Exhibit 10.1


 


Securities
Purchase Agreement


 





This
Securities Purchase Agreement (this "Agreement"), dated as of December 3, 2014, is entered into by and
between Vape Holdings, Inc., a Delaware corporation ("Company"),
and Typenex Co-Investment, LLC, a Utah limited liability company, its successors
and/or assigns ("Investor").




 


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


 


B.Investor
desires to purchase and Company desires to issue and sell, upon the terms and conditions set forth in this Agreement, an Unsecured
Convertible Promissory Note, in the form attached hereto as Exhibit A, in the original principal amount of $560,000.00
(the "Note"), convertible into shares of common stock, $0.00001 par value per share, of Company (the "Common
Stock"), upon the terms and subject to the limitations and conditions set forth in such Note.


 


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


 


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


 


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


 


1.      Purchase
and Sale of Securities.


 


1.1.Purchase
of Securities. Company shall issue and sell to Investor and Investor agrees to purchase from Company the Note. In consideration
thereof, investor shall pay the amount designated as the cash purchase price on Investor's signature page to this Agreement (the
"Purchase Price").


 


1.2.Form
of Payment. On the Closing Date, (i) Investor shall pay the Purchase Price to Company by delivering the Purchase Price by
wire transfer of immediately available funds to Company, in accordance with Company's written wiring instructions; and (ii) Company
shall deliver the duly executed Note on behalf of Company, to Investor, against delivery of such Purchase Price.


 


1.3.Closing
Date. Subject to the satisfaction (or written waiver) of the conditions set forth in Section 5 and Section 6 below, the date
and time of the issuance and sale of the Securities pursuant to this Agreement (the "Closing Date") shall be
5:00 p.m., Eastern Time on or about December 3, 2014, or such other mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "Closing") shall occur on the Closing Date at the offices of Investor unless
otherwise agreed upon by the parties.


 


1.4.Original
Issue Discount: Transaction Expenses. The Note carries an original issue discount of $50,000.00 (the "OlD").
In addition, Company agrees to pay $10,000.00 to Investor to cover Investor's legal fees, accounting costs, due diligence, monitoring
and other transaction costs incurred in connection with the purchase and sale of the Securities (the "Transaction Expense
Amount"), all of which amount is included in the initial principal balance of the Note. The Purchase Price, therefore,
shall be $500,000.00, computed as follows: $560,000.00 original principal balance, less the OID, less the Transaction Expense
Amount.


 






    	 



    	 



    

 





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


 


3.      Representations
and Warranties of Company. Company represents and warrants to Investor that: (i) Company is a corporation duly organized,
validly existing and in good standing under the laws of its state of incorporation and has the requisite corporate power to own
its properties and to carry on its business as now being conducted; (ii) Company is duly qualified as a foreign corporation to
do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes
such qualification necessary; (iii) Company has registered its Common Stock under Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and is obligated to file reports pursuant to Section 13 or Section I5(d)
of the 1934 Act; (iv) each of the Transaction Documents and the transactions contemplated hereby and thereby, have been duly and
validly authorized by Company; (v) this Agreement, the Note, and the other Transaction Documents have been duly executed and delivered
by Company and constitute the valid and binding obligations of Company enforceable in accordance with their terms, subject as
to enforceability only to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting
the enforcement of creditors' rights generally; (vi) the execution and delivery of the Transaction Documents by Company, the issuance
of Securities in accordance with the terms hereof, and the consummation by Company of the other transactions contemplated by the
Transaction Documents do not and will not conflict with or result in a breach by Company of any of the terms or provisions of,
or constitute a default under (a) Company's formation documents or bylaws, each as currently in effect, (b) any indenture, mortgage,
deed of trust, or other material agreement or instrument to which Company is a party or by which it or any of its properties or
assets are bound, including any listing agreement for the Common Stock, or (c) to Company's knowledge, any existing applicable
law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory
body, administrative agency, or other governmental body having jurisdiction over Company or any of Company's properties or assets;
(vii) no further authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization,
or stock exchange or market or the stockholders or any lender of Company is required to be obtained by Company for the issuance
of the Securities to Investor; (viii) none of Company's filings with the SEC contained, at the time they were filed, any untrue
statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not misleading; (ix) Company has filed all reports, schedules,
forms, statements and other documents required to be filed by Company with the SEC under the 1934 Act on a timely basis or has
received a valid extension of such time of filing and has filed any such report, schedule, form, statement or other document prior
to the expiration of any such extension; (x) Company is not, nor has it ever been, a "Shell Company," as such type of
"issuer" is described in Rule 144(i)(1) under the 1933 Act; (xi) Company has taken no action which would give rise to
any claim by any person or entity for a brokerage commission, placement agent or finder's fees or similar payments by Investor
relating to the Note or the transactions contemplated hereby; (xii) except for such fees arising as a result of any agreement
or arrangement entered into by Investor without the knowledge of Company (an "Investor's Fee"), Investor shall
have no obligation with respect to such fees or with respect to any claims made by or on behalf of other persons for fees of a
type contemplated in this subsection that may be due in connection with the transactions contemplated hereby and Company shall
indemnify and hold harmless each of Investor, Investor's employees, officers, directors, stockholders, managers, agents, and partners,
and their respective affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorneys'
fees) and expenses suffered in respect of any such claimed or existing fees (other than an Investor's Fee, if any), and (xiii)
when issued, the Conversion Shares will be validly issued, fully paid for and non-assessable, free and clear of all liens, claims,
charges and encumbrances.


 






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4.      Company
Covenants. Until all of Company's obligations hereunder are paid and performed in full, or within the timeframes otherwise
specifically set forth below, Company shall comply with the following covenants: (i) from the date hereof until the date that
is six (6) months after all the Conversion Shares either have been sold by Investor, or may permanently be sold by Investor without
any restrictions pursuant to Rule 144, Company shall timely make all filings required to be made by it under the 1933 Act, the
1934 Act, Rule 144 or any United States securities laws and regulations thereof applicable to Company or by the rules and regulations
of its principal trading market, and such filings shall conform to the requirements of applicable laws, regulations and government
agencies, and, unless such filings are publicly available on the SEC's EDGAR system (via the SEC's web site at no additional charge),
Company shall provide a copy thereof to Investor promptly after such filings; (ii) so long as Investor beneficially owns any of
the Securities and for at least twenty (20) Trading Days thereafter, Company shall file all reports required to be filed with
the SEC pursuant to Sections 13 or 15(d) of the 1934 Act, and shall take all reasonable action under its control to ensure that
adequate current public information with respect to Company, as required in accordance with Rule 144, is publicly available, and
shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination; (iii) the Common Stock shall be listed or quoted for trading on any of (a)
the NYSE MKT, (b) the New York Stock Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital Market, (e) the OTC Bulletin
Board, (f) the OTCQX, or (g) the OTCQB; (iv) when issued, each of the Securities (including, without limitation, the Conversion
Shares), will be validly issued, fully paid for and non-assessable, free and clear of all liens, claims, charges and encumbrances,
(v) Company shall use the net proceeds received hereunder for working capital and general corporate purposes only; provided,
however, Company will not use such proceeds to pay fees payable (A) to any broker or finder relating to the offer and sale
of the Securities unless such broker, finder, or other party is a registered investment adviser or registered broker-dealer and
such fees are paid in full compliance with all applicable laws and regulations, or (B) to any other party relating to any financing
transaction effected prior to the date hereof; and (vi) at or prior to the Closing, Company will have filed a Form 8-A with the
SEC to become a mandatory reporter. Company has performed due diligence and background research on Investor and its affiliates
including, without limitation, John M. Fife, and, to its satisfaction, has made inquiries with respect to all matters Company
may consider relevant to the undertakings and relationships contemplated by the Transaction Documents including, among other things,
the following: 
 http://investing,businessweek.com/research/stocks/people/person.asp?personId=7505107&ticker=UAHC;
SEC Civil Case No. 07-C-0347 (N.D. III.); SEC Civil Action No. 07-CV-347 (N.D. Ill.); and FINRA Case #2011029203701. Company,
being aware of the foregoing matters, acknowledges and agrees that such matters, or any similar matters, have no bearing on the
transactions contemplated by the Transaction Documents and covenants and agrees it will not use any such information as a defense
to performance of its obligations under the Transaction Documents or in any attempt to avoid, modify or reduce such obligations.


 


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


 


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


 


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


 


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


 





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


 






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


 


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


 


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


 


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


 


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


 


7.     Reservation
of Shares. At all times during which the Note is convertible, Company will reserve from its authorized and unissued Common
Stock to provide for the issuance of Common Stock upon the full conversion of the Note. Company will at all times reserve at least
three (3) times the number of shares of Common Stock equal to the Outstanding Balance (as defined in and determined pursuant to
the Note) divided by the Conversion Price (as defined in and determined pursuant to the Note) (the "Share Reserve"),
but in any event not less than 2,500,000 shares of Common Stock shall be reserved at all times for such purpose (the "Transfer
Agent Reserve"). Company further agrees that it will cause the Transfer Agent to immediately add shares of Common Stock
to the Transfer Agent Reserve in increments of 500,000 shares as and when requested by Investor in writing from time to time,
provided that such incremental increases do not cause the Transfer Agent Reserve to exceed the Share Reserve. In furtherance thereof,
from and after the date hereof and until such time that the Note has been paid in full, Company shall require the Transfer Agent
to reserve for the purpose of issuance of Conversion Shares under the Note, a number of shares of Common Stock equal to the Transfer
Agent Reserve. Company shall further require the Transfer Agent to hold such shares of Common Stock exclusively for the benefit
of Investor and to issue such shares to Investor promptly upon Investor's delivery of a conversion notice under the Note. Finally,
Company shall require the Transfer Agent to issue shares of Common Stock pursuant to the Note to investor out of its authorized
and unissued shares, and not the Transfer Agent Reserve, to the extent shares of Common Stock have been authorized, but not issued,
and are not included in the Transfer Agent Reserve. The Transfer Agent shall only issue shares out of the Transfer Agent Reserve
to the extent there are no other authorized shares available for issuance and then only with Investor's written consent.


 


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


 


8.1.Original
Signature Pages. Each party agrees to deliver its original signature pages to the Transaction Documents to the other party
within five (5) Trading Days of the date hereof. Notwithstanding the foregoing, the Transaction Documents shall be fully effective
upon exchange of electronic signature pages by the parties and payment of the Purchase Price by Investor. For the avoidance of
doubt, the failure by either party to deliver its original signature pages to the other party shall not affect in any way the
validity or effectiveness of any of the Transaction Documents, provided that such failure to deliver original signatures shall
be a breach of the party's obligations hereunder.


 






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


 


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


 


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


 


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


 






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


 


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


 


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


 


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


 


8.10.
Notices. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall
be deemed effectively given on the earliest of: (a) the date delivered, if delivered by personal delivery as against written receipt
therefor or by email to an executive officer, or by facsimile (with successful transmission confirmation), (b) the earlier of
the date delivered or the third Trading Day after deposit, postage prepaid, in the United States Postal Service by certified mail,
or (c) the earlier of the date delivered or the third Trading Day after mailing by express courier, with delivery costs and fees
prepaid, in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other
addresses as such party may designate by five (5) calendar days' advance written notice similarly given to each of the other parties
hereto):


 


If
to Company:


 


Vape
Holdings, Inc.


Attn:
Kyle Tracey


21822
Lassen Street, Suite A


Chatsworth,
California 91311


 


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


 


Horwitz
+ Armstrong, LLP


Attn:
Christopher L. Tinen


26475
Rancho Pkwy. S


Lake
Forest, California 92630


 






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If
to Investor:


 


Typenex
Co-Investment, LLC


Attn:
John Fife


303
East Wacker Drive, Suite 1200


Chicago,
Illinois 60601


 


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


 


Hansen
Black Anderson Ashcraft PLLC


Attn:
Jonathan K. Hansen


3051
West Maple Loop, Suite 325


Lehi,
Utah 84043


 


8.11.
Successors and Assigns. This Agreement or any of the severable rights and obligations inuring to the benefit of or to be
performed by Investor hereunder may be assigned by Investor to a third party, including its financing sources, in whole or in
part, without the need to obtain Company's consent thereto. Company may not assign its rights or obligations under this Agreement
or delegate its duties hereunder without the prior written consent of Investor.


 


8.12.
Survival. The representations and warranties of Company and the agreements and covenants set forth in this Agreement shall
survive the Closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of Investor. Company agrees
to indemnify and hold harmless Investor and all its officers, directors, employees, attorneys, and agents for loss or damage arising
as a result of or related to any breach or alleged breach by Company of any of its representations, warranties and covenants set
forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they
are incurred.


 


8.13.
Publicity. Company and Investor shall have the right to review a reasonable period of time before issuance of any press
releases by the other party with respect to the transactions contemplated hereby.


 


8.14.
Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions
contemplated hereby.


 


8.15.
Certain Transactions. During the period beginning on the Closing Date and ending on the date that Investor no longer owns
any of the Securities, Investor will not directly or through an affiliate engage in any open market Short Sales (as defined below)
of the Common Stock; provided; however, that unless and until Company has affirmatively demonstrated by the use of specific
evidence that Investor is engaging in open market Short Sales, Investor shall be assumed to be in compliance with the provisions
of this Section and Company shall remain fully obligated to fulfill all of its obligations under the Transaction Documents; and
provided, further, that (i) Company shall under no circumstances be entitled to request or demand that Investor either (A) provide
trading or other records of Investor or of any party or (B) affirmatively demonstrate that Investor or any other party has not
engaged in any such Short Sales in breach of these provisions as a condition to Company's fulfillment of its obligations under
any of the Transaction Documents, (ii) Company shall not assert Investor's or any other party's failure to demonstrate such absence
of such Short Sales or provide any trading or other records of Investor or any other party as all or part of a defense to any
breach of Company's obligations under any of the Transaction Documents, and (iii) Company shall have no setoff right with respect
to any such Short Sales. As used herein, "Short Sale" has the meaning provided in Rule 3b-3 under the 1934 Act.


 






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8.16.
Investor's Rights and Remedies Cumulative; Liquidated Damages. All rights, remedies, and powers conferred in this Agreement
and the Transaction Documents are cumulative and not exclusive of any other rights or remedies, and shall be in addition to every
other right, power, and remedy that Investor may have, whether specifically granted in this Agreement or any other Transaction
Document, or existing at law, in equity, or by statute, and any and all such rights and remedies may be exercised from time to
time and as often and in such order as Investor may deem expedient. The parties acknowledge and agree that upon Company's failure
to comply with the provisions of the Transaction Documents, Investor's damages would be uncertain and difficult (if not impossible)
to accurately estimate because of the parties' inability to predict future interest rates and future share prices, Investor's
increased risk, and the uncertainty of the availability of a suitable substitute investment opportunity for Investor, among other
reasons. Accordingly, any fees, charges, and default interest due under the Note and the other Transaction Documents are intended
by the parties to be, and shall be deemed, liquidated damages (under Company's and Investor's expectations that any such liquidated
damages will tack back to the Closing Date for purposes of determining the holding period under Rule 144). The parties agree that
such liquidated damages are a reasonable estimate of Investor's actual damages and not a penalty, and shall not be deemed in any
way to limit any other right or remedy Investor may have hereunder, at law or in equity. The parties acknowledge and agree that
under the circumstances existing at the time this Agreement is entered into, such liquidated damages are fair and reasonable and
are not penalties. All fees, charges, and default interest provided for in the Transaction Documents are agreed to by the parties
to be based upon the obligations and the risks assumed by the parties as of the Closing Date and are consistent with investments
of this type. The liquidated damages provisions of the Transaction Documents shall not limit or preclude a party from pursuing
any other remedy available at law or in equity; provided, however, that the liquidated damages provided for in the Transaction
Documents are intended to be in lieu of actual damages.


 


8.17.
Ownership Limitation. Notwithstanding anything to the contrary contained in this Agreement or the other Transaction Documents,
if at any time Investor shall or would be issued shares of Common Stock under any of the Transaction Documents, but such issuance
would cause Investor (together with its affiliates) to beneficially own a number of shares exceeding the Maximum Percentage (as
defined in the Note), then Company must not issue to Investor the shares that would cause Investor to exceed the Maximum Percentage.
The shares of Common Stock issuable to Investor that would cause the Maximum Percentage to be exceeded are referred to herein
as the "Ownership Limitation Shares". Company will reserve the Ownership Limitation Shares for the exclusive
benefit of Investor. From time to time, Investor may notify Company in writing of the number of the Ownership Limitation Shares
that may be issued to Investor without causing Investor to exceed the Maximum Percentage. Upon receipt of such notice, Company
shall be unconditionally obligated to immediately issue such designated shares to Investor, with a corresponding reduction in
the number of the Ownership Limitation Shares. For purposes of this Section, beneficial ownership of Common Stock will be determined
under Section 13(d) of the 1934 Act.


 


8.18.
Attorneys' Fees and Cost of Collection. In the event of any arbitration or action at law or in equity to enforce or interpret
the terms of this Agreement or any of the other Transaction Documents, the parties agree that the party who is awarded the most
money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full
amount of the attorneys' fees, deposition costs, and expenses paid by such prevailing party in connection with arbitration or
litigation without reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses.
Nothing herein shall restrict or impair an arbitrator's or a court's power to award fees and expenses for frivolous or bad faith
pleading. If (a) the Note is placed in the hands of an attorney for collection or enforcement prior to commencing arbitration
or legal proceedings, or is collected or enforced through any arbitration or legal proceeding, or Investor otherwise takes action
to collect amounts due under the Note or to enforce the provisions of the Note; or (b) there occurs any bankruptcy, reorganization,
receivership of Company or other proceedings affecting Company's creditors' rights and involving a claim under the Note; then
Company shall pay the costs incurred by Investor for such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, without limitation, attorneys' fees, expenses, deposition costs,
and disbursements.


 






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8.19.
Waiver. No waiver of any provision of this Agreement shall be effective unless it is in the form of a writing signed by
the party granting the waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any
other provision or consent to any other prohibited action, whether or not similar. No waiver or consent shall constitute a continuing
waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in
writing.


 


8.20.
Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND
THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE RELATIONSHIPS OF THE
PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW
OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY
WAIVING SUCH PARTY'S RIGHT TO DEMAND TRIAL BY JURY.


 


8.21.
Time of the Essence. Time is expressly made of the essence with respect to each and every provision of this Agreement and
the other Transaction Documents.


 


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


 






    	9



    	 



    

 





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


 


SUBSCRIPTION
AMOUNT:





 


	Principal
    Amount of Note:	 	$560,000.00	 
	 	 	 	 
	Purchase
    Price:	 	$500,000.00	 
	 	 	 	 


 


	 	INVESTOR:
	 	 
	 	


Typenex Co-Investment,
LLC


	 	
	 	By:	Red Cliffs Investments, Inc.,
    its Manager
	 	 	 
	 	 	By:	/s/
    John M. Fife
	 	 	 	John
    M. Fife, President
	 	 	 	 
	 	COMPANY:
	 	 
	 	Vape
                                         Holdings, Inc.




	 	 
	 	By:	/s/
    Kyle Tracey
	 	 	Kyle
    Tracey, Chief Executive Officer




  


	ATTACHED
    EXHIBITS:	 
	 	 	 	 
	Exhibit
    A	 	Note	 
	Exhibit
    B	 	Irrevocable
    Transfer Agent Instructions	 
	Exhibit
    C	 	Secretary's
    Certificate	 
	Exhibit
    D	 	Share
    Issuance Resolution	 
	Exhibit
    E	 	Arbitration
    Provisions	 


  






    	 



    	 



    

 





Exhibit A


 


 


 


[See Exhibit 10.2]


 






    	 



    	 



    

 


Exhibit B


 


IRREVOCABLE LETTER OF INSTRUCTIONS
TO TRANSFER AGENT


 


December 3, 2014



 


Island Stock
Transfer


15500
Roosevelt Boulevard, Suite 301


Clearwater, Florida 33760


 


Ladies and Gentlemen:


 


Vape
Holdings, Inc., a Delaware corporation (the "Company"), and Typenex Co-Investment, LLC, a Utah limited
liability company (the "Investor"), have entered into a Securities Purchase Agreement dated as of December 3,
2014 (the "Agreement") providing for the issuance of a Secured Convertible Promissory Note in the principal amount
of $560,000.00 to Investor (the "Note").


 


A
copy of the Note is attached hereto. The shares to be issued are to be registered in the names of the registered holder of the
securities submitted for conversion or exercise.


 


You
are hereby irrevocably authorized and instructed to reserve a sufficient number of shares of common stock ("Common Stock")
of the Company (initially, 2,500,000 shares of Common Stock) for issuance upon full conversion of the Note as required pursuant
to the Agreement. The amount of Common Stock so reserved may be increased, from time to time, by written instructions from the
Company and the Investor.


 


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


 


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


 


The
Investor and the Company understand that Island Stock Transfer shall not be required to perform any issuances or transfers of
shares if (a) the Company or request violates, or be in violation of, any terms of the Transfer Agent Agreement, (b) such an issuance
or transfer of shares be in violation of any state or federal securities laws or regulation or (c) the issuance or transfer of
shares be prohibited or stopped as required or directed by a court order.


 



    	1



    	 



    

 


The
Company shall indemnify you and your officers, directors, principals, partners, agents and representatives, and hold each
of them harmless from and against any and all loss, liability, damage, claim or expense (including the reasonable fees and disbursements
of its attorneys) ("Losses") incurred by or asserted against you or any of them arising out of or in connection
with the instructions set forth herein, the performance of your duties hereunder and otherwise in respect hereof, including the
costs and expenses of defending yourself or themselves against any claim or liability hereunder, except that Company shall not
be liable hereunder as to matters in respect of which it is determined that (i) you have acted with gross negligence or in bad
faith or to the extent that such Losses are caused by or relate to a breach of your representations, warranties and/or covenants
hereunder or (ii) such Losses arise from or relate to Investor's gross negligence or willful misconduct, in which case Investor
hereby agrees to indemnify you and your officers, directors, principals, partners, agents and representatives, and hold each of
them harmless from and against any and all such Losses incurred by or asserted against the such indemnified parties arising out
of or in connection with such gross negligence or willful misconduct. You shall have no liability to the Company in respect to
any action taken or any failure to act in respect of this if such action was taken or omitted to be taken in good faith, and you
shall be entitled to rely in this regard on the advice of counsel.


 


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


 


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


 


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


 


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


 



    	2



    	 



    

 









 





	 	Very truly yours,
	 	 
	 	COMPANY:
	 	 
	 	VAPE HOLDINGS, INC.
	 	 
	 	/s/
    Kyle Tracey
	 	Name:
    Kyle Tracey
	 	Title: CEO



 


	ACKNOWLEDGED AND
    AGREED:	 
	 	 
	TRANSFER AGENT:	 
	 	 	 
	ISLAND
     STOCK  TRANSFER	 
	 	 	 
	By:	/s/
    Anna Kotlova	 
	Name:	Anna Kotlova	 
	Title:	Director of Operations	 



 


	INVESTOR:	 
	 	 	 
	TYPENEX
     CO-INVESTMENT,  LLC	 
	 	 
	By: Red Cliffs Investments,
    Inc., its Manager	 
	 	 
	By:	/s/
    John M. Fife	 
	 	John M. Fife, President	 




 






    	3



    	 



    

 












Exhibit
C


 


VAPE
HOLDINGS, INC.


 


SECRETARY'S
CERTIFICATE


 


I,
Kyle Tracey, hereby certify that I am the duly elected, qualified and acting Secretary of Vape Holdings, Inc., a Delaware
corporation (“Company”), and I am authorized to execute this Secretary's Certificate (this
“Certificate”) on behalf of Company. This Certificate is delivered in connection with that certain
Securities Purchase Agreement dated December 3, 2014 (the “Purchase Agreement”), by and between
Company and Typenex Co-Investment, LLC, a Utah limited liability company.


 


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


 


IN
WITNESS WHEREOF, I have made this Secretary's Certificate effective as of December 2, 2014.


 


	 	Vape
    Holdings, Inc,
	 	 
	 	/s/
    Kyle Tracey
	 	Printed
    Name: Kyle Tracey
	 	Title:
    Secretary 
	 	 




    	1 | Page



    	 



    



 


 


Schedule
I 


 


BOARD
RESOLUTIONS


 


[attached]


 




    	2 | Page



    	 



    


VAPE
HOLDINGS, INC.


 


RESOLUTIONS
ADOPTED BY THE BOARD OF DIRECTORS


 





 



 


Effective
December 3, 2014


 





 



 


APPROVAL
OF FINANCING


 


WHEREAS,
the Board of Directors (the "Board") of Vape Holdings, Inc., a Delaware corporation ("Company"),
has determined that it is in the best interests of Company to seek financing in the amount of $500,000.00 through the issuance
and sale to Typenex Co-Investment, LLC, a Utah limited liability company (the "Investor"), of an Unsecured Convertible
Promissory Note (the "Financing");


 


WHEREAS,
the terms of the Financing are reflected in a Securities Purchase Agreement substantially in the form attached hereto as Exhibit
A (the "Purchase Agreement"), an Unsecured Convertible Promissory Note issued by Company in the original
principal amount of $560,000.00 substantially in the form attached hereto as Exhibit B (the "Note"),
an Irrevocable Letter of Instructions to Transfer Agent substantially in the form attached hereto as Exhibit C a
Share Issuance Resolution substantially in the form attached hereto as Exhibit D ("Share Issuance
Resolution"), and all other agreements, certificates, instruments and documents being or to be executed
and delivered under or in connection with the Financing (collectively, the "Financing
Documents"); and


 


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


 


NOW,
THEREFORE, BE IT:


 


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


 


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


 


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


 


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


 


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


 


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


 



    	Page
1 of Board Resolutions



    	 



    

 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


EXHIBITS
ATTACHED TO BOARD RESOLUTIONS:


 


	Exhibit
    A	PURCHASE
    AGREEMENT
	Exhibit
    B	NOTE
	Exhibit
    C	TRANSFER
    AGENT LETTER
	Exhibit
    D	SHARE
    ISSUANCE RESOLUTION.


 


[Remainder
of page intentionally left blank]


 






    	Page
2 Of Board Resolutions 



    	 



    

 





Exhibit D


 


Share
Issuance Resolution


Authorizing
The Issuance Of New Shares Of Common Stock In


 





 



 


Vape
Holdings, Inc.


 





 



 


Effective December 3, 2014


 


The undersigned,
as a qualified officer of Vape Holdings, Inc., a Delaware corporation ("Company"), hereby certifies that this
Share Issuance Resolution is authorized by and consistent with the resolutions of Company's board of directors ("Board
Resolution") regarding that certain Unsecured Convertible Promissory Note in the face amount of $560,000.00 with an original
issuance date of December 3, 2014 (the "Note"), made by Company in favor of Typenex Co-Investment, LLC, a Utah
limited liability company, its successors and/or assigns ("Investor"), pursuant to that certain Securities Purchase
Agreement dated December 3, 2014, by and between Company and Investor (the "Purchase Agreement").


 


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


 


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


 


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



 


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



 


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


 


RESOLVED FURTHER,
that consistent with the terms of the Purchase Agreement, the Transfer Agent is authorized and directed to immediately create
a transfer agent share reserve equal to 2,500,000 shares of Company's Common Stock for the benefit of Investor (the "Transfer
Agent Reserve"); provided that the Transfer Agent Reserve may increase in increments of 500,000 shares from time
to time by written instructions provided to the Transfer Agent by Company or Investor as required by the Purchase Agreement and
as contemplated by the Board Resolution.


 


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


 


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


 






    	1



    	 



    

 


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


 


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


 


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



 


 


	/s/ Kyle Tracey	 	12-3-14
	Officer’s
    Signature	 	Date
	 	 	 
	Kyle Tracey, CEO	 	 
	Printed Name and Title	 	 


 






    	2



    	 



    

 


EXHIBIT A


 


CONVERSION NOTICE


 


[attached]


 


 


 


 






    	 



    	 



    

 


EXHIBIT
E


 


ARBITRATION
PROVISIONS


 


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


 


2.     Arbitration.
Except as otherwise provided herein, all Claims must be submitted to arbitration ("Arbitration") to be conducted
in Salt Lake County, Utah or Utah County, Utah and pursuant to the terms set forth in these Arbitration Provisions. The parties
agree that the award of the arbitrator shall be final and binding upon the parties; shall be the sole and exclusive remedy between
them regarding any Claims, counterclaims, issues, or accountings presented or pleaded to the arbitrator; and shall promptly be
payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Any costs or fees, including
without limitation attorneys' fees, incident to enforcing the arbitrator's award shall, to the maximum extent permitted by law,
be charged against the party resisting such enforcement. The award shall include Default Interest (as defined in the Note) both
before and after the award. Judgment upon the award of the arbitrator will be entered and enforced by a state court sitting in
Salt Lake County, Utah. The parties hereby incorporate herein the provisions and procedures set forth in the Utah Uniform Arbitration
Act, U.C.A. § 78B-11-101 et seq. (as amended or superseded from time to time, the "Arbitration Act").
Pursuant to Section 78B-11-105 of the Arbitration Act, in the event of conflict between the terms of these Arbitration Provisions
and the provisions of the Arbitration Act, the terms of these Arbitration Provisions shall control.


 


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


 


3.1Pursuant
to Section 110 of the Arbitration Act, the parties agree that a party may initiate Arbitration by giving written notice to the
other party ("Arbitration Notice") in the same manner that notice is permitted under Section 8.10 of the Agreement;
provided, however, that the Arbitration Notice may not be given by email or fax. Arbitration will be deemed initiated as
of the date that the Arbitration Notice is deemed delivered under Section 8.10 of the Agreement (the "Service Date").
After the Service Date, information may be delivered, and notices may be given, by email or fax pursuant to Section 8.10 of the
Agreement or any other method permitted thereunder. The Arbitration Notice must describe the nature of the controversy, the remedies
sought, and the election to commence Arbitration proceedings. All Claims in the Arbitration Notice must be pleaded consistent
with the Utah Rules of Civil Procedure.


 


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


  






    	Arbitration
                                         Provisions, Page 1



    	 



    

 


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


 


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


 


3.5
Pursuant to Section 118(8) of the Arbitration Act, the parties agree that discovery shall be conducted in accordance with
the Utah Rules of Civil Procedure; provides, however, that incorporation of such rules will in no event supersede the Arbitration
Provisions set forth herein, including without limitation the time limitation set forth in Paragraph 3.9 below, and the following:


 


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


 


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


 


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


 


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


 


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


 


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


 






    	Arbitration
                                         Provisions, Page 2



    	 



    

 


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


 


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


 


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


 


3.8All
information disclosed by either party during the Arbitration process (including without limitation information disclosed during
the discovery process) shall be considered confidential in nature. Each party agrees not to disclose any confidential information
received from the other party during the discovery process unless (i) prior to or after the time of disclosure such information
becomes public knowledge or part of the public domain, not as a result of any inaction or action of the receiving party, (ii)
such information is required by a court order, subpoena or similar legal duress to be disclosed if such receiving party has notified
the other party thereof in writing and given it a reasonable opportunity to obtain a protective order from a court of competent
jurisdiction prior to disclosure; or (iii) disclosed to the receiving party's agents, representatives and legal counsel on a need
to know basis who each agree in writing not to disclose such information to any third party. Pursuant to Section 118(5) of the
Arbitration Act, the arbitrator is hereby authorized and directed to issue a protective order to prevent the disclosure of privileged
information and confidential information upon the written request of either party.


 


3.9The
parties hereby authorize and direct the arbitrator to take such actions and make such rulings as may be necessary to carry out
the parties' intent for the arbitration proceedings to be efficient and expeditious. Pursuant to Section 120 of the Arbitration
Act, the parties hereby agree that an award of the arbitrator must be made within 150 days after the Arbitration Commencement
Date. The arbitrator is hereby authorized and directed to hold a scheduling conference within ten (10) calendar days after the
Arbitration Commencement Date in order to establish a scheduling order with various binding deadlines for discovery, expert testimony,
and the submission of documents by the parties to enable the arbitrator to render a decision prior to the end of such 150-day
period. The Utah Rules of Evidence will apply to any final hearing before the arbitrator.


 


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


 


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


 


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


 


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Arbitration
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