Exhibit 10.1

PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 22nd day of October 2013
by and among Vapor Corp., a Nevada corporation (the “Company”), and the
Investors set forth on the signature pages affixed hereto (each an “Investor”
and collectively the “Investors”).

Recitals

A. The Company and the Investors are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by
Section 4(a)(2) of the 1933 Act (as defined below) and Rule 506 promulgated by
the U.S. Securities and Exchange Commission (the “SEC”) thereunder; and

B. The Investors wish to purchase from the Company, and the Company wishes to
sell and issue to the Investors, upon the terms and conditions stated in this
Agreement, (i) an aggregate of 16,666,667 shares of the Company’s Common Stock,
par value $0.001 per share (together with any securities into which such shares
may be reclassified, whether by merger, charter amendment or otherwise,
including without limitation the Reincorporation Transaction, the “Common
Stock”), at purchase price of $0.60 per share (the “Per Share Purchase Price”);
and

C. Contemporaneous with the sale of the Common Stock, the parties hereto, other
than any officers and directors of the Company purchasing Common Stock hereunder
(the “Insider Purchasers”), will execute and deliver a Registration Rights
Agreement, in the form attached hereto as Exhibit A (the “Registration Rights
Agreement”), pursuant to which the Company will agree to provide certain
registration rights under the 1933 Act, and the rules and regulations
promulgated thereunder, and applicable state securities laws.

In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Definitions. In addition to those terms defined above and elsewhere in this
Agreement, for the purposes of this Agreement, the following terms shall have
the meanings set forth below:

“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common Control with, such Person.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

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

“Company’s Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.

“Confidential Information” means trade secrets, confidential information and
know-how (including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

“Conversion Events” means the conversion of the Company’s (i) $300,000 Senior
Convertible Notes Due June 18, 2015 into an aggregate of 1,408,452 shares of
Common Stock, (ii) $50,000 Senior Convertible Note Due September 29, 2105 into
an aggregate of 208,333 shares of Common Stock, (iii) $500,000 Senior Note Due
April 22, 2016 into an aggregate of 833,308 shares of Common Stock,
(iv) $500,000 Senior Convertible Note Due January 28, 2016 into an aggregate of
833,333 shares of Common Stock, (v) $350,000 Senior Convertible Notes Due
July 8, 2016 into an aggregate of 583,333 shares of Common Stock and
(vi) $75,000 Senior Convertible Note Due July 10, 2016 into an aggregate of
125,000 shares of Common Stock, whereupon all such indebtedness shall be fully
extinguished and cease to be outstanding.

“Corporate Actions” means (i) the Reverse Stock Split and (ii) the
Reincorporation Transaction.

“Effective Date” means the date on which the initial Registration Statement is
declared effective by the SEC.

“Effectiveness Deadline” means the date on which the initial Registration
Statement is required to be declared effective by the SEC under the terms of the
Registration Rights Agreement.

“Intellectual Property” means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii) trademarks, service marks, trade
dress, trade names, corporate names, logos, slogans and Internet domain names,
together with all goodwill associated with each of the foregoing;
(iii) copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).

 

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“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries, taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.

“Material Contract” means any contract, instrument or other agreement to which
the Company or any Subsidiary is a party or by which it is bound which is
material to the business of the Company and its Subsidiaries, taken as a whole,
including those that have been filed or were required to have been filed as an
exhibit to the SEC Filings pursuant to Item 601(b)(4) or Item 601(b)(10) of
Regulation S-K.

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

“Placement Agent” means Roth Capital Partners, LLC.

“Purchase Price” means Ten Million and 20/100th Dollars ($10,000,000.20).

“Registration Statement” has the meaning set forth in the Registration Rights
Agreement.

“Reincorporation Deadline” has the meaning set forth in Section 7.9 hereof.

“Reincorporation Transaction” means the reincorporation of the Company into a
Delaware corporation through the merger of the Company with and into a newly
formed wholly owned Delaware Subsidiary of the Company with such Delaware
Subsidiary being the surviving or resulting corporation in such merger.

“Required Investors” means (i) prior to Closing the Investors who, together with
their Affiliates, have agreed to purchase a majority of the Shares to be sold
hereunder and (ii) from and after the Closing the Investors beneficially owning
(calculated in accordance with Rule 13d-3 under the 1934 Act) a majority of the
Shares.

“Reverse Split” means a reverse split of the outstanding Common Stock at a ratio
determined in good faith by the Company’s Board of Directors based on market
conditions and other factors it deems relevant and subject to the reasonable
approval of the SSF Investors; provided, however, that the split ratio shall be
sufficient to yield an immediate post-split adjusted price per share of Common
Stock of not less than 150% of the minimum bid price required to list the Common
Stock on The NASDAQ Capital Market.

“SEC Filings” has the meaning set forth in Section 4.6 hereof.

 

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“Shares” means the shares of Common Stock being purchased by the Investors
hereunder.

“Split Deadline” has the meaning set forth in Section 7.9 hereof.

“SSF Investors” means the Investors which are Affiliates of AWM Investment
Company.

“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.

“Transaction Documents” means this Agreement and the Registration Rights
Agreement.

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

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

2. Purchase and Sale of the Shares. Subject to the terms and conditions of this
Agreement, on the Closing Date, each of the Investors shall severally, and not
jointly, purchase, and the Company shall sell and issue to each Investor, the
number of Shares set forth opposite such Investor’s name on the signature pages
attached hereto in exchange for a cash purchase price equal to the Per Share
Purchase Price multiplied by such number of Shares, all as specified in
Section 3 below.

3. Closing. Unless other arrangements have been made by the Company with a
particular Investor, upon confirmation that the other conditions to closing
specified herein have been satisfied or duly waived by the Investors, the
Company shall deliver to Lowenstein Sandler LLP, in trust, a certificate or
certificates, registered in such name or names as the Investors may designate,
representing the Shares, with instructions that such certificates are to be held
for release to the Investors only upon payment in full of the Purchase Price to
the Company by all the Investors. Unless other arrangements have been made by
the Company with a particular Investor, upon such receipt by Lowenstein Sandler
LLP of the certificates, each Investor shall promptly, but no more than one
Business Day thereafter, cause a wire transfer in same day funds to be sent to
the account of the Company as instructed in writing by the Company, in an amount
representing such Investor’s pro rata portion of the Purchase Price as set forth
on the signature pages to this Agreement. On the date (the “Closing Date”) the
Company receives payment of the Purchase Price, the certificates evidencing the
Shares shall be released to the Investors (the “Closing”). The Closing of the
purchase and sale of the Shares shall take place at the offices of Lowenstein
Sandler LLP, 1251 Avenue of the Americas, 18th Floor, New York, New York 10020,
or at such other location and on such other date as the Company and the
Investors shall mutually agree.

 

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4. Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investors that, except as set forth in the schedules
delivered herewith (collectively, the “Disclosure Schedules”):

4. 1 Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to carry on its business as now
conducted and to own or lease its properties. Each of the Company and its
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property makes such qualification necessary unless the
failure to so qualify has not had and could not reasonably be expected to have a
Material Adverse Effect. The Company’s Subsidiaries are listed in the SEC
Filings.

4.2 Authorization. The Company has full power and authority and , except for
approval of the Corporate Transactions, as applicable, by its stockholders as
contemplated in Section 7.9 hereof and except for the actions to be taken after
Closing specified in Sections 7.7, 7.8 and 7.11 hereof, has taken all requisite
action on the part of the Company, its Board of Directors (the “Board”) and
stockholders necessary for (i) the authorization, execution and delivery of the
Transaction Documents, (ii) the authorization of the performance of all
obligations of the Company hereunder or thereunder, and (iii) the authorization,
issuance and delivery of the Shares. The Transaction Documents (upon delivery in
the case of the Registration Rights Agreement will) constitute the legal, valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally and to general equitable
principles.

4.3 Capitalization. Schedule 4.3 sets forth as of the date hereof (a) the
authorized capital stock of the Company; (b) the number of shares of capital
stock issued and outstanding; (c) the number of shares of capital stock reserved
for issuance pursuant to the Company’s stock plans; and (d) the number of shares
of capital stock issuable and reserved for issuance pursuant to securities
(other than the Shares) exercisable for, or convertible into or exchangeable for
any shares of capital stock of the Company. All of the issued and outstanding
shares of the Company’s capital stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of pre-emptive rights and were
issued in compliance with applicable state and federal securities law and any
rights of third parties. All of the issued and outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights, were issued in
compliance with applicable state and federal securities law and any rights of
third parties and are owned by the Company, beneficially and of record, subject
to no lien, encumbrance or other adverse claim. No Person is entitled to
pre-emptive or similar statutory or contractual rights with respect to any
securities of the Company. Except as described on Schedule 4.3, there are no
outstanding

 

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warrants, options, convertible securities or other rights, agreements or
arrangements of any character under which the Company or any of its Subsidiaries
is or may be obligated to issue any equity securities of any kind and except as
contemplated by this Agreement, neither the Company nor any of its Subsidiaries
is currently in negotiations for the issuance of any equity securities of any
kind. Except as described on Schedule 4.3 and except for the Registration Rights
Agreement, there are no voting agreements, buy-sell agreements, option or right
of first purchase agreements or other agreements of any kind among the Company
and any of the securityholders of the Company relating to the securities of the
Company held by them. Except as described on Schedule 4.3 and except as provided
in the Registration Rights Agreement, no Person has the right to require the
Company to register any securities of the Company under the 1933 Act, whether on
a demand basis or in connection with the registration of securities of the
Company for its own account or for the account of any other Person.

Except as required to consummate the Conversion Events or as described on
Schedule 4.3, the issuance and sale of the Shares hereunder will not obligate
the Company to issue shares of Common Stock or other securities to any other
Person (other than the Investors) and will not result in the adjustment of the
exercise, conversion, exchange or reset price of any outstanding security.

Except as described on Schedule 4.3, the Company does not have outstanding
stockholder purchase rights or “poison pill” or any similar arrangement in
effect giving any Person the right to purchase any equity interest in the
Company upon the occurrence of certain events.

4.4 Valid Issuance. The Shares have been duly and validly authorized and, when
issued and paid for pursuant to this Agreement, will be validly issued, fully
paid and nonassessable, and shall be free and clear of all encumbrances and
restrictions (other than those created by the Investors), except for
restrictions on transfer set forth in the Transaction Documents or imposed by
applicable securities laws.

4.5 Consents. Except for approval of the Corporate Actions, as applicable, by
its stockholders as contemplated in Section 7.9 hereof and except for the
actions to be taken after Closing specified in Sections 7.7, 7.8 and 7.11
hereof, the execution, delivery and performance by the Company of the
Transaction Documents and the offer, issuance and sale of the Shares require no
consent of, action by or in respect of, or filing with, any Person, governmental
body, agency, or official other than filings that have been made pursuant to
applicable state securities laws and post-sale filings pursuant to applicable
state and federal securities laws which the Company undertakes to file within
the applicable time periods. Subject to the accuracy of the representations and
warranties of each Investor set forth in Section 5 hereof, the Company has taken
all action necessary to exempt (i) the issuance and sale of the Shares and
(ii) the other transactions contemplated by the Transaction Documents from the
provisions of any stockholder rights plan or other “poison pill” arrangement,
any anti-takeover, business combination or control share law or statute binding
on the Company or to which the Company or any of its assets and properties may
be subject and any provision of the Company’s Articles of Incorporation or
Bylaws that is or could reasonably be expected to become applicable to the
Investors as a result of the transactions contemplated hereby, including without
limitation, the

 

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issuance of the Shares and the ownership, disposition or voting of the Shares by
the Investors or the exercise of any right granted to the Investors pursuant to
this Agreement or the other Transaction Documents.

4.6 Delivery of SEC Filings; Business. The Company has made available to the
Investors through the EDGAR system, true and complete copies of the Company’s
most recent Annual Report on Form 10-K for the fiscal year ended December 31,
2012 (the “10-K”), and all other reports filed by the Company pursuant to the
1934 Act since the filing of the 10-K and prior to the date hereof
(collectively, the “SEC Filings”). The SEC Filings are the only filings required
of the Company pursuant to the 1934 Act for such period. The Company and its
Subsidiaries are engaged in all material respects only in the business described
in the SEC Filings and the SEC Filings contain a complete and accurate
description in all material respects of the business of the Company and its
Subsidiaries, taken as a whole.

4.7 Use of Proceeds. The net proceeds of the sale of the Shares hereunder shall
be used by the Company for working capital and general corporate purposes.

4.8 No Material Adverse Change. Since December 31, 2012, except as described in
the SEC Filings or as disclosed on Schedule 4.8, there has not been:

(i) any change in the consolidated assets, liabilities, financial condition or
operating results of the Company from that reflected in the financial statements
included in the Company’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2013, except for changes in the ordinary course of business which have
not had and could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate;

(ii) any declaration or payment of any dividend, or any authorization or payment
of any distribution, on any of the capital stock of the Company, or any
redemption or repurchase of any securities of the Company;

(iii) any material damage, destruction or loss, whether or not covered by
insurance to any assets or properties of the Company or its Subsidiaries;

(iv) any waiver, not in the ordinary course of business, by the Company or any
Subsidiary of a material right or of a material debt owed to it;

(v) any satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company or a Subsidiary, except in the ordinary course
of business and which is not material to the assets, properties, financial
condition, operating results or business of the Company and its Subsidiaries
taken as a whole (as such business is presently conducted and as it is proposed
to be conducted);

(vi) any change or amendment to the Company’s Articles of Incorporation or
Bylaws, or material change to any material contract or arrangement by which the
Company or any Subsidiary is bound or to which any of their respective assets or
properties is subject;

 

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(vii) any material labor difficulties or labor union organizing activities with
respect to employees of the Company or any Subsidiary;

(viii) any material transaction entered into by the Company or a Subsidiary
other than in the ordinary course of business;

(ix) the loss of the services of any key employee, or material change in the
composition or duties of the senior management of the Company or any Subsidiary;

(x) the loss or threatened loss of any customer which has had or could
reasonably be expected to have a Material Adverse Effect; or

(xi) any other event or condition of any character that has had or could
reasonably be expected to have a Material Adverse Effect.

4.9 SEC Filings.

(a) At the time of filing thereof, the SEC Filings complied as to form in all
material respects with the requirements of the 1934 Act and did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.

(b) Each registration statement and any amendment thereto filed by the Company
since November 5, 2009 pursuant to the 1933 Act and the rules and regulations
thereunder (other than the Company’s Form S-8 registration filed with the SEC on
May 4, 2010 which it has since withdrawn), as of the date such statement or
amendment became effective, complied as to form in all material respects with
the 1933 Act and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein not misleading; and each prospectus filed
pursuant to Rule 424(b) under the 1933 Act, as of its issue date and as of the
closing of any sale of securities pursuant thereto did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.

4.10 No Conflict, Breach, Violation or Default. The execution, delivery and
performance of the Transaction Documents by the Company and the issuance and
sale of the Shares will not (i) conflict with or result in a breach or violation
of (a) any of the terms and provisions of, or constitute a default under the
Company’s Articles of Incorporation or the Company’s Bylaws, both as in effect
on the date hereof (true and complete copies of which have been made available
to the Investors through the EDGAR system or otherwise), or (b) any statute,
rule, regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company, any Subsidiary or any
of their respective assets or properties, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any lien, encumbrance or

 

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other adverse claim upon any of the properties or assets of the Company or any
Subsidiary or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any Material
Contract.

4.11 Tax Matters. The Company and each Subsidiary has timely prepared and filed
all tax returns required to have been filed by the Company or such Subsidiary
with all appropriate governmental agencies and timely paid all taxes shown
thereon or otherwise owed by it, except for those being contested in good faith
and for which adequate reserves have been established on the books of the
Company. The charges, accruals and reserves on the books of the Company in
respect of taxes for all fiscal periods are adequate in all material respects,
and there are no material unpaid assessments against the Company or any
Subsidiary nor, to the Company’s Knowledge, any basis for the assessment of any
additional taxes, penalties or interest for any fiscal period or audits by any
federal, state or local taxing authority except for any assessment which is not
material to the Company and its Subsidiaries, taken as a whole. All taxes and
other assessments and levies that the Company or any Subsidiary is required to
withhold or to collect for payment have been duly withheld and collected and
paid to the proper governmental entity or third party when due. There are no tax
liens or claims pending or, to the Company’s Knowledge, threatened against the
Company or any Subsidiary or any of their respective assets or property. Except
as described on Schedule 4.11, there are no outstanding tax sharing agreements
or other such arrangements between the Company and any Subsidiary or other
corporation or entity.

4.12 Title to Properties. Except as disclosed in the SEC Filings, the Company
and each Subsidiary has good and marketable title to all real properties and all
other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as disclosed in the SEC Filings, the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.

4.13 Certificates, Authorities and Permits. The Company and each Subsidiary
possess adequate certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now operated
by it, and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or such
Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.

4.14 Labor Matters.

(a) The Company is not a party to or bound by any collective bargaining
agreements or other agreements with labor organizations. The Company has not
violated in any material respect any laws, regulations, orders or contract
terms, affecting the collective bargaining rights of employees, labor
organizations or any laws, regulations or orders affecting employment
discrimination, equal opportunity employment, or employees’ health, safety,
welfare, wages and hours.

 

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(b) (i) There are no labor disputes existing, or to the Company’s Knowledge,
threatened, involving strikes, slow-downs, work stoppages, job actions,
disputes, lockouts or any other disruptions of or by the Company’s employees,
(ii) there are no unfair labor practices or petitions for election pending or,
to the Company’s Knowledge, threatened before the National Labor Relations Board
or any other federal, state or local labor commission relating to the Company’s
employees, (iii) no demand for recognition or certification heretofore made by
any labor organization or group of employees is pending with respect to the
Company and (iv) to the Company’s Knowledge, the Company enjoys good labor and
employee relations with its employees and labor organizations.

(c) The Company is, and at all times has been, in compliance in all material
respects with all applicable laws respecting employment (including laws relating
to classification of employees and independent contractors) and employment
practices, terms and conditions of employment, wages and hours, and immigration
and naturalization. There are no claims pending against the Company before the
Equal Employment Opportunity Commission or any other administrative body or in
any court asserting any violation of Title VII of the Civil Rights Act of 1964,
the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other
federal, state or local Law, statute or ordinance barring discrimination in
employment.

(d) Except as disclosed in the SEC Filings, the Company is not a party to, or
bound by, any employment or other contract or agreement that contains any
severance, termination pay or change of control liability or obligation,
including, without limitation, any “excess parachute payment,” as defined in
Section 280G(b) of the Internal Revenue Code.

(e) Each of the Company’s employees is a Person who is either a United States
citizen or a permanent resident entitled to work in the United States. To the
Company’s Knowledge, the Company has no liability for the improper
classification by the Company of such employees as independent contractors or
leased employees prior to the Closing.

4.15 Intellectual Property.

(a) All Intellectual Property owned by the Company or any of its Subsidiaries is
currently in compliance with all legal requirements (including timely filings,
proofs and payments of fees) and is valid and enforceable, except where any such
noncompliance, invalidity or lack of enforceability has not had and could not
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate. No Intellectual Property owned by the Company or any of its
Subsidiaries which is necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted has been or is now
involved in any cancellation, dispute or litigation, and, to the Company’s
Knowledge, no such action is threatened. No patent of the Company or its
Subsidiaries has been or is now involved in any interference, reissue,
re-examination or opposition proceeding.

 

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(b) All of the licenses and sublicenses and consent, royalty or other agreements
concerning Intellectual Property which are necessary for the conduct of the
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted to which the Company or any Subsidiary is a party or by which any of
their assets are bound (other than generally commercially available, non-custom,
off-the-shelf software application programs having a retail acquisition price of
less than $10,000 per license) (collectively, “License Agreements”) are valid
and binding obligations of the Company or its Subsidiaries that are parties
thereto and, to the Company’s Knowledge, the other parties thereto, enforceable
in accordance with their terms, except to the extent that enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of creditors’ rights
generally, and there exists no event or condition which will result in a
material violation or breach of or constitute (with or without due notice or
lapse of time or both) a default by the Company or any of its Subsidiaries under
any such License Agreement.

(c) The Company and its Subsidiaries own or have the valid right to use all of
the Intellectual Property that is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted and for
the ownership, maintenance and operation of the Company’s and its Subsidiaries’
properties and assets, free and clear of all liens, encumbrances, adverse claims
or obligations to license all such owned Intellectual Property and Confidential
Information, other than as described in the SEC Filings and licenses entered
into in the ordinary course of the Company’s and its Subsidiaries’ businesses.
To the Company’s Knowledge, the Company and its Subsidiaries have a valid and
enforceable right to use all third party Intellectual Property and Confidential
Information used or held for use in the respective businesses of the Company and
its Subsidiaries.

(d) The conduct of the Company’s and its Subsidiaries’ businesses as currently
conducted does not infringe or otherwise impair or conflict with (collectively,
“Infringe”) any Intellectual Property rights of any third party or any
confidentiality obligation owed to a third party, and, to the Company’s
Knowledge, the Intellectual Property and Confidential Information of the Company
and its Subsidiaries which are necessary for the conduct of Company’s and each
of its Subsidiaries’ respective businesses as currently conducted are not being
Infringed by any third party. Except as described in the SEC Filings, there is
no litigation or order pending or outstanding or, to the Company’s Knowledge,
threatened or imminent, that seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any Intellectual Property or
Confidential Information owned by the Company or any of its Subsidiaries and the
Company’s and its Subsidiaries’ use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company’s Knowledge, there is no
valid basis for the same.

(e) The consummation of the transactions contemplated by the Transaction
Documents will not result in the alteration, loss, impairment of or restriction
on the Company’s or any of its Subsidiaries’ ownership or right to use any of
the Intellectual Property or Confidential Information which is necessary for the
conduct of Company’s and each of its Subsidiaries’ respective businesses as
currently conducted.

 

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(f) The Company and its Subsidiaries have taken reasonable steps to protect the
Company’s and its Subsidiaries’ rights in their Intellectual Property and
Confidential Information. Each employee, consultant and contractor who has had
access to Confidential Information which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted has executed an agreement to maintain the confidentiality of such
Confidential Information and has executed appropriate agreements that are
substantially consistent with the Company’s standard forms thereof. Except under
confidentiality obligations, there has been no material disclosure of any of the
Company’s or its Subsidiaries’ Confidential Information to any third party.

4.16 Environmental Matters. Neither the Company nor any Subsidiary is in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws, is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, or is subject to any claim relating to any Environmental
Laws, which violation, contamination, liability or claim has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate; and there is no pending or, to the Company’s Knowledge, threatened
investigation that might lead to such a claim.

4.17 Litigation. Except as described in the SEC Filings or as disclosed on
Schedule 4.17, there are no pending actions, suits or proceedings against or
affecting the Company, its Subsidiaries or any of its or their properties; and
to the Company’s Knowledge, no such actions, suits or proceedings are threatened
or contemplated. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or since November 5, 2009 has been the subject of any action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty. There has not been, and to the
Company’s Knowledge, there is not pending or contemplated, any investigation by
the SEC involving the Company or any current or former director or officer of
the Company. The SEC has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the 1933 Act or the 1934 Act.

4.18 Financial Statements. The financial statements included in each SEC Filing
comply in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect thereto as in effect at the time
of filing (or to the extent corrected by a subsequent restatement) and present
fairly, in all material respects, the consolidated financial position of the
Company as of the dates shown and its consolidated results of operations and
cash flows for the periods shown, and such financial statements have been
prepared in conformity with United States generally accepted accounting
principles applied on a consistent basis (“GAAP”) (except as may be disclosed
therein or in the notes thereto, and, in the case of quarterly financial
statements, as permitted by Form 10-Q under the 1934 Act). Except as set forth
in the financial statements of the Company included in the SEC Filings filed
prior to the date hereof or as described on Schedule 4.18, neither the Company
nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course

 

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of business, consistent (as to amount and nature) with past practices since the
date of such financial statements, none of which, individually or in the
aggregate, have had or could reasonably be expected to have a Material Adverse
Effect.

4.19 Insurance Coverage. The Company and each Subsidiary maintains in full force
and effect insurance coverage that is customary for comparably situated
companies for the business being conducted and properties owned or leased by the
Company and each Subsidiary, and the Company reasonably believes such insurance
coverage to be adequate against all liabilities, claims and risks against which
it is customary for comparably situated companies to insure.

4.20 OTCQB. The Common Stock is registered pursuant to Section 12(g) of the 1934
Act and is quoted on OTCQB maintained by OTC Markets Group Inc. (the “OTCQB”),
and the Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the 1934 Act or
removal from quotation of the Common Stock from the OTCQB, nor has the Company
received any notification that the SEC, the OTCQB or the Financial Industry
Regulatory Authority, Inc. is contemplating terminating such registration or
quotation.

4.21 Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company, other than the
arrangements with the Placement Agent described in Schedule 4.21.

4.22 No Directed Selling Efforts or General Solicitation. Neither the Company
nor any Person acting on its behalf has conducted any general solicitation or
general advertising (as those terms are used in Regulation D) in connection with
the offer or sale of any of the Shares.

4.23 No Integrated Offering. Neither the Company nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section 4(a)(2) for the exemption from registration for the
transactions contemplated hereby or would require registration of the Shares
under the 1933 Act.

4.24 Private Placement. Subject to the accuracy of the Investors’
representations and warranties set forth in Section 5 hereof, the offer and sale
of the Shares to the Investors as contemplated hereby is exempt from the
registration requirements of the 1933 Act.

4.25 Questionable Payments. Neither the Company nor any of its Subsidiaries nor,
to the Company’s Knowledge, any of their respective current or former
stockholders, directors, officers, employees, agents or other Persons acting on
behalf of the Company or any Subsidiary, has on behalf of the Company or any
Subsidiary or in connection with their respective businesses: (a) used any
corporate funds for unlawful contributions, gifts,

 

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entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any governmental officials
or employees from corporate funds; (c) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company or any Subsidiary; or
(e) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment of any nature.

4.26 Transactions with Affiliates. Except as disclosed in the SEC Filings or as
disclosed on Schedule 4.26, none of the officers or directors of the Company
and, to the Company’s Knowledge, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary (other
than as holders of stock options and/or warrants, and for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the Company’s Knowledge, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

4.27 Internal Controls. The Company is in material compliance with the
provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the
Company. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in 1934
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including the Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which the
Company’s most recently filed periodic report under the 1934 Act, as the case
may be, is being prepared. The Company has established internal control over
financial reporting (as defined in 1934 Act Rules 13a-15(f) and 15d-15(f)) to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with GAAP. The Company’s certifying officers have evaluated the effectiveness of
the Company’s disclosure controls and procedures and the Company’s internal
control over financial reporting (collectively, “internal controls”) as of the
end of the period covered by the most recently filed periodic report under the
1934 Act (such date, the “Evaluation Date”). The Company presented in its most
recently filed periodic report under the 1934 Act the conclusions of the
certifying officers about the effectiveness of such internal controls based on
their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company’s internal controls or, to the
Company’s Knowledge, in other factors that could significantly affect the
Company’s internal controls. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
GAAP and the applicable requirements of the 1934 Act.

 

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4.28 Disclosures. Neither the Company nor any Person acting on its behalf has
provided the Investors or their agents or counsel with any information that
constitutes or might constitute material, non-public information, other than the
terms of the transactions contemplated hereby or pursuant to the terms of a
written non-disclosure agreement between the Company and a particular Investor.
The written materials delivered to the Investors in connection with the
transactions contemplated by the Transaction Documents do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading.

4.29 Investment Company. The Company is not required to be registered as, and is
not an Affiliate of, and immediately following the Closing will not be required
to register as, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.

5. Representations and Warranties of the Investors. Each of the Investors hereby
severally, and not jointly, represents and warrants to the Company that:

5.1 Organization and Existence. Such Investor is a validly existing corporation,
limited partnership or limited liability company and has all requisite
corporate, partnership or limited liability company power and authority to
invest in the Shares pursuant to this Agreement.

5.2 Authorization. The execution, delivery and performance by such Investor of
the Transaction Documents to which such Investor is a party have been duly
authorized and each (upon delivery in the case of the Registration Rights
Agreement will) constitute the valid and legally binding obligation of such
Investor, enforceable against such Investor in accordance with their respective
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability, relating to or affecting
creditors’ rights generally.

5.3 Purchase Entirely for Own Account. The Shares to be received by such
Investor hereunder will be acquired for such Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and such Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice, however, to such Investor’s right
at all times to sell or otherwise dispose of all or any part of such Shares in
compliance with applicable federal and state securities laws. Nothing contained
herein shall be deemed a representation or warranty by such Investor to hold the
Shares for any period of time. Such Investor is not a broker-dealer registered
with the SEC under the 1934 Act or an entity engaged in a business that would
require it to be so registered.

5.4 Investment Experience. Such Investor acknowledges that it can bear the
economic risk and complete loss of its investment in the Shares and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment contemplated hereby.

 

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5.5 Disclosure of Information. Such Investor has had an opportunity to receive
all information related to the Company requested by it and to ask questions of
and receive answers from the Company regarding the Company, its business and the
terms and conditions of the offering of the Shares. Such Investor acknowledges
receipt of copies of the SEC Filings. Neither such inquiries nor any other due
diligence investigation conducted by such Investor shall modify, limit or
otherwise affect such Investor’s right to rely on the Company’s representations
and warranties contained in this Agreement.

5.6 Restricted Securities. Such Investor understands that the Shares are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.

5.7 Legends. It is understood that, except as provided below, certificates
evidencing the Shares may bear the following or any similar legend:

(a) “The securities represented hereby have not been registered with the
Securities and Exchange Commission or the securities commission of any state in
reliance upon an exemption from registration under the Securities Act of 1933,
as amended, and, accordingly, may not be transferred unless (i) such securities
have been registered for sale pursuant to the Securities Act of 1933, as
amended, (ii) such securities may be sold pursuant to Rule 144, or (iii) the
Company has received an opinion of counsel reasonably satisfactory to it that
such transfer may lawfully be made without registration under the Securities Act
of 1933, as amended.”

(b) If required by the authorities of any state in connection with the issuance
of sale of the Shares, the legend required by such state authority.

5.8 Accredited Investor. Such Investor is an accredited investor as defined in
Rule 501(a) under the 1933 Act, as amended by the Dodd-Frank Wall Street Reform
and Consumer Protection Act.

5.9 No General Solicitation. Such Investor did not learn of the investment in
the Shares as a result of any general solicitation or general advertising.

5.10 Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of such Investor.

5.11 Prohibited Transactions. Since the earlier of (a) such time as such
Investor was first contacted by the Company or any other Person acting on behalf
of the Company regarding the transactions contemplated hereby or (b) thirty
(30) days prior to the date

 

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hereof, neither such Investor nor any Affiliate of such Investor which (x) had
knowledge of the transactions contemplated hereby, (y) has or shares discretion
relating to such Investor’s investments or trading or information concerning
such Investor’s investments, including in respect of the Shares, or (z) is
subject to such Investor’s review or input concerning such Affiliate’s
investments or trading (collectively, “Trading Affiliates”) has, directly or
indirectly, effected or agreed to effect any short sale, whether or not against
the box, established any “put equivalent position” (as defined in Rule 16a-1(h)
under the 1934 Act) with respect to the Common Stock, granted any other right
(including, without limitation, any put or call option) with respect to the
Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Shares (each, a “Prohibited Transaction”).
Prior to the earliest to occur of (i) the termination of this Agreement,
(ii) the Effective Date or (iii) the Effectiveness Deadline, such Investor shall
not, and shall cause its Trading Affiliates not to, engage, directly or
indirectly, in a Prohibited Transaction. Such Investor acknowledges that the
representations, warranties and covenants contained in this Section 5.11 are
being made for the benefit of the Investors as well as the Company and that each
of the other Investors shall have an independent right to assert any claims
against such Investor arising out of any breach or violation of the provisions
of this Section 5.11.

5.12 Placement Agent. Such Investor understands that the Placement Agent has
acted solely as the agent of the Company in this placement of the Shares, and
that the Placement Agent makes no representation or warranty with regard to the
merits of this transaction or as to the accuracy of any information such
Investor may have received in connection therewith. Such Investor acknowledges
that it has not relied on any information or advice furnished by or on behalf of
the Placement Agent.

6. Conditions to Closing.

6.1 Conditions to the Investors’ Obligations. The obligation of each Investor to
purchase the Shares at the Closing is subject to the fulfillment to such
Investor’s satisfaction, on or prior to the Closing Date, of the following
conditions, any of which may be waived by such Investor (as to itself only):

(a) The representations and warranties made by the Company in Section 4 hereof
qualified as to materiality shall be true and correct at all times prior to and
on the Closing Date, except to the extent any such representation or warranty
expressly speaks as of an earlier date, in which case such representation or
warranty shall be true and correct as of such earlier date, and, the
representations and warranties made by the Company in Section 4 hereof not
qualified as to materiality shall be true and correct in all material respects
at all times prior to and on the Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.

 

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(b) The Company shall have obtained any and all consents, permits, approvals,
registrations and waivers necessary or appropriate for consummation of the
purchase and sale of the Shares and the consummation of the other transactions
contemplated by the Transaction Documents, except for the actions to be taken
after Closing specified in Sections 7.7, 7.8 and 7.11 hereof and in the
Registration Rights Agreement, all of which shall be in full force and effect.

(c) The Company shall have executed and delivered the Registration Rights
Agreement.

(d) The Company shall have received gross proceeds from the sale of the Shares
as contemplated hereby of at least Ten Million Dollars ($10,000,000).

(e) The Conversion Events shall have been consummated on the terms described
herein.

(f) No judgment, writ, order, injunction, award or decree of or by any court, or
judge, justice or magistrate, including any bankruptcy court or judge, or any
order of or by any governmental authority, shall have been issued, and no action
or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents.

(g) The Company shall have delivered a Certificate, executed on behalf of the
Company by its Chief Executive Officer or its Chief Financial Officer, dated as
of the Closing Date, certifying to the fulfillment of the conditions specified
in subsections (a), (b), (d), (e), (f) and (j) of this Section 6.1.

(h) The Company shall have delivered a Certificate, executed on behalf of the
Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the Shares, certifying the current versions of the Articles
of Incorporation and Bylaws of the Company and certifying as to the signatures
and authority of persons signing the Transaction Documents and related documents
on behalf of the Company.

(i) The Investors shall have received an opinion from Greenberg Traurig, P.A.,
the Company’s counsel, dated as of the Closing Date, in form and substance
reasonably acceptable to the Investors and addressing such legal matters as the
Investors may reasonably request.

(j) No stop order or suspension of trading shall have been imposed by the SEC or
any other governmental or regulatory body with respect to public trading in the
Common Stock.

 

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6.2 Conditions to Obligations of the Company. The Company’s obligation to sell
and issue the Shares at the Closing is subject to the fulfillment to the
satisfaction of the Company on or prior to the Closing Date of the following
conditions, any of which may be waived by the Company:

(a) The representations and warranties made by the Investors in Section 5
hereof, other than the representations and warranties contained in Sections 5.3,
5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be
true and correct in all material respects on the date hereof, and shall be true
and correct in all material respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investment
Representations shall be true and correct in all respects on the date hereof,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date. The Investors
shall have performed in all material respects all obligations and covenants
herein required to be performed by them on or prior to the Closing Date.

(b) The Investors, other than the Insider Purchasers, shall have executed and
delivered the Registration Rights Agreement.

(c) The Investors shall have delivered the Purchase Price to the Company.

6.3 Termination of Obligations to Effect Closing; Effects.

(a) The obligations of the Company, on the one hand, and the Investors, on the
other hand, to effect the Closing shall terminate as follows:

(i) Upon the mutual written consent of the Company and the Investors;

(ii) By the Company if any of the conditions set forth in Section 6.2 shall have
become incapable of fulfillment, and shall not have been waived by the Company;

(iii) By an Investor (with respect to itself only) if any of the conditions set
forth in Section 6.1 shall have become incapable of fulfillment, and shall not
have been waived by the Investor; or

(iv) By either the Company or any Investor (with respect to itself only) if the
Closing has not occurred on or prior to 5:00 PM, New York Time, on the fifth
Business Day after the date of this Agreement;

provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party’s seeking to
terminate its obligation to effect the Closing.

 

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(b) In the event of termination by the Company or any Investor of its
obligations to effect the Closing pursuant to this Section 6.3, written notice
thereof shall forthwith be given by the Company to the other Investors or by
such terminating Investor to the Company and the other Investors, as applicable,
whereupon the terminating Investor, the remaining Investors and/or the Company,
as applicable, shall have the right to terminate their obligations to effect the
Closing upon written notice to the other parties hereto. Nothing in this
Section 6.3 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the
Registration Rights Agreement or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement
or the Registration Rights Agreement.

7. Covenants and Agreements of the Company.

7.1 Reports. The Company will furnish to the Investors and/or their assignees
such information relating to the Company and its Subsidiaries as from time to
time may reasonably be requested by the Investors and/or their assignees;
provided, however, that the Company shall not disclose material nonpublic
information to the Investors, or to advisors to or representatives of the
Investors, unless prior to disclosure of such information the Company identifies
such information as being material nonpublic information and provides the
Investors, such advisors and representatives with the opportunity to accept or
refuse to accept such material nonpublic information for review and any Investor
wishing to obtain such information enters into an appropriate confidentiality
agreement with the Company with respect thereto.

7.2 No Conflicting Agreements. The Company will not take any action, enter into
any agreement or make any commitment that would conflict or interfere in any
material respect with the Company’s obligations to the Investors under the
Transaction Documents.

7.3 Insurance. The Company shall not materially reduce the insurance coverages
described in Section 4.19.

7.4 Compliance with Laws. The Company will, and will cause each of its
Subsidiaries to, comply with all applicable laws, rules, regulations, orders and
decrees of all governmental authorities, except where the failure to so comply
does not or could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.

7.5 Termination of Covenants. The provisions of Sections 7.1 through 7.4 shall
terminate and be of no further force and effect on the date on which the
Company’s obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.

7.6 Removal of Legends. In connection with any sale or disposition of the Shares
by an Investor pursuant to Rule 144 or pursuant to any other exemption under the
1933 Act such that the purchaser acquires freely tradable shares and upon
compliance by the Investor with the requirements of this Agreement, the Company
shall cause the transfer agent for the Common Stock (the “Transfer Agent”) to
issue replacement certificates representing the Shares

 

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sold or disposed of without restrictive legends. Upon the earlier of
(i) registration for resale pursuant to the Registration Rights Agreement or
(ii) the Shares becoming freely tradable by a non-affiliate pursuant to Rule 144
the Company shall (A) deliver to the Transfer Agent irrevocable instructions
that the Transfer Agent shall reissue a certificate representing the Shares
without legends upon receipt by such Transfer Agent of the legended certificates
for such Shares, together with either (1) a customary representation by the
Investor that Rule 144 applies to the Shares represented thereby or (2) a
statement by the Investor that such Investor has sold the Shares represented
thereby in accordance with the Plan of Distribution contained in the
Registration Statement, and (B) cause its counsel to deliver to the Transfer
Agent one or more blanket opinions to the effect that the removal of such
legends in such circumstances may be effected under the 1933 Act. From and after
the earlier of such dates, upon an Investor’s written request in accordance with
the preceding sentence, the Company shall promptly cause certificates evidencing
the Investor’s Shares to be replaced with certificates which do not bear such
restrictive legends. When the Company is required to cause an unlegended
certificate to replace a previously issued legended certificate, if: (1) the
unlegended certificate is not delivered to an Investor within three (3) Business
Days of submission by that Investor of a legended certificate and supporting
documentation to the Transfer Agent as provided above and (2) prior to the time
such unlegended certificate is received by the Investor, the Investor, or any
third party on behalf of such Investor or for the Investor’s account, purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Investor of shares represented by such
certificate (a “Buy-In”), then the Company shall pay in cash to the Investor
(for costs incurred either directly by such Investor or on behalf of a third
party) the amount by which the total purchase price paid for Common Stock as a
result of the Buy-In (including brokerage commissions, if any) exceeds the
proceeds received by such Investor as a result of the sale to which such Buy-In
relates. The Investor shall provide the Company written notice indicating the
amounts payable to the Investor in respect of the Buy-In.

7.7 Listing of Common Stock and Related Matters. Promptly following the Closing
Date, the Company shall take all necessary action, including, subject to
Section 7.9, effecting the Reverse Split, to cause the Common Stock, including
the Shares, to be listed on The NASDAQ Capital Market as promptly as practicable
and in no event later than the nine-month anniversary of the Closing Date. Prior
to the time that the Common Stock is listed on The NASDAQ Capital Market, the
Company shall comply with NASDAQ’s Marketplace Rules as if such rules applied to
the Company (other than NASDAQ’s board composition, board committee, minimum bid
price and similar listing requirements). Once listed on The NASDAQ Capital
Market, the Company will use commercially reasonable efforts to continue the
listing and trading of its Common Stock on a stock market maintained by NASDAQ
and, in accordance, therewith, will use commercially reasonable efforts to
comply in all respects with the Company’s reporting, filing and other
obligations under NASDAQ’s bylaws or rules, as applicable.

7.8 Independent Board of Directors. As promptly as practicable and in no event
later than the 180th day after the Closing Date, the Company shall reconstitute
its Board of Directors (the “Board”) so that as so constituted, the Board shall
consist of not less than five members, a majority of whom shall qualify as an
“independent director” as defined in NASDAQ Marketplace Rule 5605(a)(2) and the
related NASDAQ interpretive guidance.

 

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7.9 Effectuation of Corporate Actions. (a) Promptly following the Closing Date,
the Company shall take all action necessary to (i) effectuate the Reverse Split
within 60 days following the Closing Date (the “Split Deadline”) and
(ii) effectuate the Reincorporation Transaction not later than December 31, 2013
(the “Reincorporation Deadline”). Without limiting the generality of the
foregoing, the Company shall take all action required under applicable law and
the Company’s Articles of Incorporation and Bylaws to obtain any required
approval of its stockholders for the Corporate Actions.

(b) Subject to the provisions of Section 7.9(c) hereof, the Company shall file a
preliminary information statement and, subject to the comments of the SEC, a
definitive information statement with the SEC under Section 14(c) of the 1934
Act and mail the definitive information statement to non-consenting stockholders
at least 20 calendar days before the earlier of the effectiveness of (i) the
Reverse Split (if the Company determines that stockholder approval is necessary
or desirable to effect the Reverse Split) or (ii) the Reincorporation
Transaction. The Company will comply with Section 14(c) of the 1934 Act and the
regulations promulgated thereunder in relation to any information statement it
files with the SEC under this subsection (b) (as amended or supplemented, the
“Information Statement”), and the Information Statement shall not, on the date
that the Information Statement (or any amendment thereof or supplement thereto)
is first made available to stockholders or on the date the Corporate Action(s)
included therein is to become effective, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein not false or misleading, or omit to state any material
fact necessary to correct any statement which has become false or misleading. If
the Company should discover at any time prior to the date the Corporate
Action(s) included in any such Information Statement, any event relating to the
Company or any of its Subsidiaries or any of their respective Affiliates,
officers or directors that is required to be set forth in a supplement or
amendment to the Information Statement, in addition to the Company’s obligations
under the 1934 Act, the Company will promptly inform the Investors thereof.

(c) The foregoing notwithstanding, the Company may, in its sole and absolute
discretion, obtain any required stockholder approval by convening a meeting of
its stockholders and soliciting proxies from its stockholders. In connection
therewith, the Company shall file a preliminary proxy statement and, subject to
the comments of the SEC, a definitive proxy statement with the SEC under
Section 14(a) of the 1934 Act and mail the definitive proxy statement to
stockholders no later than 30 calendar days before the earlier of the (i) the
Split Deadline (if the Company determines that stockholder approval is necessary
or desirable to effect the Reverse Split) or (ii) the Reincorporation Deadline.
The Company will comply with Section 14(a) of the 1934 Act and the regulations
promulgated thereunder in relation to any proxy statement it files with the SEC
under this subsection (c) (as amended or supplemented, the “Proxy Statement”)
and any form of proxy to be to the stockholders in connection with any such
stockholders’ meeting, and the Proxy Statement shall not, on the date that the
Proxy Statement (or any amendment thereof or supplement thereto) is first made
available to stockholders or at the time of the related stockholders’ meeting,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein not false or
misleading, or omit to state any material fact necessary to correct any
statement which has become false or misleading. If the Company should discover
at any time prior to the

 

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stockholders’ meeting to which such Proxy Statement relates, any event relating
to the Company or any of its Subsidiaries or any of their respective Affiliates,
officers or directors that is required to be set forth in a supplement or
amendment to the Proxy Statement, in addition to the Company’s obligations under
the 1934 Act, the Company will promptly inform the Investors thereof.

(d) Each Investor shall provide to the Company in writing such information
relating to such Investor and its investment in the Company as the Company may
reasonably request for inclusion in any information statement or proxy statement
prepared by the Company pursuant to this Section 7.9.

(e) Each Investor shall vote any Shares it continues to hold as of the relevant
record date in favor of the approval of the Reverse Split (to the extent
applicable) and the Reincorporation Transaction and shall, in connection
therewith, either execute an appropriate written consent or shall cause any such
Shares to be present and voted at any meeting of the stockholders of the Company
called for that purpose. Nothing in this Section 7.9(e) shall be construed to
prevent, limit or otherwise restrict an Investor’s right to transfer its Shares
or any portion thereof free and clear of any adverse claim or encumbrance,
subject to compliance with applicable securities laws.

7.10 Director Designee.

(a) So long as the SSF Investors beneficially own (as determined pursuant to
Rule 13d-3 under the 1934 Act) at least 50% of the Shares purchased by them
hereunder (appropriately adjusted for the Reverse Split and for any other stock
split, reverse stock split, stock dividend or other reclassification or
combination of the Common Stock occurring after the date hereof), the SSF
Investors shall have the right to designate one person for election to the Board
who shall qualify as an “independent director” as defined in NASDAQ Marketplace
Rule 5605(a)(2) and the related NASDAQ interpretive guidance, who shall in the
good faith judgment of the SSF Investors possess sufficient professional
experience, expertise and competence relative to the Company’s business (the
“SSF Designee”). The Company shall use its commercially reasonable efforts to
cause the SSF Designee to be elected to the Board. The SSF Investors shall have
the right to remove or replace any SSF Designee by giving notice to such SSF
Designee and the Company. The Company shall use its commercially reasonable
efforts to effect the removal or replacement of any such SSF Designee.

(b) Subject to any limitations imposed by applicable law or the NASDAQ
Marketplace Rules (to the extent applicable), the SSF Designee shall be entitled
to the same perquisites, including stock options, reimbursement of expenses and
other similar rights in connection with such person’s membership on the Board,
as every other “independent director” of the Company.

7.11 Incentive Shares. As promptly as practicable following the Closing and in
any event not later than 30 days after the Closing Date, the Company shall take
all action necessary to reduce the number of shares of Common Stock reserved for
issuance under its equity incentive plan from 40,000,000 shares to no more than
an aggregate of 9,000,000 shares

 

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(prior to giving effect to the Reverse Split). In no event shall the Company
have outstanding awards under its equity incentive plan(s) or otherwise covering
more than an aggregate of 9,000,000 shares of Common Stock (appropriately
adjusted for the Reverse Split and for any other stock split, reverse stock
split, stock dividend or other reclassification or combination of the Common
Stock occurring after the date hereof).

7.12 Subsequent Equity Sales.

(a) From the date hereof until ninety (90) days after the Closing Date, without
the consent of the Required Investors, neither the Company nor any Subsidiary
shall issue shares of Common Stock or Common Stock Equivalents. Notwithstanding
the foregoing, the provisions of this Section 7.12(a) shall not apply to (i) the
issuance of Common Stock or Common Stock Equivalents upon the conversion or
exercise of any securities of the Company or a Subsidiary outstanding on the
date hereof, provided that the terms of such security are not amended after the
date hereof to decrease the exercise price or increase the Common Stock or
Common Stock Equivalents receivable upon the exercise, conversion or exchange
thereof, other than as necessary to effect the Conversion Events, or
(ii) subject to compliance with the terms of Section 7.11, the issuance of any
Common Stock or Common Stock Equivalents pursuant to any Company equity
incentive plan approved by the Company’s stockholders and in place as of the
date hereof.

(b) From the date hereof until the earlier of (i) three years from the Closing
Date or (ii) such time as no SSF Investor holds any of the Shares, the Company
shall be prohibited from effecting or entering into an agreement to effect any
“Variable Rate Transaction”. The term “Variable Rate Transaction” shall mean a
transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B) with a conversion, exercise or exchange price that is subject to being reset
at some future date after the initial issuance of such debt or equity security
or upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined price.
For the avoidance of doubt, the issuance of a security which is subject to
customary anti-dilution protections, including where the conversion, exercise or
exchange price is subject to adjustment as a result of stock splits, reverse
stock splits and other similar recapitalization or reclassification events,
shall not be deemed to be a “Variable Rate Transaction.”

(c) The Company shall not, and shall use its commercially reasonable efforts to
ensure that no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the 1933 Act) that will be integrated with the offer or sale of the
Shares in a manner that would require the registration under the 1933 Act of the
sale of the Shares to the Investors, or that will be integrated with the offer
or sale of the Shares for purposes of the rules and regulations of any trading
market such that it would require stockholder approval prior to the closing of
such other transaction unless stockholder approval is obtained before the
closing of such subsequent transaction.

 

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7.13 Equal Treatment of Investors. No consideration shall be offered or paid to
any Person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration is also offered
to all of the parties to the Transaction Documents. For clarification purposes,
this provision constitutes a separate right granted to each Investor by the
Company and negotiated separately by each Investor, and is intended for the
Company to treat the Investors as a class and shall not in any way be construed
as the Investors acting in concert or as a group with respect to the purchase,
disposition or voting of Shares or otherwise.

8. Survival and Indemnification.

8.1 Survival. The representations, warranties, covenants and agreements
contained in this Agreement shall survive the Closing of the transactions
contemplated by this Agreement.

8.2 Indemnification. The Company agrees to indemnify and hold harmless each
Investor and its Affiliates and their respective directors, officers, trustees,
members, managers, employees and agents, and their respective successors and
assigns, from and against any and all losses, claims, damages, liabilities and
expenses (including without limitation reasonable attorney fees and
disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, “Losses”) to which such
Person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person.

8.3 Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder shall (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person unless
(a) the indemnifying party has agreed in writing to pay such fees or expenses,
or (b) the indemnifying party shall have failed to assume the defense of such
claim and employ counsel reasonably satisfactory to such person or (c) in the
reasonable judgment of any such person, based upon written advice of its
counsel, a conflict of interest exists between such person and the indemnifying
party with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate counsel
at the expense of the indemnifying party, the indemnifying party shall not have
the right to assume the defense of such claim on behalf of such person); and
provided, further, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
hereunder, except to the extent that such failure to give notice shall
materially adversely affect the indemnifying party in the defense of any such

 

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claim or litigation. It is understood that the indemnifying party shall not, in
connection with any proceeding in the same jurisdiction, be liable for fees or
expenses of more than one separate firm of attorneys at any time for all such
indemnified parties. No indemnifying party will, except with the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation.

9. Miscellaneous.

9.1 Successors and Assigns. This Agreement may not be assigned by a party hereto
without the prior written consent of the Company or the Investors, as
applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Shares in a transaction complying with
applicable securities laws without the prior written consent of the Company or
the other Investors. The provisions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties. Without limiting the generality of the foregoing, in the event that the
Company is a party to a merger, consolidation, share exchange or similar
business combination transaction in which the Common Stock is converted into the
equity securities of another Person, from and after the effective time of such
transaction, such Person shall, by virtue of such transaction, be deemed to have
assumed the obligations of the Company hereunder, the term “Company” shall be
deemed to refer to such Person and the term “Shares” shall be deemed to refer to
the securities received by the Investors in connection with such transaction.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

9.2 Counterparts. This Agreement may be executed and delivered (by facsimile,
PDF or other electronic transmission) in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

9.3 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

9.4 Notices. Any and all notices, consents or other communications (each, a
“notice”) required or permitted under this Agreement shall be given in writing
and shall be deemed effectively given as hereinafter described (i) upon
delivery, if given by personal delivery, (ii) the date of transmission, if given
by fax (provided that the sender receives electronic confirmation of successful
transmission at the fax number specified in this Section 9.4 prior to 5:00 P.M.,
New York City time, on a Business Day), (iii) the next Business Day after the
date of transmission, if given by fax at the fax number specified in this
Section 9.4 on a day that is not a Business Day or later than 5:00 P.M., New
York City time, on any Business Day, (iv) upon the earlier of (A) actual receipt
by the recipient or (B) three Business Days after deposit in first class mail,
postage prepaid, if given by mail, and (v) one Business Day after delivery to
such

 

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carrier, if given by an internationally recognized overnight air courier. All
notices shall be addressed to the party to be notified at the address as
follows, or at such other address as such party may designate by ten days’
advance written notice to the other party:

If to the Company:

Vapor Corp.

3001 Griffin Road

Dania Beach, FL 33312

Attention: Harlan Press, Chief Financial Officer

Fax: (888) 882-7095

With a copy to:

Greenberg Traurig, P.A.

333 SE 2nd Avenue, Suite 4400

Miami, FL 33131

Attention: Andrew E. Balog, Esq.

Fax: (305) 961-5642

If to the Investors:

to the addresses set forth on the signature pages hereto.

9.5 Expenses. The parties hereto shall pay their own costs and expenses in
connection herewith, except that the Company shall pay the reasonable fees and
expenses of Lowenstein Sandler LLP not to exceed $40,000, regardless of whether
the transactions contemplated hereby are consummated; it being understood that
Lowenstein Sandler LLP has only rendered legal advice to the SSF Investors and
not to the Company or any other Investor in connection with the transactions
contemplated hereby, and that each of the Company and each Investor has relied
for such matters on the advice of its own respective counsel. Such expenses
shall be paid upon written demand. The Company shall reimburse the Investors
upon demand for all reasonable out-of-pocket expenses incurred by the Investors,
including without limitation reimbursement of attorneys’ fees and disbursements,
in connection with any amendment, modification or waiver of this Agreement or
the Registration Rights Agreement. In the event that legal proceedings are
commenced by any party to this Agreement against another party to this Agreement
in connection with this Agreement or the Registration Rights Agreement, the
party or parties which do not prevail in such proceedings shall severally, but
not jointly, pay their pro rata share of the reasonable attorneys’ fees and
other reasonable out-of-pocket costs and expenses incurred by the prevailing
party in such proceedings.

9.6 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investors. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Shares purchased under this Agreement at the time outstanding, each future
holder of all such Shares, and the Company.

 

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9.7 Publicity. Except as set forth below, no public release or announcement
concerning the transactions contemplated hereby shall be issued by the Company
or the Investors without the prior consent of the Company (in the case of a
release or announcement by the Investors) or the Investors (in the case of a
release or announcement by the Company) (which consents shall not be
unreasonably withheld, delayed or conditioned), except as such release or
announcement may be required by applicable law, rule or regulation or the
applicable rules or regulations of any securities exchange or securities market,
in which case the Company or the Investors, as the case may be, shall allow the
Investors or the Company, as applicable, to the extent reasonably practicable in
the circumstances, reasonable time to comment on such release or announcement in
advance of such issuance. By 8:30 a.m. (New York City time) on the trading day
immediately following the Closing Date, the Company shall issue a press release
disclosing the consummation of the transactions contemplated by this Agreement.
No later than the fourth trading day following the Closing Date, the Company
will file a Current Report on Form 8-K attaching the press release described in
the foregoing sentence as well as copies of the Transaction Documents. In
addition, the Company will make such other filings and notices in the manner and
time required by the SEC or the OTCQB.

9.8 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.

9.9 Entire Agreement. This Agreement, including the Exhibits and the Disclosure
Schedules, and the Registration Rights Agreement constitute the entire agreement
among the parties hereof with respect to the subject matter hereof and thereof
and supersede all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof and thereof.

9.10 Further Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be
required to carry out the transactions contemplated hereby and to evidence the
fulfillment of the agreements herein contained.

9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
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Agreement and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the giving
of notices under this Agreement. Each of the parties hereto irrevocably consents
to the jurisdiction of any such court in any such suit, action or proceeding and
to the laying of venue in such court. Each party hereto irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding brought
in such courts and irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.

9.12 Independent Nature of Investors’ Obligations and Rights. The obligations of
each Investor under any Transaction Document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under any
Transaction Document. The decision of each Investor to purchase Shares pursuant
to the Transaction Documents has been made by such Investor independently of any
other Investor. Nothing contained herein or in any other Transaction Document,
and no action taken by any Investor pursuant thereto, shall be deemed to
constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Investor
acknowledges that no other Investor has acted as agent for such Investor in
connection with making its investment hereunder and that no Investor will be
acting as agent of such Investor in connection with monitoring its investment in
the Shares or enforcing its rights under the Transaction Documents. Each
Investor shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Document, and it shall not be necessary for any other
Investor to be joined as an additional party in any proceeding for such purpose.
The Company acknowledges that each of the Investors has been provided with the
same Transaction Documents for the purpose of closing a transaction with
multiple Investors and not because it was required or requested to do so by any
Investor.

9.13 Specific Performance; Injunctive Relief. The Company acknowledges that any
breach of Sections 7.7 through 7.12, inclusive, would cause the Investors
irreparable harm for which money damages would not be an adequate remedy.
Accordingly, in additional to any and all remedies available to the Investors at
law or in equity, the Company agrees that each Investor shall have the right to
specific performance by the Company of the Company’s obligations in Sections 7.7
through 7.12, inclusive, and shall have the right to temporary, preliminary and
permanent injunctive relief to prevent any breach or threatened breach by the
Company of those obligations. In no event shall any Investor be required to post
any bond or other security in connection with any such action for specific
performance or injunctive relief. In the event of any breach or threatened
breach by the Company of the Company’s obligations in Sections 7.7 through 7.12,
inclusive, the Company shall reimburse any Investor on demand for any and all
expenses reasonably incurred by it in enforcing its rights thereunder,
including, but not limited to, reasonable attorneys’ fees and expenses.

 

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[signature page follows]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.

 

The Company:     VAPOR CORP.     By:  

/s/ Harlan Press

    Name:   Harlan Press     Title:   Chief Financial Officer

 

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The Investors:     SPECIAL SITUATIONS FUND III QP, L.P.     By:  

/s/ David M. Greenhouse

    Name:   David M. Greenhouse     Title:   General Partner

Aggregate Purchase Price: $3,500,000.40

Number of Shares: 5,833,334

 

Address for Notice:             527 Madison Avenue       Suite 2600       New
York, NY 10022       with a copy to:       Lowenstein Sandler LLP       65
Livingston Avenue       Roseland, NJ 07068       Attn: John D. Hogoboom, Esq.  
    Telephone:    973.597.2500 :       Facsimile:      973.597.2400

 

    SPECIAL SITUATIONS CAYMAN FUND, L.P.     By:  

/s/ David M. Greenhouse

    Name:   David M. Greenhouse     Title:   General Partner

Aggregate Purchase Price: $1,000,000.20

Number of Shares: 1,666,667

Address for Notice:

 

      527 Madison Avenue       Suite 2600       New York, NY 10022

 

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      with a copy to:       Lowenstein Sandler LLP       65 Livingston Avenue  
    Roseland, NJ 07068       Attn: John D. Hogoboom, Esq.      
Telephone:    973.597.2500       Facsimile:     973.597.2400

 

    SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.     By:  

/s/ David M. Greenhouse

    Name:   David M. Greenhouse     Title:   General Partner

Aggregate Purchase Price: $500,000.40

Number of Shares: 833,334

 

      527 Madison Avenue       Suite 2600       New York, NY 10022       with a
copy to:       Lowenstein Sandler LLP       65 Livingston Avenue       Roseland,
NJ 07068       Attn: John D. Hogoboom, Esq.       Telephone:     973.597.2500  
    Facsimile:      973.597.2400

 

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Kevin Frija

    NAME OF INVESTOR     By:  

/s/ Kevin Frija

    Name:   Kevin Frija     Title:   Individual

Aggregate Purchase Price: $60,000

Number of Shares: 100,000

 

      Address for Notice:       c/o Vapor Corp       3001 Griffin Road      
Dania Beach, FL 33312       Attn: Kevin Frija

 

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Jeffrey Holman

    NAME OF INVESTOR     By:  

/s/ Jeffrey Holman

    Name:   Jeffrey Holman     Title:   Individual

Aggregate Purchase Price: $120,000

Number of Shares: 200,000

 

      Address for Notice:       c/o Vapor Corp       3001 Griffin Road      
Dania Beach, FL 33312       Attn: Jeffrey Holman

 

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Doron Ziv

    NAME OF INVESTOR     By:  

/s/ Doron Ziv

    Name:   Doron Ziv     Title:   Individual

Aggregate Purchase Price: $60,000

Number of Shares: 100,000

 

      Address for Notice:       c/o Vapor Corp       3001 Griffin Road      
Dania Beach, FL 33312       Attn: Doron Ziv

 

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Isaac Galazan

    NAME OF INVESTOR     By:  

/s/ Isaac Galazan

    Name:   Isaac Galazan     Title:   Individual

Aggregate Purchase Price: $51,500.40

Number of Shares: 85,834

 

      Address for Notice:       c/o Vapor Corp       3001 Griffin Road      
Dania Beach, FL 33312       Attn: Isaac Galazan

 

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Harlan Press

    NAME OF INVESTOR     By:  

/s/ Harlan Press

    Name:   Harlan Press     Title:   Individual

Aggregate Purchase Price: $60,000

Number of Shares: 100,000

 

      Address for Notice:       c/o Vapor Corp       3001 Griffin Road      
Dania Beach, FL 33312       Attn: Harlan Press

 

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BTG Investments, LLC

    NAME OF INVESTOR     By:  

/s/ Gordon J. Roth

    Name:   Gordon J. Roth     Title:   Member

Aggregate Purchase Price: $351,500.40

Number of Shares: 585,834

 

      Address for Notice:      

BTG Investments, LLC

c/o Roth Capital Partners

      888 San Clemente Drive, Suite 400       Newport Beach, CA 92660      
Attn: Gordon Roth       T: 949-720-5774       F: 949-720-7227

 

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The Perritt Ultra Microcap Fund, Inc.

    NAME OF INVESTOR     By:  

/s/ Michael Corbett

    Name:   Michael Corbett     Title:   President & Portfolio Manager

Aggregate Purchase Price: $600,000

Number of Shares: 1,000,000

 

      Address for Notice:       The Perritt Ultra Microcap Fund, Inc.      
Attn: Michael Corbett       300 S. Wacker Dr. Ste #2880       Chicago, IL 60606

 

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Pinnacle Family Office Investments, L.P.

    NAME OF INVESTOR     By:  

/s/ Barry M. Kitt

    Name:   Barry M. Kitt     Title:   Manager, Pinnacle Family Office, L.L.C.  
  The General Partner of Pinnacle Family Office Investments, L.P.     dba
Pinnacle III Investments

Aggregate Purchase Price: $600,000

Number of Shares: 1,000,000

 

      Address for Notice:       Pinnacle Family Office Investments, L.P.      
4965 Preston Park Blvd. Ste 240       Plano, TX 75093

 

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Diker Mico-Cap Fund LP

    NAME OF INVESTOR     By:  

/s/ Ken Brower

    Name:   Ken Brower     Title:   CFO

Aggregate Purchase Price: $499,999.80

Number of Shares: 833,333

 

      Address for Notice:       c/o Diker Management LLC       730 Fifth Avenue
15th flr       New York, NY 10019       Attn: Ken Brower

 

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Granite Point Capital Master Fund, L.P.

    NAME OF INVESTOR     By:  

/s/ C. David Bushley

    Name:   C. David Bushley     Title:   Chief Operating Officer       Granite
Point Capital Management, L.P.       The Investment Manager

Aggregate Purchase Price: $500,000

Number of Shares: 833,333

 

      Address for Notice:       C. David Bushley       Chief Operating Officer  
    Granite Point Capital Management, L.P.       109 State Street, 5th floor    
  Boston, MA 02109

 

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Iroquois Master Fund Ltd

    NAME OF INVESTOR     By:  

/s/ Joshua Silverman

    Name:   Joshua Silverman     Title:   Authorized Signatory

Aggregate Purchase Price: $375,000

Number of Shares: 625,000

 

      Address for Notice:       c/o Iroquois Capital Management LLC       641
Lexington Ave, 26th Fl.       New York, NY 10022

 

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Bristol Investment Fund, Ltd.

    NAME OF INVESTOR     By:  

/s/ Paul Kessler

    Name:   Paul Kessler     Title:   Director

Aggregate Purchase Price: $300,000

Number of Shares: 500,000

 

      Address for Notice:       c/o Bristol Capital Advisors, LLC       Glendon
Plaza       1100 Glendon Avenue, Suite 850       Los Angeles, California 90024

 

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Mark A Mays

    NAME OF INVESTOR     By:  

/s/ Mark A Mays

    Name:   Mark A Mays     Title:   Self

Aggregate Purchase Price: $249,999.60

Number of Shares: 416,666

 

      Address for Notice:       24 Tall Pines Dr       Weston, CT 06883

 

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Sterneck Value & Opportunity Fund L.P

    NAME OF INVESTOR     By:  

/s/ Alec Bethurun

    Name:   Alec Bethurun     Title:   Sr. Portfolio Mgr

Aggregate Purchase Price: $225,000

Number of Shares: 375,000

 

      Address for Notice:       4510 Belleview Ave, Ste 204       Kansas City,
MO 64111

 

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Regan Ervin

    NAME OF INVESTOR     By:  

/s/ Regan Ervin

    Name:   Regan Ervin     Title:   Sr. Portfolio Mgr

Aggregate Purchase Price: $24,999.60

Number of Shares: 41,666

 

      Address for Notice:       4510 Belleview Ave, Ste 204       Kansas City,
MO 64111

 

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Hartz Capital Investments, LLC

   

By: Empery asset Management, LP, its authorized agent

   

By: Empery AM GP, LLC

    NAME OF INVESTOR     By:  

/s/ Ryan M. Lane

    Name:   Ryan M. Lane     Title:   Managing Member

Aggregate Purchase Price: $120,000

Number of Shares: 200,000

 

      Address for Notice:       Empery Asset Management, LP       1 Rockefeller
Plaza, Suite 1205       New York, NY 10020

 

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Empery Asset Master, Ltd

   

By: Empery asset Management, LP, its authorized agent

   

By: Empery AM GP, LLC

    NAME OF INVESTOR     By:  

/s/ Ryan M. Lane

    Name:   Ryan M. Lane     Title:   Managing Member

Aggregate Purchase Price: $120,000

Number of Shares: 200,000

 

      Address for Notice:       Empery Asset Management, LP       1 Rockefeller
Plaza, Suite 1205       New York, NY 10020

 

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Jalu Capital Partners LP

    NAME OF INVESTOR     By:  

/s/ Mark Fain

    Name:   Mark Fain     Title:   General Partner

Aggregate Purchase Price: $102,000

Number of Shares: 170,000

 

      Address for Notice:       39 Hewlett Lane       Port Washington, NY 11050

 

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Capital Venture International

   

By: Heights capital Management, Inc.

   

Its authorized agent

    NAME OF INVESTOR     By:  

/s/ Martin Kobinger

    Name:   Martin Kobinger     Title:   Investment Manager

Aggregate Purchase Price: $150,000

Number of Shares: 250,000

 

      Address for Notice:       c/o Heights Capital Management       101
California Street, Suite 3250       San Francisco, CA 94111

 

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Safron Capital Corp

    NAME OF INVESTOR     By:  

/s/ Rina Rollhaus

    Name:   Rina Rollhaus     Title:   President

Aggregate Purchase Price: $49,999.80

Number of Shares: 83,333

 

      Address for Notice:       Safron Capital Corp.       1040 1st Avenue,
Suite 190       New York, NY 10022       Attn: Rina Rollhaus

 

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FireRock Global Opportunities Fund L.P.

    NAME OF INVESTOR     By:  

/s/ Neil Rock

    Name:   Neil Rock     Title:   Partner

Aggregate Purchase Price: $75,000

Number of Shares: 125,000

 

      Address for Notice:       FireRock Global Opportunities Fund L.P.      
1040 1st Avenue, Suite 190       New York, NY 10022       Attn: Neil Rock

 

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David Weiner

    NAME OF INVESTOR     By:  

/s/ David Weiner

    Name:   David Weiner     Title:   Individual

Aggregate Purchase Price: $90,000

Number of Shares: 150,000

 

      Address for Notice:       12400 Ventura Blvd #327       Studio City, CA
91204

 

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Steven Myers

    NAME OF INVESTOR     By:  

/s/ Steven Myers

    Name:   Steven Myers     Title:   Individual

Aggregate Purchase Price: $90,000

Number of Shares: 150,000

 

      Address for Notice:

 

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Keith M. Canning

    NAME OF INVESTOR     By:  

/s/ Foster A. Stewart, Jr., attorney-in-fact

    Name:   Foster A. Stewart     Title:   Individual

Aggregate Purchase Price: $50,000

Number of Shares: 83,333

 

      Address for Notice:       Keith M. Canning       126 Hersey Street      
Portland, ME 04103

 

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Ikona Global Partners

    NAME OF INVESTOR     By:  

/s/ Richard Calta

    Name:   Richard Calta     Title:   Director

Aggregate Purchase Price: $30,000

Number of Shares: 50,000

 

      Address for Notice:       c/o Ikona Capital       5010 E Shea Blvd      
Suite D200       Scottsdale, AZ 85254

 

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John Weber

    NAME OF INVESTOR     By:  

/s/ John Weber

    Name:   John Weber     Title:   M.D., CES

Aggregate Purchase Price: $30,000

Number of Shares: 50,000

 

      Address for Notice:       c/o Roth Capital Partners       888 San Clemente
Drive, Suite 400       Newport Beach, CA 92660       Attn: John Weber

 

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The Alfie Trust d/o/e 05-10-12

    NAME OF INVESTOR     By:  

/s/ Douglas Gold

    Name:   Douglas Gold     Title:   Trustee

Aggregate Purchase Price: $15,000

Number of Shares: 25,000

 

      Address for Notice:       The Alfie Trust d/o/e 05-10-12       15501
Morrison Street       Sherman Oaks, CA 91403       Attn: Douglas Gold, Trustee

 

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DISCLOSURE SCHEDULES

These Disclosure Schedules of Vapor Corp., a Nevada corporation (the “Company”),
to the Purchase Agreement (the “Agreement”), dated as of October 22, 2013, among
the Company and the Investors (as such term is defined in the Agreement),
contains certain information and disclosures in connection with Section 4 of the
Agreement. Capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Agreement.

The Investors acknowledge and agree that all representations and warranties made
by the Company in the Agreement are subject to the exceptions set forth in these
Disclosure Schedules. These Disclosure Schedules are arranged in Sections
corresponding to the Sections contained in Section 4 of the Agreement. If a
document or matter is disclosed in a Section of these Disclosure Schedules, it
shall be deemed to be disclosed for purposes of any Section of Section 4 of the
Agreement provided that the relevance of the disclosure to such Section of the
Agreement is reasonably apparent on the face of the disclosure.

The disclosure of a document or matter on these Disclosure Schedules is not
intended as a representation or warranty as to the material nature of such
document or matter, nor does it establish any standard of materiality upon which
to judge the inclusion or omission of other documents or matters in these
Disclosure Schedules, or constitute an admission of breach, liability, guilt,
violation or delinquency with respect to any contract, law or otherwise.
Summaries of, or references to, actual documents are qualified in their entirety
by reference to such documents.

Headings are inserted for convenience only and shall not affect the construction
of these Disclosure Schedules or the Agreement.

Section 4.3-Capitalization

 

  (a) the authorized capital stock of the Company:

Preferred stock, $.001 par value, 1,000,000 shares authorized

Common stock, $.001 par value, 250,000,000 shares authorized

 

  (b) the number of shares of capital stock issued and outstanding:

Preferred stock, $.001 par value, none outstanding

Common stock, $.001 par value, 60,372,344 outstanding

 

  (c) the number of shares of capital stock reserved for issuance pursuant to
the Company’s stock plans:

 

  (i) 40,000,000 shares of Common Stock reserved for issuance under the
Company’s existing equity incentive plan

 

  (ii) 4,500,000 shares of Common Stock reserved for issuance under outstanding
stock options granted outside of the equity incentive plan

 

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  (d) the number of shares of capital stock issuable and reserved for issuance
pursuant to securities (other than the Shares) exercisable for, or convertible
into or exchangeable for any shares of capital stock of the Company:

 

  (i) $300,000 Senior Convertible Notes Due June 18, 2015 into an aggregate of
1,408,452 shares of Common Stock

 

  (ii) $50,000 Senior Convertible Note Due September 29, 2015 into an aggregate
of 208,333 shares of Common Stock

 

  (iii) $500,000 Senior Note Due April 22, 2016 into an aggregate of 833,308
shares of Common Stock

 

  (iv) $500,000 Senior Convertible Note Due January 28, 2016 into an aggregate
of 833,333 shares of Common Stock

 

  (v) $350,000 Senior Convertible Notes Due July 8, 2016 into an aggregate of
583,333 shares of Common Stock

 

  (vi) $75,000 Senior Convertible Note Due July 10, 2016 into an aggregate of
125,000 shares of Common Stock

 

  (vii) 5,521,000 shares of Common Stock for outstanding stock options granted
under the stock plans referenced in item (c) above.

Section 4.8-No Material Adverse Change

None.

Section 4.11-Taxes

None.

Section 4.17-Litigation

None, except as described in the SEC Filings.

Section 4.18-Financial Statements

Factoring Facility

On August 8, 2013, the Company and its Subsidiary Smoke Anywhere USA, Inc.
(“Smoke”) entered into a spot accounts receivable factoring facility (the
“Factoring Facility”) with Entrepreneur Growth Capital, LLC (the “Lender”)
pursuant to an Invoice Purchase and Sale Agreement, dated August 8, 2013, by and
among them (the “Factoring Agreement”).

The Factoring Facility has an initial term of one year and automatically renews
from month to month thereafter subject to the Company terminating it earlier
upon at least 15 business days’ advance written notice provided that all
obligations are paid (including a termination fee, if applicable, as specified
in the Factoring Agreement). The

 

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Factoring Facility is secured by a security interest in substantially all of the
Company’s assets. Under the terms of the Factoring Agreement, the Lender may, at
its sole discretion, purchase certain of the Company’s eligible accounts
receivable. Upon any acquisition of an account receivable, the Lender will
advance to the Company up to 50% of the face amount of the account receivable.
Each account receivable purchased by the Lender will be subject to a factoring
fee of 1% of the gross face amount of such purchased account for each 30 day
period (or part thereof) the purchased account remains unpaid. The Lender will
generally have full recourse against the Company in the event of nonpayment of
any such purchased account.

The Factoring Agreement contains covenants that are customary for agreements of
this type. The failure to satisfy covenants under the Factoring Agreement or the
occurrence of other specified events that constitute an event of default could
result in the termination of the Factoring Facility and/or the acceleration of
the repayment obligations of the Company. The Factoring Agreement contains
provisions relating to events of default that are customary for agreements of
this type.

Each of the Company’s Chief Executive Officer and Chief Financial Officer have
personally guaranteed performance of certain of the Company’s obligations under
the Factoring Agreement. In consideration of the Company’s Chief Financial
Officer Harlan Press personally guaranteeing certain of the Company’s
obligations under the Factoring Agreement, the Company has agreed to amend
Mr. Press’s employment agreement dated February 27, 2012 effective as of the
date of the Factoring Agreement as follows: (i) the initial term of employment
(through February 28, 2015) shall automatically renew for successive one-year
periods so long as Mr. Press’s personal guarantee of the Factoring Agreement
remains in full force and effect (provided that the initial term or any renewal
term may be terminated (a) upon Mr. Press’s death or (b) by the Company for
cause (as defined in the employment agreement) or (c) by Mr. Press either
(x) for good reason (as defined in the employment agreement) or (y) without good
reason), (ii) if Mr. Press’s personal guarantee of the Factoring Agreement is
enforced against him then all of his stock options to the extent then unvested
shall automatically vest in full on the date of such enforcement, (iii) the
Company may not terminate Mr. Press’s employment for disability or without cause
so long as his personal guarantee of the Factoring Agreement remains in full
force and effect and (iv) the Company shall indemnify Mr. Press against all
losses, claims, expenses and other liabilities of any nature arising out of or
relating to enforcement of his personal guarantee of the Factoring Agreement,
and such indemnification shall survive until such time Mr. Press has been
permanently and unconditionally released from his personal guarantee of the
Factoring Agreement.

The foregoing description of the Factoring Facility (including the Factoring
Agreement) is not complete and is qualified in its entirety by reference to the
full text of the Factoring Agreement, a copy of which is listed as an exhibit to
the Company’s Current Report on Form 8-K dated August 8, 2013, as filed with the
SEC on August 13, 2013.

 

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Term Loan

On August 16, 2013, the Company and Smoke entered into a $750,000 term loan (the
“Term Loan”) with the Lender pursuant to a Credit Card Receivables Advance
Agreement, dated August 16, 2013, by and among them (the “Term Agreement”).

The Term Loan matures on August 15, 2014 (or earlier generally upon termination
of the Factoring Agreement), is payable from the Company’s current and future
merchant credit card receivables at the annual rate of 16% subject to the Lender
retaining a daily fixed amount of $3,346.15 from the daily collection of the
merchant credit card receivables and is secured by a security interest in
substantially all of the Company’s assets. The Company used the proceeds of the
Term Loan for working capital purposes.

The Term Agreement contains covenants that are customary for agreements of this
type. The failure to satisfy covenants under the Term Agreement or the
occurrence of other specified events that constitute an event of default could
result in the termination of the Term Agreement (as well as the Factoring
Agreement) and/or the acceleration of the repayment of the Term Loan and the
other obligations of the Company (including the Factoring Facility). The Term
Agreement contains provisions relating to events of default that are customary
for agreements of this type.

Each of the Company’s Chief Executive Officer and Chief Financial Officer have
personally guaranteed performance of certain of the Company’s obligations under
the Term Agreement. They also previously personally guaranteed performance of
certain of the Company’s obligations under the Factoring Agreement.

The foregoing description of the Term Loan (including the Term Agreement) is not
complete and is qualified in its entirety by reference to the full text of the
Term Agreement, a copy of which is listed as an exhibit to the Company’s Current
Report on Form 8-K dated August 16, 2013, as filed with the Securities and
Exchange Commission on August 19, 2013.

Section 4.21-Brokers and Finders

The Placement Agent is entitled to a placement agent fee equal to 6% of the
total gross proceeds received by the Company from the sale of the Shares
pursuant to the Purchase Agreement (provided that a portion of such fee may
reduced to 5% under certain circumstances).

Section 4.26-Transactions with Affiliates

None, except as described in the SEC Filings.

 

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