Exhibit 10.1

 

Securities Purchase Agreement

 

This Securities Purchase Agreement (this “Agreement”), dated as of February 10,
2015, is entered into by and between Vape Holdings, Inc., a Delaware corporation
(“Company”), and Redwood Management, LCC, a Florida limited liability company,
its successors and/or assigns (“Investor”).

 

A.       Company and Investor are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the rules
and regulations promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”).

 

B.       Investor desires to purchase and Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement, an Unsecured
Convertible Promissory Note, in the form attached hereto as Exhibit A, in the
original principal amount of $2,000,000.00 (the “Note”), convertible into shares
of common stock, $0.00001 par value per share, of Company (the “Common Stock”),
upon the terms and subject to the limitations and conditions set forth in such
Note.

 

C.       This Agreement, the Note, the Investor Note (as defined below) and all
other certificates, documents, agreements, resolutions and instruments delivered
to any party under or in connection with this Agreement, as the same may be
amended from time to time, are collectively referred to herein as the
“Transaction Documents”.

 

D.       For purposes of this Agreement: “Conversion Shares” means all shares of
Common Stock issuable upon conversion of all or any portion of the Note; and
“Securities” means the Note and the Conversion Shares.

 

NOW, THEREFORE, Company and Investor hereby agree as follows:

 

1.       Purchase and Sale of Securities.

 

1.1.       Purchase of Securities. Company shall issue and sell to Investor and
Investor agrees to purchase from Company the Note. In consideration thereof,
Investor shall pay (i) the amount designated as the initial cash purchase price
on Investor’s signature page to this Agreement (the “ Initial Cash Purchase
Price”), and (ii) issue to Company the Investor Note (the sum of the initial
principal amount of the Investor Note, toge.ther with the Initial Cash Purchase
Price, the “Purchase Price”). The Purchase Price and the OID (as defined herein)
are allocated to the Tranches (as defined in the Note) of the Note as set forth
in the table attached hereto as Exhibit B.

 

1.2.       Form of Payment. On the Closing Date, (i) Investor shall pay the
Purchase Price to Company by delivering the following at the Closing: (A) the
Initial Cash Purchase Price, which shall be delivered by wire transfer of
immediately available funds to Company, in accordance with Company’s written
wiring instructions; (B) the Investor Note in the principal amount of $1,627,200
duly executed and substantially in the form attached hereto as Exhibit C (the
“Investor Note”) and (ii) Company shall deliver the duly executed Note on behalf
of Company, to Investor, against delivery of such Purchase Price.

 

1.3.       Closing Date. Subject to the satisfaction (or written waiver) of the
conditions set forth in Section 5 and Section 6 below, the date and time of the
issuance and sale of the Securities pursuant to this Agreement (the “Closing
Date”) shall be 5:00 p.m., Eastern Time on or about February 10, 2015, or such
other mutually agreed upon time. The closing of the transactions contemplated by
this Agreement (the “Closing”) shall occur on the Closing Date at the offices of
Investor unless otherwise agreed upon by the parties.

 

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1.4.       Original Issue Discount; Transaction Expenses. The Note carries an
original issue discount of $182,000.00 (the “OID”). In addition, Company agrees
to pay $10,000.00 to Investor to cover Investor’s legal fees, accounting costs,
due diligence, monitoring and other transaction costs incurred in connection
with the purchase and sale of the Securities (the “Transaction Expense Amount”),
all of which amount is included in the initial principal balance of the Note.
The Purchase Price, therefore, shall be $1,808,000.00, computed as follows:
$2,000,000.00 original principal balance, less the OID, less the Transaction
Expense Amount. The Initial Cash Purchase Price shall be the Purchase Price less
the sum of the principal amount of the Investor Note. The portions of the OID
and the Transaction Expense Amount allocated to the Initial Cash Purchase Price
are set forth on Exhibit B.

 

2.       Investor’s Representations and Warranties. Investor represents and
warrants to Company that: (i) this Agreement has been duly and validly
authorized; (ii) this Agreement constitutes a valid and binding agreement of
Investor enforceable in accordance with its terms; (iii) Investor is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D of
the 1933 Act, and (iv) this Agreement and the Investor Note have been duly
executed and delivered on behalf of Investor.

 

3.       Representations and Warranties of Company. Company represents and
warrants to Investor that: (i) Company is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted; (ii) Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary; (iii) Company has registered its Common Stock under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the “1934
Act”), and is obligated to file reports pursuant to Section 13 or Section 15(d)
of the 1934 Act; (iv) each of the Transaction Documents and the transactions
contemplated hereby and thereby, have been duly and validly authorized by
Company; (v) this Agreement, the Note, and the other Transaction Documents have
been duly executed and delivered by Company and constitute the valid and binding
obligations of Company enforceable in accordance with their terms, subject as to
enforceability only to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors’ rights generally; (vi) the execution and delivery of the Transaction
Documents by Company, the issuance of Securities in accordance with the terms
hereof, and the consummation by Company of the other transactions contemplated
by the Transaction Documents do not and will not conflict with or result in a
breach by Company of any of the terms or provisions of, or constitute a default
under (a) Company’s formation documents or bylaws, each as currently in effect,
(b) any indenture, mortgage, deed of trust, or other material agreement or
instrument to which Company is a party or by which it or any of its properties
or assets are bound, including any listing agreement for the Common Stock, or
(c) to Company’s knowledge, any existing applicable law, rule, or regulation or
any applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over Company or any of Company’s properties or assets; (vii) no
further authorization, approval or consent of any court, governmental body,
regulatory agency, self-regulatory organization, or stock exchange or market or
the stockholders or any lender of Company is required to be obtained by Company
for the issuance of the Securities to Investor; (viii) none of Company’s filings
with the SEC contained, at the time they were filed, any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; (ix) Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by Company with the SEC under the 1934 Act on a timely basis or has
received a valid extension of such time of filing and has filed any such report,
schedule, form, statement or other document prior to the expiration of any such
extension; (x) Company is not, nor has it ever been, a “Shell Company,” as such
type of “issuer” is described in Rule 144(i)(1) under the 1933 Act; (xi) Company
has taken no action which would give rise to any claim by any person or entity
for a brokerage commission, placement agent or finder’s fees or similar payments
by Investor relating to the Note or the transactions contemplated hereby; (xii)
except for such fees arising as a result of any agreement or arrangement entered
into by Investor without the knowledge of Company (an “Investor’s Fee”),
Investor shall have no obligation with respect to such fees or with respect to
any claims made by or on behalf of other persons for fees of a type contemplated
in this subsection that may be due in connection with the transactions
contemplated hereby and Company shall indemnify and hold harmless each of
Investor, Investor’s employees, officers, directors, stockholders, managers,
agents, and partners, and their respective affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorneys’ fees) and expenses suffered in respect of any such claimed or
existing fees (other than an Investor’s Fee, if any), and (xiii) when issued,
the Conversion Shares will be validly issued, fully paid for and non-assessable,
free and clear of all liens, claims, charges and encumbrances.

 

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4.       Company Covenants. Until all of Company’s obligations hereunder are
paid and performed in full, or within the timeframes otherwise specifically set
forth below, Company shall comply with the following covenants: (i) from the
date hereof until the date that is six (6) months after all the Conversion
Shares either have been sold by Investor, or may permanently be sold by Investor
without any restrictions pursuant to Rule 144, Company shall timely make all
filings required to be made by it under the 1933 Act, the 1934 Act, Rule 144 or
any United States securities laws and regulations thereof applicable to Company
or by the rules and regulations of its principal trading market, and such
filings shall conform to the requirements of applicable laws, regulations and
government agencies, and, unless such filings are publicly available on the
SEC’s EDGAR system (via the SEC’s web site at no additional charge), Company
shall provide a copy thereof to Investor promptly after such filings; (ii) so
long as Investor beneficially owns any of the Securities and for at least twenty
(20) Trading Days thereafter, Company shall file all reports required to be
filed with the SEC pursuant to Sections 13 or 15(d) of the 1934 Act, and shall
take all reasonable action under its control to ensure that adequate current
public information with respect to Company, as required in accordance with Rule
144, is publicly available, and shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination; (iii) the Common Stock
shall be listed or quoted for trading on any of (a) the NYSE MKT, (b) the New
York Stock Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital
Market, (e) the OTC Bulletin Board, (f) the OTCQX, or (g) the OTCQB; (iv) when
issued, each of the Securities (including, without limitation, the Conversion
Shares), will be validly issued, fully paid for and non-assessable, free and
clear of all liens, claims, charges and encumbrances; and (v) Company shall use
the net proceeds received hereunder for working capital and general corporate
purposes only; provided, however, Company will not use such proceeds to pay fees
payable (A) to any broker or finder relating to the offer and sale of the
Securities unless such broker, finder, or other party is a registered investment
adviser or registered broker-dealer and such fees are paid in full compliance
with all applicable laws and regulations, or (B) to any other party relating to
any financing transaction effected prior to the date hereof.

 

5.       Conditions to Company’s Obligation to Sell. The obligation of Company
hereunder to issue and sell the Securities to Investor at the Closing is subject
to the satisfaction, at or before the Closing Date, of each of the following
conditions:

 

5.1.       Investor shall have executed this Agreement and the Investor Note and
delivered the same to Company.

 

5.2.       Investor shall have delivered the Initial Cash Purchase Price to
Company in accordance with Section 1.2 above.

 

6.       Conditions to Investor’s Obligation to Purchase. The obligation of
Investor hereunder to purchase the Securities at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for Investor’s sole benefit and
may be waived by Investor at any time in its sole discretion:

 

6.1.       Company shall have executed this Agreement and delivered the same to
Investor.

 

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6.2.       Company shall have delivered to Investor the duly executed Note in
accordance with Section 1.2 above.

 

6.3.       Company shall have delivered to Investor a fully executed Irrevocable
Letter of Instructions to Transfer Agent substantially in the form attached
hereto as Exhibit D and acknowledged in writing by Company’s transfer agent (the
“Transfer Agent”).

 

6.4.       Company shall have delivered to Investor a fully executed Secretary’s
Certificate substantially in the form attached hereto as Exhibit E evidencing
Company’s approval of the Transaction Documents.

 

6.5.       Company shall have delivered to Investor a fully executed Share
Issuance Resolution substantially in the form attached hereto as Exhibit F to be
delivered to the Transfer Agent.

 

6.6.       Company shall have delivered to Investor fully executed copies of all
other Transaction Documents required to be executed by Company herein or
therein.

 

7.       Reservation of Shares. At all times during which the Note is
convertible, Company will reserve from its authorized and unissued Common Stock
to provide for the issuance of Common Stock upon the full conversion of the
Note. Company will at all times reserve at least three (3) times the number of
shares of Common Stock equal to the Outstanding Balance (as defined in and
determined pursuant to the Note) divided by the Conversion Price (as defined in
and determined pursuant to the Note) (the “Share Reserve”), but in any event not
less than 5,000,000 shares of Common Stock shall be reserved at all times for
such purpose (the “Transfer Agent Reserve”). Company further agrees that it will
cause the Transfer Agent to immediately add shares of Common Stock to the
Transfer Agent Reserve in increments of 500,000 shares as and when requested by
Investor in writing from time to time, provided that such incremental increases
do not cause the Transfer Agent Reserve to exceed the Share Reserve. In
furtherance thereof, from and after the date hereof and until such time that the
Note has been paid in full, Company shall require the Transfer Agent to reserve
for the purpose of issuance of Conversion Shares under the Note, a number of
shares of Common Stock equal to the Transfer Agent Reserve. Company shall
further require the Transfer Agent to hold such shares of Common Stock
exclusively for the benefit of Investor and to issue such shares to Investor
promptly upon Investor’s delivery of a conversion notice under the Note.
Finally, Company shall require the Transfer Agent to issue shares of Common
Stock pursuant to the Note to Investor out of its authorized and unissued
shares, and not the Transfer Agent Reserve, to the extent shares of Common Stock
have been authorized, but not issued, and are not included in the Transfer Agent
Reserve. The Transfer Agent shall only issue shares out of the Transfer Agent
Reserve to the extent there are no other authorized shares available for
issuance and then only with Investor’s written consent.

 

8.       Miscellaneous. The provisions set forth in this Section 8 shall apply
to this Agreement, as well as all other Transaction Documents as if these terms
were fully set forth therein.

 

8.1.       Cross Default. Any Event of Default (as defined in the Note) by
Company under the Note shall be deemed a default under this Agreement, and any
default by Company under this Agreement will be deemed an Event of Default under
the Note.

 

8.2.       Governing Law; Venue. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California for contracts
to be wholly performed in such state and without giving effect to the principles
thereof regarding the conflict of laws. Each party consents to and expressly
agrees that exclusive venue for Arbitration (as defined in Exhibit G) of any
dispute arising out of or relating to any Transaction Document or the
relationship of the parties or their affiliates shall be in Los Angeles County,
California. Without modifying the parties obligations to resolve disputes
hereunder pursuant to the Arbitration Provisions (as defined below), for any
litigation arising in connection with any of the Transaction Documents, each
party hereto hereby (a) consents to and expressly submits to the exclusive
personal jurisdiction of any state or federal court sitting in Los Angeles
County, California, (b) expressly submits to the exclusive venue of any such
court for the purposes hereof, and (c) waives any claim of improper venue and
any claim or objection that such courts are an inconvenient forum or any other
claim or objection to the bringing of any such proceeding in such jurisdictions
or to any claim that such venue of the suit, action or proceeding is improper.

 

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

 

8.4.       Calculation Disputes. Notwithstanding the Arbitration Provisions, in
the case of a dispute as to any arithmetic calculation under the Transaction
Documents, including without limitation, calculating the Outstanding Balance,
Market Price, Conversion Price, Conversion Shares, or the VWAP (as defined in
the Note) (collectively, “Calculations”), Company or Investor (as the case may
be) shall submit the disputed determinations or arithmetic calculations (as the
case may be) via email or facsimile with confirmation of receipt (a) within two
(2) Trading Days after receipt of the applicable notice giving rise to such
dispute to Company or Investor (as the case may be) or (b) if no notice gave
rise to such dispute, at any time after Investor learned of the circumstances
giving rise to such dispute. If Investor and Company are unable to agree upon
such determination or calculation within two (2) Trading Days of such disputed
determination or arithmetic calculation (as the case may be) being submitted to
Company or Investor (as the case may be), then Investor shall, within two (2)
Trading Days, submit via email or facsimile the disputed Calculation to Unkar
Systems Inc. (“Unkar Systems”). Company shall cause Unkar Systems to perform the
determinations or calculations (as the case may be) and notify Company and
Investor of the results no later than ten (10) Trading Days from the time it
receives such disputed determinations or calculations (as the case may be).
Unkar Systems’ determination of the disputed Calculation shall be binding upon
all parties absent demonstrable error. Unkar Systems’ fee for performing such
Calculation shall be paid by the incorrect party, or if both parties are
incorrect, by the party whose Calculation is furthest from the correct
Calculation as determined by Unkar Systems. In the event Company is the losing
party, no extension of the Delivery Date shall be granted and Company shall
incur all effects for failing to deliver the applicable shares in a timely
manner as set forth in the Transaction Documents. Notwithstanding the foregoing,
Investor may, in its sole discretion, designate an independent, reputable
investment bank or accounting firm other than Unkar Systems to resolve any such
dispute and in such event, all references to “Unkar Systems” herein will be
replaced with references to such independent, reputable investment bank or
accounting firm so designated by Investor.

 

8.5.       Counterparts. Each Transaction Document may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument. The parties hereto confirm that any
electronic copy of another party’s executed counterpart of a Transaction
Document (or such party’s signature page thereof) will be deemed to be an
executed original thereof.

 

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8.6.       Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.

 

8.7.       Severability. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform to such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.

 

8.8.       Entire Agreement; Amendments. This Agreement and the instruments and
exhibits referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither Company nor Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the parties hereto.

 

8.9.       Notices. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of: (a) the date delivered, if delivered by personal
delivery as against written receipt therefor or by email to an executive
officer, or by facsimile (with successful transmission confirmation), (b) the
earlier of the date delivered or the third Trading Day after deposit, postage
prepaid, in the United States Postal Service by certified mail, or (c) the
earlier of the date delivered or the third Trading Day after mailing by express
courier, with delivery costs and fees prepaid, in each case, addressed to each
of the other parties thereunto entitled at the following addresses (or at such
other addresses as such party may designate by five (5) calendar days’ advance
written notice similarly given to each of the other parties hereto):

 

If to Company:

 

Vape Holdings, Inc.

Attn: Kyle Tracey

21822 Lassen Street, Suite A

Chatsworth, California 91311

 

With a copy to (which copy shall not constitute notice):

 

Horwitz + Armstrong, LLP

Attn: Christopher L. Tinen, Esq.

26475 Rancho Pkwy. S

Lake Forest, California 92630

 

If to Investor:

 

Redwood Management, LLC

Attn: John DeNobile

16850 Collins Ave., Suite 112-341

Sunny Isles, Florida, 33160

 

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With a copy to (which copy shall not constitute notice):

 

Sichenzia Ross Friedman Ference, LLP

Attn: Darrin M. Ocasio, Esq.

61 Broadway, 32nd Floor

New York, NY 10006

 

8.10.     Successors and Assigns. This Agreement or any of the severable rights
and obligations inuring to the benefit of or to be performed by Investor
hereunder may be assigned by Investor to a third party, including its financing
sources, in whole or in part, without the need to obtain Company’s consent
thereto. Company may not assign its rights or obligations under this Agreement
or delegate its duties hereunder without the prior written consent of Investor.

 

8.11.     Survival. The representations and warranties of Company and the
agreements and covenants set forth in this Agreement shall survive the Closing
hereunder notwithstanding any due diligence investigation conducted by or on
behalf of Investor. Company agrees to indemnify and hold harmless Investor and
all its officers, directors, employees, attorneys, and agents for loss or damage
arising as a result of or related to any breach or alleged breach by Company of
any of its representations, warranties and covenants set forth in this Agreement
or any of its covenants and obligations under this Agreement, including
advancement of expenses as they are incurred.

 

8.12.     Publicity. Company and Investor shall have the right to review a
reasonable period of time before issuance of any press releases by the other
party with respect to the transactions contemplated hereby.

 

8.13.     Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

8.14.     Certain Transactions. During the period beginning on the Closing Date
and ending on the date that Investor no longer owns any of the Securities,
Investor will not directly or through an affiliate engage in any open market
Short Sales (as defined below) of the Common Stock; provided; however, that
unless and until Company has affirmatively demonstrated by the use of specific
evidence that Investor is engaging in open market Short Sales, Investor shall be
assumed to be in compliance with the provisions of this Section and Company
shall remain fully obligated to fulfill all of its obligations under the
Transaction Documents; and provided, further, that (i) Company shall under no
circumstances be entitled to request or demand that Investor either (A) provide
trading or other records of Investor or of any party or (B) affirmatively
demonstrate that Investor or any other party has not engaged in any such Short
Sales in breach of these provisions as a condition to Company’s fulfillment of
its obligations under any of the Transaction Documents, (ii) Company shall not
assert Investor’s or any other party’s failure to demonstrate such absence of
such Short Sales or provide any trading or other records of Investor or any
other party as all or part of a defense to any breach of Company’s obligations
under any of the Transaction Documents, and (iii) Company shall have no setoff
right with respect to any such Short Sales. As used herein, “Short Sale” has the
meaning provided in Rule 3b-3 under the 1934 Act.

 

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8.15.     Investor’s Rights and Remedies Cumulative; Liquidated Damages. All
rights, remedies, and powers conferred in this Agreement and the Transaction
Documents are cumulative and not exclusive of any other rights or remedies, and
shall be in addition to every other right, power, and remedy that Investor may
have, whether specifically granted in this Agreement or any other Transaction
Document, or existing at law, in equity, or by statute, and any and all such
rights and remedies may be exercised from time to time and as often and in such
order as Investor may deem expedient. The parties acknowledge and agree that
upon Company’s failure to comply with the provisions of the Transaction
Documents, Investor’s damages would be uncertain and difficult (if not
impossible) to accurately estimate because of the parties’ inability to predict
future interest rates and future share prices, Investor’s increased risk, and
the uncertainty of the availability of a suitable substitute investment
opportunity for Investor, among other reasons. Accordingly, any fees, charges,
and default interest due under the Note and the other Transaction Documents are
intended by the parties to be, and shall be deemed, liquidated damages (under
Company’s and Investor’s expectations that any such liquidated damages will tack
back to the Closing Date for purposes of determining the holding period under
Rule 144). The parties agree that such liquidated damages are a reasonable
estimate of Investor’s actual damages and not a penalty, and shall not be deemed
in any way to limit any other right or remedy Investor may have hereunder, at
law or in equity. The parties acknowledge and agree that under the circumstances
existing at the time this Agreement is entered into, such liquidated damages are
fair and reasonable and are not penalties. All fees, charges, and default
interest provided for in the Transaction Documents are agreed to by the parties
to be based upon the obligations and the risks assumed by the parties as of the
Closing Date and are consistent with investments of this type. The liquidated
damages provisions of the Transaction Documents shall not limit or preclude a
party from pursuing any other remedy available at law or in equity; provided,
however, that the liquidated damages provided for in the Transaction Documents
are intended to be in lieu of actual damages.

 

8.16.     Ownership Limitation. Notwithstanding anything to the contrary
contained in this Agreement or the other Transaction Documents, if at any time
Investor shall or would be issued shares of Common Stock under any of the
Transaction Documents, but such issuance would cause Investor (together with its
affiliates) to beneficially own a number of shares exceeding the Maximum
Percentage (as defined in the Note), then Company must not issue to Investor the
shares that would cause Investor to exceed the Maximum Percentage. The shares of
Common Stock issuable to Investor that would cause the Maximum Percentage to be
exceeded are referred to herein as the “Ownership Limitation Shares”. Company
will reserve the Ownership Limitation Shares for the exclusive benefit of
Investor. From time to time, Investor may notify Company in writing of the
number of the Ownership Limitation Shares that may be issued to Investor without
causing Investor to exceed the Maximum Percentage. Upon receipt of such notice,
Company shall be unconditionally obligated to immediately issue such designated
shares to Investor, with a corresponding reduction in the number of the
Ownership Limitation Shares. For purposes of this Section, beneficial ownership
of Common Stock will be determined under Section 13(d) of the 1934 Act.

 

8.17.     Attorneys’ Fees and Cost of Collection. In the event of any
arbitration or action at law or in equity to enforce or interpret the terms of
this Agreement or any of the other Transaction Documents, the parties agree that
the party who is awarded the most money shall be deemed the prevailing party for
all purposes and shall therefore be entitled to an additional award of the full
amount of the attorneys’ fees, deposition costs, and expenses paid by such
prevailing party in connection with arbitration or litigation without reduction
or apportionment based upon the individual claims or defenses giving rise to the
fees and expenses. Nothing herein shall restrict or impair an arbitrator’s or a
court’s power to award fees and expenses for frivolous or bad faith pleading. If
(a) the Note is placed in the hands of an attorney for collection or enforcement
prior to commencing arbitration or legal proceedings, or is collected or
enforced through any arbitration or legal proceeding, or Investor otherwise
takes action to collect amounts due under the Note or to enforce the provisions
of the Note; or (b) there occurs any bankruptcy, reorganization, receivership of
Company or other proceedings affecting Company’s creditors’ rights and involving
a claim under the Note; then Company shall pay the costs incurred by Investor
for such collection, enforcement or action or in connection with such
bankruptcy, reorganization, receivership or other proceeding, including, without
limitation, attorneys’ fees, expenses, deposition costs, and disbursements.

 

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8.18.     Waiver. No waiver of any provision of this Agreement shall be
effective unless it is in the form of a writing signed by the party granting the
waiver. No waiver of any provision or consent to any prohibited action shall
constitute a waiver of any other provision or consent to any other prohibited
action, whether or not similar. No waiver or consent shall constitute a
continuing waiver or consent or commit a party to provide a waiver or consent in
the future except to the extent specifically set forth in writing.

 

8.19.     Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES
ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE
RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY
AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY
APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO
ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S
RIGHT TO DEMAND TRIAL BY JURY.

 

8.20.     Time of the Essence. Time is expressly made of the essence with
respect to each and every provision of this Agreement and the other Transaction
Documents.

 

[Remainder of page intentionally left blank; signature page follows]

 

9

 

 

IN WITNESS WHEREOF, the undersigned Investor and Company have caused this
Agreement to be duly executed as of the date first above written.

 

SUBSCRIPTION AMOUNT:

 

Principal Amount of Note:  $2,000,000.00  Initial Cash Purchase Price: 
$180,800.00 

 

  INVESTOR:         Redwood Management, LLC           By:         John DeNobile,
Manager

 

  COMPANY:      

Vape holdings, inc.

      By:       Kyle Tracey, Chief Executive Officer

 

ATTACHED EXHIBITS:

 

Exhibit A   Note Exhibit B   Allocation of Purchase Price Exhibit C   Investor
Note Exhibit D   Irrevocable Transfer Agent Instructions Exhibit E   Secretary’s
Certificate Exhibit F   Share Issuance Resolution Exhibit G   Arbitration
Provisions

 

 

 

 

EXHIBIT A

 

[See Exhibit 10.2]

 

 

 

 

EXHIBIT B

 

ALLOCATION OF PURCHASE PRICE

 

Purchase Price Tranche OID/Transaction
Expense Initial Cash Purchase Price Initial Tranche $19,200 Investor Note
Subsequent Tranche #1 $19,200 Investor Note Subsequent Tranche #2 $19,200
Investor Note Subsequent Tranche #3 $19,200 Investor Note Subsequent Tranche #4
$19,200 Investor Note Subsequent Tranche #5 $19,200 Investor Note Subsequent
Tranche #6 $19,200 Investor Note Subsequent Tranche #7 $19,200 Investor Note
Subsequent Tranche #8 $19,200 Investor Note Subsequent Tranche #9 $19,200

 

 

 

 

EXHIBIT C

 

THIS NOTE MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE ALIENATED OR ENCUMBERED WITHOUT THE PRIOR WRITTEN CONSENT OF INVESTOR.

 

  State of California $1,627,200.00 February 10, 2015

 

INVESTOR NOTE

 

FOR VALUE RECEIVED, REDWOOD MANAGEMENT, LLC, a Florida limited liability company
(“Investor”), hereby promises to pay to VAPE HOLDINGS, INC., a Delaware
corporation (“Company”, and together with Investor, the “Parties”), the
principal sum of $1,627,000.00 together with all accrued and unpaid interest
thereon, fees incurred or other amounts owing hereunder, all as set forth below
in this Investor Note (this “Note”). This Note is issued pursuant to that
certain Securities Purchase Agreement of even date herewith, entered into by and
between Investor and Company (as the same may be amended from time to time, the
“Purchase Agreement”), pursuant to which Company issued to Investor that certain
Unsecured Convertible Promissory Note in the principal amount of $2,000,000.00
(as the same may be amended from time to time, the “Company Note”) convertible
into shares of Company’s Common Stock. All capitalized terms used but not
otherwise defined herein shall have the meanings ascribed thereto in the
Purchase Agreement.

 

1.       Principal and Interest. Interest shall accrue on the unpaid principal
balance and any unpaid late fees or other fees under this Note at a rate of ten
percent (10.0%) per annum until the full amount of the principal and fees has
been paid. Interest shall be computed on the basis of a 360-day year comprised
of twelve (12) thirty (30) day months, shall compound daily and shall be payable
in accordance with the terms of this Note. Notwithstanding any provision to the
contrary herein, in no event shall the applicable interest rate at any time
exceed the maximum interest rate allowed under applicable law, as provided in
Section 10 below. The entire unpaid principal balance and all accrued and unpaid
interest, if any, under this Note, shall be due and payable on the date that is
nine (9) months from the date hereof (the “Investor Note Maturity Date”).

 

2.       Payment. Unless prepaid, all principal and accrued interest under this
Note is payable in one lump sum on the Investor Note Maturity Date. All payments
of interest and principal shall be (i) in lawful money of the United States of
America, and (ii) in the form of immediately available funds. All payments shall
be applied first to costs of collection, if any, then to accrued and unpaid
interest, and thereafter to principal. Payment of principal and interest
hereunder shall be delivered to Company at the address furnished to Investor for
that purpose.

 

3.       Prepayment by Investor. Starting on March 1, 2015 and continuing on the
first day of each of the following eight (8) successive months thereafter (each
an “Investor Note Payment Date”), Investor shall be obligated to prepay the
outstanding balance of this Note to Company (each, an “Investor Note Payment”).
Each Investor Note Payment will be in the amount of $180,800.00 and, coupled
with the OID and Transaction Expense Amount, will be allocated to the Principal
Amount of $200,000.00 of the Company Note. Notwithstanding the foregoing,
Investor may, in its sole and absolute discretion, pay, without penalty, all or
any portion of the outstanding balance of this Note along with any accrued but
unpaid interest on this Note at any time prior to the Investor Note Maturity
Date.

 

 

 

 

4.       Right of Offset. Notwithstanding anything to the contrary herein or in
any of the other Transaction Documents, in the event (i) of the occurrence of
any Event of Default (as defined in the Company Note) under the Company Note or
any other note issued by Company in connection with the Purchase Agreement, (ii)
Investor applies a Default Effect (as defined in the Company Note) under the
Company Note, (iii) the Outstanding Balance is automatically increased to the
Mandatory Default Amount under the Company Note, (iv) the Company Note is
accelerated for any reason, or (v) of a breach of any material term, condition,
representation, warranty, covenant or obligation of Company under any
Transaction Document; Investor shall be entitled to deduct and offset any amount
owing by Company under the Company Note from any amount owed by Investor under
this Note (the “Investor Offset Right”), provided that if any of the foregoing
events occur and Investor has not yet exercised the Investor Offset Right, the
Investor Offset Right shall be automatically exercised on the date that is
thirty (30) days prior to the Investor Note Maturity Date (an “Automatic
Offset”). Other than with respect to an Automatic Offset, Investor may only
elect to exercise the Investor Offset Right by delivering to Company: (a) an
offset notice; and (2) payment of $250.00 to Company. In the event that
Investor’s exercise of the Investor Offset Right under this Section 4 results in
the full satisfaction of Investor’s obligations under this Note, then Company
shall return this Note to Investor for cancellation or, in the event this Note
has been lost, stolen or destroyed, Company shall provide Investor with a lost
note affidavit in a form reasonably acceptable to Investor.

 

5.       Default. If any of the events specified below shall occur (each, an
“Investor Note Default”) Company may declare the unpaid principal balance under
this Note, together with all accrued and unpaid interest thereon, fees incurred
or other amounts owing hereunder immediately due and payable, by notice in
writing to Investor. If any default, other than a Payment Default (as defined
below), is curable, then the default may be cured (and no Investor Note Default
will have occurred) if Investor, after receiving written notice from Company
demanding cure of such default, either (a) cures the default within fifteen (15)
days of the receipt of such notice, or (b) if the cure requires more than
fifteen (15) days, immediately initiates steps that Company deems in Company’s
reasonable discretion to be sufficient to cure the default and thereafter
diligently continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical. Each of the following
events shall constitute an Investor Note Default:

 

5.1.       Failure to Pay. Investor’s failure to make any payment when due and
payable under this Note (a “Payment Default”);

 

5.2.       Breaches of Covenants. Investor’s failure to observe or perform any
other covenant, obligation, condition or agreement contained in this Note or any
of the other Transaction Documents;

 

5.3.       Representations and Warranties. If any representation, warranty,
certificate, or other statement (financial or otherwise) made or furnished by or
on behalf of Investor to Company in writing in connection with this Note or any
of the other Transaction Documents, or as an inducement to Company to enter into
the Purchase Agreement, shall be false or misleading in any material respect
when made or furnished; and

 

5.4.       Involuntary Bankruptcy. If any involuntary petition is filed under
any bankruptcy or similar law or rule against Investor, and such petition is not
dismissed within sixty (60) days, or a receiver, trustee, liquidator, assignee,
custodian, sequestrator or other similar official is appointed to take
possession of any of the assets or properties of Investor.

 

6.       Binding Effect; Assignment. This Note shall be binding on the Parties
and their respective heirs, successors, and assigns; provided, however, that
neither party shall assign any of its rights hereunder without the prior written
consent of the other party, except that Investor may assign this Note to any of
its Affiliates without the prior written consent of Company and, furthermore,
Company agrees that it shall not unreasonably withhold, condition or delay its
consent to any other assignment of this Note by Investor.

 

2

 

 

7.       Governing Law. This Note shall be governed by and interpreted in
accordance with the laws of the State of California for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws.

 

8.       Purchase Agreement; Arbitration of Disputes. By acceptance of this
Note, each party agrees to be bound by the applicable terms, conditions and
general provisions of the Purchase Agreement and the other Transaction
Documents, including without limitation the Arbitration Provisions attached as
an Exhibit to the Purchase Agreement.

 

9.       Customer Identification–USA Patriot Act Notice. Company hereby notifies
Investor that pursuant to the requirements of the USA Patriot Act (Title III of
Pub. L. 107-56, signed into law October 26, 2001) (the “Act”), and Company’s
policies and practices, Company is required to obtain, verify and record certain
information and documentation that identifies Investor, which information
includes the name and address of Investor and such other information that will
allow Company to identify Investor in accordance with the Act.

 

10.       Lawful Interest. It being the intention of Company and Investor to
comply with all applicable laws with regard to the interest charged hereunder,
it is agreed that, notwithstanding any provision to the contrary in this Note or
any of the other Transaction Documents, no such provision, including without
limitation any provision of this Note providing for the payment of interest or
other charges, shall require the payment or permit the collection of any amount
in excess of the maximum amount of interest permitted by law to be charged for
the use or detention, or the forbearance in the collection, of all or any
portion of the indebtedness evidenced by this Note or by any extension or
renewal hereof (“Excess Interest”). If any Excess Interest is provided for, or
is adjudicated to be provided for, in this Note, then in such event:

 

10.1.      the provisions of this Section 10 shall govern and control;

 

10.2.      Investor shall not be obligated to pay any Excess Interest;

 

10.3.      any Excess Interest that Company may have received hereunder shall,
at the option of Company, be (i) applied as a credit against the principal
balance due under this Note or the accrued and unpaid interest thereon not to
exceed the maximum amount permitted by law, or both, (ii) refunded to Investor,
or (iii) any combination of the foregoing;

 

10.4.      the applicable interest rate or rates shall be automatically subject
to reduction to the maximum lawful rate allowed to be contracted for in writing
under the applicable governing usury laws, and this Note and the Transaction
Documents shall be deemed to have been, and shall be, reformed and modified to
reflect such reduction in such interest rate or rates; and

 

10.5.      Investor shall not have any action or remedy against Company for any
damages whatsoever or any defense to enforcement of this Note or arising out of
the payment or collection of any Excess Interest.

 

11.       Pronouns. Regardless of their form, all words used in this Note shall
be deemed singular or plural and shall have the gender as required by the text.

 

12.       Headings. The various headings used in this Note as headings for
sections or otherwise are for convenience and reference only and shall not be
used in interpreting the text of the section in which they appear and shall not
limit or otherwise affect the meanings thereof.

 

3

 

 

13.     Time of Essence. Time is of the essence with this Note.

 

14.     Severability. If any part of this Note is construed to be in violation
of any law, such part shall be modified to achieve the objective of the Parties
to the fullest extent permitted by law and the balance of this Note shall remain
in full force and effect.

 

15.     Attorneys’ Fees. If any arbitration or action at law or in equity is
necessary to enforce this Note or to collect payment under this Note, Company
shall be entitled to recover reasonable attorneys’ fees directly related to such
enforcement or collection actions.

 

16.     Amendments and Waivers; Remedies. No failure or delay on the part of
either party hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to either party hereto at law, in equity or otherwise. Any amendment,
supplement or modification of or to any provision of this Note, any waiver of
any provision of this Note, and any consent to any departure by either party
from the terms of any provision of this Note, shall be effective (i) only if it
is made or given in writing and signed by Investor and Company and (ii) only in
the specific instance and for the specific purpose for which made or given.

 

17.     Notices. Unless otherwise provided for herein, all notices, requests,
demands, claims and other communications hereunder shall be given in accordance
with the subsection of the Purchase Agreement titled “Notices.” Either party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by providing notice thereof in the
manner set forth in the Purchase Agreement.

 

18.     Final Note. This Note, together with the other Transaction Documents,
contains the complete understanding and agreement of Investor and Company and
supersedes all prior representations, warranties, agreements, arrangements,
understandings, and negotiations of Investor and Company with respect to the
subject matter of the Transaction Documents. THIS NOTE, TOGETHER WITH THE OTHER
TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

 

[Remainder of page intentionally left blank; signature page follows]

 

4

 

IN WITNESS WHEREOF, the Parties have executed this Note as of the date set forth
above.

 

  INVESTOR:        

Redwood Management, LLC

            By:         John DeNobile, Manager

 

ACKNOWLEDGED, ACCEPTED AND AGREED:         COMPANY:        

Vape holdings, inc.

        By:     Name: Kyle Tracey   Title: Chief Executive Officer  

 

[Signature Page to Investor Note]

 

 

 

 

EXHIBIT D

 

[image_001.jpg]

 

21822 Lassen St., Suite A

Chatsworth, CA 91311

(877) 827-3959

www.vapeholdings.com

 

IRREVOCABLE LETTER OF INSTRUCTIONS TO TRANSFER AGENT

 

February 10, 2015

 

Island Stock Transfer

15500 Roosevelt Boulevard, Suite 301 Clearwater, Florida 33760

 

Ladies and Gentlemen:

 

Vape Holdings, Inc., a Delaware corporation (the “Company”), and Redwood
Management, LLC, a Florida limited liability company (the “Investor”), have
entered into a Securities Purchase Agreement dated as of February 10, 2015 (the
“Agreement”) providing for the issuance of an Unsecured Convertible Promissory
Note in the principal amount of $2,000,000.00 to Investor (the “Note”).

 

A copy of the Note is attached hereto. The shares to be issued are to be
registered in the names of the registered holder of the securities submitted for
conversion or exercise, or its assignees as requested by the Investor.

 

You are hereby irrevocably authorized and instructed to reserve a sufficient
number of shares of common stock (“Common Stock”) of the Company (initially,
5,000,000 shares of Common Stock which should be held in reserve for the
Investor pursuant to the subject Note as of this date) for issuance upon full
conversion of the Note referenced herein in accordance with the terms thereof.
The amount of Common Stock so reserved may be increased, from time to time, by
written instructions of the Company or the Investor.

 

The ability to convert the Note in a timely manner is a material obligation of
the Company pursuant to the Note. Your firm is hereby irrevocably authorized and
instructed to issue shares of Common Stock of the Company (without any
restrictive legend) to the Investor at the request of the Investor without any
further action or confirmation by the Company, in which the issuance shall be
deducted against the reserve or, if there are not enough shares held in reserve,
from available authorized shares of the Company, by either (i) electronically
crediting the account of a Prime Broker with the Depository Trust Company
through its Deposit Withdrawal Agent Commission system, provided that the
Company has been made FAST/DRS eligible by DTCC (DWAC), or (ii) in certificated
form without any legend which would restrict the transfer of the shares, and you
should remove all stop-transfer instructions relating to such shares: (A) upon
your receipt from the Investor dated within 90 days from the date of the
issuance or transfer request, of: (i) a notice of conversion (“Conversion
Notice”) executed by the Investor; and (ii) an opinion of counsel of the
Investor, in form, substance and scope customary for opinions of counsel in
comparable transactions (and satisfactory to the transfer agent), to the effect
that the shares of Common Stock of the Company issued to the Investor pursuant
to the Conversion Notice are not “restricted securities” as defined in Rule 144
and should be issued to the Investor without any restrictive legend; and (B) the
number of shares to be issued is less than 9.99% of the total issued common
stock of the Company. If an opinion from counsel is not provided, you are
instructed and authorized to issue shares to the Investor as restricted and the
associated certificate(s) should include the customary 144 restrictive legend.

 

1

 

 

The Company affirms that it has appropriately resolved to issue all required
Common Stock to the Investor and hereby requests that your firm act immediately,
without delay and without the need for any action or confirmation by the Company
with respect to the issuance of Common Stock pursuant to any Conversion Notices
received from the Investor.

 

The Investor and the Company understand that Island Stock Transfer shall not be
required to perform any issuances or transfers of shares if (a) the Company or
request violates, or be in violation of, any terms of the Transfer Agent
Agreement, (b) such an issuance or transfer of shares be in violation of any
state or federal securities laws or regulation or (c) the issuance or transfer
of shares be prohibited or stopped as required or directed by a court order. If
the Company informs you that there is a court order stopping issuances or if the
Company is of the opinion that the issuance would violate any securities laws,
rules or regulations then the Company agrees to provide you a legal opinion from
counsel within three (3) business days addressing the matter and, once received,
you will not be obligated to perform any issuances related to the Note and this
agreement. If the Company has an outstanding balance of fees owed to Island
Stock Transfer for any reason, the Investor understands Island Stock Transfer
will not be obligated to issue Common Stock to the Investor unless the Company
or Investor first pays all fees owed to Island.

 

The Company shall indemnify you and your officers, directors, principals,
partners, agents and representatives, and hold each of them harmless from and
against any and all loss, liability, damage, claim or expense (including the
reasonable fees and disbursements of its attorneys) incurred by or asserted
against you or any of them arising out of or in connection with the instructions
set forth herein, the performance of your duties hereunder and otherwise in
respect hereof, including the costs and expenses of defending yourself or
themselves against any claim or liability hereunder, except that the Company
shall not be liable hereunder as to matters in respect of which it is determined
that you have acted with gross negligence or in bad faith. You shall have no
liability to the Company in respect to any action taken or any failure to act in
respect of this if such action was taken or omitted to be taken in good faith,
and you shall be entitled to rely in this regard on the advice of counsel.

 

The Board of Directors of the Company has approved the foregoing (irrevocable
instructions) and does hereby extend the Company’s irrevocable agreement to
indemnify your firm for all loss, liability or expense in carrying out the
authority and direction herein contained on the terms herein set forth.

 

2

 

 

The Company agrees that in the event that the Transfer Agent resigns as the
Company’s transfer agent, the Company shall engage a suitable replacement
transfer agent that will agree to serve as transfer agent for the Company and be
bound by the terms and conditions of these Irrevocable Instructions within five
(5) business days. The Investor and the Company agree that the Transfer Agent
shall not be required to perform any issuances or transfers of shares as of the
date of the termination of the transfer agreement.

 

The Investor is intended to be and is a third party beneficiary hereof, and no
amendment or modification to the instructions set forth herein may be made
without the consent of the Investor.

 

  Very truly yours,       COMPANY:           Name: Kyle Tracey   Title: CEO

 

ACKNOWLEDGED AND AGREED:     TRANSFER AGENT:     Island Stock Transfer        
By:     Name:     Title:           INVESTOR:        

Redwood Management, LLC

 

 

  By:       John DeNobile, Manager   

 

3

 

 

EXHIBIT E

 

VAPE HOLDINGS, INC.

SECRETARY’S CERTIFICATE

 

I, Kyle Tracey, hereby certify that I am the duly elected, qualified and acting
Secretary of Vape Holdings, Inc., a Delaware corporation (“Company”), and I am
authorized to execute this Secretary’s Certificate (this “Certificate”) on
behalf of Company. This Certificate is delivered in connection with that certain
Securities Purchase Agreement dated February 10, 2015 (the “Purchase
Agreement”), by and between Company and Redwood Management, LLC, a Florida
limited liability company.

 

Solely in my capacity as Secretary, I certify that Schedule 1 attached hereto is
a true, accurate and complete copy of all of the resolutions adopted by the
Board of Directors of Company (the “Resolutions”) approving and authorizing the
execution, delivery and performance of the Purchase Agreement and related
documents to which Company is a party on the date hereof, and the transactions
contemplated thereby. Such Resolutions have not been amended, rescinded or
modified since their adoption and remain in effect as of the date hereof.

 

IN WITNESS WHEREOF, I have made this Secretary’s Certificate effective as of
February 10, 2015.

 

  Vape Holdings, Inc.           Printed Name: Kyle Tracey   Title: Secretary

 

1 | P a g e 140809v1

 

 

 

 

Schedule 1

 

BOARD RESOLUTIONS

 

[attached]

 

2 | P a g e 140809v1

 

 

 

 

VAPE HOLDINGS, INC.

RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS

 

 

 

Effective February 10, 2015

 

 

 

APPROVAL OF FINANCING

 

WHEREAS, the Board of Directors (the “Board”) of Vape Holdings, Inc., a Delaware
corporation (“Company”), has determined that it is in the best interests of
Company to seek financing in the amount of $1,808,000.00 through the issuance
and sale to Redwood Management, LLC, a Florida limited liability company (the
“Investor”), of an Unsecured Convertible Promissory Note (the “Financing”);

 

WHEREAS, the terms of the Financing are reflected in a Securities Purchase
Agreement substantially in the form attached hereto as Exhibit A (the “Purchase
Agreement”), an Unsecured Convertible Promissory Note issued by Company in the
original principal amount of $2,000,000.00 substantially in the form attached
hereto as Exhibit B (the “Note”), an Investor Note made by Investor in favor of
Company substantially in the form attached hereto as Exhibit D, an Irrevocable
Letter of Instructions to Transfer Agent substantially in the form attached
hereto as Exhibit E, a Share Issuance Resolution substantially in the form
attached hereto as Exhibit F (“Share Issuance Resolution”), and all other
agreements, certificates, instruments and documents being or to be executed and
delivered under or in connection with the Financing (collectively, the
“Financing Documents”); and

 

WHEREAS, the Board, having received and reviewed the Financing Documents,
believes that it is in the best interests of Company and the stockholders to
approve the Financing and the Financing Documents and authorize the officers of
Company to execute such documents.

 

NOW, THEREFORE, BE IT:

 

RESOLVED, that the Financing is hereby approved and determined to be in the best
interests of Company and its stockholders;

 

RESOLVED FURTHER, that the form, terms and provisions of the Financing Documents
(including all exhibits, schedules and other attachments thereto) are hereby
ratified, confirmed and approved;

 

RESOLVED FURTHER, that upon the issuance and delivery thereof in accordance with
the Purchase Agreement, the Note shall be duly and validly issued;

 

RESOLVED FURTHER, that Company shall take all action necessary to at all times
have authorized and reserved for the purpose of issuance under the Note such
number of shares of Company’s common stock (the “Common Stock”) required under
the Purchase Agreement (the “Share Reserve”);

 

RESOLVED FURTHER, that the fixed number of shares of Common Stock set forth in
the Share Issuance Resolution to be reserved by the transfer agent (the
“Transfer Agent Reserve”) is not meant to limit or restrict in any way the
resolutions contained herein, including without limitation the calculation of
the Share Reserve under the Purchase Agreement, as required from time to time;

 

Page 1 of Board Resolutions

 

 

 

 

RESOLVED FURTHER, that each of the officers of Company be, and each of them
hereby is, authorized to instruct the transfer agent to increase the Transfer
Agent Reserve in increments of 500,000 shares, from time to time, to correspond
to the Share Reserve; provided, however, that any decrease in the Transfer Agent
Reserve will require the prior written consent of Investor;

 

RESOLVED FURTHER, that in the event of any conflict between these resolutions
and the Share Issuance Resolution, these resolutions shall control;

 

RESOLVED FURTHER, that upon the issuance and delivery thereof in accordance with
the Purchase Agreement and the Note, the Conversion Shares (as defined in the
Note) shall be duly and validly issued, fully paid for and non-assessable;

 

RESOLVED FURTHER, that with respect to each Conversion (as defined in the Note)
under the Note, the reduction in the Outstanding Balance (as defined in the Note
and as the same may increase or decrease pursuant to the terms of the Note) in
an amount equal to the applicable Conversion Amount (as defined in the Note) or
the applicable amount of the Amortization Conversion (as defined in the Note)
shall constitute fair and adequate consideration to Company for the issuance of
the applicable Conversion Shares, regardless of the Conversion Price (as defined
in the Note) or Amortization Conversion Rate (as defined in the Note) used to
determine the number of Conversion Shares deliverable with respect to any
Conversion;

 

RESOLVED FURTHER, that each of the officers of Company be, and each of them
hereby is, authorized to execute and deliver in the name of and on behalf of
Company, each of the Financing Documents and any other related agreements (with
such additions to, modifications to, or deletions from such documents as the
officer approves, such approval to be conclusively evidenced by such execution
and delivery), to conform Company’s minute books and other records to the
matters set forth in these resolutions, and to take all other actions on behalf
of Company as any of them deem necessary, required, or advisable with respect to
the matters set forth in these resolutions;

 

RESOLVED FURTHER, that the Board hereby determines that all acts and deeds
previously performed by the Board and other officers of Company relating to the
foregoing matters prior to the date of these resolutions are ratified, confirmed
and approved in all respects as the authorized acts and deeds of Company; and

 

RESOLVED FURTHER, that all prior actions or resolutions of Company’s directors
that are inconsistent with the foregoing are hereby amended, corrected and
restated to the extent required to be consistent herewith.

 

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

 

EXHIBITS ATTACHED TO BOARD RESOLUTIONS:

 

Exhibit A PURCHASE AGREEMENT Exhibit B NOTE Exhibit C ALLOCATION OF PURCHASE
PRICE Exhibit D INVESTOR NOTE Exhibit E TRANSFER AGENT LETTER Exhibit F SHARE
ISSUANCE RESOLUTION

 

[Remainder of page intentionally left blank]

 

Page 2 of Board Resolutions

 

 

 

 

EXHIBIT F

 

Share Issuance Resolution

Authorizing The Issuance Of New Shares Of Common Stock in

 

Vape Holdings, Inc.

 

 

 

Effective February 10, 2015

 

 

 

The undersigned, as a qualified officer of Vape Holdings, Inc., a Delaware
corporation (“Company”), hereby certifies that this Share Issuance Resolution is
authorized by and consistent with the resolutions of Company’s board of
directors (“Board Resolution”) regarding that certain Unsecured Convertible
Promissory Note in the face amount of $2,000,000.00 with an original issuance
date of February 10, 2015 (the “Note”), made by Company in favor of Redwood
Management, LLC, a Florida limited liability company, its successors and/or
assigns (“Investor”), pursuant to that certain Securities Purchase Agreement
dated February 10, 2015, by and between Company and Investor (the “Purchase
Agreement”).

 

RESOLVED, that Island Stock Transfer, as transfer agent (including any successor
transfer agent, the “Transfer Agent”) of shares of Company’s common stock,
$0.00001 par value per share (“Common Stock”), is authorized to rely upon a
Conversion Notice substantially in the form of Exhibit A attached hereto,
whether an original or a copy (the “Conversion Notice”), without any further
inquiry, to be delivered to the Transfer Agent from time to time either by
Company or Investor.

 

RESOLVED FURTHER, that the Transfer Agent is authorized to issue the number of:

 

(i)“Conversion Shares” (representing shares of Common Stock) set forth in each
Conversion Notice or other notice of instruction delivered to the Transfer
Agent, and

 

(ii)all additional shares of Common Stock Company may subsequently instruct the
Transfer Agent to issue in connection with any of the foregoing or otherwise
under the Note,

 

with such shares to be issued in the name of Investor, or its successors,
transferees, or designees, free of any restricted security legend, as permitted
by the Note.

 

RESOLVED FURTHER, that consistent with the terms of the Purchase Agreement, the
Transfer Agent is authorized and directed to immediately create a transfer agent
share reserve equal to 5,000,000 shares of Company’s Common Stock for the
benefit of Investor (the “Transfer Agent Reserve”); provided that the Transfer
Agent Reserve may increase in increments of 500,000 shares from time to time by
written instructions provided to the Transfer Agent by Company or Investor as
required by the Purchase Agreement and as contemplated by the Board Resolution.

 

RESOLVED FURTHER, that Investor and the Transfer Agent may rely upon the more
general approvals and authorizations set forth in the Board Resolution, and the
Transfer Agent is hereby authorized and directed to take those further actions
approved under the Board Resolution.

 

RESOLVED FURTHER, that Investor must consent in writing to any reduction of the
Transfer Agent Reserve; provided, however, that upon full conversion and/or full
repayment of the Note, the Transfer Agent Reserve will terminate thirty (30)
days thereafter.

 

RESOLVED FURTHER, that Company shall indemnify the Transfer Agent and its
employees against any and all loss, liability, damage, claim or expenses
incurred by or asserted against the Transfer Agent arising from any action taken
by the Transfer Agent in reliance upon this Share Issuance Resolution.

 

1

 

 

Nothing in this Share Issuance Resolution shall limit or restrict those
resolutions and authorizations set forth in the Board Resolution, including
without limitation, the calculation from time to time of the Share Reserve (as
defined in the Purchase Agreement).

 

The undersigned officer of Company hereby certifies that this is a true copy of
Company’s Share Issuance Resolution, effective as of the date set forth below,
and that said resolution has not been in any way rescinded, annulled, or
revoked, but the same is still in full force and effect.

 

            Officer’s Signature   Date               Kyle Tracey, CEO        
Printed Name and Title      

 

2

 

 

EXHIBIT A

 

CONVERSION NOTICE

 

[attached]

 

 

 

 

EXHIBIT G

 

ARBITRATION PROVISIONS

 

1.       Dispute Resolution. For purposes of this Exhibit G, the term “Claims”
means any disputes, claims, demands, causes of action, liabilities, damages,
losses, or controversies whatsoever arising from related to or connected with
the transactions contemplated in the Transaction Documents and any
communications between the parties related thereto, including without limitation
any claims of mutual mistake, mistake, fraud, misrepresentation, failure of
formation, failure of consideration, promissory estoppel, unconscionability,
failure of condition precedent, rescission, and any statutory claims, tort
claims, contract claims, or claims to void, invalidate or terminate the
Agreement or any of the other Transaction Documents. The term “Claims”
specifically excludes a dispute over Calculations (as defined in the Agreement)
enforcement of Investor’s rights. The parties hereby agree that the arbitration
provisions set forth in this Exhibit G (“Arbitration Provisions”) are binding on
the parties hereto and are severable from all other provisions in the
Transaction Documents. As a result, any attempt to rescind the Agreement or
declare the Agreement or any other Transaction Document invalid or unenforceable
for any reason is subject to these Arbitration Provisions. These Arbitration
Provisions shall also survive any termination or expiration of the Agreement.

 

2.       Arbitration. Except as otherwise provided herein, all Claims must be
submitted to arbitration (“Arbitration”) to be conducted in Los Angeles County,
California and pursuant to the terms set forth in these Arbitration Provisions.
The parties agree that the award of the arbitrator shall be final and binding
upon the parties; shall be the sole and exclusive remedy between them regarding
any Claims, counterclaims, issues, or accountings presented or pleaded to the
arbitrator; and shall promptly be payable in United States dollars free of any
tax, deduction or offset (with respect to monetary awards). Any costs or fees,
including without limitation attorneys’ fees, incident to enforcing the
arbitrator’s award shall, to the maximum extent permitted by law, be charged
against the party resisting such enforcement. The award shall include Default
Interest (as defined in the Note) both before and after the award. Judgment upon
the award of the arbitrator will be entered and enforced by a state court
sitting in Los Angeles County, California.

 

3.       Arbitration Proceedings. Arbitration between the parties will be
subject to the following procedures:

 

3.1 The parties agree that a party may initiate Arbitration by giving written
notice to the other party (“Arbitration Notice”) in the same manner that notice
is permitted under Section 8.9 of the Agreement; provided, however, that the
Arbitration Notice may not be given by email or fax. Arbitration will be deemed
initiated as of the date that the Arbitration Notice is deemed delivered under
Section 8.9 of the Agreement (the “Service Date”). After the Service Date,
information may be delivered, and notices may be given, by email or fax pursuant
to Section 8.9 of the Agreement or any other method permitted thereunder. The
Arbitration Notice must describe the nature of the controversy, the remedies
sought, and the election to commence Arbitration proceedings. All Claims in the
Arbitration Notice must be pleaded consistent with the California Code of Civil
Procedure.

 

3.2       Within ten (10) calendar days after the Service Date, Investor shall
select and submit to Company the names of three arbitrators that are designated
as “neutrals” or qualified arbitrators by the American Arbitration Association
(“AAA”) based in Los Angeles County, California (such three designated persons
hereunder are referred to herein as the “Proposed Arbitrators”). For the
avoidance of doubt, each Proposed Arbitrator must be qualified as a “neutral”
with AAA. Within ten (10) calendar days after Investor has submitted to Company
the names of the Proposed Arbitrators, Company must select, by written notice to
Investor, one (1) of the Proposed Arbitrators to act as the arbitrator for the
parties under these Arbitration Provisions. If Company fails to select one of
the Proposed Arbitrators in writing within such 10-day period, then Investor may
select the arbitrator from the Proposed Arbitrators by providing written notice
of such selection to Company. If Investor fails to identify the Proposed
Arbitrators within the time period required above, then Company may at any time
prior to Investor designating the Proposed Arbitrators, select the names of
three arbitrators that are designated as “neutrals” or qualified arbitrators by
AAA by written notice to Investor. Investor may then, within ten (10) calendar
days after Company has submitted notice of its selected arbitrators to Investor,
select, by written notice to Company, one (1) of the selected arbitrators to act
as the arbitrator for the parties under these Arbitration Provisions. If
Investor fails to select in writing and within such 10-day period one of the
three arbitrators selected by Company, then Company may select the arbitrator
from its three previously selected arbitrators by providing written notice of
such selection to Investor. Subject to Paragraph 3.12 below, the cost of the
arbitrator must be paid equally by both parties; provided, however, that if one
party refuses or fails to pay its portion of the arbitrator fee, then the other
party can advance such unpaid amount (subject to the accrual of Default Interest
thereupon), with such amount added to or subtracted from, as applicable, the
award granted by the arbitrator. The date that the selected arbitrator agrees in
writing to serve as the arbitrator hereunder is referred to herein as the
“Arbitration Commencement Date”.

 

Arbitration Provisions, Page 1

 

 

 

3.3       An answer and any counterclaims to the Arbitration Notice, which must
be pleaded consistent with the California Code of Civil Procedure, shall be
required to be delivered to the other party within twenty (20) calendar days
after the Service Date. Upon request, the arbitrator is hereby instructed to
render a default award, consistent with the relief requested in the Arbitration
Notice, against a party that fails to submit an answer within such time period.

 

3.4       The party that delivers the Arbitration Notice to the other party
shall have the option to also commence legal proceedings with any state court
sitting in Los Angeles County, California (“Litigation Proceedings”), subject to
the following: (i) the complaint in the Litigation Proceedings is to be
substantially similar to the claims set forth in the Arbitration Notice,
provided that an additional cause of action to compel arbitration will also be
included therein, (ii) so long as the other party files an answer to the
complaint in the Litigation Proceedings and an answer to the Arbitration Notice,
the Litigation Proceedings will be stayed pending an award of the arbitrator
hereunder, (iii) if the other party fails to file an answer in the Litigation
Proceedings or an answer in the Arbitration Proceedings, then the party
initiating Arbitration shall be entitled to a default judgment consistent with
the relief requested, to be entered in the Litigation Proceedings, and (iv) any
legal or procedural issue that requires a decision of a court of competent
jurisdiction may be determined in the Litigation Proceedings. Any award of the
arbitrator may be entered in such Litigation Proceedings.

 

3.5       The parties agree that discovery shall be conducted in accordance with
the California Code of Civil Procedure; provided, however, that incorporation of
such rules will in no event supersede the Arbitration Provisions set forth
herein, including without limitation the time limitation set forth in Paragraph
3.9 below, and the following:

 

(a)       Discovery will only be allowed if the likely benefits of the proposed
discovery outweigh the burden or expense, and the discovery sought is likely to
reveal information that will satisfy a specific element of a claim or defense
already pleaded in the Arbitration. The party seeking discovery shall always
have the burden of showing that all of the standards and limitations set forth
in these Arbitration Provisions are satisfied. The scope of discovery in the
Arbitration proceedings shall also be limited as follows:

 

(i)       To facts directly connected with the transactions contemplated by the
Agreement.

 

(ii)       To facts and information that cannot be obtained from another source
that is more convenient, less burdensome or less expensive.

 

(c)       No party shall be allowed (a) more than fifteen (15) interrogatories
(including discrete subparts), (b) more than fifteen (15) requests for admission
(including discrete subparts), (c) more than ten (10) document requests
(including discrete subparts), or (d) more than three depositions (excluding
expert depositions) for a maximum of seven (7) hours per deposition.

 

3.6       Any party submitting any written discovery requests, including
interrogatories, requests for production, subpoenas to a party or a third party,
or requests for admissions, must prepay the estimated attorneys’ fees and costs,
as determined by the arbitrator, before the responding party has any obligation
to produce or respond.

 

(a)       All discovery requests must be submitted in writing to the arbitrator
and the other party before issuing or serving such discovery requests. The party
issuing the written discovery requests must include with such discovery requests
a detailed explanation of how the proposed discovery requests satisfy the
requirements of these Arbitration Provisions and the California Code of Civil
Procedure. Any party will then be allowed, within ten (10) calendar days of
receiving the proposed discovery requests, to submit to the arbitrator an
estimate of the attorneys’ fees and costs associated with responding to such
written discovery requests and a written challenge to each applicable discovery
request. After receipt of an estimate of attorneys’ fees and costs and/or
challenge(s) to one or more discovery requests, the arbitrator will make a
finding as to the likely attorneys’ fees and costs associated with responding to
the discovery requests and issue an order that (A) requires the requesting party
to prepay the attorneys’ fees and costs associated with responding to the
discovery requests, and (B) requires the responding party to respond to the
discovery requests as limited by the arbitrator within a certain period of time
after receiving payment from the requesting party. If a party entitled to submit
an estimate of attorneys’ fees and costs and/or a challenge to discovery
requests fails to do so within such 10-day period, the arbitrator will make a
finding that (A) there are no attorneys’ fees or costs associated with
responding to such discovery requests, and (B) the responding party must respond
to such discovery requests (as may be limited by the arbitrator) within a
certain period of time as determined by the arbitrator.

 

(b)       In order to allow a written discovery request, the arbitrator must
find that the discovery request satisfies the standards set forth in these
Arbitration Provisions and the California Code of Civil Procedure. The
arbitrator must strictly enforce these standards. If a discovery request does
not satisfy any of the standards set forth in these Arbitration Provisions or
the California Code of Civil Procedure, the arbitrator may modify such discovery
request to satisfy the applicable standards, or strike such discovery request in
whole or in part.

 

Arbitration Provisions, Page 2

 

 

 

(c)       Discovery deadlines will be set forth in a scheduling order issued by
the arbitrator. The parties hereby authorize and direct the arbitrator to take
such actions and make such rulings as may be necessary to carry out the parties’
intent for the arbitration proceedings to be efficient and expeditious.

 

3.7 Each party may submit expert reports (and rebuttals thereto), provided that
such reports must be submitted by the deadlines established by the arbitrator.
Expert reports must contain the following: (a) a complete statement of all
opinions the expert will offer at trial and the basis and reasons for them; (b)
the expert’s name and qualifications, including a list of all publications
within the preceding 10 years, and a list of any other cases in which the expert
has testified at trial or in a deposition or prepared a report within the
preceding 10 years; and (c) the compensation to be paid for the expert’s study
and testimony. The parties are entitled to depose any other party’s expert
witness one time for no more than 4 hours. An expert may not testify in a
party’s case-in-chief concerning any matter not fairly disclosed in the expert
report.

 

3.8       All information disclosed by either party during the Arbitration
process (including without limitation information disclosed during the discovery
process) shall be considered confidential in nature. Each party agrees not to
disclose any confidential information received from the other party during the
discovery process unless (i) prior to or after the time of disclosure such
information becomes public knowledge or part of the public domain, not as a
result of any inaction or action of the receiving party, (ii) such information
is required by a court order, subpoena or similar legal duress to be disclosed
if such receiving party has notified the other party thereof in writing and
given it a reasonable opportunity to obtain a protective order from a court of
competent jurisdiction prior to disclosure; or (iii) disclosed to the receiving
party’s agents, representatives and legal counsel on a need to know basis who
each agree in writing not to disclose such information to any third party. The
arbitrator is hereby authorized and directed to issue a protective order to
prevent the disclosure of privileged information and confidential information
upon the written request of either party.

 

3.9       The parties hereby authorize and direct the arbitrator to take such
actions and make such rulings as may be necessary to carry out the parties’
intent for the arbitration proceedings to be efficient and expeditious. The
parties hereby agree that an award of the arbitrator must be made within 150
days after the Arbitration Commencement Date. The arbitrator is hereby
authorized and directed to hold a scheduling conference within ten (10) calendar
days after the Arbitration Commencement Date in order to establish a scheduling
order with various binding deadlines for discovery, expert testimony, and the
submission of documents by the parties to enable the arbitrator to render a
decision prior to the end of such 150-day period. The California Evidence Code
will apply to any final hearing before the arbitrator.

 

3.10      The arbitrator shall have the right to award or include in the
arbitrator’s award any relief which the arbitrator deems proper under the
circumstances, including, without limitation, specific performance and
injunctive relief, provided that the arbitrator may not award exemplary or
punitive damages.

 

3.11       If any part of these Arbitration Provisions is found to violate
applicable law or to be illegal, then such provision shall be modified to the
minimum extent necessary to make such provision enforceable under applicable
law.

 

3.12       The arbitrator is hereby directed to require the losing party to (i)
pay the full amount of the costs and fees of the arbitrator, and (ii) reimburse
the prevailing party the reasonable attorneys’ fees, arbitrator costs,
deposition costs, and other discovery costs incurred by the prevailing party.

 

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Arbitration Provisions, Page 3