Exhibit 10.1
 
Dated                                                                                    2014

 
(1)            VICTORY ELECTRONIC CIGARETTES CORPORATION
 

 
LOAN NOTE INSTRUMENT
CONSTITUTING
UP TO US$11,000,000 SECURED
LOAN NOTES 2014

 
Mishcon de Reya
Summit House
12 Red Lion Square
London WC1R 4QD
Tel: 020 7440 7000
Fax: 020 7404 5982
Ref: KEM/LJ/43296.1
E-mail: kevin.mccarthy@mishcon.com
 

 
 
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TABLE OF CONTENTS
 

 
No.
 
Heading
 
Page
         
1
 
definitions and interpretation
 
3
2
 
Amount of notes
 
5
3
 
Description of notes
 
5
4
 
Status of notes
 
5
5
 
Repayment of notes
 
6
6
 
Interest on notes
 
6
7
 
Certificates
 
6
8
 
Register
 
6
9
 
Obligations of the Company
 
7
10
 
warranties
 
7
11
 
events of Default
 
7
12
 
Acceleration
 
8
13
 
security
 
8
14
 
set-off
 
8
15
 
Meetings of noteholders
 
8
16
 
Enforcement
 
8
17
 
Modification
 
9
18
 
Governing law and jurisdiction
 
9
Schedule 1 - Form of note
  10
Schedule 2 - The Conditions
  11
Schedule 3 - Provisions as to registration, transfer and other matters
  13
Schedule 4 - Provisions for meetings of the noteholders
  16

 
 
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THIS DEED is
dated                                                                                     2014
 
PARTIES
 
(1)  
VICTORY ELECTRONIC CIGARETTES CORPORATION a company registered in the State of
Nevada, USA under number C13461-2004 whose registered office is at 11335 Apple
Drive, Spring Lake, Michigan 49448, USA (the Company).

 
BACKGROUND
 
(A)  
The Company has, by resolution of its board of directors passed
on          2014, resolved to create up to a maximum nominal amount of
US$11,000,000 secured loan notes 2014, to be constituted in the manner set out
below.

 
AGREED TERMS
 
1.  
DEFINITIONS AND INTERPRETATION

 
1.1  
The definitions and rules of interpretation in this clause apply in this
instrument.

 
Asset Sale means the disposal by the Company of all or substantially all of its
assets;
 
Business Day means any day, other than a Saturday or Sunday or English bank
holiday;
 
Change of Control means the acquisition (by any means) by a purchaser of any
interest in any share capital if, upon completion of that acquisition that
purchaser (together with any person connected with or acting in concert with
that purchaser) would be entitled to exercise more than fifty per cent (50%) of
the total voting rights normally exercisable at any meeting of the shareholders
of the Company;
 
Conditions means the conditions set out in Schedule 2 as from time to time
amended and Condition shall be construed accordingly;
 
Debenture means the debenture to be entered into on the date of this instrument
between MHL and the Security Trustee, pursuant to which inter alia MHL will
grant a charge over its assets and undertaking in favour of the Security Trustee
as security for its obligations under the Guarantee;
 
Directors means the board of directors of the Company from time to time;
 
Event of Default means any of those events specified in clause 11;
 
Exchange Rate shall have the meaning as set out in the Share Purchase Agreement;
 
Guarantee means the guarantee to be entered into on the date of this instrument
by MHL in favour of the Noteholders pursuant to which inter alia MHL guarantees
the payment obligations in respect of the Notes;
 
Initial Registered Offering means the raising of not less than $40,000,000 in an
underwritten public offering pursuant to an effective registration statement
filed with the US Securities and Exchange Commission on Form S - 1 or other
registration form that the Company is eligible to use;
 
Interest Start Date means the date falling 120 days after the date of this
instrument;
 
 
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ITEPA means the Income Tax (Earnings & Pensions) Act 2003;
 
Listing means the first day of trading of the Company’s common stock on any of
the following exchanges on which the common stock is listed for trading: the
NYSE Market, the Nasdaq Capital Market, the Nasdaq Global Select Market, the
Nasdaq Global Market, the New York Stock Exchange or any successors of the
foregoing;
 
MHL means Must Have Limited, a company registered in England and Wales with
number 05101019 whose registered office is at Unit 14, Dale Street Industrial
Estate, Radcliffe, Manchester M26 1AD;
 
Noteholder means each person from time to time entered in the Register as a
holder of any Notes;
 
Noteholders' Notes means the Notes issued to any of the Noteholders pursuant to
the Share Purchase Agreement, such Notes apportioned between the Noteholders in
the proportions set out opposite their respective names in Schedule 1 to the
Share Purchase Agreement;
 
Notes means up to US$11,000,000 secured loan notes 2014 constituted by this
instrument or, as the case may be, the amount of such loan notes for the time
being issued and outstanding;
 
Realisation means a Share Sale or an Asset Sale;
 
Register means the register of Noteholders (provisions relating to which are set
out in clause 8);
 
Repayment Date means the earlier of:
 
(i)          the date falling 175 days after the date of this instrument;
 
(ii)          the date of the Listing; and
 
(iii)          the date of the Initial Registered Offering;
 
Security Trustee
means                                                             ;
 
Share Purchase Agreement means the share purchase agreement to be entered into
on the date of this instrument between the Company and the Noteholders, pursuant
to which inter alia the Company shall acquire the entire issued share capital of
MHL from the Noteholders; and
 
Shares mean shares of common stock, par value US$0.001 each in the capital of
the Company;
 
Share Sale means the transfer of any interest in any non-assessable shares of
common stock in the capital of the Company (whether by one transaction or a
series of transactions) which results in a Change of Control;
 
Special Resolution means a resolution passed at a meeting of the Noteholders
duly convened and held in accordance with the provisions of this instrument and
carried by a majority consisting of not less than 75% of the persons voting at
such meeting upon a show of hands or, if a poll is demanded, a majority
consisting of not less than 75% of the votes given on such poll.
 
1.2  
Any reference in this instrument to:

 
1.2.1  
indebtedness shall be construed as a reference to any obligation for the payment
or repayment of money, whether as principal or as surety and whether present or
future, actual or contingent;

 
1.2.2  
this instrument or to any other instrument, agreement or document shall, unless
the context otherwise requires, be construed as reference to this instrument or
such other instrument, agreement or document as the same may from time to time
be amended, varied, supplemented or novated, in each case, in accordance with
its terms;

 
 
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1.2.3  
a month shall be construed as a reference to a period starting on one day in a
calendar month and ending on the numerically corresponding day in the next
calendar month save that, where any such period would otherwise end on a day
which is not a Business Day, it shall end on the next Business Day, unless that
day falls in the calendar month succeeding that in which it would otherwise have
ended, in which case it shall end on the preceding Business Day provided that,
if a period starts on the last Business Day in a calendar month or if there is
no numerically corresponding day in the month in which that period ends, that
period shall end on the last Business Day in that later month;

 
1.2.4  
a person shall be construed as a reference to any individual, firm, company or
other body corporate, corporation, government, state or agency of a state or any
association or partnership (whether or not having separate legal personality)
and, respectively, wherever incorporated or established;

 
1.2.5  
repayment includes redemption and vice versa and the words repay, redeem,
repayable, redeemed and repaid shall be construed accordingly;

 
1.2.6  
tax shall be construed so as to include any present and future tax, levy,
impost, deduction, withholding, duty or other charge of a similar nature
(including, without limitation, any penalty or interest payable in connection
with any failure to pay or any delay in paying any of the same); and

 
1.2.7  
US$ denotes the lawful currency of the United States of America.

 
1.3  
References to any statute or statutory provision shall include references to
such statute or statutory provision as in force at the date of this instrument
and as subsequently re-enacted or consolidated and shall include references to
any statute or statutory provision of which it is a re-enactment or
consolidation.

 
1.4  
In construing this instrument, general words followed by the word including
shall not be given a restrictive meaning by reason of the fact that they are
followed by particular examples intended to be embraced by the general words.

 
1.5  
All the provisions of this instrument are severable and distinct from one
another and the illegality, invalidity or unenforceability of any provision of
this instrument under the law of any jurisdiction shall not affect its validity
or enforceability under the law of any other jurisdiction nor the legality,
validity or enforceability of any other provision.

 
1.6  
References to the Notes include references to all and/or any of the Notes.

 
1.7  
The headings in this instrument are inserted for convenience only and shall not
affect construction or interpretation and references to a clause, schedule,
condition or paragraph are (unless otherwise stated) to a clause or schedule in
this instrument and to a condition or a paragraph of the relevant schedule,
respectively.

 
2.  
AMOUNT OF NOTES

 
The aggregate principal amount of the Notes is limited to US$11,000,000.
 
3.  
DESCRIPTION OF NOTES

 
The Notes shall be known as secured loan notes 2014 and shall be issued in
integral multiples of US$1.00 by the Company.
 
4.  
STATUS OF NOTES

 
The Notes when issued shall rank pari passu equally and rateably without
discrimination or preference among themselves and as a secured obligation of the
Company.
 
 
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5.  
REPAYMENT OF NOTES

 
5.1  
Subject to the provisions of clauses 5.4 and 5.5 below, when the Notes become
payable in accordance with the provisions of this instrument, the Company shall
pay to the Noteholders the full principal amount of the Notes to be repaid
together with any accrued interest on such Notes (less any tax which the Company
is required by law to deduct or withhold from such payment) up to and including
the date of payment.

 
5.2  
All payments under this instrument, whether of principal, interest or otherwise,
shall be made by the Company to the Noteholders entitled to such payments as
provided in paragraph 8 of Schedule 3.

 
5.3  
Where any payment to a Noteholder, whether of principal, interest or otherwise,
is due in accordance with the terms of this instrument on a day which is not a
Business Day, payment shall take place on the next succeeding Business Day.

 
5.4  
Where the Exchange Rate on the due date for payment of any amount under this
instrument is greater than £1 : $1.68, the amount which the Company is obliged
to pay shall be increased so that the amount paid is equal to such amount as
would have been payable if the Exchange Rate on the due date for payment were £1
: $1.68.

 
5.5  
Where the Exchange Rate on the due date for payment of any amount under this
instrument is less than £1 : $1.64 the amount which the Company is obliged to
pay shall be reduced so that the amount paid is equal to such amount as would
have been payable if the Exchange Rate on the due date for payment were £1 :
$1.64.

 
6.  
INTEREST ON NOTES

 
Interest (if any) shall accrue and be paid on the principal amount of the Notes
which are outstanding at the rate and in the manner set out in the Conditions.
 
7.  
CERTIFICATES

 
7.1  
Each certificate for Notes shall:

 
7.1.1  
bear a denoting number;

 
7.1.2  
be issued to a Noteholder as a deed, substantially in the form set out in
Schedule 1; and

 
7.1.3  
have the Conditions endorsed on it or annexed to it.

 
7.2  
Each Noteholder shall be entitled to receive without charge one certificate for
the Notes registered in his/her name.

 
7.3  
The Company shall not be bound to register more than four persons as the joint
holders of any Notes and, in the case of Notes held jointly by several persons,
the Company shall not be bound to issue more than one certificate. Delivery of a
certificate to the person who is first named in the Register as Noteholder shall
be sufficient delivery to all joint holders of the Notes in respect of which
such certificate has been delivered.

 
7.4  
When a Noteholder transfers (subject to paragraph 2.1 of Schedule 3) or redeems
part only of his Notes, the old certificate shall be cancelled and a new
certificate for the balance of such Notes shall be issued without charge.

 
8.  
REGISTER

 
8.1  
The Company shall, at all times, keep a Register at its registered office (or at
such other place as the Company may from time to time have appointed for the
purpose and have notified to the Noteholders).

 
8.2  
The Register shall contain the following details:

 
8.2.1  
the names, postal address and e-mail address of the Noteholders for the time
being;

 
 
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8.2.2  
the principal amount of the Notes held by each Noteholder;

 
8.2.3  
the date at which the name of each Noteholder is entered in respect of the Notes
registered in his name;

 
8.2.4  
the date of issue of each Note; and

 
8.2.5  
all permitted transfers and changes of ownership of the Notes.

 
8.3  
Any change of name or address by any Noteholder which is notified to the Company
at its registered office address above shall be entered in the Register.

 
8.4  
Any Noteholder may at all reasonable times during office hours and on reasonable
notice inspect, and take copies of, the Register.

 
9.  
OBLIGATIONS OF THE COMPANY

 
The Company agrees with each Noteholder to comply with its obligations under
this instrument (including the Schedules).
 
10.  
WARRANTIES

 
10.1  
The Company warrants to each of the Noteholders (which warranties shall be
deemed to be repeated on each day that the Company remains under any liability
(actual or contingent) to the Noteholders (or any of them) under this instrument
or the Notes) that:

 
10.1.1  
it has full power and authority and has taken all action necessary, including
obtaining all necessary approvals or consents, to enable it to enter into this
instrument, to issue the Notes and to exercise its rights and perform its
obligations under this instrument and the Notes;

 
10.1.2  
this instrument and the Notes constitute valid, legal and binding obligations of
the Company in accordance with the terms of this instrument and the Notes;

 
10.1.3  
neither the execution and delivery of, nor the exercise of its rights or
performance of its obligations under, this instrument or the Notes will conflict
with or constitute or result in a breach of or default under or require the
consent of a person under:

 
(a)  
any provision of the articles of association of the Company (or any other
constitutional documents of the Company);

 
(b)  
any governmental, public or contractual obligation which is binding upon the
Company;

 
(c)  
any court order, judgment, decree, award or injunction which is binding upon the
Company or by which any of the Company's assets are bound or subject; or

 
(d)  
an agreement, arrangement or obligation to which the Company is a party or by
which it is bound or a legal, regulatory or administrative requirement in
relation to the Company in any jurisdiction.

 
11.  
EVENTS OF DEFAULT

 
11.1  
The following are Events of Default:

 
11.1.1  
if, pursuant to or within the meaning of the United States Bankruptcy Code or
any other federal or state law relating to insolvency or relief of debtors
(each, a Bankruptcy Law), the Company shall: (i) commence a voluntary case or
proceeding; (ii) consent to the entry of an order for relief against it in an
involuntary case; (iii) consent to the appointment of a trustee, receiver,
assignee, liquidator or similar official; or (iv) make an assignment for the
benefit of its creditors;

 
 
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11.1.2  
if a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (i) is for relief against the Company in an involuntary
case; (ii) appoints a trustee, receiver, assignee, liquidator or similar
official of the Company or substantially all of the properties of the Company;
or (iii) orders the liquidation of the Company, and in each case the order or
decree is not dismissed within sixty (60) days;

 
11.1.3  
if the Company fails to pay any interest due on the Notes (under Condition 4 of
Schedule 2) in three consecutive months;

 
11.1.4  
if the Company fails to redeem any of the Notes on the due date for redemption
of those Notes under this instrument;

 
11.1.5  
the liquidation, dissolution or winding up of the Company; and

 
11.1.6  
if the Initial Registration Statement (as defined in the Share Purchase
Agreement) shall not have been declared effective by the US Securities and
Exchange Commission on or prior to the 175th calendar day after the date of the
Share Purchase Agreement.

 
11.2  
Upon becoming aware of the occurrence of any of the events mentioned in clause
11.1 above the Company shall promptly give notice thereof to each Noteholder.

 
12.  
ACCELERATION

 
If, at any time and for any reason, any Event of Default or a Realisation has
occurred, the principal amount of all Notes, all unpaid accrued interest (if
any) and any other sum then payable on such Notes shall become due and payable
immediately. If the Noteholders give such a direction under this clause, then
the principal amount of all Notes, all unpaid accrued interest and any other sum
then payable on such Notes (in each case less any applicable taxes) shall be
immediately due and payable by the Company and the Company shall immediately pay
or repay such amounts to the Noteholders.
 
13.  
SECURITY

 
The Company's payment obligations in respect of the Notes are secured by the
Guarantee and the Debenture.
 
14.  
SET-OFF

 
Payments of principal and interest under this instrument shall be paid by the
Company to the Noteholders without any deduction or withholding (whether in
respect of any set-off, counterclaim, duties, taxes or otherwise whatsoever)
unless the deduction or withholding is required by law or is made pursuant to
the terms of the Share Purchase Agreement.
 
15.  
MEETINGS OF NOTEHOLDERS

 
The provisions for meetings of the Noteholders set out in Schedule 4 shall be
deemed to be incorporated in this instrument and shall be binding on the Company
and the Noteholders and on all persons claiming through or under them
respectively.
 
16.  
ENFORCEMENT

 
16.1  
From and after the date of this instrument and so long as any amount is payable
by the Company in respect of the Notes, the Company undertakes that it shall
duly perform and observe the obligations on its part contained in this
instrument and the Noteholders shall duly perform and observe the obligations on
their part contained in this instrument.

 
16.2  
The Notes shall be held subject to and with the benefit of the provisions of
this instrument, the Conditions and the schedules (all of which shall be deemed
to be incorporated in this instrument). All such provisions shall be binding on
the Company and the Noteholders and all persons claiming through or under them
respectively, and (as applicable) shall enure for the benefit of all
Noteholders.

 
16.3  
Each Noteholder shall be entitled to sue for the performance and observance of
the provisions of this instrument so far as his holding of Notes is concerned.
No other person shall have any right to enforce any term or condition of this
instrument under the Contracts (Rights of Third Parties) Act 1999.

 
 
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17.  
MODIFICATION

 
The provisions of this instrument and the Conditions and the rights of the
Noteholders may from time to time be modified, amended, abrogated or compromised
in any respect (including in any manner set out in paragraph 16.1 of Schedule 4)
with the sanction of a Special Resolution and with the consent of the Company.
 
18.  
GOVERNING LAW AND JURISDICTION

 
18.1  
This instrument and the Notes and any dispute or claim arising out of or in
connection with any of them or their subject matter or formation (including
non-contractual disputes or claims) shall be governed by, and construed in
accordance with, the law of England and Wales.

 
18.2  
The courts of England and Wales shall have non-exclusive jurisdiction to settle
any dispute or claim that arises out of or in connection with this instrument or
any Note or their subject matter or formation (including non-contractual
disputes or claims).

 
The Company intends this instrument to be entered into as a Deed Poll of the
Company and accordingly executes and delivers it as such on the day and year
first above written.
 
 
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SCHEDULE 1- FORM OF NOTE
 

 Certificate No.    
[NUMBER]
 Date of Issue      
[DATE]
 Amount    
US$[AMOUNT]
 
VICTORY ELECTRONIC CIGARETTES CORPORATION
US$11,000,000 SECURED
LOAN NOTES 2014

 
Created and issued pursuant to a resolution of the board of directors of the
Company passed on [DATE] 2014.
 
THIS IS TO CERTIFY THAT [NAME OF NOTEHOLDER] is the registered holder of
US$[AMOUNT] of the US$11,000,000 secured loan notes 2014 constituted by an
instrument entered into by the Company on [DATE] 2014 (the Instrument). Such
Notes are issued with the benefit of and subject to the provisions contained in
the Instrument and the Conditions endorsed on or annexed to this Certificate.
 
1.  
Words and expressions defined in the Instrument shall bear the same meaning in
this Certificate and in the Conditions endorsed on or annexed to this
Certificate.

 
2.  
The Notes are repayable in accordance with Condition 1.

 
3.  
This Certificate must be surrendered before any permitted transfer, whether of
the whole or any part of the Notes comprised in it, can be registered or any new
certificate issued in exchange.

 
4.  
Any change of address of the Noteholder(s) must be notified in writing signed by
the Noteholder(s) to the Company at its registered office from time to time.

 
5.  
The Notes are not transferable, other than in accordance with the Conditions or
except with the prior written consent of the Company. If a transfer is
permitted, the Notes to be transferred are transferable in amounts and in
integral multiples of US$1.00 in accordance with the terms of the Conditions and
the Instrument.

 
6.  
The Notes and any dispute or claim arising out of or in connection with any of
them or their subject matter or formation (including non-contractual disputes or
claims) shall be governed by, and construed in accordance with, the law of
England and Wales and the English courts shall have non-exclusive jurisdiction
to settle any such dispute or claim (including non-contractual disputes or
claims).

 
7.  
This Certificate has been executed as a deed and is delivered and takes effect
on its date of issue stated at the beginning of it.

 
Executed as a deed by VICTORY ELECTRONIC CIGARETTES CORPORATION acting by [NAME
OF FIRST DIRECTOR], a [director], in the presence of:
 
...........................................................
[SIGNATURE OF DIRECTOR]

..........................................................
[SIGNATURE OF WITNESS]
[NAME AND ADDRESS]
 
 
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SCHEDULE 2 - THE CONDITIONS
 
1.  
Repayment

 
On the Repayment Date, the Company shall, subject to the provisions of clauses
5.4 and 5.5 of this instrument, redeem in full the principal amount of the Notes
issued on the date of this instrument. Any redemption of the Notes under this
Condition shall be in cash and shall be made pro rata to the holdings of all
Noteholders, together with any accrued and unpaid interest (less any tax
required by law to be deducted or withheld from such payment) on the relevant
Notes up to (and including) the date of such repayment by the Company.
 
2.  
Voluntary early repayment

 
2.1  
The Company may at any time, by giving the Noteholders not less than one month's
written notice, repay the principal amount of all or a portion of the Notes on
the date specified in such notice.

 
2.2  
The Company shall also pay to the Noteholders all unpaid interest (if any)
accrued on the Notes to be redeemed up to and including the date of such
redemption (less any taxes required by law to be deducted or withheld from such
payment).

 
2.3  
Any payment made under the provisions of Condition 2.1 above shall be treated as
reducing the principal amount of the Notes outstanding.

 
2.4  
Any redemption of the Notes under the provisions of Condition 2.1 above shall be
made pro rata to the holdings of all Noteholders.

 
3.  
Cancellation

 
All Notes redeemed, repaid, prepaid or purchased by the Company shall be
cancelled and the Company shall not re-issue the same.
 
4.  
Payment of interest

 
4.1  
For the period from the date of this instrument to and including the Interest
Start Date, there shall be no interest accruing or payable on the principal
amount of the Notes outstanding from time to time. For the avoidance of doubt,
if a Listing shall occur on or before the Interest Start Date then no interest
whatsoever will be payable on the Notes.

 
4.2  
For the period from (but not including) the Interest Start Date to and including
the Repayment Date, interest on the principal amount of the Notes outstanding
from time to time shall accrue at the rate of 10% per annum.

 
4.3  
The Company shall pay interest accrued pursuant to Condition 4.2 above monthly
in arrears in cash, with the first interest payment to be made on the last day
of the month in which the Interest Start Date falls, the second interest payment
to be made on the last day of the next month and so on (each payment date being
an Interest Payment Date). Interest will be paid to the persons who were
registered as Noteholders at 10 a.m. (London time) on the relevant Interest
Payment Date.

 
4.4  
Interest shall be calculated on the basis of the actual number of days elapsed
in the relevant period and a 365 day year.

 
4.5  
If the Company fails to pay any amount of interest or principal on any Note when
such amount is due, interest at the rate of 10% per annum shall accrue on the
unpaid amount from the due date until the date of payment.

 
4.6  
Interest on any Notes (whether on principal and/or on interest) repaid by the
Company in accordance with these Conditions shall cease to accrue as from the
date of such repayment.

 
4.7  
The provisions of clauses 5.4 and 5.5 of this instrument shall apply in respect
of any amount of Interest payable under the terms of this Condition 4.

 
5.  
Dealings

 
The Notes shall not be capable of being dealt in or on any stock exchange in the
United Kingdom or elsewhere and no application has been or shall be made to any
stock exchange for permission to deal in or for an official or other quotation
for the Notes.
 
 
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6.  
Notices

 
Any Noteholder described in the Register as being at an address outside the
United Kingdom but who shall from time to time give to the Company an address
within the United Kingdom at which any notice may be served upon him shall be
entitled to have notice served on him at such address. Save as otherwise
provided in this Condition 6, no Noteholder other than a Noteholder described in
the Register as being at an address within the United Kingdom shall be entitled
to receive any notice.
 
7.  
Tax

 
7.1  
Each Noteholder undertakes that he or she shall enter into an election with his
or her employing company pursuant to section 431(1) of ITEPA in the form
prescribed by the HM Revenue and Customs (HMRC) to elect to pay income tax (if
any) computed by reference to the unrestricted market value of the Noteholders'
Notes acquired (the Election). The Election shall be made on completion of the
subscription or acquisition of such Noteholders' Notes.

 
7.2  
Each Noteholder shall provide to the Company such information as it shall
require for the purposes of fulfilling its obligations as a responsible person
within the meaning of Section 421 L of ITEPA.

 
7.3  
In any case where the Company is obliged to account for employee taxation (being
any charge to United Kingdom income tax or National Insurance (other than
secondary National Insurance Contributions) which is the liability of a
Noteholder) (Employee Taxation) as a result of or in respect of:

 
7.3.1  
the subscription for or acquisition of Noteholders' Notes;

 
7.3.2  
the entering into of the Election; or

 
7.3.3  
any action, event or thing done by the Noteholders following the subscription or
acquisition of Noteholders' Notes in the Company which gives rise to a liability
under ITEPA in relation to the Noteholders’ Notes,

 
the Company may recover the Employee Taxation from the Noteholder in question,
and the Noteholder in question shall from time to time covenant to pay to the
Company an amount equal to any such Employee Taxation, in such manner as the
Company shall think fit (acting reasonably) and each such Noteholder agrees that
the Company may recover the Employee Taxation via deductions from salary or
other employment income for the relevant period or subsequent periods under PAYE
and to the extent that such deductions are insufficient to cover the Employee
Taxation, the relevant Noteholder shall pay to the Company the balance promptly
on demand.
 
7.4  
The Company shall or shall procure that MHL shall;

 
7.4.1  
liaise with the Noteholders in the preparation and filing of any reporting
requirements that MHL may have to a Tax Authority (as defined in Schedule 7 of
the Share Purchase Agreement) in relation to the Noteholders’ shares in MHL, the
Noteholders’ Notes, or Shares held by the Noteholders, with all parties acting
reasonably; and

 
7.4.2  
provide copies of any such documents that are to be filed with a Tax Authority
to the Noteholders within a reasonable time period prior to the date of
submission of such documents and shall incorporate any reasonable comments of
the Noteholders in to such documents.

 
8.  
Assignment/Transfer

 
Save as provided in paragraph 2.1 of Schedule 3, the Noteholders may not assign,
transfer, charge or deal with the Notes or all or any part of the benefit of, or
the rights and benefits of the Noteholders under, the Notes, except with the
prior written consent of the Company.
 
 
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SCHEDULE 3 - PROVISIONS AS TO REGISTRATION, TRANSFER AND OTHER MATTERS
 
1.  
Recognition of Noteholder as absolute owner

 
The Company shall recognise as absolute owner the registered holder of any
Notes. The Company shall not (except as ordered by a court of competent
jurisdiction) be bound to take notice or see to the execution of any trust
(whether express, implied or constructive) to which any Notes may be
subject.  The receipt of the registered holder for the time being of any Notes
or, in the case of joint registered holders, the receipt of any of them, for the
principal payable in respect of such Notes and for the interest from time to
time accruing due in respect of such Notes or for any other moneys payable in
respect of such Notes shall be a good discharge to the Company notwithstanding
any notice it may have (whether express or otherwise) of the right, title,
interest or claim of any other person to or in such Notes, interest or moneys.
The Company shall not be bound to enter any notice of any express, implied or
constructive trust on the Register in respect of any Notes.
 
2.  
Transferability of notes

 
2.1  
The Notes are not transferable other than to a spouse of the relevant Noteholder
or except with the prior written consent of the Company.

 
2.2  
Subject to paragraph 2.1 above, the Notes are transferable by instrument in
writing in the usual common form (or in such other form as the Directors of the
Company may approve) in amounts and multiples of US$1.00. There shall not be
included in any such instrument of transfer any Notes other than the Notes
constituted by this instrument.

 
3.  
Execution of transfers

 
Subject to paragraph 2.1 above, every instrument of transfer shall be duly
signed by or on behalf of the transferor and the transferor shall be deemed to
remain the owner of the Notes to be transferred until the transferee's name is
entered in the Register in respect of such Notes.
 
4.  
Registration of transfers

 
Subject to paragraph 2.1 above, every instrument of transfer shall be left for
registration at the address where the Register is maintained for the time being
(as referred to in clause 8.1 of this instrument) accompanied by the
Certificate(s) for the Notes to be transferred, together with such other
evidence as the Directors or other officers of the Company authorised to deal
with the transfers may require to prove the title of the transferor or his/her
right to transfer the Notes and, if the instrument of transfer is executed by
some other person on his behalf, the authority of that person to do so. All
instruments of transfer which are registered shall be retained by the Company.
No transfer shall be registered in respect of Notes to which a notice of
repayment has been given under Condition 2 (Voluntary early repayment).
 
5.  
No fees for registration of transfers

 
No fee shall be charged for the registration of any transfer or for the
registration of any confirmation, probate, letters of administration,
certificate of marriage or death, power of attorney or other document relating
to or affecting the title to any Notes or for making any entry in the Register
relating to or affecting the title to any Notes.
 
6.  
Recognition of personal representatives

 
The executors or administrators of a deceased Noteholder (not being one of
several joint registered holders) and, in the case of the death of one or more
of several joint registered holders, the survivor or survivors of such joint
registered holders, shall be the only person or persons recognised by the
Company as having any title to such Notes.
 
7.  
Transmission of notes

 
Any person who becomes entitled to any of the Notes as a result of the death or
bankruptcy of any Noteholder, or of any other event giving rise to the
transmission of such Notes by operation of law may, upon producing such evidence
that he sustains the character in respect of which he proposes to act under this
Condition or of his title as the Directors shall think sufficient, be registered
himself as the holder of such Notes or, subject to the preceding Conditions as
to transfer, may (subject to obtaining the prior written consent of the Company)
transfer such Notes to a third party.  The Company may retain any payments paid
upon any such Notes which any person under this provision is entitled to, until
such person is registered as the holder of such Notes or has duly transferred
the Notes in accordance with this provision.
 
 
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8.  
Payment of interest and principal

 
8.1  
The payments of principal, interest or other sums payable in respect of the
Notes may be paid by:

 
8.1.1  
electronic transfer in immediately available cleared funds on the due date for
payment, to the account specified for the purpose by the Noteholder or joint
Noteholders in writing to the Company; or

 
8.1.2  
in the absence of such notification, by cheque, warrant or bankers' draft made
payable to and sent to the registered address of the Noteholder or in the case
of joint registered holders, made payable to the order of and sent to the
registered address of that one of the joint registered holders who is first
named on the Register or made payable to such person and sent to such address as
the registered holder or all the joint registered holders may in writing direct.

 
8.2  
Every such cheque, warrant or bankers' draft shall be sent on the due date for
payment and may be sent through the post at the risk of the registered
Noteholder or joint registered holders. Payment of the cheque, warrant or
bankers' draft shall be a good discharge to the Company.

 
8.3  
All payments of principal, interest or other moneys to be made by the Company
shall be made after any deductions or withholdings for or on account of any
present or future taxes required to be deducted or withheld from such payments.

 
9.  
Receipt of joint holders

 
If several persons are entered in the Register as joint registered holders of
any Notes then without prejudice to the provisions of paragraph 8 the receipt by
any one of such persons of any interest or principal or other moneys payable in
respect of such Notes shall be as effective a discharge to the Company as if the
person receiving such moneys were the sole registered holder of such Notes.
 
10.  
Replacement of certificates

 
If the Certificate for any Notes is lost, defaced or destroyed it may be renewed
on such terms (if any) as to evidence and indemnity as the Directors may
require. In the case of defacement the defaced Certificate shall be surrendered
before the new Certificate is issued.
 
11.  
Notice

 
11.1  
Any notice, document or other communication given or made in connection with
this instrument must be in writing and in English.

 
11.2  
Any notice, document or other communication given or made in connection with
this agreement must be served by delivering it personally or sending it by
pre-paid recorded or special delivery (or pre-paid international recorded
airmail if being sent to or from a place outside the United Kingdom) or e-mail
to the address and for the attention of the relevant party set out in paragraph
11.3, with a copy being sent in each case by e-mail to those relevant persons
set out in paragraph 11.3.  Provided that it has been correctly addressed as set
out in paragraph 11.3, the notice or communication will (in the absence of
earlier receipt) be deemed to have been received:

 
11.2.1  
if delivered personally, at the time of delivery;

 
11.2.2  
in the case of pre-paid recorded or special delivery, two Business Days after
the date of posting or in the case of pre-paid international recorded airmail
five Business Days after the date of posting;

 
11.2.3  
in the case of e-mail, on completion of transmission.

 
Provided that if receipt would under this clause be deemed to occur outside 9.30
a.m. to 5.30 p.m. (London time) on a Business Day (Working Hours) the notice or
communication will instead be deemed to have been received at the start of the
next period of Working Hours.
 
 
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11.3  
The addresses for service of the parties are:

 
Company:
 
For the attention of: Brent David Willis
 
Address: 11335 Apple Drive, Spring Lake, Michigan 49448, USA
 
E-mail address: brent@victoryecigs.com
 
with a copy by e-mail to ded@robinsonbrog.com  and to kevin.mccarthy@mishcon.com
 
Noteholders:
 
To their respective registered postal address or email address
 
or any other address (postal or e-mail) as may be notified by at least five
Business Days notice in writing from time to time by the relevant party to the
other parties in accordance with this paragraph 11.
 
For the avoidance of doubt, notice given under this instrument will not be
validly given if sent by electronic means or in electronic form (each as defined
in section 1168 of the Companies Act 2006), except that it may be validly given
if sent by e-mail.
 
In the case of joint registered holders of any Notes a notice given to the
Noteholder whose name stands first in the Register in respect of such Notes
shall be sufficient notice to all joint holders.
 
 
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SCHEDULE 4  - PROVISIONS FOR MEETINGS OF THE NOTEHOLDERS
 
1.  
Calling of meetings

 
The Company may at any time and shall upon the request in writing signed by any
registered holder of the Notes for the time being outstanding convene a meeting
of the Noteholders to be held at such place as the Company shall determine.
 
2.  
Notice of meetings

 
At least 14 clear days' notice specifying the place, day and hour of the meeting
shall be given to the Noteholders of any meeting of Noteholders in the manner
provided in Schedule 3. Any such notice shall specify the general nature of the
business to be transacted at the meeting thereby convened but, except in the
case of a resolution to be proposed as a Special Resolution, it shall not be
necessary to specify the terms of any resolutions to be proposed. The omission
to give notice to any Noteholder shall invalidate any resolution passed at any
such meeting.
 
3.  
Chairman of meetings

 
A person nominated by the Company (not needing to be a Noteholder) shall be
entitled to take the chair at any such meeting and if no such nomination is
made, or if at any meeting the person nominated shall not be present within 15
minutes after the time appointed for holding the meeting, the Noteholders
present shall choose one of their number to be Chairman. The Directors and the
Secretary and legal advisers of the Company and any other person authorised in
that behalf by the Directors may attend at any such meeting.
 
4.  
Quorum at meetings

 
At any such meeting convened for any purpose, a person or persons holding or
representing by proxy 75% in nominal value of the Notes for the time being
outstanding shall form a quorum for the transaction of business. No business
(other than the choosing of a Chairman) shall be transacted at any meeting
unless the requisite quorum is present at the commencement of the meeting.
 
5.  
Absence of quorum

 
If within 30 minutes from the time appointed for any meeting of the Noteholders
a quorum is not present the meeting shall, if convened upon the requisition of
the Noteholders, be dissolved. In any other case it shall stand adjourned to
such day and time (being not less than 14 days and not more than 22 days
thereafter) and to such place as may be appointed by the Chairman and at such
adjourned meeting two Noteholders present in person or by proxy and entitled to
vote, whatever the principal amount of the Notes held by them, shall form a
quorum.
 
6.  
Adjournment of meetings

 
The Chairman may with the consent of (and shall if directed by) any such meeting
adjourn the same from time to time and from place to place. No business shall be
transacted at any adjourned meeting other than business which might lawfully
have been transacted at the meeting from which the adjournment took place.
 
7.  
Notice of adjourned meetings

 
Notice of any adjourned meeting at which a Special Resolution is to be submitted
shall be given in the manner provided for in this instrument. Such notice shall
state that two Noteholders present in person or by proxy and entitled to vote at
the adjourned meeting whatever the principal amount of the Notes held by them
shall form a quorum.
 
 
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8.  
Resolution on show of hands

 
Every question submitted to a meeting of Noteholders shall be decided in the
first instance by a show of hands. In case of an equality of votes the Chairman
shall not have a casting vote.
 
9.  
Demand for poll

 
At any meeting of Noteholders, unless (before or on the declaration of the
result of the show of hands) a poll is demanded by the Chairman or by one or
more Noteholders present in person or by proxy, a declaration by the Chairman
that a resolution has been carried or carried by a particular majority or lost
or not carried by any particular majority shall be conclusive evidence of the
fact.
 
10.  
Manner of taking poll

 
If at any such meeting a poll is so demanded it shall be taken in such manner as
the Chairman may direct. The result of such poll shall be deemed to be the
resolution of the meeting at which the poll was demanded. The demand for a poll
may be withdrawn.
 
11.  
Time for taking poll

 
Any poll demanded at any such meeting shall be taken at the meeting without
adjournment. The demand for a poll shall not prevent the continuance of a
meeting for the transaction of any business other than the question on which the
poll has been demanded.
 
12.  
Persons entitled to vote

 
The registered holders of any of the Notes or, in the case of joint holders, any
one of them shall be entitled to vote in respect thereof either in person or by
proxy and in the latter case as if such joint holder were solely entitled to
such Notes.  If more than one of such joint holders be present at any meeting
either personally or by proxy the vote of the senior who tenders a vote
(seniority being determined by the order in which the joint holders are named in
the Register) shall be accepted to the exclusion of the votes of the other joint
holders.
 
13.  
Instrument appointing proxy

 
Every instrument appointing a proxy shall be in writing, signed by the appointor
or his attorney or, in the case of a corporation, under its common seal, or
signed by its attorney or a duly authorised officer and shall be in such form as
the Directors may approve. Such instrument of proxy shall, unless the contrary
is stated thereon, be valid both for an adjournment of the meeting and for the
meeting to which it relates and need not be witnessed. A person appointed to act
as a proxy need not be a Noteholder.
 
14.  
Deposit of instrument appointing proxy

 
The instrument appointing a proxy and the power of attorney or other authority
(if any) under which it is signed or a notarially certified or office copy of
such power or authority shall be deposited with the Company at the address where
the Register is maintained for the time being (as referred to in clause 8.1 of
this instrument) or at such other place as may be specified in the notice
convening the meeting before the time appointed for holding the meeting or
adjourned meeting or the taking of a poll at which the person named in such
instrument proposes to vote and in default the instrument of proxy shall not be
treated as valid. A vote given in accordance with the terms of an instrument
appointing a proxy shall be valid notwithstanding the previous death or insanity
of the principal or revocation of the instrument of proxy or of the authority
under which the instrument of proxy is given or transfer of the Notes in respect
of which it is given unless previous intimation in writing of such death,
insanity, revocation or transfer shall have been received by the Company at the
address where the Register is maintained for the time being (as referred to in
clause 8.1 of this instrument). No instrument appointing a proxy shall be valid
after the expiration of 12 months from the date named in it as the date of its
execution.
 
 
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15.  
Votes

 
On a show of hands every Noteholder who (being an individual) is present in
person or by proxy or (being a corporation) is present by a representative (not
being himself a Noteholder) or by proxy shall have one vote (provided that a
proxy appointed by more than one member should only have one vote or, where the
proxy has been instructed by one or more of those members to vote for the
resolution and by one or more other of those members to vote against it, such
proxy shall have one vote for and one vote against the resolution). On a poll
every Noteholder shall have one vote for every US$1.00 in nominal amount of the
Notes of which he is the holder. A Noteholder (or a proxy or representative of a
Noteholder) entitled to more than one vote on a poll need not use all his votes
or cast all the votes he uses in the same way.
 
16.  
Power of meetings of Noteholders

 
16.1  
In addition to any other powers it may have, a meeting of the Noteholders may,
by Special Resolution:

 
16.1.1  
sanction any abrogation, modification or compromise or any arrangement in
respect of the rights of the Noteholders against the Company arising under this
instrument;

 
16.1.2  
sanction any scheme or proposal for the sale or exchange of the Notes for, or
the conversion of the Notes into, cash or shares, stock, debentures, debenture
stock or other obligations or securities of the Company or any other company
formed or to be formed, and for the appointment of a person with power on behalf
of the Noteholders to execute an instrument of transfer of the Notes held by
them in favour of the person to or with whom the Notes are to be sold or
exchanged (as the case may be);

 
16.1.3  
assent to any modification or abrogation of the provisions contained in this
instrument which shall be proposed by the Company and authorise the Company to
execute an instrument supplemental to the instrument embodying any such
modification or abrogation; and

 
16.1.4  
give any authority or sanction which under the provisions of this instrument is
required to be given by Special Resolution.

 
16.2  
No resolution shall be effective which would increase any obligation of the
Company under this instrument or postpone the due date for payment of any
principal or interest in respect of any Note without the prior written consent
of the Company.

 
17.  
Special resolution binding on all Noteholders

 
A Special Resolution, passed at a meeting of Noteholders duly convened and held
in accordance with the provisions of this schedule, shall be binding on all the
Noteholders whether or not present at such meeting and each of the Noteholders
shall be bound to give effect to such Special Resolution accordingly. The
passing of any such resolution shall be conclusive evidence that the
circumstances justify the passing of such Special Resolution.
 
18.  
Resolutions in writing

 
A resolution in writing signed by the holders of all of the Notes for the time
being outstanding who are for the time being entitled to receive notice of
meetings in accordance with the provisions contained in this instrument shall
for all purposes be as valid and effectual as a Special Resolution.  Such
resolution in writing may be contained in one document or in several documents
in like form each signed by one or more of the Noteholders.
 
19.  
Minutes of meetings

 
Minutes of all resolutions and proceedings at every such meeting of the
Noteholders shall be made and duly entered in books to be from time to time
provided for that purpose by the Company. Any minutes which purport to be signed
by the Chairman of the meeting at which such resolutions were passed or
proceedings held or by the Chairman of the next succeeding meeting of the
Noteholders shall be conclusive evidence of the matters contained in such
minutes. Unless the contrary is proved, every such meeting in respect of the
proceedings of which minutes have been made shall be deemed to have been duly
convened and held and all resolutions passed at such meetings to have been duly
passed.
 
 
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EXECUTED as a deed poll by
VICTORY ELECTRONIC CIGARETTES CORPORATION acting by a director, in the presence
of:
Signature
 
Director
 
Print name
 
 
Witness signature
   
Name (in BLOCK CAPITALS)
   
Address
       

 
 
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