Stock Pledge Agreement between Typenex Co-Investment, LLC and CW Navigation, Inc. (March 5, 2015)

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3.            Perfection of Security Interests.

 

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

 

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

 

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

 

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

 

5.            Representations, Warranties and Covenants of the Pledgor.

 

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

 

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

 

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

 

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

 

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

 

5.2.            Other.

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

 

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

 

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

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

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

 

 

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

 

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

 

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

 

 

 

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

 

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

 

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

 

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

 

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

Certificate Number: _____________________

Jurisdiction of Organization: Nevada

Date Acquired:  ________________

Certificate Number: _____________________

Jurisdiction of Organization: Nevada

Date Acquired:  ________________

Certificate Number: _____________________

Jurisdiction of Organization: Nevada

Date Acquired:  ________________