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: January 11, 2015
Date of earliest event reported: December 29, 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 3.02 Unregistered Sales of Equity Securities.

In connection with Hydrocarb Energy Corp.’s (the “Company”, “we”, “us” and “our”) entry into an employment agreement with K. Andrew Lai, our newly appointed Chief Financial Officer, as described in greater detail in Item 5.02, below, the Board of Directors agreed to grant Mr. Lai options to purchase 10,000 shares of common stock with an exercise price of $1.38 per share under the Company’s 2015 Stock Incentive Plan, with the terms described below in item 5.02. We claim an exemption from registration for the grant of the options pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), since the foregoing grant did not involve a public offering, the recipient was an officer of the Company, acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities were offered without any general solicitation by us or our representatives. The options are subject to transfer restrictions, and the certificates evidencing the options contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom.
 
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Resignation of President and Chief Operating Officer

On December 29, 2015, Charles F. Dommer, the President and Chief Operating Officer of the Company provided notice to the Board of Directors of the Company of his resignation as an officer and employee of the Company effective immediately in order to pursue other opportunities in and out of the petroleum industry. Notwithstanding Mr. Dommer’s resignation, the Company is in discussions with Mr. Dommer regarding him potentially staying on with the Company in an advisory role.

The Company wishes to thank Mr. Dommer for his service to the Company and wishes him success in his future endeavors.

 
 
 
Appointment of New Chief Financial Officer

Effective on January 4, 2016, the Company’s Board of Directors appointed K. Andrew Lai, as the Chief Financial Officer of the Company. On the same date, the Company entered into an employment agreement with Mr. Lai. Mr. Lai’s biography and a summary of the employment agreement are provided below.

K. Andrew Lai, Age 52

Mr. Lai has over 28 years of corporate and financial experience primarily in the exploration and production sector of the oil and gas energy industry, with a specialization in accounting, legal and administrative functions. From January 2013 to December 2015, Mr. Lai was an international financial consultant working mainly with oil and gas and real estate investors from China. From January 2011 to December 2012, Mr. Lai was the Chief Financial Officer of Lucas Energy, Inc. in Houston, Texas. From May 2010 to December 2010, Mr. Lai was an international business consultant. From October 2007 to April 2010, Mr. Lai served as Chief Financial Officer with Far East Energy Corporation in Houston.  Mr. Lai joined Far East in 2007 and served as a member of Far East's management team until his appointment as Chief Financial Officer.  From 1999 to 2007, Mr. Lai held various managerial positions with EOG Resources, Inc., in Houston, including Financial Reporting Director and International Accounting Director.  From 1987 to 1998, Mr. Lai held various positions with UMC Petroleum Corp. (which subsequently merged into Devon Energy).

Mr. Lai received from the University of Houston his Bachelor of Business Administration in 1987, his Master of Business Administration in 1991, and his Juris Doctorate in 2004.  Mr. Lai is a Texas attorney and certified public accountant.

Employment Agreement with K. Andrew Lai

Effective January 4, 2016, the Company entered into an employment agreement with Mr. Lai pursuant to which Mr. Lai agreed to serve as Chief Financial Officer of the Company. The agreement has a two year term, subject to additional automatic one year renewals unless either party provides the other written notice of non-renewal at least 60 days prior to the end of the initial term or any renewal term. During the term of the agreement, Mr. Lai is due an annual salary of (a) $200,000 in cash; (b) $40,000 in shares of the Company’s common stock (priced at market at the time of issuance and payable in quarterly installments at the end of each fiscal quarter starting on January 31, 2016, provided that only $3,333 of shares of common stock are due on January 1, 2016); and (c) options to purchase 120,000 shares of the Company’s common stock with an exercise price equal to the fair market value of the Company’s common stock on the grant date and payable in equal quarterly installments at the beginning of each fiscal quarter starting on February 1, 2016. Mr. Lai is also eligible to receive an annual bonus of up to 50% of his total base salary (cash, shares and options) in the discretion of the Board of Directors, based on performance criteria to be established by the Board of Directors. The Board of Directors is also authorized to review Mr. Lai’s compensation each year to determine whether any increases thereto or bonuses or incentive awards should be made to Mr. Lai in connection therewith. Mr. Lai is due four weeks of paid vacation per year, of which up to two weeks of unused vacation time are carried forward to the following year.

The options grantable pursuant to the employment agreement will have a term of five years and vest at the rate of 1/3rd of each option grant on the date of grant, 1/3rd of such option grant on the one year anniversary of the option grant and 1/3rd of such option grant on the two year anniversary of the option grant. In connection with Mr. Lai’s entry into the agreement, on January 7, 2016, the Board of Directors agreed to grant him options to purchase 10,000 shares of common stock with an exercise price of $1.38 per share (the mean between the high bid and low asked prices for the common stock on the grant date) under the Company’s 2015 Stock Incentive Plan.

 
 
 
The agreement automatically terminates upon the death of Mr. Lai or in the event of his disability (i.e., if he is unable to perform his duties under the agreement for 30 consecutive days due to any physical or mental illness or injury), and upon such termination Mr. Lai is due all amounts earned through such termination date. The agreement can also be terminated by us for cause (gross and willful misappropriation or theft of the Company’s property; conviction of or plea of nolo contendere to any felony or crime involving dishonesty or moral turpitude; material breach of the agreement which is not corrected in 30 days; or complete abandonment of duties under the agreement for 30 days), upon notice of either party of non-renewal, or Mr. Lai at any time, and upon such termination Mr. Lai is due all compensation earned through the date of termination. The agreement can be terminated by Mr. Lai for a good reason (including if his title, responsibilities or duties are reduced without his consent or we fail to pay any amounts owed to him for more than 30 days) or by us at any time, and upon such applicable termination, Mr. Lai is due a severance payment of 100% of his total base salary, provided that if we or Mr. Lai terminate the agreement within 6 months before or 12 months after a change of control (acquisition of 40% or more of the voting power of the Company by any person, subject to certain exemptions; consummation of a reorganization, merger or consolidation whereby the Company’s stockholders hold less than 60% of the combined voting power of the resulting entity after such transaction; or a liquidation or dissolution approved by the stockholders of the Company), and such termination would otherwise require us to make a severance payment to Mr. Lai, Mr. Lai is due a severance payment of 150% of his total base salary, in each case along with any amounts earned through such termination, and continued participation in all employee benefit plans in which he participated at the time of the termination until the earlier of (a) six months from the termination date (provided that if the termination is within six months of a change of control, then Mr. Lai can participate in such programs until the first anniversary of the termination); (b) the date the agreement would have expired but for the termination; or (c) the date Mr. Lai receives coverage and benefits from a subsequent employer. Each payment that is due as described above, is due in a lump sum prior to two months after the date of termination (provided that if Mr. Lai is terminated prior to an applicable change of control the payment is due two months after the applicable change of control). No change of control for the purposes of the agreement can be triggered until six months after the effective date of the agreement. Additionally, any options held by Mr. Lai are exercisable for the lesser of three years from the date of his termination of the agreement and the original stated termination date of such options.

The foregoing descriptions of Mr. Lai’s employment agreement are not complete and are qualified in their entirety by reference to the employment agreement which is filed herewith as Exhibit 10.1 and incorporated by reference herein.

Item 9.01 Financial Statements and Exhibits.
 
Exhibit No.
  
Description
     
10.1*
  
Employment Agreement between Hydrocarb Energy Corp. and K. Andrew Lai dated January 4, 2016
10.2*
  
Form of K. Andrew Lai 2015 Stock Incentive Plan Stock Option Agreement
 
* Filed herewith.

 
 
 

SIGNATURE

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: January 11, 2015
Hydrocarb Energy Corporation
   
 
/s/ Kent P. Watts
 
Kent P. Watts
 
Chief Executive Officer
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

EXHIBIT INDEX

Exhibit No.
  
Description
     
10.1*
  
Employment Agreement between Hydrocarb Energy Corp. and K. Andrew Lai dated January 4, 2016
10.2*
  
Form of K. Andrew Lai 2015 Stock Incentive Plan Stock Option Agreement
 
* Filed herewith.

 
 
 
 
 
 
 
 
 

 
 
 
 





Exhibit 10.1
 
 

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is entered into this 4th day of January, 2016 (the “Effective Date”) by and between Hydrocarb Energy Corp. (“Company”), and Mr. K. Andrew Lai (“Executive”).
 
WITNESSETH:
 
WHEREAS, Executive desires to serve as the Chief Financial Officer of the Company; and

WHEREAS, the Company wishes to assure itself of the services of Executive for the period provided in this Agreement, and Executive is willing to perform services for the Company for such period, upon the terms and conditions hereinafter provided.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto hereby agree as follows:

1. Term. The term of employment under this Agreement shall commence and this Agreement shall be effective as of the Effective Date, and shall terminate on the second anniversary of the Effective Date, unless sooner terminated in accordance with the terms hereof (the “Initial Term”); provided that this Agreement shall automatically extend for additional one (1) year periods after the Initial Term (each an “Automatic Renewal Term”) in the event that neither party provides the other written notice of their intent not to automatically extend the term of this Agreement at least sixty (60) days prior to the end of the Initial Term or any Automatic Renewal Term, as applicable (each a “Non-Renewal Notice”).

2. Employment; Duties. During the Term, Executive shall be employed by Company, and the Executive shall serve, as the Company’s Chief Financial Officer (“CFO”). Executive shall maintain a close working relationship with all the other executives of the Company and shall report directly to the Company’s Board of Directors (the “Board”), the Chief Executive Officer (CEO) and the Audit Committee of the Board. Duties of Executive in his role as the Company’s CFO shall include but not necessarily be limited to:

 
a.
Timely financial reporting and related filings with regulatory agencies,
 
b.
Administering financial audits,
 
c.
Creating together with the CEO the financial part of the business plan and managing such in close collaboration with the CEO,
 
d.
Support for keeping the written business plan updated together with all financial forecasts,
 
e.
Assistance and direction on cash management plan for entire company,
 
f.
Financial direction for all M&A activities,
 
g.
Strategic fundraising,
 
h.
Investment banking management and working closely with CEO on such,
 
i.
Working in detail with the CEO for all stock exchange listings, and
 
j.
Any other duties that the Board, the CEO, and/or Audit Committee may request of the CFO from time to time which is consistent with the position of a CFO.
 
 
 
Employment Agreement - CFO
 
Page 1
 
 
Best Efforts. Executive shall devote his best efforts to the business and affairs of the Company. Executive shall perform his duties, responsibilities and functions to the Company hereunder to the best of his abilities in a diligent, trustworthy, professional and efficient manner and shall comply, in all material respects, with all rules and regulations of the Company (and special instructions of the Board, if any) and all other rules, regulations, guides, handbooks, procedures and policies applicable to the Company and its business in connection with his duties hereunder, including all United States federal and state securities laws applicable to the Company.

Records. Executive shall use his best efforts and skills to truthfully, accurately, and promptly prepare, maintain, and preserve all records and reports that the Company may, from time to time, request or require, fully account for all money, records, equipment, materials, or other property belonging to the Company of which he may have custody, and promptly pay and deliver the same whenever he may be directed to do so by the Board.

Compliance. Executive shall use his best efforts to maintain the Company’s compliance with all rules and regulations of the Securities and Exchange Commission (“SEC”), and reporting requirements for publicly traded companies under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Executive shall at all times comply, and cause the Company to comply, with the then-current good corporate governance standards and practices as prescribed by the SEC, any exchange on which the Company’s capital stock or other securities may be traded and any other applicable governmental entity, agency or organization.

Exchange Act Filing Requirements. The Executive agrees and acknowledges that due to the Executive’s status as a Section 16(a) “officer” of the Company (as described in Rule 16a-1(f) of the Exchange Act), he has an obligation to file various beneficial ownership reports and forms with the Securities and Exchange Commission, including Form’s 3, 4 and 5 (where applicable) and that such obligation is solely the Executive’s regardless of whether the Company assists the Executive in filing such forms or not. The Executive agrees to use his best efforts to timely and adequately file all required beneficial ownership reports and forms required under the Exchange Act.

3. Compensation; Benefits. During the Term, Executive shall receive an annual salary of $200,000 to be paid in cash (“Cash Portion”), $40,000 to be paid in shares of the Company's common stock (“Share Portion”) and 120,000 Company's options (“Option Portion”) of the Company’s common stock (hereinafter collectively referred to as “Base Salary”). The Cash Portion of the Base Salary shall be payable in equal biweekly installments. The Share Portion of the Base Salary shall be priced at market at the time of issuance and shall be payable in equal quarterly installments at the end of each fiscal quarter. Options granted under the Option Portion of the Base Salary shall be issued with a strike price the same as the fair market price of the Company's stock on grant date and shall be payable in equal quarterly installments at the beginning of the fiscal quarter with terms pursuant to a shareholder approved incentive stock option plan. Executive shall also receive an annual bonus of up to 55% of the Base Salary, at the discretion of the Board, based on certain performance criteria to be established by the Board (“Bonus”). Until or unless the Company and the Board establish performance goals, the Executive’s Bonus will be wholly discretionary. At least annually, and no later than the 15th day of March of each year, the Board or the Compensation Committee shall review the Base Salary, Bonus, and other compensation of Executive based upon performance and other factors deemed appropriate by the Board and make such increases, supplemental bonus payments, or other incentive awards as it deems fit.

Employment Agreement - CFO
 
Page 2
 
In addition to the Base Salary, bonus and other compensation described in this Section 3, Executive shall be entitled to four (4) weeks of vacation per fiscal year. Up to two weeks of any unused vacation time will be carried forward to the following year.  Any unused vacation time at the time of termination of the Agreement will be paid to Executive in the form of cash and valued based on the then most recent pay period computed Cash Portion hourly rate of the Based Salary.  Executive shall also receive any other benefits and fringes (whether subsidized in part, or paid for in full by Company) including, but not limited to, medical, dental, life and disability insurance, and 401(k) Savings and Retirement Plan which Company now or in the future pays or subsidizes for any of its professional/technical or management employees, or employees in the same class as Executive.

So long as this Agreement is in effect, the Company shall reimburse Executive for all reasonable, out-of-pocket business expenses incurred in the performance of his duties hereunder consistent with the Company’s policies and procedures, in effect from time to time, with respect to travel, entertainment, communications, technology/equipment and other business expenses customarily reimbursed to senior executives of the Company in connection with the performance of their duties on behalf of the Company.

4. Termination.

     (a) Death. The Term and Executive’s employment hereunder shall terminate upon Executive’s death.

     (b) Disability. In the event Executive incurs a Disability for a continuous period exceeding thirty (30) days, the Company may, at its election, terminate the Term and Executive’s employment by giving Executive a notice of termination as provided in Section 4(f). The term “Disability” as used in this Agreement shall mean the inability of Executive to substantially perform his duties under this Agreement, as a result of a physical or mental illness or personal injury he has incurred, as determined by an independent physician selected with the approval of the Company and Executive.

     (c) Cause. The Company may terminate this Agreement and the Term and discharge Executive for Cause by giving Executive a notice of termination as provided in Section 4(f). “Cause” shall mean:
 
(i) Executive’s gross and willful misappropriation or theft of the Company’s or any of its subsidiary’s funds or property;
 
(ii) Executive’s conviction of, or plea of guilty or nolo contendere to, any felony or crime involving dishonesty or moral turpitude;

(iii) Executive materially breaches any obligation, duty, covenant or agreement under this Agreement, which breach is not cured or corrected within thirty (30) days of written notice thereof from the Company; or
 
(iv) Executive’s complete and total abandonment of his duties hereunder for a period of thirty consecutive days (other than for reason of Disability).

Employment Agreement - CFO
 
Page 3
 
     (d) Good Reason. Executive may terminate his employment and the Term at any time for Good Reason by giving written notice as provided in Section 4(f), which shall set forth in reasonable detail the facts and circumstances constituting Good Reason. “Good Reason” shall mean the occurrence of any of the following during the Term:
 
(i) without the consent of Executive, the Company materially reduces Executive’s title, duties or responsibilities under Section 2 without the same being corrected within thirty (30) days after being given written notice thereof, other than for Cause, death or Disability;
 
(ii) the Company fails to pay any regular biweekly installment of the cash portion of the Base Salary to Executive and such failure to pay continues for a period of more than 30 days;
 
(iii) the Company breaches Section 7 without the same being corrected within thirty (30) days after being given written notice thereof; or
 
(iv) the refusal to assume this Agreement by any successor or assign of the Company as provided in Section 8.

(e) End of Term with Non-Renewal Notice. Either party may terminate this Agreement at the end of the Initial Term or any Automatic Renewal Term by providing a Non-Renewal Notice.
 
(f) Notice of Termination. Any termination of this Agreement by the Company (other than for Cause under Section 4(c) or upon non-renewal under Section 4(e)) or by Executive shall be communicated in writing to the other party at least sixty (60) days before the date on which such termination is proposed to take effect. Any termination of this Agreement by the Company for Cause under Section 4(c) shall be communicated in writing to the Executive and such termination shall be effective immediately upon such notice. With respect to any termination of this Agreement by the Company for Cause or by the Executive for Good Reason, such notice shall set forth in detail the facts and circumstances alleged to provide a basis for such termination. Any termination due to non-renewal shall be governed by Section 1.

5. Payments Upon Termination.
 
(a) Death or Disability. If Executive’s employment shall be terminated by reason of death or Disability, the Company shall pay Executive’s estate or Executive the portion of the Base Salary which would have been payable to Executive through the date his employment is terminated; plus, any other amounts earned, accrued or owing as of the date of death or Disability of Executive but not yet paid to Executive under Section 3. In the event of the death or Disability of the Executive, then any payment due under this Section 5(a) shall be made to Executive’s estate, heirs, executors, administrators, or personal or legal representatives, as the case may be.
 
(b) Cause; Non-Renewal and Voluntary Termination. If Executive’s employment shall be terminated for Cause, non-renewal under Section 4(e), or the Executive terminates his employment (other than for Good Reason, death or Disability), then without waiving any rights or remedies by reason thereof:
 
Employment Agreement - CFO
 
Page 4
 
(i) the Company shall pay Executive his Base Salary and all amounts actually earned, accrued or owing as of the date of termination but not yet paid to Executive under Section 3 through the date of termination; and
 
(ii) except as otherwise provided in this subsection (b), the Company shall have no further obligations to Executive under this Agreement.
 
(c) Other Than Cause; Non-Renewal and Voluntary Termination. If Executive’s employment is terminated by the Company (other than as a result of Death, Disability, Cause or non-renewal as specified in Section 4(a), (b), (c) or (e) above) or is terminated by Executive for Good Reason, Executive shall be entitled to the following:
 
(i) a lump sum payment in an amount equal to product of (A) the Base Salary and Bonus under this Agreement paid to Executive during the immediately preceding twelve month period ending on the date of termination of employment, multiplied by (B) one hundred percent (100%); provided that if Executive’s termination of employment by the Company or the Executive is within 6 months before or 12 months following the occurrence of a Change of Control (as defined in Section 6 below), such payment shall be equal to product of (A) the Base Salary under this Agreement and Bonus paid to Executive during the immediately preceding twelve month period ending on the date of termination of employment, multiplied by (B) one hundred fifty percent (150%);
 
(ii) all amounts earned, accrued or owing through the date his employment is terminated but not yet paid to Executive under Section 3;
 
(iii) continued participation in all employee benefit plans, programs or arrangements available to the Company executives in which Executive was participating on the date of termination until the earliest of:

              (A) the sixth month of the date of Executive’s termination of employment, provided that if Executive’s termination of employment by the Company or the Executive is within 6 months before or 12 months following the occurrence of a Change of Control, then Executive shall be entitled to continue to participate in such employee benefit plans, programs or arrangements until the first anniversary of the date of Executive’s termination of employment;

              (B) the date this Agreement would have expired but for the occurrence of the date of termination; or

              (C) the date, or dates, the Executive receives coverage and benefits under the plans, programs and arrangements of a subsequent employer (such coverages and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit, basis);

     provided that if Executive is precluded from continuing his participation in any employee benefit plan, program or arrangement as provided in this clause (iii), the Company shall provide him with similar benefits provided under the plan, program or arrangement in which he is unable to participate for the period specified in this clause (iii).

Employment Agreement - CFO
 
Page 5
 
The payment of the lump sum amount under Section 5(c)(i) shall be made on the earlier of the date ending on the expiration of two months following the date of termination of Executive’s employment or the death of the Executive, except in connection with a Change of Control occurring after such termination in which the payment shall be made on the expiration of two months following the occurrence of the Change of Control. Within three years following Executive’s termination of employment, Executive or Executive’s estate, heirs, executors, administrators, or personal or legal representatives, as the case may be, shall be entitled to exercise all options granted to Executive that are vested and exercisable pursuant to this Agreement or otherwise and all such options not exercised within such three-year period shall be forfeited, provided that any options which were to expire pursuant to their terms prior to the end of such three year period shall expire pursuant to their terms. All options and restricted stock that are not vested and exercisable pursuant to this Agreement or otherwise as of the date of, or as a result of Executive’s termination of employment shall be forfeited. In the event of the death or Disability of the Executive, then any payment due under this Section 5(c) shall be made to Executive’s estate, heirs, executors, administrators, or personal or legal representatives, as the case may be.

As a condition to Executive’s right to receive any benefits pursuant to Section 5(c) of this Agreement, Executive must execute and deliver to the Company a written release in form and substance satisfactory to the Company, of any and all claims against the Company and all directors and officers of the Company with respect to all matters arising out of Executive’s employment hereunder, or the termination thereof (other than claims for entitlements under the terms of this Agreement or plans or programs of the Company in which Executive has accrued a benefit).

6. Change of Control. For purposes of this Agreement, a “Change of Control” shall mean all of the following which occur six months after the Effective Date (for the sake of clarity no Change of Control shall be deemed to have been triggered during the first six months following the Effective Date, regardless of whether any such transaction would otherwise be deemed a Change of Control hereunder):

     (a) the acquisition by any individual, entity or group of forty percent (40%) or more of the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change of Control: (A) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (B) any acquisition by Executive, by any group of persons consisting of relatives within the second degree of consanguinity or affinity of Executive or by any affiliate of Executive or (C) any acquisition by an entity pursuant to a reorganization, merger or consolidation, unless such reorganization, merger or consolidation constitutes a Change of Control under clause (b) of this Section 6;

     (b) the consummation of a reorganization, merger or consolidation, unless following such reorganization, merger or consolidation, sixty percent (60%) or more of the combined voting power of the then-outstanding voting securities of the entity resulting from such reorganization, merger or consolidation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation;

Employment Agreement - CFO
 
Page 6
 
     (c) the (i) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company or (ii) sale or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, unless the successor entity existing immediately after such sale or disposition is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Voting Securities immediately prior to such sale or disposition;

     (d) the Board adopts a resolution to the effect that, for purposes hereof, a Change of Control has occurred.

7. Indemnification.

     (a) The Company shall indemnify and hold Executive harmless to the maximum extent permitted by law against judgments, fines, amounts paid in settlement and reasonable expenses, including attorney’s fees incurred by Executive, in connection with the defense of, or as a result of, any action or proceeding (or any appeal from any action or proceeding) in which Executive is
made or is threatened to be made a party by reason of the fact that Executive is or was an officer or Director of the Company, regardless of whether such action or proceeding is one brought by or in the right of the Company, to procure a judgment in its favor (or other than by or in the right of the Company).

     (b) Notwithstanding anything in the Company’s Articles of Incorporation, the by-laws or this Agreement to the contrary, if so requested by Executive, the Company shall advance any and all Expenses (as defined below) to Executive (“Expense Advance”), within fifteen days following the date of such request and the receipt of a written undertaking by or on behalf of Executive to repay such Expense Advance if a judgment or other final adjudication adverse to Executive (as to which all rights of appeal therefrom have been exhausted or lapsed) establishes that Executive, with respect to such Claim, is not eligible for indemnification. “Expenses” shall include attorneys’ fees and all other costs, charges and expenses paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Claim relating to any indemnifiable event. A “Claim” shall include any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative or other, including without limitation, an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, whether predicated on foreign, federal, state or local law and whether formal or informal.

8. Binding Agreement; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Executive and the Company and their respective heirs, legal representatives and permitted successors and assigns. If the Company shall at any time be merged or consolidated into or with any other entity, the provisions of this Agreement shall survive any such transaction and shall be binding on and inure to the benefit and responsibility of the entity resulting from such merger or consolidation (and this provision shall apply in the event of any subsequent merger or consolidation), and the Company, upon the occasion of the above-described transaction, shall include in the appropriate agreements the obligation that the payments herein agreed to be paid to or for the benefit of Executive, his beneficiaries or estate, shall be paid.

Employment Agreement - CFO
 
Page 7
 
9. Dispute Resolution. Any controversy or claim arising with regard to this Agreement shall be settled by expedited arbitration in accordance with the provisions of the Texas Arbitration Act. The controversy or claim shall be submitted to an arbitrator appointed by the presiding judge of the Harris County, Texas Judicial District Court. The decision of the arbitrator shall be final and binding upon the parties hereto and shall be delivered in writing signed by the arbitrator to each of the parties hereto. Any appeal arising out of the ruling of any arbitrator shall be determined in a court of competent jurisdiction in Houston, Texas, or the federal court for Houston, Texas, and
each party waives any claim to have the matter heard in any other local, state, or federal jurisdiction. The prevailing party in the arbitration proceeding or in any appeal shall be entitled to recover attorney’s fees, court costs and all related costs from the non-prevailing party. If the controversy or claim arises with regard to any severance or separation payment required under Section 5 of this Agreement and the arbitrator rules in favor of Executive with respect thereto, then:

         (a) any award or sums due and owing to Executive under the terms of this Agreement shall be increased by an amount equal to the product of one month of Executive's Base Salary in effect immediately prior to the termination of this Agreement, multiplied by (i) if such award or sums is payable under Section 5(c), then the number of thirty (30) day periods or part thereof that has elapsed after the date ending six months after the date of Executive's termination or separation or (ii) otherwise, the number of thirty (30) day periods or part thereof that has elapsed after the date of Executive's termination;

         (b) if the Company fails to comply with any such ruling of the arbitrator, or if the Company unsuccessfully appeals any such ruling of the arbitrator, then any award or sums due and owing to Executive under the terms of this Agreement shall be increased by an amount equal to the product of one month of Executive's Base Salary in effect immediately prior to the termination of this Agreement, multiplied by the number of thirty (30) day periods or part thereof that has elapsed after the date of the arbitrator's initial decision or determination; and

         (c) If the arbitrator in such initial arbitration proceeding, or any court in any appeal thereof determine that Company acted in bad faith, or frivolously, in claiming "Cause" as its reason for termination of this Agreement, or in failing to offer to the Executive the severance or separation payment pursuant to Section 5 of this Agreement, then the Executive shall be entitled to receive and Company shall be ordered to pay to Executive as a penalty an amount equal to $100,000.00 in addition to the payments required under Section 5 of this Agreement and any other amounts due under this Agreement.

10. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations and to the extent that any performance is required following termination of this Agreement. Without limiting the foregoing, Section 5 and Sections 7 through 19 shall expressly survive the termination of this Agreement.

11. Nonassignability. Neither this Agreement nor any right or interest hereunder shall be assignable by Executive, his beneficiaries, dependents or legal representatives without the Company’s prior written consent; provided, however, that nothing in this Section 11 shall preclude (a) Executive from designating a beneficiary to receive any benefit payable hereunder upon his death, or (b) the executors, administrators or other legal representatives of Executive or his estate from assigning any rights hereunder to the person or persons entitled thereto.

Employment Agreement - CFO
 
Page 8
 
12. Amendments to this Agreement. Except for increases in the Base Salary and other compensation made as provided in Section 3, this Agreement may not be modified or amended except by an instrument in writing signed by the Executive and the Company. No increase in the Base Salary or other compensation made as provided in Section 3 will operate as a cancellation or termination of this Agreement.

13. Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.

14. Severability. If, for any reason, any provision of this Agreement is held invalid, illegal or unenforceable such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement not held so invalid, illegal or unenforceable, and each such other provision shall, to the full extent consistent with law, continue in full force and effect. In addition, if any provision of this Agreement shall be held invalid, illegal or unenforceable in part, such invalidity, illegality or unenforceability shall in no way affect the rest of such provision not held so invalid, illegal or unenforceable and the rest of such provision, together with all other provisions of this Agreement, shall, to the full extent consistent with law, continue in full force and effect. If any provision or part thereof shall be held invalid, illegal or unenforceable, to the fullest extent permitted by law, a provision or part thereof shall be substituted therefor that is valid, legal and enforceable.

15. Notices. Any notice, request, or other communication required or permitted pursuant to this Agreement shall be in writing and shall be deemed duly given when received by the party to whom it shall be given or three days after being mailed by certified, registered, or express mail, postage prepaid, addressed as follows:

     If to Company:
If to Executive:
   
     Hydrocarb Energy Corp.
3760 Harper St
     800 Gessner Road, Ste. 375
Houston, TX 77005
     Houston, TX 77024
Email: attorney@andrewlai.com
     Attention: Chairman of Board
Attention: Mr. K. Andrew Lai

or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

16. Headings. The headings of Sections are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

Employment Agreement - CFO
 
Page 9
 
17. Governing Law. This Agreement has been executed and delivered in the State of Texas, and its validity, interpretation, performance and enforcement shall be governed by the laws of Texas, without giving effect to any principles of conflicts of law.

18. Withholding. All amounts paid pursuant to this Agreement shall be subject to withholding for taxes (federal, state, local or otherwise) to the extent required by applicable law.

19. Clawback. Notwithstanding any provision in this Agreement to the contrary, any portion of the payments and benefits provided under this Agreement, as well as any other payments and benefits which the Executive receives pursuant to a Company plan or other arrangement, shall be subject to a clawback to the extent necessary to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act or any Securities and Exchange Commission rule.

20. Counterparts. This Agreement may be executed in counterparts, each of which, when taken together, shall constitute one original Agreement.

21. Entire Agreement. This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between the Company and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided and not expressly provided for in this Agreement.

IN WITNESS WHEREOF, Company has caused its duly authorized officer and directors to execute and attest to this Agreement, and Executive has placed his signature hereon, effective as of the Effective Date.

 
COMPANY:                                                                                               


/s/ Kent Watts           
By: Mr. Kent Watts                                                                                  
Chairman of the Board
EXECUTIVE:
 
 
/s/ K. Andrew Lai          
Mr. K. Andrew Lai
    
       
       
 
 
 
 
 
 
 
 
 
 
Employment Agreement - CFO
 
Page 10
 


Exhibit 10.2
 
 
 

[THIS STOCK OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF (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 STOCK OPTION AND ANY SECURITIES ISSUABLE UPON EXERCISE OF THIS OPTION (EXCEPT AS OTHERWISE PROVIDED BELOW).]1

HYDROCARB ENERGY CORP.

2015 STOCK INCENTIVE PLAN

FORM OF STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms in the Stock Option Agreement (the “Option Agreement”) have the same meanings as defined in the Hydrocarb Energy Corp. 2015 Stock Incentive Plan (the “Plan”).

I.           NOTICE OF STOCK OPTION GRANT
 
Optionee: K. Andrew Lai
 
Address: 3760 Harper St., Houston, Texas 77005

You have been granted an Option to purchase Common Stock of the Company (the “Option”), subject to the terms and conditions of the Plan and this Option Agreement, as follows:

Grant Date:                                ___________
 
Type of Option: Incentive Stock Option

Vesting Commencement Date: ___________
 
 
 
                  _________________________
 
 
Page 1 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
Exercise Price per Share: $___________
 
Total Number of Shares Granted: ___________
 
Total Exercise Price: $___________
 
 Expiration Date: The fifth anniversary of the Grant Date
 
Vesting Schedule: 1/3rd of such Options shall vest on the Grant date 1/3rd of such Options shall grant on the one year anniversary of the Grant Date and 1/3rd of such Options shall vest on the two year anniversary of the Grant Date, subject to the terms and conditions of this Agreement.

To the extent vested, this Option will be exercisable for three (3) months following the Termination of Service of Optionee, unless termination is due to Optionee’s death or disability, in which case this Option will be exercisable for twelve (12) months following the Termination of Service of Optionee. In the event of termination due to Optionee’s death, the Company shall use commercially reasonable efforts to notify Optionee’s estate of the exercisability of the Option following Optionee’s death. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Expiration Date as provided above. Following the Termination of Service of Optionee due to the death, disability, expiration of any employment agreement without renewal, by the Company with Cause, or by the Optionee without Good Reason (as defined in any employment agreement in effect immediately prior to such termination, by Optionee and the Company), all unvested Options shall expire and be terminated.

Notwithstanding the terms of this Agreement, this Agreement and the Options shall be subject in all cases to those additional terms and conditions set forth in the Employment Agreement dated January 4, 2016, by and between the Optionee and the Company, and any amendments thereto, and in the event of any conflict between the terms of this Agreement and the Employment Agreement, the terms of the Employment Agreement shall control for all purposes.
 
“Cause” has the meaning ascribed to such term or words of similar import in Optionee’s written employment or service contract with the Company or its parent or any subsidiary and, in the absence of such agreement or definition, means Optionee’s (i) conviction of, or plea of nolo contendere to, a felony or any other crime involving moral turpitude; (ii) fraud on or misappropriation of any funds or property of the Company or its subsidiaries, or any affiliate, customer or vendor; (iii) personal dishonesty, incompetence, willful misconduct, willful violation of any law, rule or regulation (other than minor traffic violations or similar offenses), or breach of fiduciary duty which involves personal profit; (iv) willful misconduct in connection with Optionee’s duties or willful failure to perform Optionee’s responsibilities in the best interests of the Company or its subsidiaries; (v) illegal use or distribution of drugs; (vi) violation of any material rule, regulation, procedure or policy of the Company or its subsidiaries, the violation of which could have a material detriment to the Company; or (vii) material breach of any provision of any employment, non-disclosure, non-competition, non-solicitation or other similar agreement executed by Optionee for the benefit of the Company or its subsidiaries, all as reasonably determined by the Company’s Board of Directors, which determination will be conclusive.

 
Page 2 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
II.           AGREEMENT

1.           Grant of Option. The Board of Directors grants to the Optionee named in the Notice of Stock Option Grant in Part I of this Option Agreement, an Option to purchase the number of Shares set forth in the Notice of Stock Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. In the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions of the Plan prevail.

If designated in the Notice of Stock Option Grant as an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Code section 422. Nevertheless, to the extent that it exceeds the $100,000 rule of Code section 422(d), this Option will be treated as a Nonstatutory/Non-Qualified Stock Option.

2.           Exercise of Option.

(a)     Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement.

(b)     Method of Exercise. This Option is exercisable by (i) delivery of an exercise notice in the form attached as Exhibit A (the “Exercise Notice”) or in a manner and pursuant to procedures as the Board of Directors may determine, which will state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and other representations and agreements as may be required by the Company and (ii) paying the Company in full the aggregate Exercise Price as to all Shares being acquired, together with any applicable tax withholding.

This Option will be deemed to be exercised upon receipt by the Company of a fully executed Exercise Notice accompanied by the aggregate Exercise Price, together with any applicable tax withholding.

No Shares will be issued pursuant to the exercise of an Option unless the issuance and exercise of Shares complies with applicable state and federal laws (“Applicable Laws”). Assuming compliance, for income tax purposes the Shares will be considered transferred to the Optionee on the date on which the Option is exercised with respect to the Shares.

3.           Method of Payment. The aggregate Exercise Price may be paid by any of the following, or a combination thereof, at the election of the Optionee:

(a)       cash;

(b)       check;

 
Page 3 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
(c)       to the extent not prohibited by Section 402 of the Sarbanes-Oxley Act of 2002, a promissory note;

(d)       other shares of Common Stock, provided Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option will be exercised;

(e)       by asking the Company to withhold Shares from the total Shares to be delivered upon exercise equal to the number of Shares having a value equal to the aggregate Exercise Price of the Shares being acquired;

(f)      any combination of the foregoing methods of payment; or

(g)       such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws and the Plan.

4.           Legends.

(a)           All certificates representing the Shares issued upon exercise of this Option shall, prior to such date as the Plan and Common Stock hereunder are covered by a valid Form S-8 or similar U.S. federal registration statement, where applicable, have endorsed thereon the following legends:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL, STATE AND FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL, STATE AND FOREIGN SECURITIES LAWS IS NOT REQUIRED.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER HEREOF. SUCH AGREEMENT PROVIDES FOR CERTAIN TRANSFER RESTRICTIONS, INCLUDING RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SECURITIES AND CERTAIN REPURCHASE RIGHTS IN FAVOR OF THE COMPANY. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.

 
Page 4 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
(b)           If the Option is an incentive stock option (ISO), then the following legend will be included:

THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED UPON EXERCISE OF AN INCENTIVE STOCK OPTION, AND THE COMPANY MUST BE NOTIFIED IF THE SHARES SHALL BE TRANSFERRED BEFORE THE LATER OF THE TWO (2) YEAR ANNIVERSARY OF THE DATE OF GRANT OF THE OPTION OR THE ONE (1) YEAR ANNIVERSARY OF THE DATE ON WHICH THE OPTION WAS EXERCISED. THE REGISTERED HOLDER MAY RECOGNIZE ORDINARY INCOME IF THE SHARES ARE TRANSFERRED BEFORE SUCH DATE.
 

5.           Optionee’s Investment Representations.

(a)           This Agreement is made with Optionee in reliance upon Optionee’s representation to the Company, which by Optionee’s acceptance hereof Optionee confirms, that the Common Stock which Optionee will receive will be acquired with Optionee’s own funds for investment for an indefinite period for Optionee’s own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that Optionee has no present intention of selling, granting participation in, or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of Optionee’s property shall at all times be within Optionee’s control. By executing this Agreement, Optionee further represents that Optionee does not have any contract, understanding or agreement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to any of the Common Stock.

(b)           With respect to a transaction occurring prior to such date as the Plan and Common Stock thereunder are covered by a valid Form S-8 or similar U.S. federal registration statement, Optionee agrees that in no event shall Optionee make a disposition of any of the Common Stock, unless and until: (i) Optionee shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition; and (ii) Optionee shall have furnished the Company with an opinion of counsel satisfactory to the Company to the effect that (A) such disposition will not require registration or qualification of such Common Stock under applicable U.S. federal, state or foreign securities laws or (B) appropriate action necessary for compliance with the U.S. federal, state or foreign securities laws has been taken; or (iii) the Company shall have waived, expressly and in writing, its rights under clauses (i) and (ii) of this Subsection.

(c)           Optionee understands that if a registration statement covering the Common Stock under the Securities Act is not in effect when Optionee desires to sell the Common Stock, Optionee may be required to hold the Common Stock for an indeterminate period. Optionee also acknowledges that Optionee understands that any sale of the Common Stock which might be made by Optionee in reliance upon Rule 144 under the Securities Act may be made only in limited amounts in accordance with the terms and conditions of that Rule.

 
Page 5 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
6.           Restrictions on Exercise. This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any Applicable Laws. The Company will be relieved of any liability with respect to any delayed issuance of shares or its failure to issue shares if such delay or failure is necessary to comply with Applicable Laws.

7.           Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Plan and this Option Agreement are binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

8.           Term of Option. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during the term only in accordance with the Plan and the terms of this Option.

9.           Tax Obligations.

(a)       Withholding Taxes. Optionee agrees to arrange for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver the Shares if withholding amounts are not delivered at the time of exercise.

(b)       Notice of Disqualifying Disposition of ISO Shares. If the Option granted to Optionee is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after the Grant Date, or (ii) the date one (1) year after the date of exercise, the Optionee must immediately notify the Company of the disposition in writing. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee.

(c)       Code Section 409A. Under Code section 409A, an Option that was granted with a per Share exercise price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share on the Grant Date (a “discount option”) may be considered deferred compensation. An Option that is a discount option may result in (i) income recognition by the Optionee prior to the exercise of the Option, (ii) an additional twenty percent (20%) tax, and (iii) potential penalty and interest charges. Optionee acknowledges that the Company cannot and has not guaranteed that the IRS will agree that the per Share Exercise Price of this Option equals or exceeds Fair Market Value of a Share on the Grant Date in a later examination. Optionee agrees that if the IRS determines that the Option was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the Grant Date, Optionee will be solely responsible for any and all resulting tax consequences.

10.           No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS AN EMPLOYEE AND/OR DIRECTOR (AS APPLICABLE) AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING OPTIONEE) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS OPTION AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE AND/OR DIRECTOR (AS APPLICABLE) FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAY WITH OPTIONEE’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING OPTIONEE) TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

 
Page 6 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
11.           Notices. All notices or other communications which are required or permitted hereunder will be in writing and sufficient if (i) personally delivered or sent by telecopy, (ii) sent by nationally-recognized overnight courier or (iii) sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

(a)           if to the Optionee, to the address (or telecopy number) set forth on the Notice of Stock Option Grant; and

(b)           if to the Company, to its principal executive office as specified in any report filed by the Company with the Securities and Exchange Commission or to such address as the Company may have specified to the Optionee in writing, Attention: Corporate Secretary;

or to any other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. Any communication will be deemed to have been given (i) when delivered, if personally delivered, or when telecopied, if telecopied, (ii) on the first Business Day (as hereinafter defined) after dispatch, if sent by nationally-recognized overnight courier and (iii) on the fourth Business Day following the date on which the piece of mail containing the communication is posted, if sent by mail. As used herein, “Business Day” means a day that is not a Saturday, Sunday or a day on which banking institutions in the city to which the notice or communication is to be sent are not required to be open.

12.           Specific Performance. Optionee expressly agrees that the Company will be irreparably damaged if the provisions of this Option Agreement and the Plan are not specifically enforced. Upon a breach or threatened breach of the terms, covenants and/or conditions of this Option Agreement or the Plan by the Optionee, the Company will, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or decree for specific performance, in accordance with the provisions hereof and thereof. The Board of Directors has the power to determine what constitutes a breach or threatened breach of this Option Agreement or the Plan. The Board of Directors’ determinations will be final and conclusive and binding upon the Optionee.

 
Page 7 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
13.           No Waiver. No waiver of any breach or condition of this Option Agreement will be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.

14.           Optionee Undertaking. The Optionee agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Optionee pursuant to the express provisions of this Option Agreement.

15.           Modification of Rights. The rights of the Optionee are subject to modification and termination in certain events as provided in this Option Agreement and the Plan.

16.           Governing Law. This Agreement is governed by, and construed in accordance with, the laws of the State of Texas, without giving effect to its conflict or choice of law principles that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

17.           Counterparts; Facsimile Execution. This Option Agreement may be executed in one or more counterparts, each of which will be deemed to be an original, but all of which together constitute one and the same instrument. Facsimile execution and delivery of this Option Agreement is legal, valid and binding execution and delivery for all purposes.

18.           Entire Agreement. The Plan, this Option Agreement, and upon execution, the Exercise Notice, constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee.

19.           Severability. In the event one or more of the provisions of this Option Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provisions of this Option Agreement, and this Option Agreement will be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

20.           WAIVER OF JURY TRIAL. THE OPTIONEE EXPRESSLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS OPTION AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

[Remainder of page left blank intentionally]


 

 
Page 8 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
 
Optionee acknowledges receipt of a copy of the Plan and represents that he is familiar with the terms and provisions thereof, and accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee agrees to accept as binding, conclusive and final all decisions or interpretations of the Board of Directors upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

 
OPTIONEE
    
HYDROCARB ENERGY CORP.
  
         
         
Signature
 __________________________    
By:
 __________________________  
     
 
  
Print Name:
K. Andrew Lai
    
Print Name:
 __________________________  
         
Address:
3760 Harper St.
Houston, Texas 77005
    
Address:
 
800 Gessner, Suite 375
Houston, Texas 77024                      
  
         
Date Signed:                         ____________________________
    
Date Signed:
___________________________
  
 
 
 

 
 
 
 
Page 9 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
 
EXHIBIT A
 
2015 STOCK INCENTIVE PLAN
 
EXERCISE NOTICE

Hydrocarb Energy Corp.
800 Gessner, Suite 375
Houston, Texas 77024

Attention: Hydrocarb Energy Corp., Corporate Secretary

1.           Exercise of Option. Effective as of today, _____________, _____, the undersigned (“Optionee”) elects to exercise Optionee’s option to purchase _________ shares of the Common Stock (the “Shares”) of Hydrocarb Energy Corp. (the “Company”) under and pursuant to the Hydrocarb Energy Corp. 2015 Stock Incentive Plan (the “Plan”) and the Stock Option Agreement dated _____________ and effective _____________ (the “Option Agreement”).

2.           Delivery of Payment. Optionee herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement, and any and all withholding taxes due in connection with the exercise of the Option.

3.           Representations of Optionee. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.

4.           Rights as Stockholder. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder exists with respect to the Optioned Stock, notwithstanding the exercise of the Option. Subject to the requirements of Section 6 below, the Shares will be issued to the Optionee as soon as practicable after the Option is exercised in accordance with the Option Agreement. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in the Plan.

5.           Tax Consultation. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee’s purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.

 
Page 10 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
6.           Refusal to Transfer. The Company will not (i) transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Notice, or (ii) be required to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.

7.           Successors and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice inures to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice is binding upon Optionee and his or her heirs, executors, administrators, successors and assigns.

8.           Interpretation. Any dispute regarding the interpretation of this Exercise Notice will be submitted by Optionee or by the Company forthwith to the Board of Directors for review at its next regular meeting. The resolution of disputes by the Board of Directors will be final and binding on all parties.

9.           Governing Law; Severability. This Exercise Notice is governed by, and construed in accordance with, the laws of the State of Texas, without giving effect to its conflict or choice of law principles that might otherwise refer construction or interpretation of this Exercise to the substantive law of another jurisdiction. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Exercise Notice will continue in full force and effect.

10.           Optionee Representations.

(a)           With respect to a transaction occurring prior to such date as the Plan and Common Stock thereunder are covered by a valid Form S-8 or similar U.S. federal registration statement, Optionee agrees that in no event shall Optionee make a disposition of any of the Common Stock, unless and until: (i) Optionee shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition; and (ii) Optionee shall have furnished the Company with an opinion of counsel satisfactory to the Company to the effect that (A) such disposition will not require registration or qualification of such Common Stock under applicable U.S. federal, state or foreign securities laws or (B) appropriate action necessary for compliance with the U.S. federal, state or foreign securities laws has been taken; or (iii) the Company shall have waived, expressly and in writing, its rights under clauses (i) and (ii) of this Subsection.

(b)           Optionee understands that if a registration statement covering the Common Stock under the Securities Act is not in effect when Optionee desires to sell the Common Stock, Optionee may be required to hold the Common Stock for an indeterminate period. Optionee also acknowledges that Optionee understands that any sale of the Common Stock which might be made by Optionee in reliance upon Rule 144 under the Securities Act may be made only in limited amounts in accordance with the terms and conditions of that Rule.

 
Page 11 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 
11.           Other Documents. Optionee hereby acknowledges receipt or the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act of 1933, as amended, including, but not limited to, the information required by Part I of Form S-8, if applicable.
 

12.           Notices. Any notice required or permitted hereunder will be provided in writing and deemed effective if provided in the manner specified in the Option Agreement.

13.           Further Instruments. The parties agree to execute any further instruments and to take any further action as may be reasonably necessary to carry out the purposes and intent of the Option Agreement and this Exercise Notice.

14.           Entire Agreement. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee.


[signature page follows.]
 

 

 

 
 
Page 12 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai
 


Submitted by:
Accepted by:
OPTIONEE
HYDROCARB ENERGY CORP.
___________________________________ ___________________________________
Signature
By
 
___________________________________
 ___________________________________
Print Name
Print Name
 
 
___________________________________
 
Title
   
Address:
 
Address:
___________________________________
 
 ___________________________________
___________________________________
___________________________________
 
  ___________________________________
 
Date Received


 

 

 

 

 

 

 
 
Page 13 of 13
Hydrocarb Energy Corp. - Stock Option Agreement
K. Andrew Lai