed in Default of Conversion. As of the day theCompany is deemed in Default of Conversion, thereshall accrue a penalty of Additional Shares due toHolder equal to 25% of the number stated in theConversion Notice beginning on the Fourth businessday after the date of the Notice. The AdditionalShares shall be issued and the amount of the Noteretired will not be reduced beyond that stated in theConversion Notice. Each additional 5 business daysbeyond the Fourth business day after the date of thisNotice shall accrue an additional 25% penalty fordelinquency, without any corresponding reduction inthe amount due under the Note, for so long asCompany fails to provide the Shares so demanded.Any time after a Default of Conversion the Holdermay, at their sole discretion, rescind the Conversion.

    vi.

    Rescindment of Conversion Notice. If (i) the Companyfails to respond to Holder within one business dayfrom the date of Conversion confirming the details ofConversion, (ii) the Company fails to provide theShares requested in the Conversion Notice withinthree business days from the date of Conversion, (iii)the Holder is unable to procure a legal opinionrequired to have the Shares issued unrestrictedand/or deposited to sell for any reason related to theCompany's standing, (iv) the Holder is unable todeposit the Shares requested in the ConversionNotice for any reason related to the Company'sstanding, or (v) if OTC Markets changes theCompany's designation to 'Limited Information'(Yield), 'No Information' (Stop Sign), 'Caveat Emptor'(Skull and Crossbones), or 'OTC', 'Other OTC' or'Grey Market' (Exclamation Mark Sign) on the day ofor any day after the date of Conversion, the Holdermaintains the option and sole discretion to rescind theConversion Notice ("Rescindment") with a "Notice ofRescindment."

    vii.

    Transfer Agent Fees and Legal Fees. The issuance ofthe certificates shall be without charge or expense tothe Holder. The Company shall pay any and allTransfer Agent fees, legal fees, and advisory feesrequired for execution of this Convertible Note andprocessing of any Notice of Conversion, including butnot limited to the cost of obtaining a legal opinion withregard to the conversion. The Holder will deduct legalfees in the amount of $2,000 from the principalpayment of the Convertible Note. The Holder willdeduct 3rd party due diligence fees due Bruce Blechman in the amount of $10,000 from the principalpayment of the Convertible Note.

    viii.

    Conversion Right Unconditional. If the Holder shallprovide a Notice of Conversion as provided herein,the Companys obligations to deliver Common Stockshall be absolute and unconditional, irrespective ofany claim of setoff, counterclaim, recoupment, oralleged breach by the Holder of any obligation to theCompany.

  • 3.

    Other Rights of Holders: Reorganization,Reclassification, Consolidation, Merger or Sale. An yrecapitalization, reorganization, reclassification,consolidation, merger, sale of all or substantially all ofthe Companys assets to another Person or othertransaction which is effected in such a way thatholders of Common Stock are entitled to receive(either directly or upon subsequent liquidation) stock,securities or assets with respect to or in exchange forCommon Stock is referred to herein as OrganicChange. Prior to the consummation of any (i)Organic Change or (ii) other Organic Changefollowing which the Company is not a surviving entity,the Company will secure from the Personpurchasing such assets or the successor resultingfrom such Organic Change (in each case, theAcquiring Entity) a written agreement (in form andsubstance reasonably satisfactory to the Holder) todeliver to Holder in exchange for this Note, a securityof the Acquiring Entity evidenced by a writteninstrument substantially similar in form and substanceto this Note, and reasonably satisfactory to theHolder. Prior to the consummation of any otherOrganic Change, the Company shall makeappropriate provision (in form and substancereasonably satisfactory to the Holders of a majority ofthe Conversion Amount of the Notes thenoutstanding) to ensure that each of the Holders willthereafter have the right to acquire and receive in lieuof or in addition to (as the case may be) the shares ofCommon Stock immediately theretofore acquirableand receivable upon the conversion of such HoldersNote, such shares of stock, securities or assets thatwould have been issued or payable in such OrganicChange with respect to or in exchange for the numberof shares of Common Stock which would have beenacquirable and receivable upon the conversion ofsuch Holders Note as of the date of such OrganicChange (without taking into account any limitations orrestrictions on the convertibility of the Note). Allprovisions of this Note must be included to thesatisfaction of Holder in any new Note createdpursuant to this section.

    4.

    Representations and Warranties of the Company. Inconnection with the transactions provided for herein,the Company hereby represents and warrants to theHolders the following.

    a.

    Organization, Good Standing and Qualification. TheCompany is a corporation duly organized, validlyexisting and in good standing under the laws of thestate of its incorporation and has all requisitecorporate power and authority to carry on its businessas now conducted. The Company is duly qualified totransact business and is in good standing in eachjurisdiction in which the failure to so qualify wouldhave a materialadverse effect on its business orproperties.

    3

  • b.

    Authorization. All corporate action has been taken onthe part of the Company, its officers, directors andstockholders necessary for the authorization,execution and delivery of this Agreement. TheCompany has taken all corporate action required tomake all of the obligations of the Company reflectedin the provisions of this Agreement, valid andenforceable obligations. The shares of capital stockissuable upon conversion of the Notes have beenauthorized or will be authorized prior to the issuanceof such shares.

    c.

    Fiduciary Obligations. The Company herebyrepresents that it intends to use the proceeds of theNotes primarily for the operations of its business andnot for any personal, family, or household purpose. The Company hereby represents that its board ofdirectors, in the exercise of its fiduciary duty, hasapproved the execution of this Agreement basedupon a reasonable belief that the loan provided forherein is appropriate for the Company afterreasonable inquiry concerning its financial objectivesand financial situation.

    5.

    Covenants of the Company. So long as the Companyshall have any obligations under this Note, theCompany shall not without the Holders writtenconsent pay, declare or set apart for such paymentany dividend or other distribution (whether in cash,property, or other securities) on share of capital stocksolely in the form of additional shares of CommonStock.

    a.

    So long as the Company shall have any obligationsunder this Note, the Company shall not without theHolders written consent redeem, repurchase, orotherwise acquire (whether for cash or in exchangefor property or other securities) in any one transactionor series of transactions any shares of capital stock ofthe Company or any warrants, rights, or options toacquire any such shares.

    b.

    So long as the Company shall have any obligationsunder this Note, the Company shall not without theHolders written consent incur any liability forborrowed money, except (a) borrowings in existenceas of this date and of which the Company has informed the Holder in writing before the date hereofor (b) indebtedness to trade creditors or financialinstitutions incurred in the ordinary course ofbusiness.

    c.

    So long as the Company shall have any obligationsunder this Note, the Company shall not without theHolders written consent sell, lease, or otherwisedispose of a significant portion of its assets outsidethe ordinary course of business. Any consent to thedisposition of any assets may be conditioned upon aspecified use of the proceeds thereof.

    6.

    Trading Activities. Neither the Holder nor its affiliateshas an open short position in the common stock ofthe Company and the Holder agrees that it shall not,and that it will cause its affiliates not to, engage in anyshort sales of or hedging transactions with respect tothe common stock of the Company.

  • 7.

    Issuance of Common Stock Equivalents. If theCompany, at any time after the Issuance Date, shallissue any securities convertible into or exchangeablefor, directly or indirectly, Common Stock (ConvertibleSecurities), other than the Note, or any rights orwarrants or options to purchase any such CommonStock or Convertible Securities, shall be issued orsold (collectively, the Common Stock Equivalents)and the aggregate of the price per share for whichAdditional Shares of Common Stock may be issuablethereafter pursuant to such Common StockEquivalent, plus the consideration received by theCompany for issuance of such Common StockEquivalent divided by the number of shares ofCommon Stock issuable pursuant to such CommonStock Equivalent (the Aggregate Per Common SharePrice) shall be less than the applicable ConversionPrice then in effect, or if, after any such issuance ofCommon Stock Equivalents, the price per share forwhich Additional Shares of Common Stock may beissuable thereafter is amended or adjusted, and suchprice as so amended shall make the Aggregate PerShare Common Price be less than the applicableConversion Price in effect at the time of suchamendment or adjustment, then the applicableConversion Price upon each such issuance oramendment shall be adjusted on the basis that (1) themaximum number of Additional Shares of CommonStock issuable pursuant to all such Common StockEquivalents shall be deemed to have been issued(whether or not such Common Stock Equivalents areactually then exercisable, convertible orexchangeable in whole or in part) as of the earlier of(A) the date on which the Company shall enter into afirm contract for the issuance of such Common StockEquivalent, or (B) the date of actual issuance of suchCommon Stock Equivalent. No adjustment of theapplicable Conversion Price shall be made under thissubsection (vii) upon the issuance of any ConvertibleSecurity which is issued pursuant to the exercise ofany warrants or other subscription or purchase rightstherefor, if any adjustment shall previously have beenmade to the exercise price of such warrants then ineffect upon the issuance of such warrants or otherrights pursuant to this subsection (vii). No adjustmentshall be made to the Conversion Price upon theissuance of Common Stock pursuant to the exercise,conversion or exchange of any Convertible Securityor Common Stock Equivalent where an adjustment tothe Conversion Price was made as a result of theissuance or purchase of any Convertible Security orCommon Stock Equivalent.

    4

  • 8.

    Reservation of Shares. The Company shall at alltimes, so long as any principal amount of the Note isoutstanding, reserve and keep available out of itsauthorized and unissued Common Stock, solely forthe purpose of effecting the conversion of the Note,such number of shares of Common Stock as shall atall times be sufficient to effect the conversion of all ofthe principal amount of the Note then outstanding.The initial number of shares of Common Stockreserved for conversions of the Notes shall becalculated as four times the number of sharesnecessary to convert the entire value of the Note onthe day it was executed, and each increase in thenumber of shares so reserved shall be allocated prorata among the Holders of the Note based on theprincipal and interest amount of the Notes held byeach Holder at the time of issuance of the Notes orincrease in the number of reserved shares, as thecase may be. In the event a Holder shall sell orotherwise transfer any of such Holders Note, eachtransferee shall be allocated a pro rata portion of thenumber of reserved shares of Common Stockreserved for such transferor. Any shares of CommonStock reserved and allocated to any Person whichceases to hold any Note shall be allocated to theremaining Holders, pro rata based on the principalamount of the Note then held by such Holders.

    9.Voting Rights. Holders of this Note shall have novoting rights, except as required by law.

    10.

    Reissuance of Note. In the event of a conversion orredemption pursuant to this Note of less than all ofthe Conversion Amount represented by this Note, theCompany shall promptly cause to be issued anddelivered to the Holder, upon tender by the Holder ofthe Note converted or redeemed, a new note of liketenor representing the remaining principal amount ofthis Note which has not been so converted orredeemed and which is in substantially the same formas this Note, as set forth above.

    11. Default and Remedies.

  • a.

    Event of Default. An Event of Default is: (i) defaultfor ten (10 ) days in payment of interest or DefaultInterest on this Note; (ii) default in payment of theprincipal amount of this Note when due; (iii) failure bythe Company for thirty (30) days after notice to it tocomply with any other material provision of this Note;(iv) breach of any covenants, warranties, orrepresentations by the Company herein; (v) cessationof operations by the Company or a materialsubsidiary; (vi) if the Company pursuant to or withinthe meaning of any Bankruptcy Law; (A) commencesa voluntary case; (B) consents to the entry of an orderfor relief against it in an involuntary case; (C)consents to the appointment of a Custodian of it or forall or substantially all of its property; (D) makes ageneral assignment for the benefit of its creditors; or(E) admits in writing that it is generally unable to payits debts as the same become due; or (vi) a court ofcompetent jurisdiction enters an order or decreeunder any Bankruptcy Law that: (I) is for relief againstthe Company in an involuntary case; (2) appoints aCustodian of the Company or for all or substantiallyall of its property; or (3) orders the liquidation of theCompany or any subsidiary, and the order or decreeremains unstayed and in effect for thirty (30) days.The Term Bankruptcy Law means Title 11, U.S.Code, or any similar Federal or State Law for therelief of debtors. The term Custodian means anyreceiver, trustee, assignee, liquidator or similar officialunder any Bankruptcy Law.

    5

    b.

    Remedies. If an Event of Default occurs and iscontinuing, the Holder of this Note may declare all ofthis Note, including any interest and Default Interest and other amounts due, to be due and payable immediately.

    12.

    Vote to Change the Terms of this Note. This Note andany provision hereof may only be amended by aninstrument in writing signed by the Company andholders of a majority of the aggregate ConversionAmount of the Notes then outstanding.

    13.

    Lost or Stolen Note. Upon receipt by the Companyof evidence satisfactory to the Company of the loss,theft, destruction or mutilation of this Note, and, in thecase of loss, theft or destruction, of an indemnificationundertaking by the Holder to the Company in a formreasonably acceptable to the Company and, in thecase of mutilation, upon surrender and cancellation ofthe Notes, the Company shall execute and deliver anew Note of like tenor and date and in substantiallythe same form as this Note; provided, however, theCompany shall not be obligated to re-issue a Note ifthe Holder contemporaneously requests theCompany to convert such remaining principal amountinto Common Stock.

  • 14.

    Payment of Collection, Enforcement and Other Costs.If: (i) this Note is placed in the hands of an attorneyfor collection or enforcement or is collected orenforced through any legal proceeding; or (ii) anattorney is retained to represent the Holder of thisNote in any bankruptcy, reorganization, receivershipor other proceedings affecting creditors rights andinvolving a claim under this Note, then the Companyshall pay to the Holder all reasonable attorneys fees,costs and expenses incurred in connection therewith,in addition to all other amounts due hereunder.

    15.

    Cancellation. After all principal and accrued interest atany time owed on this Note has been paid in full, thisNote shall automatically be deemed canceled, shallbe surrendered to the Company for cancellation andshall not be reissued.

    16.

    Waiver of Notice. To the extent permitted by law, theCompany hereby waives demand, notice, protest andall other demands and notices in connection with thedelivery, acceptance, performance, default orenforcement of this Note.

    17.

    Governing Law. This Note shall be construed andenforced in accordance with, and all questionsconcerning the construction, validity, interpretationand performance of this Note shall be governed by,the laws of the State of Texas, without giving effect toprovisions thereof regarding conflict of laws. Eachparty hereby irrevocably submits to the non-exclusivejurisdiction of the state and federal courts sitting inTexas for the adjudication of any dispute hereunderor in connection herewith or with any transactioncontemplated hereby or discussed herein, and herebyirrevocably waives, and agrees not to assert in anysuit, action or proceeding, any claim that it is notpersonally subject to the jurisdiction of any suchcourt, that such suit, action or proceeding is broughtin an inconvenient forum or that the venue of suchsuit, action or proceeding is improper. Each partyhereby irrevocably waives personal service ofprocess and consents to process being served in anysuch suit, action or proceeding by sending by certifiedmail or overnight courier a copy thereof to such partyat the address for such notices to it under thisAgreement and agrees that such service shallconstitute good and sufficient service of process andnotice thereof. Nothing contained herein shall bedeemed to limit in any way any right to serve processin any manner permitted by law . EA C H PA R TYHEREBY IR R E V O C A B LY WA IV ES ANY RIGHT IT MA Y HAVE, AND AGREES NOT TOREQUEST, A JURY TRIAL FOR THEADJUDICATION OF ANY DISPUTE HEREUNDEROR IN CONNECTION HEREWITH OR ARISINGOUT OF THIS AGREEMENT OR ANYTRANSACTION CONTEMPLATED HEREBY.

    6

  • 18.

    Remedies, Characterizations, Other Obligations,Breaches and Injunctive Relief. The remediesprovided in this Note shall be cumulative and inaddition to all other remedies available under thisNote, at law or in equity (including a decree of specificperformance and/or other injunctive relief), and noremedy contained herein shall be deemed a waiver ofcompliance with the provisions giving rise to suchremedy and nothing herein shall limit a Holders rightto pursue actual damages for any failure by theCompany to comply with the terms of this Note. TheCompany covenants to each Holder of Notes thatthere shall be no characterization concerning thisinstrument other than as expressly provided herein.Amounts set forth or provided for herein with respectto payments, conversion and the like (and thecomputation thereof) shall be the amounts to bereceived by the Holder thereof and shall not, exceptas expressly provided herein, be subject to any otherobligation of the Company (or the performancethereof).

    19.

    Specific Shall Not Limit General; Construction. Nospecific provision contained in this Note shall limit ormodify any more general provision contained herein.This Note shall be deemed to be jointly drafted by theCompany and all Holders and shall not be construedagainst any person as the drafter hereof.

    20.

    Failure or Indulgence Not Waiver. No failure or delayon the part of this Note in the exercise of any power,right or privilege hereunder shall operate as a waiverthereof, nor shall any single or partial exercise of anysuch power, right or privilege preclude other or furtherexercise thereof or of any other right, power orprivilege.

    21.

    Partial Payment. In the event of partial payment bythe Holder, the principal sum due to the Holder shallbe prorated based on the consideration actually paidby lender such that the company is only required torepay the amount funded and the company is notrequired to repay any unfunded portion of this note.

    22.

    Entire Agreement. This Agreement constitutes the fulland entire understanding and agreement between theparties with regard to the subjects herein. None ofthe terms of this Agreement can be waived ormodified, except by an express agreement signed bythe Parties.

    23.

    Representations and Warranties. The Companyexpressly acknowledges that the Holder, including butnot limited to its officer, directors, employees, agents,and affiliates, have not made any representation orwarranty to it outside the terms of this Agreement.The Company further acknowledges that there havebeen no representations or warranties about futurefinancing or subsequent transactions between theparties.

  • 24.

    Notices. All notices and other communications givenor made to the Company pursuant hereto shall be inwriting (including facsimile or similar electronictransmissions) and shall be deemed effectivelygiven: (i) upon personal delivery, (ii) when sent byelectronic mail or facsimile, as deemed received bythe close of business on the date sent, (iii) five (5)days after having been sent by registered or certifiedmail, return receipt requested, postage prepaid or (iv)one (1) day after deposit with a nationally recognizedovernight courier, specifying next day delivery. Allcommunications shall be sent either by email, or fax,or to the address specified on the signature page.The physical address, email address, and phonenumber provided on the signature page shall beconsidered valid pursuant to the above stipulations;should the Companys contact information changefrom that listed on the signature page, it is incumbenton the Company to inform the Holder.

    7

    25.

    Severability. If one or more provisions of thisAgreement are held to be unenforceable underapplicable law, such provision shall be excluded fromthis Agreement and the rest of the Agreement shallbe enforceable in accordance with its terms.

    26.

    Usury. If it shall be found that any interest or otheramount deemed interest due hereunder violates theapplicable law governing usury, the applicable rate ofinterest due hereunder shall automatically be loweredto equal the maximum rate of interest permitted underapplicable law. The Company covenants (to theextent that it may lawfully do so) that it will not seek toclaim or take advantage of any law that would prohibitor forgive the Company from paying all or a portion ofthe principal or interest on this Note.

    27.Successors and Assigns. This Agreement shall bebinding upon successors and assigns.

    SIGNATURE PAGE TO FOLLOW 8

    IN WITNESS WHEREOF, the Company has caused this Note to be signed by its CEO, on and as of the Issuance Date.

    COMPANY:

    S i g n a t u r e :

    B y : /s/ Kent Patrick Watts

    T i t l e : CEO

    A d d r e s s : 800 Gessner Road Suite 375

    Houston, TX 77024

    E m a i l :

  • P h o n e :

    HOLDER:

    S i g n a t u r e :

    Sameer Hirji, PresidentJSJ Investments Inc.6060 North Central Expressway, Suite 500Dallas TX 75206888-503-2599

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    Exhibit 1Conversion Notice

    Reference is made to the Replacement Convertible Promissory Note issued by Hydrocarb Energy Corporation (the "Note"), dated February 23, 2015 in theprincipal amount of $137,000 with 10% interest. This note currently holds a principal balance of $137,000. The features of conversion stipulate a ConversionPrice the lower of (i) a 42% discount to the lowest trading price during the previous twenty (20) trading days to the date of Conversion; or (ii) a 42% discount tothe lowest trading price during the previous twenty (20) trading days before the date that this note was executed, pursuant to the provisions of Section 2(a)(2) inthe Note.

    In accordance with and pursuant to the Note, the undersigned hereby elects to convert $ of the PRINCIPAL/INTEREST balance of the Note, indicatedbelow into shares of Common Stock (the "Common Stock"), of the Company, by tendering the Note specified as of the date specified below.

    Date of Conversion:

    Please confirm the following information:Conversion Amount: $ _________________Conversion Price: $ ______________ ( ____% discount from $ _____________ )Number of Common Stock to be issued: ___________________________________________________________________________________Current Issued/Outstanding: ___________________________________________________________________________________________

    If the Issuer is DWAC eligible, please issue the Common Stock into which the Note is being converted in the name of the Holder of the Note and transfer theshares electronically to:

    [BROKER INFORMATION]

    Holder Authorization:

    JSJ Investments Inc.6060 North Central Expressway, Suite 500 *Do not send certificates to this addressDallas, TX 75206888-503-2599

    Tax ID: 20-2122354

    Sameer Hirji, President

  • [DATE]

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    PLEASE BE ADVISED, pursuant to Section 2(e)(2) of the Note, Upon receipt by the Company of a copy of the Conversion Notice, the Company shall as soon aspracticable, but in no event later than one (1) Business Day after receipt of such Conversion Notice, SEND, VIA EMAIL, FACSIMILE OR OVERNIGHT COURIER,A CONFIRMATION OF RECEIPT OF SUCH CONVERSION NOTICE TO SUCH HOLDER INDICATING THAT THE COMPANY WILL PROCESS SUCHCONVERSION NOTICE in accordance with the terms herein. Within two (2) Business Days after the date of the Conversion Confirmation, the Company shallhave issued and electronically transferred the shares to the Broker indicated in the Conversion Notice; should the Company be unable to transfer the shares electronically, they shall, within two (2) Business Days after the date of the Conversion Confirmation, have surrendered to FedEx for delivery the next day to theaddress as specified in the Conversion Notice, a certificate, registered in the name of the Holder, for the number of shares of Common Stock to which the Holdershall be entitled.

    Signature:

    Kent Patrick Watts CEO Hydrocarb Energy Corporation

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