Exhibit 10.1

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER
THE SECURITIES LAWS OF APPLICABLE STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES
MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

SECURED SERIES B PREFERRED STOCK CONVERTIBLE PROMISSORY NOTE  

Principal Amount $50,000.00 Original Issue Date: December 10, 2015

 

THIS SECURED SERIES B PREFERRED STOCK CONVERTIBLE PROMISSORY NOTE (this “Note”)
is one of a series of duly authorized and validly issued Secured Series B
Preferred Stock Convertible Notes (the “Notes”) of Vape Holdings, Inc., a
Delaware corporation (the “Company”), having its principal place of business at
21822 Lassen Street, Suite A, Chatsworth, CA 91311.

 

FOR VALUE RECEIVED, the Company promises to pay to HIVE Ceramics, LLC or its
registered assigns (the “Holder”), or shall have paid pursuant to the terms
hereunder, the principal sum of $50,000.00 USD on December 10, 2016 (the
“Maturity Date”) or such earlier date as this Note is required or permitted to
be repaid as provided hereunder, or such later date as may be permitted by the
Holder as set forth in Section 2 hereof, and to pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this Note in
accordance with the provisions hereof.

 

This Note is subject to the following additional provisions:

 

1.            Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Note, the following terms shall have the following
meanings:

 

“Bankruptcy Event” means any of the following events: (a) the Company or any
Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X) thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency, or liquidation or similar law of any jurisdiction relating to the
Company or any Significant Subsidiary thereof; (b) there is commenced against
the Company or any Significant Subsidiary thereof any such case or proceeding
that is not dismissed within sixty (60) days after commencement; (c) the Company
or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or
any order of relief or other order approving any such case or proceeding is
entered; (d) the Company or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within sixty (60) calendar days after
such appointment; (e) the Company or any Significant Subsidiary thereof makes a
general assignment for the benefit of creditors; (f) the Company or any
Significant Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment, or restructuring of its debts; or (g) the
Company or any Significant Subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of, or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.

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“Business Day” means any day except any Saturday, any Sunday, any day which
shall be a federal legal holiday in the United States or any day on which
banking institutions in the State of California are authorized or required by
law or other governmental action to close.

 

“Common Stock” means the common stock of the Company.

 

“Common Stock Equivalents” means any securities of the Company or its
subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants, or other instrument that is at any time convertible into, or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Series B Shares” means, collectively, the shares of Series B Preferred Stock
issued or issuable upon conversion of this Note in accordance with the terms
hereof.

 

2.           Interest; Prepayment.

 

(a)            Interest Rate. Interest shall accrue daily on the outstanding
principal amount of this Note at a rate per annum equal to eight (8%), subject
to Section 2(d) hereof.

(b)            Payment of Interest. On the Maturity Date, the Company shall pay
to the Holder any accrued but unpaid and unconverted interest hereunder on the
aggregate unconverted and then outstanding principal amount of this Note, and on
each Conversion Date (as defined herein), the Company shall pay to the Holder
any accrued but unpaid and unconverted interest hereunder on that portion of the
principal amount then being converted. The amount of interest payable on each
Conversion Date and the Maturity Date (the “Interest Amount”) may be added to,
and included with, the principal amount being so converted on such date.

(c)            Interest Calculations. Interest shall be calculated on the basis
of a three hundred sixty (360)-day year, consisting of twelve (12) thirty (30)
calendar day periods, and shall accrue daily commencing on the Original Issue
Date, until payment in full of the outstanding principal, together with all
accrued and unpaid interest and other amounts which may become due hereunder,
has been made. Interest hereunder will be paid to the Person in whose name this
Note is registered on the records of the Company regarding registration and
transfers of this Note (the “Note Register”).

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(d)            Default Interest. After the occurrence, and during the
continuance of, any Event of Default, the interest rate on this Note shall
accrue at an interest rate equal to the lesser of sixteen percent (16%) per
annum, compounded daily, or the maximum rate permitted under applicable law.

(e)             Prepayment. Without prejudice to the Holder’s rights under
clause 4 below, the Company may prepay this Note in cash at any time prior to
the Maturity Date without penalty upon ten (10) days’ prior written notice to
the Holder.

3.           Registration of Transfers and Exchanges. Prior to due presentment
for transfer to the Company of this Note, the Company and any agent of the
Company may treat the Person in whose name this Note is duly registered on the
Note Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Note is overdue, and
neither the Company nor any such agent shall be affected by notice to the
contrary.

 

4.           Security. The indebtedness evidenced by this Notes is secured by
all of the assets and property of the Company.

 

5.           Conversion.

 

(a)             Voluntary Conversion. At any time after the Original Issue Date
until this Note is no longer outstanding, this Note shall be convertible, in
whole or in part, into the Series B Shares at the option of the Holder, at any
time and from time to time (subject to the conversion limitations set forth
in Section 5(c) hereof). The Holder shall effect conversions by delivering to
the Company a Notice of Conversion, the form of which is attached hereto
as Annex A (a “Notice of Conversion”), specifying therein the principal amount
of this Note and any accrued but unpaid interest thereon to be converted and the
future date (which may be the same date as the date such notice is deemed
effective pursuant to Section 8(a) hereof) on which such conversion shall be
effected (such date, the “Conversion Date”). If no Conversion Date is specified
in a Notice of Conversion, the Conversion Date shall be the date that such
Notice of Conversion is deemed delivered hereunder. To effect conversions
hereunder, the Holder shall not be required to physically surrender this Note to
the Company unless the entire principal amount of this Note, plus all accrued
and unpaid interest thereon, has been so converted. Conversions hereunder shall
have the effect of lowering the outstanding principal amount of this Note in an
amount equal to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount(s) converted and the date of such
conversion(s). In the event of any dispute or discrepancy, the records of the
Company shall be controlling and determinative in the absence of manifest error.
The Holder, and any assignee by acceptance of this Note, acknowledge and agree
that, by reason of the provisions of this Section 5a), following conversion of a
portion of this Note, the unpaid and unconverted principal amount of this Note
may be less than the amount stated on the face hereof.

(b)          Conversion Price. The conversion price shall be $0.01 per
share, subject to adjustment herein (the “Conversion Price”).

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(c)           Conversion Limitations. Unless otherwise approved in writing by
the Company, any individual conversion under Section 5(a) hereof must be for at
least an amount of Five Thousand Dollars ($5,000) of the principal amount of
this Note and any accrued but unpaid interest thereon.

(d)          Mechanics of Conversion.

(i)       Series B Shares Issuable Upon Conversion of Principal Amount. The
number of Series B Shares issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (A) the outstanding principal
amount of this Note to be converted plus any accrued but unpaid interest
thereon, by (B) the Conversion Price.

(ii)      Delivery of Certificate Upon Conversion. Not later than five (5)
Business Days after each Conversion Date (the “Share Delivery Date”), the
Company shall deliver, or cause to be delivered, to the Holder a certificate or
certificates representing the Series B Shares representing the number of Series
B Shares being acquired upon the conversion of this Note.

(iii)     Failure to Deliver Certificates. If in the case of any Notice of
Conversion such certificate(s) or shares are not delivered to or as directed by
the applicable Holder by the fifth (5th) Business Day after the Conversion Date,
the Holder shall be entitled to elect by written notice to the Company at any
time on or before its receipt of such certificate or certificates, to rescind
such conversion, in which event the Company shall promptly return to the Holder
any original Note delivered to the Company and the Holder shall promptly return
to the Company the certificates representing the principal amount of the Note
unsuccessfully tendered for conversion to the Company.

(iv)    Reservation of Shares Issuable Upon Conversion. The Company covenants
that it will at all times reserve and keep available out of its authorized and
unissued shares of Series B Shares for the sole purpose of issuance upon
conversion of this Note and payment of interest on this Note, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder (and the other holders of the Notes),
not less than such aggregate number of shares of the Series B Shares as shall
(subject to the terms and conditions set forth in the Purchase Agreement) be
issuable (taking into account the adjustments of Section 6 hereof) upon the
conversion of the outstanding principal amount of this Note and payment of
interest hereunder. The Company covenants that all shares of Series B Shares
that shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable.

(v)      Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of this Note. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such conversion, the Company shall at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole share.

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(vi)     Transfer Taxes. The issuance of certificates for shares of the Series B
Shares on conversion of this Note shall be made without charge to the Holder
hereof for any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificates, provided that the Company shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in
a name other than that of the Holder of this Note and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.

6.           Certain Adjustments.

 

(a)            Stock Dividends and Stock Splits. If the Company, at any time
while this Note is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any Series B Shares issued by the Company upon conversion of,
or payment of interest on, the Notes); (ii) subdivides outstanding shares of
Common Stock into a larger number of shares; (iii) combines (including by way of
a reverse stock split) outstanding shares of Common Stock into a smaller number
of shares; or (iv) issues, in the event of a reclassification of shares of the
Common Stock, any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding any treasury shares of the Company)
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to this Section 6(a) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.

(b)            Fundamental Transaction. If, at any time while this Note is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all, or
substantially all, of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (each, a “Fundamental
Transaction”), then, upon any subsequent conversion of this Note, the Holder
shall have the right to receive, for each Series B Share that would have been
issuable upon such conversion immediately prior to the occurrence of such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one (1) share of Common Stock (the “Alternate
Consideration”). For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one (1) share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Conversion Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Common Stock are given any choice
as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Note following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new Note consistent with the foregoing
provisions and evidencing the Holder’s right to convert such Note into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 6(b) and insuring
that this Note (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction. Notice
of any such proposed Fundamental Transaction and of such election shall be given
to the Holder at least fifteen (15) calendar days before such closing. In
connection with such purchase, the Holder shall assign this Note to the Company
or its assignee, free and clear of any liens, claims or encumbrances other than
transfer restrictions under applicable securities laws.

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(c)           Calculations. All calculations under this Section 6 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 6, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.

(d)          Notice to the Holder.

(i)              Adjustment to Conversion Price. Whenever the Conversion Price
is adjusted pursuant to any provision of this Section 6, the Company shall
promptly deliver to each Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.

(ii)            Notice to Allow Conversion by Holder. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the Common
Stock, (B) the Company shall declare a special nonrecurring cash dividend on or
a redemption of the Common Stock, (C) the Company shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of this
Note, and shall cause to be delivered to the Holder at its last address as it
shall appear upon the Note Register, at least twenty (20) calendar days prior to
the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Note during the twenty
(20)-day period commencing on the date of such notice through the effective date
of the event triggering such notice.

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7.            Events of Default.

 

(a)          “Event of Default” means, wherever used herein, any of the
following events (whatever the reason for such event and whether such event
shall be voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body), provided that an event specified in
clauses (i), (ii), or (iii) below will not become an Event of Default unless and
until it is not cured, if possible to cure, within five (5) Business Days after
notice of such failure sent by the Holder:

(i)       any default in the payment of (A) the principal amount of any Note or
(B) interest and other amounts owing to a Holder on any Note, as and when the
same shall become due and payable (whether on a Conversion Date or the Maturity
Date or by acceleration or otherwise);

(ii)      the Company shall fail to observe or perform any other covenant or
agreement contained in the Notes;

(iii)     any representation or warranty made in this Note, any written
statement pursuant hereto or thereto or any other report, financial statement or
certificate made or delivered to the Holder or any other Holder shall be untrue
or incorrect in any material respect as of the date when made or deemed made;

(iv)     the Company shall provide at any time notice to the Holder, including
by way of public announcement, of the Company’s intention to not honor requests
for conversions of any Notes in accordance with the terms hereof.

(b)          Acceleration Upon Event of Default. If any Event of Default occurs,
the outstanding principal amount of this Note, plus accrued but unpaid interest
and other amounts owing in respect thereof through the date of acceleration,
shall become, at the Holder’s election, immediately due and payable in cash.
After the occurrence and during the continuance of any Event of Default, the
interest rate on this Note shall accrue as set forth in Section 2(d) hereof. If
there is such an acceleration, then upon the payment in full of the outstanding
principal amount of this Note, plus accrued but unpaid interest and other
amounts owing in respect thereof, the Holder shall promptly surrender this Note
to or as directed by the Company. In connection with such acceleration described
herein, the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such acceleration may be rescinded and annulled by Holder at any
time prior to payment hereunder and the Holder shall have all rights as a holder
of the Note until such time, if any, as the Holder receives full payment
pursuant to this Section 7(b).

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8.           Miscellaneous.

 

(a)             Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, or such other
facsimile number or address as the Company may specify for such purpose by
notice to the Holder delivered in accordance with this Section 8(a). Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, or sent by
a nationally recognized overnight courier service addressed to each Holder at
the facsimile number or address of the Holder appearing on the books of the
Company, or if no such facsimile number or address appears, at the principal
place of business of the Holder. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission or delivery, if such notice or communication is delivered via
facsimile at the facsimile number, or delivered by a U.S. nationally recognized
overnight courier service to the address, set forth on the signature pages
attached hereto prior to 5:30p.m. (Los Angeles time) on a Business Day, (b) the
next Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number, or delivered
by such courier service to the address, set forth on the signature pages
attached hereto on a day that is not a Business Day or later than 5:30 p.m. (Los
Angeles time) on any Business Day, or (c) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.

(b)            Absolute Obligation. Except as expressly provided herein, no
provision of this Note shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and accrued
interest, as applicable, on this Note at the time, place, and rate, and in the
coin or currency, herein prescribed.

(c)             Lost or Mutilated Note. If this Note shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Note, or in lieu of or in
substitution for a lost, stolen or destroyed Note, a new Note for the principal
amount of this Note so mutilated, lost, stolen or destroyed, but only upon
receipt of evidence of such loss, theft or destruction of such Note, and of the
ownership hereof, reasonably satisfactory to the Company.

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(d)            Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflict of laws thereof. Each
party agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the Note (whether brought against a party hereto or
its respective Affiliates, directors, officers, shareholders, employees or
agents) shall be commenced in the state and federal courts sitting in the County
of Los Angeles (the “Los Angeles Courts”). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the Los Angeles Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such Los Angeles
Courts, or such Los Angeles Courts are improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Note and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner
permitted by applicable law. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Note or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of this Note, then the prevailing party in
such action or proceeding shall be reimbursed by the other party for its
attorneys’ fees and other costs and expenses reasonably incurred in the
investigation, preparation and prosecution of such action or proceeding.

(e)             Waiver. Any waiver by the Company or the Holder of a breach of
any provision of this Note shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note. Any waiver by the
Company or the Holder must be in writing.

(f)             Severability. If any provision of this Note is invalid, illegal
or unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates the
applicable law governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum rate of interest permitted
under applicable law.

(g)            Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.

(h)            Headings. The headings contained herein are for convenience only,
do not constitute a part of this Note and shall not be deemed to limit or affect
any of the provisions hereof.

(i)              Assumption. Any successor to the Company or any surviving
entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental
Transaction, all of the obligations of the Company under this Note pursuant to
written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) and (ii) issue to the
Holder a new Note of such successor entity evidenced by a written instrument
substantially similar in form and substance to this Note, including, without
limitation, having a principal amount and interest rate equal to the principal
amount and the interest rate of this Note and having similar ranking to this
Note, which shall be satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed).  The provisions of this Section 8(i) shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations of this Note.

*********************

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a
duly authorized officer as of the date first above indicated.

 

  VAPE HOLDINGS, INC.         By: /s/ Ben Beaulieu   Name: Ben Beaulieu   Title:
Chief Operating Officer         Address for Notice:         21822 Lassen Street,
Suite A   Chatsworth, CA 91311

 

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ANNEX “A”

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the Series B Preferred
Stock Convertible Promissory Note (the “Note”) due December 10, 2016 of Vape
Holdings, a Delaware corporation (the “Company”), into shares of Series B
Preferred Stock (the “Series B Shares”) of the Company according to the
conditions hereof, as of the date written below. If Series B Shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.

 

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
Series B Shares pursuant to any prospectus.

 

Conversion calculations: Date to Effect Conversion:     Principal Amount of Note
to be Converted:           Interest Accrued on Account of Conversion at Issue:  
        Number of shares of Series B Preferred Stock to be issued:          
Signature:       Name:       Address for Delivery of Series B Preferred Stock
Certificates: