VAPOR CORP.

 

BINDING TERM SHEET FOR PROPOSED MERGER AND FINANCING TRANSACTIONS

 

This binding term sheet (this “Term Sheet”) summarizes the principal terms of
(a) a proposed merger transaction (the “Merger”) between Vapor Corp., a Delaware
corporation (“Vapor”), and Vaporin, Inc., a Delaware corporation (“Vaporin”),
and (b) three related Financings (as defined herein) for Vapor. The Merger and
these Financings are sometimes collectively referred to herein as the
“Transactions”. Vapor and Vaporin are each sometimes referred to as a “Party”
and collectively as the “Parties”.

 

Structure of the Merger; Surviving Corporation   Vapor and Vaporin would
consummate a statutory merger in accordance with the laws of the state of
incorporation of each corporation. Vapor would be the surviving corporation in
the Merger.       Merger Consideration   Upon the consummation of the Merger,
the shareholders of Vaporin will receive shares of the common stock of Vapor
sufficient to give Vaporin shareholders ownership of a percentage of the total
outstanding capital stock of Vapor equal to 45.0% of the combined company,
subject to adjustment based on the Fairness Opinions (as defined herein).      
Fairness Opinions   The consummation of the Merger shall be conditioned on,
among other things, the receipt by each of Vapor and Vaporin of an independent
fairness opinion (each, a “Fairness Opinion”) issued by a separate independent
investment bank which provides a favorable opinion regarding the financial terms
and conditions of the Merger. These investment bankers shall be chosen by Vapor
and Vaporin, respectively, and the interpretation of the results of each
Fairness Opinion shall be determined by the Party that engaged the respective
investment banker in that Party’s sole discretion. Each Party shall be
responsible for all of the fees and expenses incurred in connection with the
preparation of a Fairness Opinion.

 

 

 

  

Registration Statement   The Parties anticipate that a Registration Statement
(the “Registration Statement”) on Form S-4 will be required in connection with
the Merger. Each Party shall cooperate with and shall promptly perform all
actions and provide all information and documents to the other Party as required
or desired by such other Party in connection with the preparation, filing, and
effectiveness of this Registration Statement. The consummation of the Merger
would be conditioned on this Registration Statement being declared effective by
the Securities and Exchange Commission and no stop orders from any regulatory
authority being in place.       Financing Transactions   Subject to the
limitations contained in this Section, the following amounts of financing will
be made available to Vapor:

 

    ● A bridge financing (the “Bridge Financing”) of $1,000,000 to be funded by
Michael Brauser and Barry Honig (or their affiliates) within five (5) days after
the execution of this Term Sheet on the terms described on the Financing Term
Sheet included as Exhibit A.             ● A total of $3,500,000 (the “Closing
Financing”) to be funded contemporaneously with the consummation of the Merger.
This Closing Financing will consist of common stock (with 100% warrant coverage)
at a share price (“Per Share Price”) equal to the lesser of: (i) 80% of Vapor’s
Volume Weighted Average Price (“VWAP”) on the five trading days after the
announcement of Vapor’s preliminary third quarter results or (ii) 80% of Vapor’s
VWAP on the five trading days prior to the closing of the Merger (beginning with
the day prior to the Merger closing). The warrants will be exercisable at 125%
of the Per Share Price, have cashless exercise rights and will be exercisable
for a five year period. The holders of the common stock and warrants will have
full-ratchet rights. Messrs. Brauser and Honig (or their affiliates) will lead
the Closing Financing. The funds for the Closing Financing will be placed into
an escrow account with an escrow agent satisfactory to all parties at least ten
(10) days prior to the closing date of the Merger, and such funds will be
released to Vapor at the same time as the consummation of the Merger.

 

 

 

  

    ●  A total of $20,000,000 to $25,000,000 (the “Subsequent Financing”) to be
funded after the consummation of the Merger. This investment shall be made
pursuant to a disbursement schedule and shall be subject to Vapor’s compliance
with certain financial covenants and restrictions and Vapor’s achievement of
certain performance-based metrics. This disbursement schedule, these financial
covenants and restrictions, and these performance-based metrics will be
negotiated and finalized prior to the consummation of the Merger and will be
reflected in an agreement (“Financing Agreement”) which will be executed
contemporaneously with the signing of the definitive Merger Agreement. The
Financing Agreement for the Subsequent Financing will provide that certain
Vaporin stockholders will be subject to certain penalties if the Subsequent
Financing is not consistent with the terms of the Financing Agreement. These
penalties could include the return of some of the shares of Vapor common stock
received in the Merger.             ● The terms and conditions of the Subsequent
Financing, including the share purchase price and any other economic terms,
shall be no less favorable to Vapor than the equivalent terms and conditions of
the Bridge Financing and/or the Closing Financing (whichever is more favorable
to investors).             ● In partial consideration of the role of Messrs.
Brauser and Honig in the successful consummation of the Bridge and Closing
Financings, one or more of them shall have the right to collectively appoint a
total of two members of Vapor’s Board of Directors; provided, however, that all
such appointees shall be reasonably acceptable to Vapor. Vapor’s Board of
Directors shall consist of a total of five members. If in the future the Board
of directors is increased, such party or parties shall have the right to appoint
one less than a majority of the number of directors. Vapor agrees to nominate
the designees at its next annual meeting of stockholders and recommend to its
stockholders the election of such designees at any subsequent stockholders’
meetings at which directors are elected through December 31, 2015. If any aspect
of the Subsequent Financing does not occur for any reason other than Vapor’s
failure to comply with the financial covenants or restrictions or the
performance-based metrics or Vapor choosing not to proceed with a Subsequent
Financing for any reason, this right to appoint Vapor Board of Directors members
shall immediately terminate in all respects.             ● The Bridge Financing,
the Closing Financing, and the Subsequent Financing are collectively referred to
herein as the “Financings”.             ● Any shares of Vapor stock issued in
connection with any Financing shall be unregistered but shall be subject to
standard “piggyback” registration rights.             ● As a condition to the
purchase of any Vapor stock purchased or received in any of the Financings, the
recipient of such stock shall enter into standard stockholder or voting
agreements which shall be agreed to in form and substance by both Vaporin and
Vapor at the time of executing the Merger Agreement.             ● The decision
to accept the terms and conditions of and to proceed with the Subsequent
Financing shall be in Vapor’s sole discretion.

 

 

 

 

Transaction Documents  

The proposed Merger will be completed in accordance with terms and conditions to
be set forth in a definitive merger agreement (the “Merger Agreement”) which
shall be mutually satisfactory in form and substance and all of which shall
include closing conditions, representations and warranties, and covenants of the
parties customary in transactions of this type. The definitive Merger Agreement
shall be signed within forty-five (45) days after the execution of this Term
Sheet by both parties. If this definitive Merger Agreement is not signed by all
parties by the end of this forty-five (45) day period, then either party may
terminate this Term Sheet by written notice to the other party and not be
obligated to proceed with the Merger. Without limiting the generality of the
foregoing, the Merger Agreement would provide for the following:

 

(i) Representations and Warranties. The Merger Agreement shall contain standard
parallel representations and warranties of the Parties, including, without
limitation, due authorization, capitalization, corporate power, ownership of
intellectual property, no brokers, and taxation.

 

(ii) Conditions to Closing. The Merger Agreement shall contain standard
conditions to closing, including, without limitation, the execution of a
Financing Agreement for the Subsequent Financing, the receipt of all required
stockholder votes (including any “majority of the minority” vote if applicable),
the effectiveness of the Registration Statement, the presence of no stop orders,
the consummation of the Closing Financing contemporaneously with the
consummation of the Merger, the completion of due diligence investigations
satisfactory to each party, and the receipt by both parties of all required
regulatory approvals, including any required approvals from NASDAQ.

 

 

 

 

Due Diligence Reviews   Each Party to the Merger shall promptly conduct a full
due diligence review of the other Party, including, without limitation,
business, legal, accounting, tax, and technology due diligence items. Any due
diligence review conducted by Vaporin shall be coordinated through one
designated representative. All due diligence reviews shall be completed within
thirty (30) days after the execution of this Term Sheet by both Parties.      
Miscellaneous:  

Confidentiality: Each of the Parties covenants and agrees that for a term
beginning on the date of signing of this Term Sheet and ending on the second
anniversary of such signing not to disclose the terms of this Term Sheet to any
person other than the respective parties’ representatives and advisors who have
a need to know, without the written consent of all of the other Parties. The
Parties will enter into separate Confidentiality Agreements promptly after the
execution of this Term Sheet.

 

No Announcements: No Party shall make any public announcement of any kind (oral
or written and including any press releases) regarding this Term Sheet or any of
the components or provisions of the proposed Transactions discussed herein
without the prior written consent of all Parties; provided, however, that any
Party can take any actions required to comply with applicable laws and
regulations.

 

No Shop Provision: Until March 31, 2015, neither Vapor nor Vaporin shall enter
into any discussions or negotiations of any kind (written or oral) with any
entity or person other than the other Party, perform any actions of any kind
that are inconsistent in any way with the matters discussed in this Term Sheet,
or entertain, solicit, or consider any offers, terms, conditions, or provisions
from any entity or person other than the Parties hereto regarding any
transaction involving a sale of all or substantially all of the assets of the
Parties, a merger, consolidation, or recapitalization of the Parties, or any
similar transaction; provided, however, that if Vapor or Vaporin receives any
communications from a third party about a merger, consolidation or sale of all
or substantially all of its assets (any, an “Acquisition Proposal”) and it is
advised by its counsel that its Board of Directors is required under the
Delaware General Corporation Law to consider such Acquisition Proposal, it may
consider such Acquisition Proposal and take actions in furtherance of it without
breaching this No Shop provision. Vapor or Vaporin, as the case may be, shall
promptly notify the other Party orally and in writing in the event that it
receives any Acquisition Proposal or inquiry related thereto. Nothing contained
herein shall preclude a party from complying with Rule 14e-2 promulgated under
the Securities Exchange Act of 1934.

 

Expenses: Each Party to the Transactions will pay its own fees and expenses
associated with the Transactions, including all legal and accounting fees and
any fees and costs associated with its respective Fairness Opinion.

 

Due Authorization for Execution. The execution of this Term Sheet on behalf of
both Vapor and Vaporin has been duly authorized by all required corporate
actions and procedures.

 

No Hiring or Solicitation of Employees or Consultants. If the Transactions are
not consummated for any reason, neither Vaporin nor Vapor shall, for a period
ending on March 31, 2016 (the “Termination Date”), hire, engage as a consultant
(directly or indirectly), or solicit for employment or engagement as a
consultant (directly or indirectly) any employee or consultant of the other
Party who is employed or engaged as a consultant by such other Party or who was
employed or engaged as a consultant by such other Party at any time within the
six months immediately preceding the date of the proposed hiring or engagement
of such employee or consultant.

 

Governing Law: This Term Sheet shall be interpreted and enforced under the laws
of the State of Florida without giving effect to its conflicts of law
principles.

 

Counterparts: This Term Sheet may be executed in separate counterparts, and all
such executed counterparts together shall be deemed to be fully effective and to
be one and the same document.

 

[Signature Page Follows]

 

 

 

 

IN WITNESS WHEREOF, The undersigned parties have caused this Term Sheet for
Proposed Merger and Financing Transactions to be executed on November 6, 2014.

 

  VAPOR CORP.         By:  /s/ Jeffrey Holman   Name: Jeffrey Holman   Title:
Chief Executive Officer         VAPORIN, INC.         By: /s/ Greg Brauser  
Name: Greg Brauser   Title: Chief Operating Officer

 

 

 

 

 

 

SUMMARY OF TERMS

 

CONVERTIBLE BRIDGE NOTE

 

 

 

The terms and conditions presented below do not constitute any form of binding
contract but rather are solely for the purpose of outlining those terms pursuant
to which a definitive agreement may ultimately be entered into. This Term Sheet
does not purport to summarize all the terms, conditions, covenants,
representations, warranties and other provisions which would be contained in the
definitive legal documentation for the financing contemplated herein. Closing is
contingent upon completion of due diligence and final negotiation and execution
of satisfactory documentation containing customary closing conditions,
representations, warranties, etc.

 

Dated: November 5, 2014

 

 

Company Vapor Corp., a Delaware corporation (the “Company”)     Securities:
$1,000,000 senior secured convertible notes (the “Notes”) and warrants (the
“Warrants”) to purchase shares of the Company’s common stock (the “Common
Stock”)     Investors: Michael Brauser or his affiliates and Barry Honig or his
affiliates (together, the “Investors”)     Closing Date: Within 5 Days of the
execution of this Term Sheet     Maturity Date Unless earlier converted or
redeemed, the Notes will mature on the one (1) year anniversary of the Closing
Date (“Maturity Date”).     Interest The Notes bear interest at a rate of 7% per
annum, subject to increase to 15% per annum upon the occurrence and continuance
of an event of default (as described below). Interest on the Notes is payable
monthly in shares of Common Stock or cash, at the Company’s option. Interest on
the Notes is computed on the basis of a 360-day year and twelve 30-day months
and is payable in arrears monthly and is compounded monthly.     Conversion The
Notes shall be convertible into shares of Common Stock at a per share price of
equal to the lesser of (i) $2.00, or (ii) 80% of the average VWAP over the three
trading day period immediately prior to the Closing Date (the “Conversion
Price”).     Warrants: 100% Warrant coverage. The Warrants will be exercisable
on the issuance date through the fifth anniversary of the issuance date.      
The Warrants will be exercisable at an initial exercise price equal to $2.75 per
share. The exercise price of the Warrants is subject to adjustment for stock
splits, stock dividends, combinations or similar events. .

 

 

 

 

Placement Agent: Palladium Capital Advisors LLC (“Palladium”) on a best efforts
basis. Palladium shall be paid 5% of the gross proceeds from the sale of the
Note payable on the Closing Date. In addition, Palladium shall receive a warrant
on equivalent terms to the Warrants in an amount equal to 5% of the shares sold
or issuable upon conversion of the Notes.     Legal Fees: The Company shall be
responsible for all legal fees of outside counsel and disbursements up to
$25,000.     Binding Effect: This Term Sheet is intended to be binding on the
parties, including the Investors, of their mutual intent on proceeding with a
financing transaction pursuant to a definitive agreement and related transaction
documents prior to the Closing Date. The financing shall be completed in
accordance with terms and conditions set forth in the Note transaction
documents, all of which shall be mutually satisfactory in form and substance and
all of which shall include representations and warranties and covenants of the
parties customary in transactions of this this type.     Effect of Termination
In the event that, following the execution and delivery of the final transaction
documents, the Company or the Investors (the “Defaulting Party”) terminates the
transaction not in accordance with the terms set forth herein, the Defaulting
Party shall be obliged to pay all of the non-terminating party’s actual deal
related expenses.     Counterparts This term sheet may be executed in any number
of counterparts and by facsimile or email transmission, each of which shall be
deemed to be an original instrument, but all of which taken together shall
constitute one and the same agreement. Facsimile or email signatures shall be
deemed to be original signatures for all purposes.

 

 

 

 

Accepted and Acknowledged       VAPOR CORP.       By: /s/ Jeffrey Holman   Name:
Jeffrey Holman    Title: CEO         PALLADIUM CAPITAL ADVISORS LLC         By:
/s/ Joel Padowitz   Name: Joel Padowitz   Title:  CEO   

 

BY THE INVESTORS:

 

MICHAEL BRAUSER         By: /s/ Michael Brauser         BARRY HONIG         By:
/s/ Barry Honig  

 

This Term Sheet is intended to be a binding obligation of the Investors and the
Company only. The failure of any party to consummate a transaction shall not
represent a breach of any obligation by the Placement Agent or its
representatives.