Document:

ecig_ex109.htm

Exhibit 10.9

 

DATED

 

------------

 

CHARGE OF CERTIFICATED SHARES AND BANK ACCOUNT

 

between

VICTORY ELECTRONIC CIGARETTES CORPORATION

as Borrower

and

[                      ]

as Security Trustee

 

  

1

  

 

Contents

	
CLAUSE

	  
	 	 	 
	
1

	
Definitions and interpretation

	
3

	
2

	
Covenant to pay

	
6

	
3

	
Grant of security

	
6

	
4

	
Deposit of title documents

	
7

	
5

	
Protection of security

	
8

	
6

	
Liability of the Borrower

	
9

	
7

	
Representations and warranties

	
9

	
8

	
Borrower covenants

	
9

	
9

	
Rights of the Security Trustee

	
9

	
10

	
Powers of the Security Trustee

	
10

	
11

	
Enforcement

	
12

	
12

	
Costs and indemnity

	
12

	
13

	
Release

	
13

	
14

	
Assignment and transfer

	
13

	
15

	
Set-off

	
13

	
16

	
Amendments, waivers and consents

	
14

	
17

	
Severance

	
14

	
18

	
Counterparts

	
14

	
19

	
Third party rights

	
14

	
20

	
Further provisions

	
14

	
21

	
Notices

	
15

	
22

	
Governing law and jurisdiction

	
16

	  	  	  
	
SCHEDULE

	  
	 	 	 
	
Schedule 1

	
Beneficiary

	
17

	
Schedule 2

	
Representations and warranties

	
17

	  	  	  
	
Schedule 3

	
Covenants

	
18

	
Schedule 4

	
Enforcement

	
20

 

  

2

  

 

THIS  DEED is dated        April 2014

 

Parties

 

	
(1)  

	
VICTORY ELECTRONIC CIGARETTES CORPORATION, registered in the State of Nevada, USA under number C13461-2004 whose registered office is at 11335 Apple Drive, Spring Lake, Michigan 49448, USA ("Borrower");

 

	
(2)  

	
                                                            (“Security Trustee”).

 

Agreed terms

 

	
1.  

	
Definitions and interpretation

 

	
1.1  

	
Definitions

 

The following definitions apply in this deed:

 

6% Senior Secured Convertible Notes: the US$24,175,824 secured convertible notes of the Borrower issued to the Beneficiary on or about the date of this deed.

 

Account Bank: a reputable bank in England at which a Dividend Account is to be opened in accordance with clause 5.3.

 

Attorney: an attorney of the Borrower appointed under clause 4.4.

 

Business Day: a day other than a Saturday, Sunday or public holiday in England when banks in New York and London are open for business.

 

Beneficiary: the person named in Schedule 1.

 

Convertible Note Documents: the 6% Senior Secured Convertible Notes, the Convertible Note Instrument, the Securities Purchase Agreement, the Registration Rights Agreement and the Intercreditor Deed.

 

Convertible Note Instrument: the instrument dated on or about the date of this deed pursuant to which the 6% Senior Secured Convertible Notes are, or are to be, constituted.

 

Dividend: any dividend, interest or other distribution paid or payable in relation to the Must Have Shares.

 

Dividend Account: that segregated blocked account to be established and maintained at the Account Bank for the purposes set out in clause 5.3 and all monies from time to time standing to the credit (including any interest thereon) of such account and all rights in relation thereto (including the right to interest).

 

EBITDA: the net income of Must Have Limited on ordinary and extraordinary activities during a given calendar month as shown in the Management Accounts of Must Have Limited in respect of that calendar month delivered to the Security Trustee pursuant to paragraph 7(b) of this deed, excluding:

 

	
(a)  

	
interest expense;

 

	
(b)  

	
the amount charged as tax on income on ordinary and extraordinary activities;

 

	
(c)  

	
total depreciation and amortisation;

 

	
(d)  

	
any extraordinary, unusual or non-recurring items increasing net income; and

 

  

3

  

	
(e)  

	
any non-cash items increasing net income,

 

during that calendar month each as shown in such Management Accounts.

 

Event of Default: has the meaning given to that expression in the Convertible Note Instrument.

 

Financial Collateral: has the meaning given to that expression in the Financial Collateral Regulations.

 

Financial Collateral Regulations: the Financial Collateral Arrangements (No 2) Regulations 2003 (SI 2003/3226).

 

Intercreditor Deed: the intercreditor deed between, amongst others, (1) the Borrower; and (2) the Security Trustee dated on or about the date of this deed.

 

Management Accounts: the unaudited management accounts of Must Have Limited, comprising a balance sheet as at the relevant date of the accounts and a profit and loss account for the relevant period, prepared in accordance with the terms of this deed.

 

Must Have Limited: Must Have Limited, a company incorporated in England and Wales under company number 5101019.

 

Must Have Limited Debenture: the debenture dated on or about the date of this deed between Must Have Limited and the Security Trustee.

 

Must Have Limited Debenture Security Period: the period starting on the date of the Must Have Limited Debenture and ending on the date on which the obligations defined as “Security Obligations” in the Must Have Limited Debenture have been unconditionally and irrevocably paid and discharged in full and no further such secured obligations are capable of being outstanding.

 

Must Have Limited Guarantee: the guarantee dated on or about the date of this deed between Must Have Limited and the Beneficiary.

 

Must Have Limited Shares: the 4,302 (four thousand three hundred and two) ordinary shares of £0.10 each in Must Have Limited, all of which have been issued and are fully paid, and which comprise the whole of the issued share capital of Must Have Limited.

 

Part 1 Warranties: the representations and warranties set out in Schedule 2 Part 1.

 

Part 2 Warranty: the representation and warranty set out in Schedule 2 Part 2.

 

Registration Rights Agreement: the Registration Rights Agreement entered into between the Borrower and the Beneficiary on the date of the Securities Purchase Agreement.

 

Related Rights: any:

 

	
(a)  

	
Dividend; and

 

	
(b)  

	
right, money, shares or property accruing, offered or issued at any time in relation to any of the Must Have Limited Shares by way of redemption, substitution, exchange, conversion, bonus, preference or otherwise, under option rights or otherwise.

 

Secured Assets: all the assets, property and undertaking for the time being subject to any Security created by this deed.

 

  

4

  

Secured Liabilities: all present and future monies, obligations and liabilities owed by the Borrower to the Beneficiary, whether actual or contingent and whether owed jointly or severally, as principal or surety or in any other capacity whatsoever, under or in connection with this deed (including, but not limited to those arising under clause 5.1, clause 12.1 or clause 20.3) or any of the Convertible Note Documents, together with all interest accruing on such monies and liabilities.

 

Security Financial Collateral Arrangement: has the meaning given to that expression in the Financial Collateral Regulations.

 

Security: any mortgage, charge (whether fixed or floating, legal or equitable), pledge, lien, assignment by way of security or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.

 

Security Period: the period starting on the date of this deed and ending on the date on which the Security Trustee is satisfied that all the Secured Liabilities have been unconditionally and irrevocably paid and discharged in full and no further Secured Liabilities are capable of being outstanding.

 

Securities Purchase Agreement: the agreement dated on or about the date of this deed between the Borrower and the Beneficiary relating to (inter alia) the purchase by the Beneficiary of the 6% Senior Secured Convertible Notes.

 

Subsidiary: any person, other than Must Have Limited, in which the Borrower directly or indirectly: (i) owns any of the outstanding capital stock (as such term is understood under the law of the jurisdiction in which the Borrower is incorporated) or holds any equity or similar interest of such person or (ii) controls or operates all or any part of the business, operations or administration of such person.

 

	
1.2  

	
Interpretation

 

In this deed:

 

	
(a)  

	
clause, Schedule and paragraph headings shall not affect the interpretation of this deed;

 

	
(b)  

	
a reference to a person shall include a reference to an individual, firm, company, corporation, partnership, unincorporated body of persons, government, state or agency of a state or any association, trust, joint venture or consortium (whether or not having separate legal personality) and that person's, successors, permitted assigns and permitted transferees;

 

	
(c)  

	
unless the context otherwise requires, words in the singular shall include the plural and in the plural shall include the singular;

 

	
(d)  

	
unless the context otherwise requires, a reference to one gender shall include a reference to the other genders;

 

	
(e)  

	
a reference to a party shall include that party's successors, permitted assigns and permitted transferees;

 

	
(f)  

	
a reference to a statute or statutory provision is a reference to it as amended, extended or re-enacted from time to time;

 

	
(g)  

	
a reference to a statute or statutory provision shall include all subordinate legislation made from time to time under that statute or statutory provision;

 

	
(h)  

	
a reference to writing or written includes fax and e-mail;

 

	
(i)  

	
an obligation on a party not to do something includes an obligation not to allow that thing to be done;

 

	
(j)  

	
a reference to this deed (or any provision of it) or to any other agreement or document referred to in this deed is a reference to this deed, that provision or such other agreement or document as amended (in each case, other than in breach of the provisions of this deed) from time to time;

 

	
(k)  

	
unless the context otherwise requires, a reference to a clause or Schedule is to a clause of, or Schedule to, this deed and a reference to a paragraph is to a paragraph of the relevant Schedule;

 

	
(l)  

	
any words following the terms including, include, in particular, for example or any similar expression shall be construed as illustrative and shall not limit the sense of the words, description, definition, phrase or term preceding those terms;

 

  

5

  

	
(m)  

	
a reference to an amendment includes a novation, re-enactment, supplement or variation (and amended shall be construed accordingly);

 

	
(n)  

	
a reference to assets includes present and future properties, undertakings, revenues, rights and benefits of every description;

 

	
(o)  

	
a reference to an authorisation includes an approval, authorisation, consent, exemption, filing, licence, notarisation, registration and resolution;

 

	
(p)  

	
a reference to continuing in relation to an Event of Default means an Event of Default that has not been remedied or waived;

 

	
(q)  

	
a reference to determines or determined means, unless the contrary is indicated, a determination made at the absolute discretion of the person making it; and

 

	
(r)  

	
a reference to a regulation includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, inter-governmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation.

 

	
1.3  

	
Rights of the Beneficiary

 

	
(a)  

	
All of the representations, covenants and undertakings given by the Borrower pursuant to this deed are given to the Security Trustee for the benefit of the Beneficiary.

 

	
(b)  

	
All of the security created by the Borrower pursuant to the terms of this deed is created in favour of the Security Trustee as security trustee for the Beneficiary and the Security Trustee holds the benefit of this deed on trust for the Beneficiary.

 

	
2.  

	
Covenant to pay

The Borrower as principal debtor hereby covenants with the Security Trustee (for the benefit of the Beneficiary) that it will on demand pay and discharge all Secured Liabilities owing or incurred from or by it to the Beneficiary when the same become due whether by acceleration or otherwise.

 

	
3.  

	
Grant of security

 

	
3.1  

	
Fixed charges

 

As continuing security for the payment and discharge of the Secured Liabilities, the Borrower with full title guarantee charges to the Security Trustee, by way of first fixed charge:

 

	
(a)  

	
the Must Have Limited Shares and all Related Rights; and

 

	
(b)  

	
to the extent that the Dividend Account is not effectively assigned under clause 3.2 or it has been effectively assigned but has not been perfected by the service of the appropriate notice, the Dividend Account.

 

	
3.2  

	
Assignment

 

As a continuing security for the payment and discharge of the Secured Liabilities, the Borrower with full title guarantee assigns absolutely (subject to a proviso for reassignment on redemption) to the Security Trustee all its present and future right, title and interest in and to the benefit of the Dividend Account.

 

	
3.3  

	
Non-Assignable Right

 

The Borrower declares that, to the extent that any right, title, interest or benefit in the Dividend Account cannot be or is not effectively assigned pursuant to clause 3.2 for whatever reason, the Borrower shall:

 

  

6

  

	
(a)  

	
promptly notify the Security Trustee of the same and the reasons why such asset is not capable of assignment;

 

	
(b)  

	
hold the benefit of the same on trust for the Security Trustee as security for the payment and discharge of the Secured Liabilities; and

 

	
(c)  

	
take such steps as the Security Trustee may require to remove such impediment to such assignment.

 

	
3.4  

	
Notice

 

The Borrower shall, promptly upon opening any Dividend Account, serve a notice of charge, substantially in the form of Part 1 of Schedule 5, on the Account Bank in respect of the assignment of the Dividend Account and ensure that the Account Bank promptly acknowledges the notice substantially in the form of Part 2 of Schedule 5.

 

	
4.  

	
Deposit of title documents

 

	
4.1  

	
Deposit

 

The Borrower shall:

 

	
(a)  

	
terminate with immediate effect all nominations it may have made under sections 145 and 146 of the Companies Act 2006 in respect of any Must Have Limited Shares and, pending such termination, procure that any person so nominated:

 

	
(i)  

	
does not exercise any rights in respect of any Must Have Limited Shares without the prior written approval of the Security Trustee; and

 

	
(ii)  

	
immediately on receipt, forward to the Security Trustee all communications or other information received in respect of any Must Have Limited Sharefor which it has been so nominated;

 

	
(b)  

	
as soon as reasonably practicable after this deed has been executed, deposit with the Security Trustee all stock or share certificates or other deeds or documents of title to or representing the Secured Assets owned by the Borrower at that time (and if these are not within the possession and/or control of the Borrower, the Borrower undertakes to obtain possession of all such certificates deeds and documents of title); and

 

	
(c)  

	
on the accrual, offer, issue or receipt of any Related Rights, deliver or pay or procure the delivery or payment to the Security Trustee of all such Related Rights, and deposit with the Security Trustee the stock or share certificates or other documents of title to or representing such Related Rights,

 

together with such executed blank transfers or assignments as the Security Trustee may require so that the Security Trustee may at any time after this deed has become enforceable without notice present them for registration.

 

	
4.2  

	
No nominations

 

The Borrower shall not, during the Security Period, exercise any rights to nominate any person (other than the Security Trustee) to enjoy or exercise any rights relating to any of the Must Have Limited Shares.

 

	
4.3  

	
Further assurance

 

The Borrower shall, at the direction of the Security Trustee given at any time, forthwith, at its own cost, execute and deliver to the Security Trustee all transfers and other documents and do all such things as may be necessary or desirable:

 

	
(a)  

	
to register all or any of the Must Have Limited Shares in the name of the Security Trustee or its nominee;

 

	
(b)  

	
for creating, registering, perfecting, maintaining or protecting the security created by this deed;

 

  

7

  

	
(c)  

	
for creating a fixed charge over any of the Secured Assets; or

 

	
(d)  

	
to facilitate the realisation of all or any of the Secured Assets after this deed has become enforceable, or the exercise of any right, power or discretion vested in the Security Trustee or the Attorney in relation to any Secured Assets or this deed.

 

	
4.4  

	
Power of attorney

 

By way of security the Borrower irrevocably appoints the Security Trustee to be the attorney (Attorney) of the Borrower and in its name and on its behalf and as its act and deed:

 

	
(a)  

	
to execute any documents and do any acts and things which the Borrower is required to execute and do under this deed, including execute any document required by the Security Trustee under clause 4; and

 

	
(b)  

	
to execute any documents, and do any acts and things which the Attorney may deem proper or desirable in exercising any of the powers, authorities and discretions conferred by this deed or by law on the Security Trustee.

 

	
4.5  

	
Ratification of Attorney's acts

 

By this deed the Borrower ratifies and confirms, and agrees to ratify and confirm, anything which the Attorney may do in the proper and lawful exercise or purported exercise of all or any of the powers, authorities and discretions referred to in this clause 4.

 

	
5.  

	
Protection of security

 

	
5.1  

	
Payment of calls

 

Notwithstanding the security created by this deed, the Borrower shall promptly pay all calls, instalments and other payments due on any of the Must Have Limited Shares, failing which the Security Trustee may, at its discretion but without obligation, make such payments on behalf of the Borrower.

 

	
5.2  

	
Payments by Security Trustee

 

Any sum paid by the Security Trustee on behalf of the Borrower under clause 5.1:

 

	
(a)  

	
shall be reimbursed by the Borrower on demand by the Security Trustee on a full indemnity basis;

 

	
(b)  

	
is, pending reimbursement, secured by this deed and may be debited to any account of the Borrower as the Security Trustee deems fit; and

 

	
(c)  

	
shall bear interest accruing daily in arrear from the date of its payment at the default rate of interest specified in the Convertible Note Instrument.

 

	
5.3  

	
Dividend Account

 

	
(a)  

	
At least 30 days prior to the declaration of any Dividends arising from or out of the Must Have Limited Shares, the Borrower shall open the Dividend Account and shall provide notice in writing to the Security Trustee of all relevant details in respect of such Dividend Account.

 

	
(b)  

	
During the Security Period, the Borrower shall immediately upon receipt pay into the Dividend Account all payments of Dividends arising from or out of the Must Have Limited Shares.

 

	
(c)  

	
The Security Trustee shall have sole signing rights in relation to the Dividend Account.

 

  

8

  

	
(d)  

	
Save with the prior written consent of the Security Trustee, the Borrower may not withdraw all or any monies from time to time standing to the credit of the Dividend Account.

 

	
(e)  

	
Following the time at which this deed becomes enforceable in accordance with clause 11.1, the Security Trustee may in its sole discretion apply any amounts standing to the credit of the Dividend Account in such manner as it sees fit.

 

	
6.  

	
Liability of the Borrower

 

	
6.1  

	
Liability not discharged

 

The liability of the Borrower under this deed in respect of any of the Secured Liabilities shall not be discharged, prejudiced or affected by:

 

	
(a)  

	
any Security, guarantee, indemnity, remedy or other right held by or available to the Security Trustee being or becoming wholly or partially illegal, void or unenforceable on any ground;

 

	
(b)  

	
the Security Trustee renewing, determining, varying or increasing any facility or other transaction in any manner or concurring in, accepting or varying any compromise, arrangement or settlement or omitting to claim or enforce payment from any other person; or

 

	
(c)  

	
any other act or omission which but for this provision might have discharged or otherwise prejudiced or affected the liability of the Borrower.

 

	
6.2  

	
Immediate recourse

 

The Borrower waives any right it may have of requiring the Security Trustee to:

 

	
(a)  

	
enforce any security or other right; or

 

	
(b)  

	
claim any payment from or otherwise proceed against any other person;

 

before enforcing this deed against the Borrower.

 

	
7.  

	
Representations and warranties

 

	
7.1  

	
The Part 1 Warranties are made by the Borrower on the date of this deed, and shall be deemed to be repeated on each day of the Security Period with reference to the facts and circumstances then existing.

 

	
7.2  

	
The Part 2 Warranty is made on each occasion that Must Have Limited supplies Management Accounts to the Security Trustee under paragraph 7 of Schedule 3.

 

	
8.  

	
Borrower covenants

 

The Borrower covenants with the Security Trustee during the Security Period in the terms set out in Schedule 3.

 

	
9.  

	
Rights of the Security Trustee

 

	
9.1  

	
Post-enforcement rights

 

After the security constituted by this deed has become enforceable:

 

  

9

  

	
(a)  

	
any Dividends not yet paid into the Dividend Account shall be held on trust for the Security Trustee and immediately paid into the Dividend Account or, if received by the Security Trustee, may be applied by the Security Trustee as though they were the proceeds of sale; and

 

	
(b)  

	
all voting and other rights and powers attaching to the Must Have Limited Shares that may be exercised by a person in whose name the Must Have Limited Shares are registered shall be exercised by, or at the direction of, the Security Trustee, and the Borrower shall, and shall procure that its nominees shall, comply with any directions the Security Trustee may, in its absolute discretion, give concerning the exercise of those rights and powers.

 

	
9.2  

	
Protection of interests

 

The powers conferred on the Security Trustee by this deed are solely to protect its interests in the Secured Assets and shall not impose any duty on the Security Trustee to exercise any of those powers.

 

	
9.3  

	
No duties

 

The Security Trustee shall not, in respect of any of the Secured Assets, have any duty or incur any liability for:

 

	
(a)  

	
ascertaining or taking action in respect of any calls, instalments, conversions, exchanges, maturities, tenders or other matters relating to any Secured Assets or the nature or sufficiency of any payment whether or not the Security Trustee has or is deemed to have knowledge of such matters; or

 

	
(b)  

	
taking any necessary steps to preserve rights against prior parties or any other rights relating to any of the Secured Assets.

 

	
9.4  

	
Exclusion of liability

 

The Security Trustee shall not be liable to account as a mortgagee in possession in respect of the Secured Assets, and shall not be liable in connection with the Secured Assets for:

 

	
(a)  

	
any loss on realisation;

 

	
(b)  

	
any failure to present any interest coupon or any bond or stock drawn for repayment;

 

	
(c)  

	
any failure to pay any call or instalment;

 

	
(d)  

	
the acceptance of any offer or the notification of the Borrower of any such offer;

 

	
(e)  

	
any failure to ensure that the correct amounts are paid or received in respect of the Secured Assets;

 

	
(f)  

	
any negligence or default by its nominees; or

 

	
(g)  

	
any other loss of any nature whatsoever.

 

	
10.  

	
Powers of the Security Trustee

 

	
10.1  

	
Power to remedy

 

The Security Trustee shall be entitled (but shall not be bound) to remedy a breach at any time by the Borrower of any of its obligations contained in this deed, and the Borrower irrevocably authorises the Security Trustee and its agents to do all such things as are necessary or desirable for that purpose.

 

  

10

  

	
10.2  

	
Exercise of rights

 

The rights of the Security Trustee under clause 10.1 are without prejudice to any other rights of the Security Trustee under this deed and the exercise of those rights shall not make the Security Trustee liable to account as a mortgagee in possession.

 

	
10.3  

	
Prior Security

 

At any time after the security constituted by this deed has become enforceable, or after any powers conferred by any Security having priority to this deed shall have become exercisable, the Security Trustee may:

 

	
(a)  

	
redeem such or any other prior Security, or procure its transfer to itself; and

 

	
(b)  

	
settle and pass any account of the holder of any prior Security.

 

Any accounts so settled and passed shall be, in the absence of any manifest error, conclusive and binding on the Borrower. All monies paid by the Security Trustee to an encumbrancer in settlement of such an account shall, as from its payment by the Security Trustee, be due from the Borrower to the Security Trustee on current account and shall bear interest at the default rate of interest specified in the Convertible Note Instrument and be secured as part of the Secured Liabilities.

 

	
10.4  

	
Currency conversion

 

For the purpose of, or pending the discharge of, any of the Secured Liabilities the Security Trustee may convert any monies received, recovered or realised by the Security Trustee under this deed (including the proceeds of any previous conversion under this clause) from their existing currencies of denomination into such other currencies of denomination as the Security Trustee may think fit. Any such conversion shall be effected at a market rate of exchange. Each reference in this clause to a currency extends to funds of that currency and, for the avoidance of doubt, funds of one currency may be converted into different funds of the same currency.

 

	
10.5  

	
New accounts

 

	
(a)  

	
If the Security Trustee receives, or is deemed to have received, notice of any Security or other interest affecting all or part of the Secured Assets, the Security Trustee may open a new account or accounts for the Borrower in the Security Trustee's books and (without prejudice to the Security Trustee's right to combine accounts) no money paid to the credit of the Borrower in any such new account will be appropriated towards or have the effect of discharging any part of the Secured Liabilities.

 

	
(b)  

	
If the Security Trustee does not open a new account or accounts immediately on receipt of notice, or deemed notice, referred to in clause 10.5(a), then, unless the Security Trustee gives express written notice to the contrary to the Borrower, all payments made by the Borrower to the Security Trustee shall be treated as having been credited to a new account of the Borrower and not as having been applied in reduction of the Secured Liabilities, as from the time of receipt or deemed receipt of the relevant notice by the Security Trustee.

 

	
10.6  

	
Security Trustee's set-off rights

 

If the Security Trustee has more than one account for the Borrower in its books, the Security Trustee may at any time after:

 

	
(a)  

	
the security constituted by this deed has become enforceable; or

 

	
(b)  

	
the Security Trustee has received notice of any Security or other interest affecting all or any part of the Secured Assets,

 

transfer, without prior notice, all or any part of the balance standing to the credit of any account to any other account which may be in debit, but the Security Trustee shall notify the Borrower of the transfer once made.

 

	
10.7  

	
Indulgence

 

The Security Trustee may at its discretion grant time or other indulgence, or make any other arrangement, variation or release with any person or persons not being a party to this deed (whether or not such person or persons are jointly liable with the Borrower) in respect of any of the Secured Liabilities or of any other Security for them without prejudice either to this deed or to the liability of the Borrower for the Secured Liabilities.

 

  

11

  

	
11.  

	
Enforcement

 

	
11.1  

	
Enforcement events

 

The security constituted by this deed shall be enforceable if any of the circumstances set out in paragraph 1 of Schedule 4 occur. The parties to this deed agree that the provisions of Schedule 4 shall apply to this deed and shall be binding between them.

 

	
11.2  

	
Power of sale

 

At any time after the security constituted by this deed has become enforceable, the Security Trustee and any nominee of the Security Trustee may (without prejudice to any other right which the Security Trustee may have), without further notice to the Borrower, exercise the power to sell or otherwise dispose of the whole or any part of the Secured Assets.

 

	
11.3  

	
Terms of sale

 

Any sale or disposal under clause 11.2 may be made in such manner, on such terms and for such consideration (whether payable immediately or by instalments) as the Security Trustee shall in its absolute discretion think fit and without liability for loss.

 

	
11.4  

	
Cash

 

The Security Trustee may (without prejudice to any right which it may have under any other provision of this deed) treat any part of the Secured Assets consisting of money as if it were the proceeds of a sale or other disposal under clause 11.2.

 

	
11.5  

	
Application of proceeds

 

The Security Trustee shall apply the proceeds of a sale or other disposal under clause 11.2 (without prejudice to the right of the Security Trustee to recover any shortfall from the Borrower) in or towards the satisfaction of the Secured Liabilities in such order as the Security Trustee in its absolute discretion may from time to time determine subject to the Security Trustee's rights under paragraph 5 of Schedule 4.

 

	
11.6  

	
Right of appropriation

 

	
(a)  

	
To the extent that the Secured Assets constitutes Financial Collateral and this deed and the obligations of the Borrower hereunder constitute a Security Financial Collateral Arrangement, the Security Trustee shall have the right, at any time after the security constituted by this deed has become enforceable, to appropriate all or any of the Secured Assets in or towards the payment and/or discharge of the Secured Liabilities in such order as the Security Trustee in its absolute discretion may from time to time determine.

 

	
(b)  

	
The value of any Secured Assets appropriated in accordance with this clause shall be the price of those Secured Assets at the time the right of appropriation is exercised as listed on any recognised market index, or determined by such other method as the Security Trustee may select (including independent valuation).

 

	
(c)  

	
The Borrower agrees that the methods of valuation provided for in this clause are commercially reasonable for the purposes of the Financial Collateral Regulations.

 

	
12.  

	
Costs and indemnity

 

	
12.1  

	
Costs

 

The Borrower shall, promptly on demand, pay to, or reimburse, the Security Trustee, on a full indemnity basis, all costs, charges, expenses, taxes and liabilities of any kind (including, without limitation, legal, printing and out-of-pocket expenses) incurred by the Security Trustee in connection with:

 

  

12

  

	
(a)  

	
this deed or the Secured Assets;

 

	
(b)  

	
taking, holding, protecting, perfecting, preserving or enforcing (or attempting to do so) any of the Security Trustee's rights under this deed; or

 

	
(c)  

	
taking proceedings for, or recovering any of, the Secured Liabilities,

 

together with interest, which shall accrue and be payable (without the need for any demand for payment being made) from the date on which the relevant cost or expense arose until full discharge of that cost or expense (whether before or after judgment, liquidation, winding up or administration of the Borrower) at the default rate of interest and in the manner specified in the Convertible Note Instrument.

 

	
12.2  

	
Indemnity

 

The Borrower shall indemnify the Security Trustee and its respective employees and agents against all liabilities, costs, expenses, damages and losses (including but not limited to any direct, indirect or consequential losses, loss of profit, loss of reputation and all interest, penalties and legal costs (calculated on a full indemnity basis) and all other professional costs and expenses) suffered or incurred by any of them arising out of or in connection with:

 

	
(a)  

	
the exercise or purported exercise of any of the rights, powers, authorities or discretions vested in them under this deed or by law in respect of the Secured Assets;

 

	
(b)  

	
taking, holding, protecting, perfecting, preserving or enforcing (or attempting to do so) the security constituted by this deed; or

 

	
(c)  

	
any default or delay by the Borrower in performing any of its obligations under this deed.

 

Any past or present employee or agent may enforce the terms of this clause 12.2 subject to and in accordance with the provisions of the Contracts (Rights of Third Parties) Act 1999.

 

	
13.  

	
 Release

 

Subject to clause 20.3, on the expiry of the Security Period (but not otherwise) the Security Trustee shall, at the request and cost of the Borrower, take whatever action is necessary to release the Secured Assets from the security constituted by this deed.

 

	
14.  

	
Assignment and transfer

 

	
14.1  

	
Assignment by the Security Trustee

 

	
(a)  

	
At any time, without the consent of the Borrower, the Security Trustee may assign or transfer any or all of its rights and obligations under this deed.

 

	
(b)  

	
The Security Trustee may disclose to any actual or proposed assignee or transferee any information in its possession that relates to the Borrower, the Secured Assets and this deed that the Security Trustee considers appropriate.

 

	
14.2  

	
Assignment by the Borrower

 

The Borrower may not assign any of its rights or transfer any of its rights or obligations under this deed.

 

	
15.  

	
Set-off

 

	
15.1  

	
Security Trustee's right of set-off

 

The Security Trustee may at any time set off any liability of the Borrower to the Security Trustee against any liability of the Security Trustee to the Borrower, whether either liability is present or future, liquidated or unliquidated, and whether or not either liability arises under this deed. If the liabilities to be set off are expressed in different currencies, the Security Trustee may convert either liability at a market rate of exchange for the purpose of set-off. Any exercise by the Security Trustee of its rights under this clause 15 shall not limit or affect any other rights or remedies available to it under this deed or otherwise.

 

  

13

  

	
15.2  

	
No obligation to set off

 

The Security Trustee is not obliged to exercise its rights under clause 15.1.

 

	
16.  

	
Amendments, waivers and consents

 

	
16.1  

	
Amendments

 

No amendment of this deed shall be effective unless it is in writing and signed by, or on behalf of, each party (or its authorised representative).

 

	
16.2  

	
Waivers and consents

 

	
(a)  

	
A waiver of any right or remedy under this deed or by law, or any consent given under this deed, is only effective if given in writing by the waiving or consenting party and shall not be deemed a waiver of any other breach or default. It only applies in the circumstances for which it is given and shall not prevent the party giving it from subsequently relying on the relevant provision.

 

	
(b)  

	
A failure or delay by a party to exercise any right or remedy provided under this deed or by law shall not constitute a waiver of that or any other right or remedy, prevent or restrict any further exercise of that or any other right or remedy or constitute an election to affirm this deed. No single or partial exercise of any right or remedy provided under this deed or by law shall prevent or restrict the further exercise of that or any other right or remedy. No election to affirm this deed by the Security Trustee shall be effective unless it is in writing.

 

	
16.3  

	
Rights and remedies

 

The rights and remedies provided under this deed are cumulative and are in addition to, and not exclusive of, any rights and remedies provided by law.

 

	
17.  

	
Severance

 

If any provision (or part of a provision) of this deed is or becomes invalid, illegal or unenforceable, it shall be deemed modified to the minimum extent necessary to make it valid, legal and enforceable. If such modification is not possible, the relevant provision (or part of a provision) shall be deemed deleted. Any modification to or deletion of a provision (or part of a provision) under this clause shall not affect the legality, validity and enforceability of the rest of this deed.

 

	
18.  

	
Counterparts

 

This deed may be executed in any number of counterparts, each of which when executed and delivered shall constitute a duplicate original, but all the counterparts shall together constitute one deed.

 

	
19.  

	
Third party rights

	
(a)  

	
Except as expressly provided elsewhere in this deed, a person who is not a party to this deed shall not have any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce, or enjoy the benefit of, any term of this deed. This does not affect any right or remedy of a third party which exists, or is available, apart from that Act.

 

	
(b)  

	
The rights of the parties to rescind or agree any amendment or waiver under this deed are not subject to the consent of any other person.

 

	
20.  

	
Further provisions

 

	
20.1  

	
Independent security

 

This deed shall be in addition to, and independent of, every other Security or guarantee which the Security Trustee may at any time hold for any of the Secured Liabilities, and no prior Security held by the Security Trustee over the whole or any part of the Secured Assets shall merge in the security created by this deed.

 

  

14

  

	
20.2  

	
Continuing security

 

This deed shall remain in full force and effect as a continuing security for the Secured Liabilities, notwithstanding any settlement of account or intermediate payment or other matter or thing whatsoever, unless and until the Security Trustee discharges this deed in writing.

 

	
20.3  

	
Discharge conditional

 

Any release, discharge or settlement between the Borrower and the Security Trustee shall be deemed conditional on no payment or security received by the Security Trustee in respect of the Secured Liabilities being avoided, reduced or ordered to be refunded pursuant to any provision of any law relating to insolvency, bankruptcy, winding-up, administration, receivership or otherwise and, notwithstanding any such release, discharge or settlement:

 

	
(a)  

	
the Security Trustee or its nominee shall be at liberty to retain this deed and the security created by this deed, including all certificates and documents relating to the whole or any part of the Secured Assets, for such period as the Security Trustee shall deem necessary to provide the Security Trustee with security against any such avoidance, reduction or order for refund; and

 

	
(b)  

	
the Security Trustee shall be entitled to recover the value or amount of such security or payment from the Borrower subsequently as if such release, discharge or settlement had not occurred.

 

	
20.4  

	
Certificates

 

A certificate or determination by the Security Trustee as to any amount for the time being due to it from the Borrower shall (in the absence of any manifest error) be conclusive evidence of the amount due.

 

	
20.5  

	
Consolidation

 

The restriction on the right of consolidating mortgages contained in section 93 of the Law of Property Act 1925 shall not apply to this deed.

 

	
20.6  

	
Perpetuity period

 

If the rule against perpetuities applies to any trust created by this deed, the perpetuity period shall be 125 years (as specified by section 5(1) of the Perpetuities and Accumulations Act 2009).

 

	
21.  

	
Notices

 

	
21.1  

	
Delivery

 

Any notice or other communication required to be given to a party under or in connection with this deed shall be:

 

	
(a)  

	
in writing;

 

	
(b)  

	
delivered by hand, by pre-paid first-class post or other next working day delivery service or sent by fax or e-mail; and

 

	
(c)  

	
sent to:

 

	
(i)  

	
the Borrower at:

 

11335 Apple Drive, Spring Lake, Michigan 49448, USA

 

E-mail:brent@victoryecigs.com

 

Copy by e-mail to: ded@robinsonbrog.com and to kevin.mccarthy@mishcon.com

 

  

15

  

 

	
(ii)  

	
the Security Trustee at the address set out in the first page of this deed, with a copy by e-mail to [                 ].

 

or to such other address or fax number as is notified in writing by one party to the other from time to time.

 

	
21.2  

	
Receipt by Borrower

 

Any notice or other communication that the Security Trustee gives to the Borrower shall be deemed to have been received:

 

	
(a)  

	
if delivered by hand, at the time it is left at the relevant address;

 

	
(b)  

	
if posted by pre-paid first-class post or other next working day delivery service, on the second Business Day after posting; and

 

	
(c)  

	
if sent by fax, when received in legible form,

 

	
(d)  

	
if sent by e-mail, when sent (as long as a failed delivery message is not received)

 

provided that if receipt would under this clause be deemed to occur outside 9.30 a.m. to 5.30 p.m. (New York time) on a Business Day (Working Hours) the notice or communication will instead be deemed to have been received at the start of the next period of Working Hours.

 

	
21.3  

	
Receipt by Security Trustee

 

Any notice or other communication given to the Security Trustee shall be deemed to have been received only on actual receipt.

 

	
21.4  

	
Service of proceedings

 

This clause 21 does not apply to the service of any proceedings or other documents in any legal action or, where applicable, any arbitration or other method of dispute resolution.

 

	
22.  

	
Governing law and jurisdiction

 

	
22.1  

	
Governing law

 

This deed and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with the law of England and Wales.

 

	
22.2  

	
Jurisdiction

 

Each party irrevocably agrees that, subject as provided below, the courts of England and Wales shall have exclusive jurisdiction over any dispute or claim arising out of or in connection with this deed or its subject matter or formation (including non-contractual disputes or claims). Nothing in this clause shall limit the right of the Security Trustee to take proceedings against the Borrower in any other court of competent jurisdiction, nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdictions, whether concurrently or not, to the extent permitted by the law of such other jurisdiction.

 

  

16

  

	
22.3  

	
Agent for service

 

The Borrower irrevocably appoints Vapestick Holdings Limited for service at 25 Harley Street, London, W1G 9BR (for the attention of Brent Willis) as its agent to receive on its behalf in England or Wales service of any proceedings under clause 22.2. Such service shall be deemed completed on delivery to such agent (whether or not it is forwarded to and received by the Borrower) and shall be valid until such time as the Security Trustee has received prior written notice from the Borrower that such agent has ceased to act as agent. If for any reason such agent ceases to be able to act as agent or no longer has an address in England or Wales, the Borrower shall forthwith appoint a substitute acceptable to the Security Trustee and deliver to the Security Trustee the new agent's name and address within England and Wales.

 

	
22.4  

	
Other service

 

The Borrower irrevocably consents to any process in any legal action or proceedings being served on it in accordance with the provisions of this deed relating to service of notices. Nothing contained in this deed shall affect the right to serve process in any other manner permitted by law.

 

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

 

	
Schedule 1

	
Beneficiary

 

[                             ]

 

	
Schedule 2

	
Representations and warranties

 

Part 1

 

	
1.  

	
Ownership of Secured Assets

 

The Borrower is the sole legal and beneficial owner and registered holder of all the Must Have Limited Shares and is the sole legal and beneficial owner of the Dividend Account.

 

	
2.  

	
No security

 

The Secured Assets are free from any Security other than any Security created by this deed.

 

	
3.  

	
Must Have Limited share capital

 

The Must Have Limited Shares constitute the whole of the allotted and issued share capital of Must Have Limited.

 

	
4.  

	
Fully paid

 

The Must Have Limited Shares are fully paid up and there are no monies or liabilities outstanding in respect of any of the Must Have Limited Shares.

 

	
5.  

	
 Adverse Claims

 

The Borrower has not received or acknowledged notice of any adverse claim by any person in respect of the Secured Assets.

 

  

17

  

	
6.  

	
Adverse covenants

 

There are no covenants, agreements, reservations, conditions, interests, rights or other matters whatever, which materially adversely affect the Secured Assets.

 

	
7.  

	
No breach of laws

 

There is no breach of any law or regulation which materially adversely affects the Secured Assets.

 

	
8.  

	
No conflicting rights or breach

 

This deed does not and will not conflict with or result in any breach or constitute a default under any agreement, instrument or obligation to which the Borrower is a party or by which it is bound.

 

 

	
9.  

	
Enforceable security

 

This deed constitutes and will continue to constitute the legal valid binding and enforceable obligations of the Borrower, and is and will continue to be effective security over all and every part of the Secured Assets in accordance with its terms.

 

	
10.  

	
Avoidance of security

 

No Security expressed to be created by this deed is liable to be avoided or otherwise set aside on the liquidation or administration of the Borrower or otherwise.

 

	
  

	
Part 2

 

	
1.  

	
Must Have Limited Management Accounts

 

The Management Accounts supplied pursuant to paragraph 7(b) of Schedule 3 have been prepared in accordance with accounting standards, policies, principles and practices generally accepted in the UK and in accordance with the applicable law and fairly represent the assets and liabilities and the profits and losses of Must Have Limited as at the date for which they have been prepared.

 

	
Schedule 3

	
Covenants

 

	
1.  

	
Negative pledge and disposal restrictions

 

The Borrower shall not at any time, except with the prior written consent of the Security Trustee:

 

	
(a)  

	
create, purport to create or permit to subsist any Security on, or in relation to, any Secured Assets other than any Security created by this deed;

 

	
(b)  

	
sell, assign, transfer, part with possession of or otherwise dispose of in any manner (or purport to do so) all or any part of, or any interest in, the Secured Assets; or

 

	
(c)  

	
create or grant (or purport to create or grant) any interest in any Secured Assets in favour of a third party.

 

  

18

  

	
2.  

	
Additional registration obligations

 

The Borrower grants and agrees to:

 

	
(a)  

	
procure as necessary, all consents, waivers, approvals and permissions which are necessary, under the articles of association (or otherwise) of Must Have Limited, for the transfer of the Secured Assets to the Security Trustee or its nominee or to a purchaser upon enforcement of this deed; and

 

	
(b)  

	
procure the amendment of the share transfer provisions of the articles of association, other constitutional document or otherwise of Must Have Limited in such manner as the Security Trustee may require in order to permit such a transfer.

 

	
3.  

	
No alteration of rights and liabilities

 

The Borrower shall not, without the prior written consent of the Security Trustee, amend, or agree to the amendment of, the memorandum or articles of association of Must Have Limited of the Must Have Limited Shares or the rights or liabilities attaching to any of the Must Have Limited Shares.

 

	
4.  

	
Preservation of Secured Assets

 

The Borrower shall ensure (insofar as it is able by the exercise of all voting rights, powers of control and other means available to it) that Must Have Limited will not:

 

	
(a)  

	
consolidate or subdivide any of its stock or shares or reduce or reorganise its share capital in any way;

 

	
(b)  

	
issue any new shares or stock;

 

	
(c)  

	
refuse to register any transfer of any of its shares which may be lodged for registration by or on behalf of the Security Trustee or the Borrower in accordance with this deed;

 

	
(d)  

	
 withdraw or transfer any monies standing to the deposit of the Dividend Account until after the Security Period has expired;

 

	
(e)  

	
do, or permit to be done, any act or thing which would or might depreciate, jeopardise or otherwise prejudice the security held by the Security Trustee or materially diminish the value of the Secured Assets or the effectiveness of the security created by this deed (including, without limitation, closing the Dividend Account).

 

	
5.  

	
Investment information

 

The Borrower shall, and shall procure that each of its nominees shall, promptly following receipt, send to the Security Trustee copies of all notices, circulars, reports, accounts and other documents relating to the Must Have Limited Shares, which are received by the Borrower or any of its nominees (as the case may be).

 

	
6.  

	
Enforcement of rights

 

The Borrower shall use its best endeavours to:

 

	
(a)  

	
procure the prompt observance and performance by the counterparty to any agreement or arrangement with the Borrower relating to the Dividend Account; and

 

	
(b)  

	
enforce any rights and institute, continue or defend any proceedings relating to the Dividend Account which the Security Trustee may require from time to time.

 

	
7.  

	
No variations

 

The Borrower shall not cause or permit to be done anything which is a variation or abrogation of the rights attaching to or conferred on all or any part of the Secured Assets by this deed, without the prior written consent of the Security Trustee.

 

  

19

  

	
8.  

	
Notice of breaches

 

The Borrower shall promptly on becoming aware of any of the same give the Security Trustee notice in writing of any breach of:

	
(a)  

	
any representation or warranty set out in this deed that is incorrect or misleading in any material respect when made or deemed to be repeated; and

 

	
(b)  

	
any breach of any covenant set out in this deed.

 

	
9.  

	
Management Accounts and EBITDA

 

The Borrower shall procure that:

 

	
(a)  

	
Must Have Limited prepare Management Accounts in respect of each calendar month during the Must Have Limited Debenture Security Period;

 

	
(b)  

	
Must Have Limited supply each set of such Management Accounts to the Security Trustee (acting as agent and trustee of the Beneficiary), within one Business Day of the same becoming available; and

 

	
(c)  

	
the EBITDA in respect of each calendar month is not less than $700,000.

 

	
10.  

	
No discharge of Borrower’s obligations by Must Have Limited

 

The Borrower shall procure that Must Have Limited will not, other than in accordance with the terms of the Must Have Limited Guarantee, directly or indirectly use any of its cash (whether held in hand or on deposit), assets or other resources to discharge any obligation or liability of the Borrower or any Subsidiary of the Borrower.

 

	
Schedule 4

	
Enforcement

 

	
1.  

	
Enforcement events

 

This deed shall be enforceable if:

 

	
(a)  

	
any of the Secured Liabilities are not paid or discharged when the same ought to be paid or discharged by the Borrower (whether on demand or at scheduled maturity or by acceleration or otherwise, as the case may be);

 

	
(b)  

	
the Borrower is in breach of any of its obligations under this deed or the Convertible Note Documents and that breach (if capable of remedy) has not been remedied to the satisfaction of the Security Trustee within 14 days of notice by the Security Trustee to the Borrower to remedy the breach;

 

	
(c)  

	
any representation, warranty or statement made by the Borrower in, or in connection with, this deed is or proves to have been incorrect or misleading when made;

 

	
(d)  

	
the Borrower:

 

	
(i)  

	
becomes unable to pay its debts as they fall due or the value of the Borrower's assets is less than the amount of its liabilities, taking into account the Borrower's contingent and prospective liabilities;

 

	
(ii)  

	
commences negotiations with any one or more of its creditors with a view to the general readjustment or rescheduling of its indebtedness;

 

	
(iii)  

	
makes a general assignment for the benefit of, or a composition with, its creditors; or

 

  

20

  

	
(e)  

	
the Borrower passes any resolution or takes any corporate action or a petition is presented or proceedings are commenced or any action is taken by any person for its winding-up, dissolution, administration or reorganisation or for the appointment of a receiver, administrative receiver, administrator, trustee or similar officer of it or of any or all of its revenues and assets;

 

	
(f)  

	
a distress, execution, attachment or other legal process is levied or enforced upon or sued against all or any part of the assets of the Borrower and remains undischarged for seven days; or

 

	
(g)  

	
any event occurs which under any jurisdiction has a similar or analogous effect to any of the events mentioned in paragraph 1(d), paragraph 1(e) or paragraph 1(f) of this Schedule 4; or

 

	
(h)  

	
an Event of Default occurs;

 

and in any such event (whether or not the event is continuing) the Security Trustee or any nominee of the Security Trustee may without further notice, without regard to the restrictions contained in section 103 of the Law of Property Act 1925 and without prejudice to any of Security Trustee's other rights, immediately exercise all the powers conferred on mortgagees by the Law of Property Act 1925 as varied or extended by this deed without any restrictions.

 

	
2.  

	
Power of sale

 

Notwithstanding that as between the Security Trustee and a purchaser from the Security Trustee, the power of sale arises on and is exercisable at any time after the execution of this deed, the Security Trustee shall not exercise that power of sale until an event (as specified in the paragraph 1 of this Schedule 4) entitling the Security Trustee to enforce its security has occurred.

 

	
3.  

	
Protection of third parties

 

No purchaser, mortgagee or other person dealing with the Security Trustee or its nominee shall be concerned to:

 

	
(a)  

	
enquire whether any of the Secured Liabilities have become due or payable or remain unpaid or not discharged, or whether the power the Security Trustee is purporting to exercise has become exercisable; or

 

	
(b)  

	
see to the application of any money paid to the Security Trustee or its nominee.

 

 

	
4.  

	
Appropriation

 

Neither the Security Trustee nor any nominee of the Security Trustee shall be bound (whether by virtue of section 109(8) of the Law of Property Act 1925, which is varied accordingly, or otherwise) to pay or appropriate any receipt or payment first towards interest rather than principal or otherwise in any particular order as between any of the Secured Liabilities.

 

 

	
5.  

	
Suspense account

 

All monies received by the Security Trustee under this deed may, at the discretion of the Security Trustee, be credited to any suspense or securities realised account and shall bear interest at such rate, if any, as may be agreed in writing between the Security Trustee and the Borrower and may be held in such account for so long as the Security Trustee thinks fit.

 

 

	
6.  

	
Statutory protection

 

All the protection to purchasers contained in sections 104 and 107 of the Law of Property Act 1925, section 42(3) of the Insolvency Act 1986 or in any other appropriate legislation shall apply to any person purchasing from the Security Trustee or any nominee of the Security Trustee as a result of the Security Trustee exercising or purporting to exercise its power of sale under this deed.

 

  

21

  

 

Schedule 5

 

Part 1

 

Form of notice to the Account Bank

 

 

[On the letterhead of the Borrower]

 

[ACCOUNT BANK]

 

[ADDRESS LINE 1]

 

[ADDRESS LINE 2]

 

[POSTCODE]

 

[DATE]

 

Dear Sirs,

 

Charge over bank account (“Charge”) dated [DATE] between Victrory Electronic Cigarettes Corporation (“Borrower”) and [              ] (“Security Trustee”).

 

This letter constitutes notice to you that under the Charge (a copy of which is attached) we have charged, by way of first fixed charge, in favour of the Security Trustee all monies from time to time standing to the credit of the account held with you and detailed below (the “Account”), together with all other rights and benefits accruing to or arising in connection with the Account (including, but not limited to, entitlements to interest):

 

Name of Account: [NAME OF ACCOUNT]

 

Sort code: [SORT CODE]

 

Account number: [ACCOUNT NUMBER]

 

We irrevocably instruct and authorise you to:

 

Disclose to the Security Trustee any information relating to the Account requested from you by the Security Trustee;

 

Comply with the terms of any written notice or instructions relating to the Account received by you from the Security Trustee;

 

Hold all sums from time to time standing to the credit of the Account to the order of the Security Trustee; and

 

Pay or release all or any part of the monies standing to the credit of the Account in accordance with the written instructions of the Security Trustee.

 

We acknowledge that you may comply with the instructions in this letter without any further permission from us.

 

We are not permitted to withdraw any amount from the Account without the prior written consent of the Security Trustee.

 

The instructions in this letter may not be revoked or amended without the prior written consent of the Security Trustee.

 

This letter is governed by English law.

 

Please confirm your agreement to the above by sending the attached acknowledgement to the Security Trustee at 544 Riverside Avenue, Westport, CT 066880, with a copy to ourselves.

 

Yours faithfully,

 

Signed.............................................

 

For and on behalf of the Borrower

 

  

22

  

Part 2

 

Form of acknowledgement of the Account Bank

 

[On the letterhead of the Account Bank]

 

[                 ]

 

[DATE]

 

Dear Sirs,

 

Charge over bank account (“Charge”) dated [DATE] between Victory Electronic Cigarettes Corporation (“Borrower”) and [                      ]  (“Security Trustee”).

 

We confirm receipt from the Borrower of a notice (the “Notice”) dated [DATE] of a charge on the terms of the Charge over all monies from time to time standing to the credit of the account detailed below (the “Account”), together with all other rights and benefits accruing to or arising in connection with the Account (including, but not limited to, entitlements to interest).

 

We confirm that we:

 

	
●  

	
Accept the instructions contained in the Notice and agree to comply with the Notice;

 

	
●  

	
Have not received notice of the interest of any third party in the Account;

 

	
●  

	
Have neither claimed nor exercised, nor will claim or exercise any security interest, set-off, counter-claim or other right in respect of the Account; and

 

	
●  

	
Will not permit any amount to be withdrawn from the Accouns without your prior written consent.

 

The Account is:

 

Name of Account: [NAME OF ACCOUNT]

 

Sort code: [SORT CODE]

 

Account number: [ACCOUNT NUMBER]

 

This letter is governed by English law.

 

Yours faithfully,

 

Signed............................................

 

For and on behalf of the [Account Bank]]

 

  

23

  

	
 

Executed as a deed by VICTORY ELECTRONIC CIGARETTES CORPORATION          )                                                                acting by .................................. ................,              a director, in the presence of:

 

Witness signature:.............................................

Witness name:..................................................

Witness address: ..............................................

...................................................................

Witness occupation:...........................................

 

	
 

 

........................................

Director

 

 

 

 

 

	
 

Executed as a deed by [                       ])                                                                as Security Trustee, acting by .................................. ................,                   a director, in the presence of:

 

Witness signature:.............................................

Witness name:..................................................

Witness address: ..............................................

...................................................................

Witness occupation:...........................................

 

	
 

 

........................................

Director

 

 

24ecig_ex1010.htm

Exhibit 10.10

 

DATED     APRIL 2014

 

	
VICTORY ELECTRONIC CIGARETTES CORPORATION

as Borrower

 

MUST HAVE LIMITED

as Guarantor

 

[                          ]

as Senior Creditor

 

[                      ]

as Security Trustee for the Senior Creditor

 

THE PERSONS NAMED IN SCHEDULE 1

as Subordinated Creditors

 

AND

 

[                      ]

as Security Trustee for the Subordinated Creditors

 

INTER-CREDITOR DEED

 

 

  

1

  

 

Contents

 

	
1

	
Definitions and interpretation

	
3

	
2

	
Priorities

	
7

	
3

	
Borrower and Guarantor covenants

	
9

	
4

	
Subordinated Creditors and Junior Security Trustee covenants

	
10

	
5

	
Permitted Payments

	
11

	
6

	
Waiver and Amendments of Debt Documents

	
11

	
7

	
Subordination on Insolvency

	
12

	
8

	
Treatment of Distributions

	
13

	
9

	
Preservation of rights

	
13

	
10

	
Co-operation by Borrower, the Guarantor, the Subordinated Creditors and the Junior Security Trustee

	
13

	
11

	
Preservation of subordination

	
14

	
12

	
Book debts, insurance and custody of documents

	
15

	
13

	
Senior Debt enforcement

	
16

	
14

	
Enforcement by the Subordinated Creditors and/or the Junior Security Trustee

	
16

	
15

	
Information by Subordinated Creditor

	
16

	
16

	
Application of proceeds

	
17

	
17

	
Refinancing of Senior Debt

	
17

	
18

	
Power of attorney

	
18

	
19

	
Expenses

	
18

	
20

	
Duration

	
20

	
21

	
Restrictions on assignments

	
20

	
22

	
Borrower's and Guarantor’s acknowledgements

	
20

	
23

	
Endorsement on Debt Documents

	
21

	
24

	
Remedies, waivers, amendments and consents

	
21

	
25

	
Severance

	
22

	
26

	
Counterparts

	
22

	
27

	
Third party rights

	
22

	
28

	
Perpetuity period

	
22

	
29

	
Notices

	
22

	
30

	
Governing law and jurisdiction

	
24

	Schedule 1   Subordinated Creditors	
25

	Schedule 2   Senior Debt Documents	
26

	Part 1.   Senior lending documents	
26

	Part 2.   Senior Security Documents	
26

	Schedule 3   Junior Debt Documents	
26

	Part 1.   Junior lending documents	
26

	Part 2.   Junior Security Documents	
26

 

  

2

  

 

THIS AGREEMENT is dated        April 2014 and made between:

 

	
(1)  

	
VICTORY ELECTRONIC CIGARETTES CORPORATION, registered in the State of Nevada, USA under number C13461-2004 whose registered office is at 11335 Apple Drive, Spring Lake, Michigan 49448, USA ("Borrower");

 

	
(2)  

	
MUST HAVE LIMITED, a limited liability company incorporated in England and Wales with company number 05101019 whose registered office is at Unit 14, Dale Street Industrial Estate, Radcliffe, Manchester M26 1AD (“Guarantor”).

 

	
(3)  

	
[                                    ] ("Senior Creditor").

 

	
(4)  

	
[                                    ] (“Senior Security Trustee”).

 

	
(5)  

	
The persons whose names and addresses are set out in column (1) of Schedule 1 ("Subordinated Creditors").

 

	
(6)  

	
[                                    ] ("Junior Security Trustee").

 

Background

 

	
(A)  

	
The Senior Creditor has agreed to provide the Senior Debt, and the Subordinated Creditors have agreed to provide the Junior Debt, to the Borrower and/or the Guarantor (as applicable). The Senior Security Trustee acts as security agent and trustee for the Senior Creditor in respect of the Senior Security and the Junior Security Trustee acts as security agent and trustee for the Subordinated Creditors in respect of the Junior Security. The parties have agreed that the priority of their debts of the Creditors shall be as set out in this deed.

 

	
(B)  

	
The Borrower and the Guarantor have agreed to enter this deed to acknowledge its terms and to give certain covenants to the Creditors.

 

Agreed terms

 

	
1.  

	
Definitions and interpretation

 

	
1.1  

	
Definitions

 

The following definitions apply in this deed.

 

Ancillary Liabilities: in relation to the Senior Debt or the Junior Debt means:

 

	
(a)  

	
any refinancing, novation, refunding, restructuring, deferral or extension of any of those liabilities;

 

	
(b)  

	
any further advance which may be made under any agreement supplemental to the relevant facilities or credit agreement plus all interest, indemnities, fees and costs in connection therewith;

 

	
(c)  

	
any claim for damages or restitution in the event of rescission of any such liabilities or otherwise in connection with any relevant facilities or credit agreement;

 

	
(d)  

	
any claim against the Borrower and/or the Guarantor (and in relation to the Senior Debt, the Subordinated Creditors) flowing from any recovery by the Borrower and/or the Guarantor (and in relation to the Senior Debt, the Subordinated Creditor) of a payment or discharge in respect of those liabilities on the grounds of preference or otherwise; and

 

  

3

  

	
(e)  

	
any amounts (including post-insolvency interest) which would be included in any of the above but for any discharge, non-provability, unenforceability or non-allowability of the same in any insolvency or other proceedings.

 

Borrower Equity Capital Raising: a public offering of the Borrower’s Common Stock made after the date of this deed, which raises gross proceeds for the Borrower of at least US$40,000,000.

 

Business Day: a day other than a Saturday, Sunday or public holiday in England when banks in London are open for business.

 

Creditors: the Senior Creditor (and the Senior Security Trustee acting as security agent and trustee for the Senior Creditor) and the Subordinated Creditors (and the Junior Security Trustee acting as security agent and trustee for the Subordinated Creditors) together, and Creditor means any of the Creditors.

 

Debt Document: each of the Junior Debt Documents and the Senior Debt Documents.

 

Distressed Disposal: a disposal of an asset of the Borrower or the Guarantor which is being effected as result of the enforcement of the Senior Security and/or the Junior Security.

 

Enforcement Date: the Business Day following the date on which a Creditor receives written notice from the Senior Creditor that the Senior Creditor and/or the Senior Security Trustee has taken action to:

 

	
(a)  

	
demand repayment, or payment, of any of the Liabilities secured by the Security constituted by any of its Security Documents;

 

	
(b)  

	
enforce any of the Security constituted by any of its Security Documents; or

 

	
(c)  

	
take possession of any asset subject to any of the Security constituted by any of its Security Documents.

 

Initial Period: the period of 174 days from the date of this deed.

 

Insolvency: in respect of any person means:

 

	
(a)  

	
that person's bankruptcy, dissolution, liquidation, winding-up or administration, an application is made/or an interim order in respect of that person or that person entering into any voluntary arrangement or composition with creditors;

 

	
(b)  

	
the appointment of a receiver or administrative receiver in respect of all or part of the person's asset; and

 

	
(c)  

	
any event having a similar effect under the laws of any relevant jurisdiction,

 

and the term "Insolvent" shall be interpreted accordingly.

 

Junior Debt: all Liabilities which are or may become payable or owing by the Borrower and/or the Guarantor to any of the Subordinated Parties under the Junior Debt Documents, or otherwise, together with all Ancillary Liabilities relating thereto.

 

Junior Debt Document: any document referred to in Schedule 3.

 

Junior Loan Notes: Secured Loan Notes 2014, in the aggregate principal amount of US$11,000,000, issued by the Borrower to the Subordinated Creditors on or about the date of this deed.

 

Junior Loan Note Instrument: the instrument dated on or about the date of this deed pursuant to which the Junior Loan Notes are, or are to be, constituted.

 

Junior Security Document: any document referred to in Part 2 of Schedule 3 and any document under which Security is taken pursuant thereto and any other document under which Security is created, whether at the date of this deed or at any later date, which secures any of the Junior Debt and is permitted to be taken pursuant to this deed.

 

  

4

  

Junior Security: any Security in favour of any or all of the Subordinated Parties created by a Junior Security Document.

 

Liabilities: all present or future monies, obligations or liabilities, whether actual or contingent and whether owed jointly or severally, as principal or surety and/or in any other capacity.

 

Losses: all losses (including loss of profit), claims, demands, actions, proceedings, damages and other payments, costs, charges, expenses and other liabilities of any kind.

 

Permitted Payment: any payment of amounts owing to the Subordinated Parties permitted under clause 5.1 or clause 5.3 of this deed.

 

Potential Event of Default: in respect of a Debt Document, any event or circumstance which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Debt Document, the fulfilment of any other condition or any combination of any of the foregoing) be an Event of Default under the Debt Document;

 

Receiver: a receiver, receiver and manager or administrative receiver appointed by a Senior Party pursuant to the provisions of its Security Documents.

 

Right: any Security or other right or benefit whether arising by set-off, counterclaim, subrogation, indemnity, proof in liquidation or otherwise and whether from contribution or otherwise.

 

Security Document: any Senior Security Document and any Junior Security Document.

 

Security: any mortgage, charge (whether fixed or floating, legal or equitable), pledge, lien, assignment by way of security or other security interest securing any obligation of any person, or any other agreement or arrangement having a similar effect.

 

Senior Debt: all Liabilities which are or may become payable or owing by the Borrower and/or the Guarantor to any or all of the Senior Parties under the Senior Debt Documents together with all Ancillary Liabilities relating thereto.

 

Senior Debt Document: any document referred to in Schedule 2.

 

Senior Discharge Date: means the date, as determined by the Senior Security Trustee, on which all Senior Debt has been unconditionally and irrevocably paid and discharged in full to the satisfaction of the Senior Security Trustee, whether or not by enforcement and on which no commitment is in force under the Senior Debt Documents.

 

Senior Convertible Loan Notes: 6% Secured Loan Notes 2014, in the aggregate principal amount of US$ $24,175,824, issued by the Borrower to the Senior Creditor, on or about the date of this deed;

 

Senior Convertible Note Instrument: the instrument dated on or about the date of this deed pursuant to which the Senior Convertible Loan Notes are, or are to be, constituted.

 

Senior Parties: means the Senior Creditor and the Senior Security Trustee and a Senior Party means any of the Senior Parties.

 

Senior Security Document: any document referred to in Part 2 of Schedule 2 and any document under which Security is taken pursuant thereto and any other document under which Security is created, whether at the date of this deed or at any later date, which secures any of the Senior Debt.

 

Senior Security: any Security in favour of any or all of the Senior Parties created by a Senior Security Document.

 

Share Purchase Agreement: the share purchase agreement dated on or about the date of this deed between the Borrower and the Subordinated Creditors, pursuant to which inter alia the Borrower shall acquire the entire issued share capital of the Guarantor from the Subordinated Creditors.

 

Subordinated Parties: means the Subordinated Creditors and the Junior Security Trustee and a Subordinated Party means any of the Subordinated Parties.

 

  

5

  

Subsidiary: means, a subsidiary undertaking within the meaning of section 1162 of the Companies act 2006;

 

	
1.2  

	
Interpretation

 

In this deed:

 

	
(a)  

	
clause, Schedule and paragraph headings shall not affect the interpretation of this deed;

 

	
(b)  

	
a reference to a person shall include a reference to an individual, firm, company, corporation, partnership, unincorporated body of persons, government, state or agency of a state or any association, trust, joint venture or consortium (whether or not having separate legal personality) and that person's personal representatives, successors, permitted assigns and permitted transferees;

 

	
(c)  

	
unless the context otherwise requires, words in the singular shall include the plural and in the plural shall include the singular;

 

	
(d)  

	
unless the context otherwise requires, a reference to one gender shall include a reference to the other genders;

 

	
(e)  

	
a reference to a party shall include that party's successors, permitted assigns and permitted transferees;

 

	
(f)  

	
a reference to a statute or statutory provision is a reference to it as amended, extended or re-enacted from time to time;

 

	
(g)  

	
a reference to a statute or statutory provision shall include all subordinate legislation made from time to time under that statute or statutory provision;

 

	
(h)  

	
a reference to writing or written includes fax and e-mail;

 

	
(i)  

	
an obligation on a party not to do something includes an obligation not to allow that thing to be done;

 

	
(j)  

	
a reference to this deed (or any provision of it) or to any other agreement or document referred to in this deed is a reference to this deed, that provision or such other agreement or document as amended (in each case, other than in breach of the provisions of this deed) from time to time;

 

	
(k)  

	
unless the context otherwise requires, a reference to a clause or Schedule is to a clause of, or Schedule to, this deed and a reference to a paragraph is to a paragraph of the relevant Schedule;

 

	
(l)  

	
any words following the terms including, include, in particular, for example or any similar expression shall be construed as illustrative and shall not limit the sense of the words, description, definition, phrase or term preceding those terms;

 

	
(m)  

	
a reference to an amendment includes a novation, re-enactment, supplement or variation (and amended shall be construed accordingly);

 

	
(n)  

	
a reference to assets includes present and future properties, undertakings, revenues, rights and benefits of every description; and

 

	
(o)  

	
a reference to determines or determined means, unless the contrary is indicated, a determination made at the absolute discretion of the person making it.

 

	
1.3  

	
Schedules

 

The Schedules form part of this deed and shall have effect as if set out in full in the body of this deed. Any reference to this deed includes the Schedules.

 

	
1.4  

	
Clawback

 

If the Senior Security Trustee considers that an amount paid in respect of the Senior Debt is capable of being avoided or otherwise set aside on the liquidation or administration of the Borrower, the Guarantor or otherwise, then that amount shall not be considered to have been irrevocably paid for the purposes of this deed.

 

  

6

  

 

	
2.  

	
Priorities

 

	
2.1  

	
Senior Parties consent to Junior Security

 

Each of the Senior Parties:

 

	
(a)  

	
consents to the creation or subsistence (as appropriate) of the Junior Security and the Junior Debt under the Junior Debt Documents; and

 

	
(b)  

	
confirms that the creation or subsistence of the Junior Security and/or the Junior Debt under the Junior Debt Documents do not constitute a default by the Borrower or Guarantor under any of the Senior Debt Documents.

 

	
2.2  

	
Subordinated Parties consent to Senior Security

 

Each of the Subordinated Parties:

 

	
(a)  

	
consents to the creation of the Senior Security; and

 

	
(b)  

	
confirms that the creation or subsistence of the Senior Security does not constitute a default by the Borrower or Guarantor under any of the Junior Debt Documents.

 

	
2.3  

	
Ranking and subordination of debt

 

Each of the parties agree that:

 

	
(a)  

	
the Senior Debt ranks and shall rank in priority to the Junior Debt in all respects;

 

	
(b)  

	
the Junior Debt is and shall be subordinated to the Senior Debt; and

 

	
(c)  

	
no payments shall (except as otherwise provided in this deed) be made by any person in respect of the Junior Debt while the Senior Debt is outstanding.

 

	
2.4  

	
Ranking and subordination of security

 

Each of the parties agree that:

 

	
(a)  

	
the Senior Security shall rank in priority to the Junior Security; and

 

	
(b)  

	
the Junior Security is and shall be subordinated to, and rank after, the Senior Security.

 

	
2.5  

	
Monies received by Subordinated Party

 

If before the Senior Discharge Date:

 

	
(a)  

	
any Subordinated Party receives a payment or distribution in cash or in any other form in respect of, or on account of the Junior Debt from the Borrower or the Guarantor or any other source;

 

	
(b)  

	
any Subordinated Party receives the proceeds of any enforcement of any security, or payment under any guarantee, for any Junior Debt; or

 

	
(c)  

	
the Borrower or the Guarantor makes any payment or distribution in cash or in any other form on account of the purchase or other acquisition of any of the Junior Debt,

 

in each case in contravention of this deed (and, for the avoidance of doubt, this Clause shall not apply to any Permitted Payment), the relevant Subordinated Party shall forthwith pay any and all such amounts to the Senior Security Trustee for application against the Senior Debt and until it does so shall hold all such amounts on trust for the Senior Creditor.

 

  

7

  

 

	
2.6  

	
Non-permitted set-off

 

If, for any reason, the Junior Debt is discharged in whole or in part by set-off in contravention of this deed, the Subordinated Creditors will forthwith pay an amount equal to the amount of the Junior Debt discharged by the set-off to the Senior Security Trustee for application against the Senior Debt.

 

	
2.7  

	
Failure of trust

 

If for any reason, a trust in favour of, or a holding of property for, the Senior Creditor under this deed is invalid or unenforceable, the Subordinated Creditors shall pay and deliver to the Senior Security Trustee in cash or in kind an amount (or, if in kind, a value) equal to the payment, receipt or recovery which it would otherwise have been bound to hold in trust for, or as property of, the Senior Creditor.

 

	
2.8  

	
Continuing status of security

 

Nothing in this deed shall affect the status of the Security Documents as continuing security, nor shall the ranking of the Security in clause 2.4 be affected by any act, omission, transaction, limitation, matter, thing or circumstance whatsoever which but for this provision might operate to affect the relative priorities of the Security constituted by the Security Documents, including, but not limited to:

 

	
(a)  

	
the nature of the Security constituted by the Security Documents and the order of their execution or registration;

 

	
(b)  

	
any provision contained in any of the Security Documents;

 

	
(c)  

	
the respective date (or dates) on which any person received notice of the existence or creation of any Security constituted by any Security Document;

 

	
(d)  

	
the respective date (or dates) on which monies may be, or have been, advanced or become owing or payable under a Debt Document or secured under a Security Document;

 

	
(e)  

	
any fluctuation from time to time in the amount of Liabilities secured by a Security Document and in particular, without limitation, any reduction to nil of the Liabilities so secured;

 

	
(f)  

	
the existence at any time of a credit balance on any current or other account of the Borrower or the Guarantor;

 

	
(g)  

	
the appointment of any liquidator, Receiver, administrator or other similar officer either in respect of the Borrower or the Guarantor or over all or any part of the Borrower's or the Guarantor’s assets (as applicable); and/or

 

	
(h)  

	
any amendment or supplement to, or variation of, any Debt Document.

 

	
2.9  

	
Invalidity of security

 

If all or any of the Senior Security or Junior Security:

 

	
(a)  

	
is released; or

 

	
(b)  

	
is or becomes wholly or partly invalid or unenforceable,

 

the Senior Creditor or Subordinated Creditors (respectively) shall bear the resulting loss and shall not be entitled to share in monies derived from assets over which it has no effective security.

 

  

8

  

	
2.10  

	
No challenge to security

 

No Creditor shall challenge or question:

 

	
(a)  

	
the validity or enforceability of any Security constituted by a Security Document;

 

	
(b)  

	
the nature of any Security constituted by a Security Document; or

 

	
(c)  

	
without prejudice to the generality of the foregoing, whether any Security constituted by a Security Document is fixed or floating.

 

	
2.11  

	
Conflict with provision in Debt Documents

 

The parties agree that if there is an inconsistency between any of the provisions of this deed and the provisions of a Debt Document, the provisions of this deed shall prevail.

 

	
3.  

	
Borrower and Guarantor covenants

 

	
3.1  

	
Borrower and Guarantor covenants

 

So long as the Senior Debt is outstanding, neither the Borrower nor the Guarantor shall, and each shall procure that none of its Subsidiaries shall (in each case, except as the Senior Security Trustee has previously consented to in writing):

 

	
(a)  

	
make a loan or provide credit to the Subordinated Creditors;

 

	
(b)  

	
pay or repay, or make any distribution in respect of, or purchase or acquire, any of the Junior Debt in cash or kind;

 

	
(c)  

	
purchase or acquire, or permit any Subsidiary to purchase or acquire, any of the Junior Debt;

 

	
(d)  

	
permit any Subsidiary to purchase or acquire any of the Junior Debt;

 

	
(e)  

	
exercise any right of set-off against the Junior Debt;

 

	
(f)  

	
create, subsist, or allow to exist, any Security (other than Junior Security) over any of its assets for, or any guarantee for or in respect of, any of the Junior Debt or in respect of a loan or credit provided to the Subordinated Creditors by another person;

 

	
(g)  

	
amend, waive or release any term of the Junior Debt Documents;

 

	
(h)  

	
vary the Junior Debt Documents; or

 

	
(i)  

	
take, or omit to take, any action which may impair the ranking or the subordination set out in this deed.

 

Provided that the provisions of this Clause 3.1 shall not apply to any Permitted Payment.

 

  

9

  

	
4.  

	
Subordinated Creditors and Junior Security Trustee covenants

 

	
4.1  

	
No payment, Security or guarantee

 

Each Subordinated Creditor and the Junior Security Trustee covenants with the Senior Parties that, so long as the Senior Debt is outstanding, it shall not (except with the prior consent of the Senior Security Trustee):

 

	
(a)  

	
demand payment, prepayment or repayment of, or any distribution in respect of (or on account of) any of the Junior Debt in cash or in kind from the Borrower or Guarantor or any other source or apply any money or property in discharge of any Junior Debt;

 

	
(b)  

	
receive payment of, or any distribution in respect of (or an account of) any of the Junior Debt in cash or in kind from the Borrower or Guarantor or any other source or apply any money or property in discharge of any Junior Debt;

 

	
(c)  

	
discharge any of the Junior Debt by set-off;

 

	
(d)  

	
allow to exist or subsist or receive the benefit of any Security, guarantee, indemnity or other assurance against financial loss for, or in respect of, or receive the benefit of any guarantee, from any person in respect of the Junior Debt (other than Junior Security);

 

	
(e)  

	
take, or omit to take, any action which may impair the ranking or the subordination set out in this deed;

 

	
(f)  

	
modify, amend, waive or release any term of the Junior Debt Documents, except for an amendment which does not prejudice any Senior Debt, the Senior Parties or impair the subordination contemplated by this deed;

 

	
(g)  

	
accelerate any of the Junior Debt or otherwise declare any of the Junior Debt prematurely payable (other than in accordance with clause 14 of this deed);

 

	
(h)  

	
either alone or in conjunction with any other person, commence or take any action against the Borrower or Guarantor for the enforcement of, or in connection with, any Junior Debt Document (including for the payment of any amount thereunder) or for the termination thereof (other than in accordance with clause 14 of this deed);

 

	
(i)  

	
take any step, or support any step, which may lead to the Insolvency of the Borrower or Guarantor (other than in accordance with clause 14 of this deed) ; and/or

 

	
(j)  

	
otherwise exercise any remedy for the recovery or enforcement of the Junior Debt.

 

Provided that the provisions of this Clause 4.1 shall not apply to any Permitted Payment.

 

	
4.2  

	
No set-off

 

Each of the Subordinated Parties shall not claim any right of set-off, abatement or any other extinction or reduction in respect of any liability which it has to the Borrower or Guarantor.

 

	
4.3  

	
No other arrangements

 

Each of the Subordinated Parties shall not make any arrangement which would place, or which aims to place, the Subordinated Creditors in a position similar to that in which it would be if:

 

	
(a)  

	
it had received a payment in respect of the Junior Debt (other than a Permitted Payment); or

 

	
(b)  

	
the Junior Debt had been secured by Security (other than the Junior Security).

 

  

10

  

	
4.4  

	
No Security

 

Nothing in clause 2 or this clause 4 shall create, or be deemed to create, Security.

 

	
5.  

	
Permitted Payments

 

	
5.1  

	
Following the expiry of the Initial Period, the Borrower (or the Guarantor, in discharge of the obligations of the Borrower) may, subject to clause 5.2:

 

	
(a)  

	
make each payment of interest, and all amounts relating to interest, on the Junior Loan Notes on the relevant due date; and/or

 

	
(b)  

	
make each scheduled repayment of principal of the Junior Loan Notes (excluding, for avoidance of doubt, any voluntary early repayment) in accordance with the Junior Loan Note Instrument; and/or

 

	
(c)  

	
make any payments in respect of the Initial Consideration and Earn-out Consideration (in each case, as defined in the Share Purchase Agreement) due to the Subordinated Creditors pursuant to the Share Purchase Agreement.

 

	
5.2  

	
The payments permitted by clause 5.1 may only be made if:

 

	
(a)  

	
no step has been taken to enforce any Senior Security or Junior Security;

 

	
(b)  

	
no event of default, other termination event or Potential Event of Default has occurred, is continuing and has not been remedied or waived in respect of any Senior Debt Document or would occur as result of the making of the relevant payments; and

 

	
(c)  

	
no step has been taken for the winding up, dissolution, administration or reorganisation of the Borrower and/or the Guarantor or the appointment of a liquidator, Receiver, administrator or other similar officer of the Borrower and/or the Guarantor or any of the assets of the Borrower and/or the Guarantor.

 

	
5.3  

	
Without prejudice to clause 5.1 above, following a Borrower Equity Capital Raising, the Borrower may, subject to clause 5.4, make all payments pursuant to the Junior Debt Documents (including, for the avoidance of doubt and without limitation, all payments of capital, interest and all amounts relating to interest) out of the net proceeds of the Borrower Equity Capital Raising.

 

	
5.4  

	
The payments permitted by clause 5.3 may only be made if no Event of Default (as that term is defined in any of the Senior Debt Documents) has occurred, is continuing and has not been remedied or waived.

 

	
6.  

	
Waiver and Amendments of Debt Documents

 

	
6.1  

	
No waiver or amendments of Junior Debt Documents

 

Without prejudice to the generality of the provisions of clauses 3 and 4, neither the Borrower, the Guarantor nor any Subordinated Party shall agree any modification, waiver or amendment to, or make any other agreement affecting, any Junior Debt Document which would:

 

	
(a)  

	
increase the margin or change the basis on which the interest payable is calculated under a Junior Debt Document;

 

	
(b)  

	
increase the commitments of the Subordinated Creditors under any Junior Debt Document; or

 

	
(c)  

	
amend or vary the gross-up or substitute basis provisions in a Junior Debt Document.

 

  

11

  

	
6.2  

	
No waiver or amendments of Senior Debt Documents

 

Without prejudice to the generality of the provisions of clauses 3 and 4, neither the Borrower, the Guarantor nor any Senior Party shall agree any modification, waiver or amendment to, or make any other agreement affecting, any Senior Debt Document which would:

 

	
(a)  

	
increase the amount of interest payable under a Senior Debt Document in excess of the amount payable under the Senior Convertible Loan Notes on the occurrence and continuance of an Event of Default (as defined in the Senior Convertible Loan Notes); or

 

	
(b)  

	
extend the Maturity Date (as defined in the Senior Convertible Loan Notes) by more than six months or increase the amount of principal payable to the Senior Creditor under Senior Convertible Loan Notes.

 

	
7.  

	
Subordination on Insolvency

 

Until the Senior Discharge Date, if the Borrower and/or the Guarantor becomes Insolvent, the following provisions shall apply:

 

	
(a)  

	
the Junior Debt shall be postponed and subordinated in right of payment to the Senior Debt

 

	
(b)  

	
no Subordinated Party shall take any action in respect of the Junior Debt except with the consent and on the direction of the Senior Security Trustee (other than in accordance with clause 14 of this deed);

 

	
(c)  

	
the Senior Security Trustee may, and is irrevocably authorised on behalf of the Subordinated Parties to:

 

	
  

	
(i)

	
claim, enforce and prove for the Junior Debt;

 

	
  

	
(ii)

	
file claims and proofs, give receipts and take all such proceedings and do all such things as the Senior Parties see fit to recover the Junior Debt;

 

	
  

	
(iii)

	
receive all distributions on the Junior Debt for application towards the Senior Debt; and/or

 

	
  

	
(iv)

	
hold all monies received by them under clause 7 in a suspense account and shall, as soon as it is reasonably apparent to it that the Senior Debt will not be fully discharged, apply them in reduction of the Senior Debt or otherwise.

 

	
(d)  

	
if and to the extent that the Senior Security Trustee is not entitled to, or does not wish to, claim, enforce, prove, file claims or proofs, or take proceedings for the Junior Debt, the Subordinated Parties shall do so in good time as requested by the Senior Security Trustee acting in accordance with the instructions of the Senior Security Trustee;

 

	
(e)  

	
the Subordinated Parties shall:

 

	
  

	
(i)

	
hold any payment or distribution in cash or in kind received or receivable by it in respect of the Junior Debt (other than any Permitted Payment received) from the Borrower and/or the Guarantor or its estate or from any other source on trust for the Senior Creditor; and

 

	
  

	
(ii)

	
upon demand promptly pay and transfer any such payment to the Senior Security Trustee for application against the Senior Debt;

 

	
(f)  

	
the trustee in bankruptcy, liquidator, Receiver, assignee or other person distributing the assets of the Borrower and/or the Guarantor or their proceeds is directed to pay distributions on the Junior Debt direct to the Senior Security Trustee until the Senior Debt is irrevocably paid in full and each Subordinated Party shall give all such directions and/or instructions as the Senior Security Trustee may reasonably require to give effect to this sub-clause;

 

	
(g)  

	
the Senior Security Trustee may (and is hereby irrevocably authorised to) exercise all powers of convening meetings, voting and representation in respect of the Junior Debt and the Subordinated Parties shall provide the Senior Security Trustee with all necessary forms of proxy and of representation; and

 

  

12

  

	
(h)  

	
if and to the extent that the Senior Security Trustee is not entitled to exercise a power conferred by this clause 7, the Subordinated Parties:

 

	
  

	
(i)

	
shall exercise the power as the Senior Security Trustee directs; and

 

	
  

	
(ii)

	
shall not exercise any power so as to impair this subordination.

 

	
8.  

	
Treatment of Distributions

 

	
8.1  

	
Realisation of distribution

 

	
(a)  

	
If any Senior Party receives any distribution otherwise than in cash in respect of the Junior Debt from the Borrower, the Guarantor or any other source, such Senior Party may realise the distribution as it sees fit and the Senior Debt shall not be deemed reduced by the distribution until and except to the extent that the realisation proceeds are applied towards the Senior Debt.

 

	
(b)  

	
Each Subordinated Party will at its own expense do all such things as the Senior Security Trustee may require as being necessary or desirable to transfer to the Senior Security Trustee all payments and distributions which must be turned over or held in trust for the Senior Creditor, including endorsements and execution of formal transfers, and will pay all costs and stamp duties in connection therewith.

 

	
8.2  

	
Currency exchange

 

If any Senior Party receives any payment required to be paid by a Subordinated Creditor under this deed or paid in respect of the Junior Debt in a currency other than the currency of the Senior Debt, such Senior Party may convert the currency received into the currency of the Senior Debt at a prevailing market rate of exchange and the Senior Debt shall not be deemed reduced by the payment until and except to the extent that the proceeds of conversion are applied toward the Senior Debt.

 

	
9.  

	
Preservation of rights

 

	
9.1  

	
No waiver of rights

 

No delay in exercising rights and remedies in respect of the Senior Debt or the Junior Debt, or the Senior Security or the Junior Security, because of any term of this deed postponing, restricting or preventing such exercise shall operate as a waiver of any of those rights and remedies.

 

	
9.2  

	
Junior Debt remains due and payable

 

The Junior Debt shall remain owing, or due and payable, from the Borrower and/or the Guarantor, and interest and default interest will accrue on missed payments in accordance with the terms of the Junior Debt Documents, despite any term of this deed that might postpone, subordinate or prevent payment of the Junior Debt.

 

	
10.  

	
Co-operation by Borrower, the Guarantor, the Subordinated Creditors and the Junior Security Trustee

 

	
10.1  

	
Co-operation by Borrower, the Guarantor, the Subordinated Creditors and the Junior Security Trustee

 

The Senior Security Trustee may require the Borrower, the Guarantor, the Subordinated Creditors and/or the Junior Security Trustee, either jointly or severally, to sign any document and take any steps to protect or give effect to any of the Senior Parties’ rights under this deed, or any similar or related purpose.

  

13

  

 

	
11.  

	
Preservation of subordination

 

	
11.1  

	
Continuing subordination

 

The subordination and priority provisions in this deed constitute continuing subordination and priority arrangements and benefit the ultimate balance of the Senior Debt, regardless of any intermediate payment or discharge of the Senior Debt in whole or in part.

 

	
11.2  

	
Waiver of defences

 

The subordination and priority arrangements in this deed and the obligations of the Subordinated Creditors and the Junior Security Trustee under this deed will not be affected by any act, omission, matter or thing which but for this provision, might operate to reduce, release or prejudice the subordination or any of those obligations in whole or in part, including (without limitation and whether or not known to any party):

 

	
(a)  

	
any variation, extension, discharge, compromise, dealing with, exchange or renewal of any right or remedy which a Creditor and/or the Junior Security Trustee may now, or after the date of this deed, have from or against the Borrower, the Guarantor or any other person;

 

	
(b)  

	
any grant of time, waiver or indulgence granted to or composition with the Borrower, the Guarantor or any other person;

 

	
(c)  

	
any act or omission by a Creditor and/or the Junior Security Trustee or any other person in varying, compromising, exchanging, renewing, releasing, taking up, perfecting or enforcing or any right, any Security, indemnity, or guarantee or any other security interest from or against the Borrower, the Guarantor or any other person or any non-presentation or non-observance of any formality or other requirement in respect of any instruments or any failure to realise the full value of any security;

 

	
(d)  

	
any termination, amendment, variation, novation or supplement of or to any Debt Document;

 

	
(e)  

	
any Insolvency, bankruptcy, liquidation, administration, winding up, incapacity, limitation, disability, discharge by operation of law, or similar proceedings or any change in the constitution, name or style of or in relation to the Borrower, the Guarantor or any other person;

 

	
(f)  

	
the release of the Borrower, the Guarantor or any other person under the terms of any composition or arrangement;

 

	
(g)  

	
any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of the Borrower, the Guarantor or any other person;

 

	
(h)  

	
any amendment (however fundamental) or replacement of a Debt Document or any other document or security;

 

	
(i)  

	
any invalidity, illegality, unenforceability, irregularity or frustration of any actual or purported obligation of, or Security held from, the Borrower, the Guarantor or any other person under any Debt Document or any other document or security; and/or

 

	
(j)  

	
any claim or enforcement of payment from the Borrower, the Guarantor or any other person.

 

	
11.3  

	
Immediate recourse

 

Each of the Subordinated Creditors and the Junior Security Trustee waives any right it may have to require any Senior Party (or any trustee or agent on its behalf) to:

 

	
(a)  

	
take any action or obtain judgment in any court against the Borrower, the Guarantor or any other person;

 

	
(b)  

	
make or file any claim in a bankruptcy, liquidation, administration or Insolvency of the Borrower, the Guarantor or any other person; or

 

	
(c)  

	
proceed against, make, demand, enforce or seek to enforce any claim, security, right or remedy against the Borrower, the Guarantor or any other person,

 

  

14

  

	
(d)  

	
to proceed against or enforce any other rights or security or claim payment from any person

 

before claiming the benefit of this subordination, of the security conferred by the Security Documents or of the obligations of the Subordinated Creditors or the Junior Security Trustee under this deed.  A Senior Party (or any trustee or agent on its behalf) may refrain from applying or enforcing any money, rights or security.

 

	
11.4  

	
Non-competition

 

Each of the Subordinated Creditor and the Junior Security Trustee warrants to the Senior Parties that it has not taken or received, and shall not take, exercise or receive the benefit of any Right from or against the Borrower, the Guarantor or a liquidator or administrator of the Borrower or the Guarantor or any other person in connection with any liability of, or payment by, the Subordinated Creditors or the Junior Security Trustee under this deed but:

 

	
(a)  

	
if any such Right is taken, exercised or received by the Subordinated Creditors or the Junior Security Trustee, that Right and all monies at any time received or held in respect of that Right shall be held by the Subordinated Creditors and/or the Junior Security Trustee on trust for the Senior Creditor for application in or towards the discharge of the Senior Debt; and

 

	
(b)  

	
on demand by the Senior Security Trustee, each of the Subordinated Creditors and the Junior Security Trustee shall promptly transfer, assign or pay to the Senior Security Trustee all Rights and all monies from time to time held on trust by the Subordinated Creditors and/or the Junior Security Trustee under this clause 11.4.

 

	
12.  

	
Book debts, insurance and custody of documents

 

	
12.1  

	
Book debts

 

Notwithstanding the terms of any charge over book or other debts contained in any Security Document, and any covenant by the Borrower or the Guarantor to pay those debts into any particular account, the parties agree that:

 

	
(a)  

	
the Borrower and/or the Guarantor (as applicable) shall not be deemed to be in breach of any such covenant so long as it complies with any such covenant in the Senior Debt Documents;

 

	
(b)  

	
the Senior Security Trustee may credit any payments received by a Senior Party in respect of book and other debts to any account of the Borrower or the Guarantor with the Senior Parties; and

 

	
(c)  

	
the Senior Security Trustee may, in respect of any credit balances on any of the Borrower's or the Guarantor’s accounts, notwithstanding any charge over those credit balances created by any Junior Security Document:

 

	
(i)  

	
permit the Borrower and/or the Guarantor to draw on any credit balance and otherwise permit any such account to continue to be operated as a current account; and

 

	
(ii)  

	
to the extent permitted by the relevant Senior Debt Document, exercise any right of set-off or combination it may have against any account of the Borrower and/or the Guarantor without regard to the other provisions of this deed or any Junior Debt Document.

 

	
12.2  

	
Insurance

 

The Senior Security Trustee may require the Borrower and/or the Guarantor to insure its assets and, prior to the Enforcement Date, apply any monies received or recovered in respect of any claim under any relevant insurance policy in accordance with the terms of the Senior Debt Documents or such other insurance provisions in the Debt Documents as the Senior Security Trustee may select. The Creditors acknowledge that the Borrower's or the Guarantor’s (as applicable) compliance with the insurance obligations so selected shall be a full discharge by the Borrower or the Guarantor (as applicable) of its insurance obligations under the Debt Documents.

 

	
12.3  

	
Title documents

 

The Senior Security Trustee shall be entitled, but not obliged, to hold each title or other document relating to any asset subject to Senior Security. The Subordinated Parties may inspect any such documents provided it gives reasonable prior written notice to the Senior Security Trustee.

 

  

15

  

	
13.  

	
Senior Debt enforcement

 

	
13.1  

	
Co-operation by Subordinated Creditors and Junior Security Trustee

 

The Subordinated Creditors and Junior Security Trustee will, at the request of the Senior Security Trustee or any Receiver appointed by the Senior Security Trustee, join in such documents or otherwise take such action as may be reasonably required by the Senior Security Trustee or such Receiver to facilitate the disposal of any asset subject to Senior Security whether or not there will be any balance of proceeds available for the Subordinated Creditors and/or Junior Security Trustee arising from that disposal.

 

	
13.2  

	
Distressed Disposal

 

If a Distressed Disposal is being effected, the Senior Security Trustee is irrevocably authorised by the parties hereto to release the Senior Security and/or the Junior Security over the asset and/or to execute and deliver or enter into any release of that Security that may, in the discretion of the Senior Security Trustee, be considered necessary or desirable in order to effect the Distressed Disposal.

 

	
14.  

	
Enforcement by the Subordinated Creditors and/or the Junior Security Trustee

 

	
14.1  

	
Subject to clause 14.2 below, until the Senior Discharge Date, unless the Senior Security Trustee has previously consented in writing, none of the Subordinated Creditors or the Junior Security Trustee shall:

 

	
(a)  

	
accelerate any of the Junior Debt or otherwise declare any of the Junior Debt prematurely payable on an event of default or otherwise;

 

	
(b)  

	
enforce the Junior Debt by execution or otherwise; or

 

	
(c)  

	
initiate or support or take any steps with a view to any Insolvency, liquidation, reorganisation, administration or dissolution proceedings or any voluntary arrangement or assignment for the benefit of creditors or any similar proceedings involving the Borrower, whether by petition, filing or service of a notice, convening a meeting, voting for a resolution or otherwise.

 

	
14.2  

	
The restrictions in clause 14.1 will not apply to the Subordinated Creditor or the Junior Security Trustee if an Event of Default as defined in the Junior Document has occurred following the expiry of the Initial Period (a "Junior Default") and:

 

	
(a)  

	
the Senior Creditor and Senior Security Trustee have received notice of the Junior Default from the Subordinated Parties (or any of them); and

 

	
(b)  

	
a period of not less than 90 days has passed from the date of the notice of the relevant Junior Default ("Junior Standstill Period"); and

 

	
(c)  

	
at the end of the relevant Junior Standstill Period, the relevant Junior Default is continuing and has not been waived by the Subordinated Parties; and

 

	
(d)  

	
a Senior Party has not taken any steps to enforce the security conferred by the  Senior Security Documents (or any of them).

 

	
15.  

	
Information by Subordinated Creditor

 

	
15.1  

	
Defaults

 

Each Subordinated Party will, promptly upon becoming aware of the same, notify the Senior Security Trustee of the occurrence of any event of default or potential event of default (howsoever described) or mandatory prepayment event or other event entitling that Subordinated Party to demand prepayment or repayment of any Junior Debt prior to its specified maturity under the Junior Debt Documents.

 

	
15.2  

	
Amounts of debt

 

Each Subordinated Party will on the written request by the Senior Security Trustee notify the Senior Security Trustee in writing of details of the amount of the Junior Debt.

 

  

16

  

	
16.  

	
Application of proceeds

 

	
16.1  

	
Priorities

 

The priority of the Creditors shall stand (regardless of the order of execution, registration or notice or otherwise) so that all amounts from time to time received or recovered by a Creditor pursuant to the terms of any Debt Document or in connection with the realisation or enforcement of all or any part of the Security constituted by any of the Security Documents shall, after providing for all reasonable outgoings, costs, charges, expenses and liabilities of enforcement, exercising rights on winding up and payments ranking in priority as a matter of law, be applied in the following order of priority:

 

	
(a)  

	
first, in or towards discharge of the Senior Debt;

 

	
(b)  

	
second, once the Senior Debt has been fully discharged, in or towards discharge of the Junior Debt; and

 

	
(c)  

	
third, after the Junior Debt has been fully discharged, to the Borrower, Guarantor or any other person entitled to it.

 

	
16.2  

	
Preferential payments

 

Each Subordinated Party shall bring into account any preferential payments received by it under section 175 of the Insolvency Act 1986.

 

	
16.3  

	
Purchaser protection

 

No purchaser dealing with a Creditor or any Receiver shall be concerned in any way with the provisions of this deed, but shall assume that the Creditor or Receiver, as the case may be, is acting in accordance with the provisions of this deed.

 

	
17.  

	
Refinancing of Senior Debt

 

	
17.1  

	
Refinancing of Senior Debt

 

Each of the Subordinated Parties agrees that, subject to clause 17.2:

 

	
(a)  

	
the Senior Debt may be refinanced at any time by any person, whether or not that person is a Senior Party (provided that if that person is not a Senior Party, it is a bank or banks of international repute and creditworthiness); and

 

	
(b)  

	
the new debt shall rank with the priority specified in this deed.

 

	
17.2  

	
Conditions of new Senior Debt

 

	
(a)  

	
The terms of any refinancing of the Senior Debt shall not be more onerous for the Borrower and/or the Guarantor than the terms of the Senior Debt as at the date of this deed.

 

	
(b)  

	
Any new lender of the refinanced Senior Debt shall, before, or at the same time as, it becomes a lender of the refinanced Senior Debt, execute and deliver to the Subordinated Parties (in a form acceptable to the Subordinated Parties) in which that new lender undertakes to be bound by the terms of this deed.

 

  

17

  

	
18.  

	
Power of attorney

 

	
18.1  

	
Appointment of attorney

 

By way of security, each of the Borrower, the Guarantor, the Subordinated Creditors and the Junior Security Trustee irrevocably appoints the Senior Security Trustee to be its attorney and, in its name, on its behalf and as its act and deed, to execute any documents and do any acts and things which the Borrower, the Guarantor, the Subordinated Creditors and/or the Junior Security Trustee is required to execute and do under this deed.

 

	
18.2  

	
Ratification of acts of attorney

 

 

Each of the Borrower, the Guarantor, the Subordinated Creditors and the Junior Security Trustee ratifies and confirms, and agrees to ratify and confirm, anything which any of its attorneys may do in the proper and lawful exercise or purported exercise of all or any of the powers, authorities and discretions referred to in clause 18.1.

 

	
19.  

	
Expenses

 

	
19.1  

	
Negotiation and amendment costs and expenses

 

The Borrower and the Guarantor shall, within five Business Days of demand, pay to, or reimburse, a Senior Party, on a full indemnity basis, all costs, charges, expenses, taxes and liabilities of any kind (including, without limitation, legal, printing and out-of-pocket expenses) properly incurred by that a Senior Party in connection with:

 

	
(a)  

	
the negotiation, preparation and execution of this deed; or

 

	
(b)  

	
any amendment, extension, waiver, consent or suspension of rights (or any proposal for any of these) relating to this deed,

 

together with interest, which shall accrue and be payable (without the need for any demand for payment being made) from the date on which the relevant cost or expense arose until full discharge of that cost or expense (whether before or after judgment, liquidation, winding up or administration of the Borrower) at the rate and in the manner provided for in the Senior Loan Note Instrument respect of interest applying on the occurrence and continuance of an Event of Default (as defined in the Senior Loan Note Instrument).

 

	
19.2  

	
Enforcement costs, expenses and Losses

 

The Borrower and the Guarantor shall, on demand, pay to each Creditor the amount of all costs and expenses (including legal, printing and out-of-pocket expenses) properly incurred by the relevant Creditor in connection with enforcing, preserving any rights under, or monitoring the provisions of this deed.

 

The Subordinated Parties shall on demand indemnify and keep indemnified the Senior Parties against all Losses suffered or incurred by any of them in respect of any breach of any of the Subordinated Parties’ covenants or other obligations under this deed.

 

	
19.3  

	
Legal expenses and taxes

 

The costs and expenses referred to in clause 19.2 above include, without limitation, the fees and expenses of legal advisers and any value added tax or similar tax, and are payable in the currency in which they are incurred.

 

  

18

  

	
19.4  

	
Default interest

 

	
(a)  

	
If the Borrower, the Guarantor or any Subordinated Party fails to pay any amount payable by it under this deed to a Senior Party, it must, on demand by the Senior Security Trustee, pay interest on the overdue amount from the due date up to the date of actual payment (both before and after judgment).

 

	
(b)  

	
Interest on an overdue amount is payable at a rate equal to the Default Rate.

 

	
(c)  

	
For the purpose of determining the relevant rate under clause 19.4 above, the Senior Security Trustee may:

 

	
  

	
(i)

	
select successive periods of any duration up to three months; and

 

	
  

	
(ii)

	
determine the appropriate rate fixing day for that period.

 

	
(d)  

	
Interest (if unpaid) on an overdue amount will be compounded at the end of the period selected by the Senior Security Trustee under paragraph (c) above but will remain immediately due and payable.

 

	
(e)  

	
Any interest accruing under this clause 19.4 accrues from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days.

 

	
19.5  

	
Certificates and Determinations

 

Any certification or determination by the Senior Security Trustee of a rate or amount under this deed is, in the absence of manifest error, conclusive evidence of the matters to which it relates.

 

	
19.6  

	
No Deduction

 

All payments to be made by the Borrower, the Guarantor or any Creditor under this deed shall be made without any set-off, counterclaim or equity and (subject to the following sentence) free from, clear of and without deduction for any taxes, duties, levies, imposts or charges whatsoever, present or future.  If the Borrower, the Guarantor or any Creditor is compelled by the law of any applicable jurisdiction (or by an order of any regulatory authority in such jurisdiction) to withhold or deduct any sums in respect of taxes, duties, levies, imposts or charges from any amount payable to a Creditor under this deed or, if any such withholding or deduction is made in respect of any recovery from the Borrower, the Guarantor or any Creditor under this deed, the relevant party shall pay such additional amount so as to ensure that the net amount received by the relevant Creditor shall equal the full amount due to it under the provisions of this deed (had no such withholding or deduction been made).

 

	
19.7  

	
Currency of Payment

 

The obligation of the Borrower, the Guarantor or any Creditor under this deed to make payments in any currency shall not be discharged or satisfied by any tender, or recovery pursuant to any judgment or otherwise, expressed in or converted into any other currency, except to the extent that tender or recovery results in the effective receipt by the Senior Security Trustee of the full amount of the currency expressed to be payable under this deed.

 

	
19.8  

	
Currency Indemnity

 

	
(a)  

	
If any sum due from the Borrower, the Guarantor or any Creditor under this deed (a "Sum"), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the "First Currency") in which that Sum is payable into another currency (the "Second Currency") for the purpose of:

 

	
  

	
(i)

	
making or filing a claim or proof against the party;

 

	
  

	
(ii)

	
obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings; or

 

	
  

	
(iii)

	
applying the Sum in satisfaction of any amount due under this deed,

 

the relevant party shall, as an independent obligation, within three Business Days of demand, indemnify the relevant Creditor against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (A) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (B) the rate or rates of exchange available to the relevant Creditor at the time of its receipt of that Sum.

 

  

19

  

	
(b)  

	
Each of the Borrower, the Guarantor and the Creditors waives any right it may have in any jurisdiction to pay any amount under this deed in a currency or currency unit other than that in which it is expressed to be payable.

 

	
20.  

	
Duration

 

	
20.1  

	
Duration

 

This deed shall cease to have effect when the Senior Debt has, to the satisfaction of the Senior Security Trustee, been irrevocably and unconditionally paid and discharged in full.

 

	
21.  

	
Restrictions on assignments

 

	
21.1  

	
Successors and assigns

 

This Deed is binding on the successors and assigns of the parties hereto.

 

	
21.2  

	
Borrower and Guarantor

 

The Borrower and Guarantor may not assign or transfer any of their rights (if any) or obligations under this deed.

 

	
21.3  

	
Subordinated Creditors and Junior Security Trustee

 

None of the Subordinated Creditors or the Junior Security Trustee shall, in the Initial Period:

 

	
(a)  

	
assign or dispose of, or create or permit to subsist any security or trust over, any of the Junior Debt owing to it or its proceeds or any interest in that Junior Debt or its proceeds, or any security therefor, to or in favour of any person or attempt to do any of the foregoing; or

 

	
(b)  

	
subordinate any of the Junior Debt owing to it or its proceeds to any sums owing by the Borrower and/or the Guarantor to any person other than the Senior Creditor; or

 

	
(c)  

	
transfer by novation or otherwise any of its rights or obligations under the Junior Debt Documents or this deed to any person.

 

From the expiry of the Initial Period, the Subordinated Creditors or the Junior Security Trustee may assign or otherwise dispose of all or any of its rights under this deed provided that: (i) the relevant assignee or transferee executes and delivers to the Senior Parties a deed (in a form acceptable to the Senior Parties) pursuant to which the assignee or transferee agrees to be bound by the terms of this deed; and (ii) there is no event of default under any Debt Document subsisting as at the date of the proposed assignment and/or transfer.

 

	
21.4  

	
The Senior Parties

 

A Senior Party may, at any time, assign or otherwise dispose of all or any of its rights under this deed in accordance with the Debt Documents to which it is a party provided that the relevant assignee or transferee executes and delivers to the Subordinated Parties a deed (in a form acceptable to the Subordinated Parties) pursuant to which the assignee or transferee agrees to be bound by the terms of this deed.

 

	
22.  

	
Borrower's and Guarantor’s acknowledgements

 

	
22.1  

	
Borrower's and Guarantor’s acknowledgement and consent

 

Each of the Borrower and the Guarantor acknowledges the terms of this deed and consents to the Creditors communicating with each other about the Borrower's and/or the Guarantor’s affairs for the purposes of this deed.

 

  

20

  

	
22.2  

	
No reliance by Borrower or Guarantor

 

Each of the Borrower and the Guarantor further acknowledges that none of the provisions entered into by the Creditors are for the benefit of the Borrower and/or the Guarantor, nor may they be enforced or relied on by the Borrower and/or the Guarantor.

 

	
23.  

	
Endorsement on Debt Documents

 

	
23.1  

	
Endorsement on Debt Documents

 

Each of the Creditors agrees to endorse a memorandum of this deed on each Debt Document entered into, or to be entered into, in its favour, and acknowledges the right of the other Creditors to the production and delivery of a copy of any such Debt Document as soon as reasonably practicable.

 

	
24.  

	
Remedies, waivers, amendments and consents

 

	
24.1  

	
Amendments

 

Any amendment to this deed shall be in writing and signed by, or on behalf of, each party, except that:

 

	
(a)  

	
the Senior Parties do not need the consent of any party other than the Borrower (and no other party, other than the Borrower, need be party to any amendment document) to an amendment to this deed that only alters the Borrower's obligations to the Senior Creditor and the corresponding rights of the Senior Creditor;

 

	
(b)  

	
the Senior Parties do not need the consent of any party other than the Guarantor (and no other party, other than the Guarantor, need be party to any amendment document) to an amendment to this deed that only alters the Guarantor's obligations to the Senior Creditor and the corresponding rights of the Senior Creditor;

 

	
(c)  

	
the Senior Parties do not need the consent of any party other than the Borrower and the Guarantor (and no other party, other than the Borrower and the Guarantor, need be party to any amendment document) to an amendment to this deed that only alters the Borrower's and the Guarantor’s obligations to the Senior Creditor and the corresponding rights of the Senior Creditor; and

 

	
(d)  

	
the Creditors do not need the consent of the Borrower or the Guarantor (and no party, other than the Creditors, need to be party to any amendment document)  to an amendment to this deed that only alters the obligations of the Creditors to each other and the corresponding rights of the Creditors.

 

	
24.2  

	
Waivers and consents

 

	
(a)  

	
A waiver of any right or remedy under this deed or by law, or any consent given under this deed, is only effective if given in writing by the waiving or consenting party and shall not be deemed a waiver of any other breach or default. It only applies in the circumstances for which it is given and shall not prevent the party giving it from subsequently relying on the relevant provision.

 

	
(b)  

	
A failure or delay by a party to exercise any right or remedy provided under this deed or by law shall not constitute a waiver of that or any other right or remedy, prevent or restrict any further exercise of that or any other right or remedy or constitute an election to affirm this deed. No single or partial exercise of any right or remedy provided under this deed or by law shall prevent or restrict the further exercise of that or any other right or remedy. No election to affirm this deed by a Creditor shall be effective unless it is in writing.

 

	
24.3  

	
Rights and remedies

 

The rights and remedies provided under this deed are cumulative and are in addition to, and not exclusive of, any rights and remedies provided by law.

 

  

21

  

	
25.  

	
Severance

 

	
25.1  

	
Severance

 

If any provision (or part of a provision) of this deed is or becomes invalid, illegal or unenforceable, it shall be deemed modified to the minimum extent necessary to make it valid, legal and enforceable. If such modification is not possible, the relevant provision (or part of a provision) shall be deemed deleted. Any modification to or deletion of a provision (or part of a provision) under this clause shall not affect the legality, validity and enforceability of the rest of this deed.

 

	
26.  

	
Counterparts

 

	
26.1  

	
Counterparts

 

	
(a)  

	
This deed may be executed in any number of counterparts, each of which when executed and delivered shall constitute a duplicate original, but all the counterparts shall together constitute one deed.

 

	
(b)  

	
Transmission of the executed signature page of a counterpart of this deed by fax or e-mail (in PDF, JPEG or other agreed format) shall take effect as delivery of an executed counterpart of this deed. If either method of delivery is adopted, without prejudice to the validity of the deed thus made, each party shall provide the others with the original of such counterpart as soon as reasonably possible thereafter.

 

	
(c)  

	
No counterpart shall be effective until each party has executed and delivered at least one counterpart.

 

	
27.  

	
Third party rights

 

	
27.1  

	
Third party rights

 

	
(a)  

	
Except as expressly provided in this deed, a person who is not a party to this deed shall not have any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce, or enjoy the benefit of, any term of this deed. This does not affect any right or remedy of a third party which exists, or is available, apart from that Act.

 

	
(b)  

	
The rights of the parties to rescind or agree any amendment or waiver under this deed are not subject to the consent of any other person.

 

	
28.  

	
Perpetuity period

 

	
28.1  

	
Perpetuity period

 

If the rule against perpetuities applies to any trust created by this deed, the perpetuity period shall be 125 years (as specified by section 5(1) of the Perpetuities and Accumulations Act 2009).

 

	
29.  

	
Notices

 

	
29.1  

	
Delivery

 

Each notice or other communication required to be given under or in connection with this deed shall be:

 

	
(a)  

	
in writing;

 

	
(b)  

	
delivered by hand, by pre-paid first-class post or other next working day delivery service or sent by fax or e-mail; and

 

  

22

  

	
(c)  

	
sent to:

 

	
(i)  

	
the Senior Creditor at the address set out in the first page of this deed, with a copy by e-mail to [                                    ].

 

	
(ii)  

	
the Senior Security Trustee at the address set out in the first page of this deed, with a copy by e-mail to [                                    ].

 

	
(iii)  

	
the Subordinated Creditors at the addresses set out in Schedule 1 of this deed, with a copy by e-mail to [                                    ].

 

	
(iv)  

	
the Junior Security Trustee at:

 

[                                    ].

 

Attention: [                                    ]

 

  Email: [                                    ]

 

  Copy by email to [                                    ]

 

	
(v)  

	
the Borrower at:

 

11335 Apple Drive, Spring Lake, Michigan 49448, USA

 

E-mail:brent@victoryecigs.com

 

Copy by e-mail to: ded@robinsonbrog.com and to kevin.mccarthy@mishcon.com

 

Attention: Brent David Willis

 

	
(vi)  

	
the Guarantor at:

 

Unit 14 Dale Street Industrial Estate, Radcliffe, Manchester, Greater Manchester United Kingdom

 

For the attention of:       Brent David Willis

 

E-mail:  brent@victoryecigs.com

 

Copy by e-mail to ded@robinsonbrog.com and to kevin.mccarthy@mishcon.com

 

Attention: Brent David Willis

 

or to such other address or fax number as is notified in writing by one party to the others from time to time.

 

  

23

  

	
29.2  

	
Receipt

 

Any notice or other communication given under or in connection with this deed shall be deemed to be received:

 

	
(a)  

	
if delivered by hand, at the time it is left at the relevant address;

 

	
(b)  

	
if posted by pre-paid first-class post or other next working day delivery service, on the second Business Day after posting; and

 

	
(c)  

	
if sent by fax, when received in legible form.

 

A notice or other communication given as described in clause 29.2(a) or clause 29.2(c) on a day which is not a Business Day, or after normal business hours, in the place it is received, shall be deemed to have been received on the next Business Day.

 

	
29.3  

	
Service of proceedings

 

This clause 29 does not apply to the service of any proceedings or other documents in any legal action or, where applicable, any arbitration or other method of dispute resolution.

 

	
30.  

	
Governing law and jurisdiction

 

	
30.1  

	
Governing law

 

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

 

	
30.2  

	
Jurisdiction

 

	
(a)  

	
The courts of England have exclusive jurisdiction to settle any dispute, controversy, proceedings, claim or obligation of whatever nature arising out of or in connection with this Agreement (whether contractual or non-contractual) including a dispute regarding the existence, validity or termination of this Agreement (a "Dispute").

 

	
(b)  

	
The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no party will argue to the contrary.

 

	
(c)  

	
This clause 30.2 is for the benefit of the Senior Parties only.  As a result, the Senior Parties shall not be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction.  To the extent allowed by law, the Senior Parties may take concurrent proceedings in any number of jurisdictions.

 

	
30.3  

	
Other service

 

Each of the Borrower, the Guarantor, the Junior Security Trustee and each Subordinated Creditor irrevocably consents to any process in any legal action or proceedings under clause 30.2 being served on it in accordance with the provisions of this deed relating to service of notices. Nothing contained in this deed shall affect the right to serve process in any other manner permitted by law.

 

	
30.4  

	
Agent for service

 

The Borrower irrevocably appoints Vapestick Holdings Limited for service at 25 Harley Street, London, W1G 9BR (for the attention of Brent Willis) as its agent to receive on its behalf in England or Wales service of any proceedings under clause ‎30. Such service shall be deemed completed on delivery to such agent (whether or not it is forwarded to and received by the Borrower) and shall be valid until such time as the Creditors have received prior written notice from the Borrower that such agent has ceased to act as agent. If for any reason such agent ceases to be able to act as agent or no longer has an address in England or Wales, the Borrower shall forthwith appoint a substitute acceptable to the Creditors and deliver to the Creditors the new agent's name and address within England and Wales.

 

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

 

  

24

  

 

Schedule 1

Subordinated Creditors

	
Name

	 	
Address

	  	 	  
	  	 	  
	  	 	  
	  	 	  

 

  

25

  

 

Schedule 2

Senior Debt Documents

 

	
Part 1.

	
Senior lending documents

 

Senior Convertible Loan Notes.

Senior Convertible Loan Note Instrument.

The Securities Purchase Agreement in respect of (inter alia) the purchase of the Senior Secured Convertible Notes, between the Borrower, the Senior Creditor and the Senior Security Trustee, dated on or about the date of this deed (the “Securities Purchase Agreement”).

The Registration Rights Agreement entered into between the Borrower and the Senior Creditor on the date of the Securities Purchase Agreement.

 

	
Part 2.

	
Senior Security Documents

 

Share Charge between the Borrower and the Senior Security Trustee, dated on or about the date of this deed.

Guarantee between the Guarantor and the Senior Creditor, dated on or about the date of this deed.

Debenture between the Guarantor and the Senior Security Trustee, dated on or about the date of this deed.

 

	
Schedule 3

	
Junior Debt Documents

 

	
Part 1.

	
Junior lending documents

 

Junior Loan Notes.

Junior Loan Note Instrument.

Share Purchase Agreement.

The Registration Rights Agreement entered into between the Borrower and each of the Subordinated Creditors on the date of the Share Purchase Agreement.

 

	
Part 2.

	
Junior Security Documents

 

Guarantee between the Guarantor and the Subordinated Creditors, dated on or about the date of this deed.

Debenture between the Guarantor and the Junior Security Trustee, dated on or about the date of this deed.

  

26

  

	
 

Executed as a deed by VICTORY ELECTRONIC CIGARETTES CORPORATION          )                                                                acting by .................................. ................,       )       a director, in the presence of:

 

Witness signature:.............................................

Witness name:..................................................

Witness address: ..............................................

...................................................................

Witness occupation:...........................................

 

	
 

 

........................................

Director

 

 

 

 

 

	
 

Executed as a deed by MUST HAVE LIMITED    )                                                                acting by .................................. ................,       )       a director, in the presence of:

 

Witness signature:.............................................

Witness name:..................................................

Witness address: ..............................................

...................................................................

Witness occupation:...........................................

	
 

 

........................................

Director

 

	
 

Executed as a deed by [                                    ]  )                                                                as Senior Security Trustee, acting by .................................. ................,           )        a director, in the presence of:

 

Witness signature:.............................................

Witness name:..................................................

Witness address: ..............................................

...................................................................

Witness occupation:...........................................

 

	
 

 

........................................

Director

 

 

	
 

Executed as a deed by [                     ]  )                                                                acting by .................................. ................,             )        a director, in the presence of:

 

Witness signature:.............................................

Witness name:..................................................

Witness address: ..............................................

...................................................................

Witness occupation:...........................................

	
 

 

........................................

Director

 

	
 

 

Executed as a deed by [                                    ]              )                                                                as Junior Security Trustee, in the presence of:            )

 

Witness signature:.............................................

Witness name:..................................................

Witness address: ..............................................

...................................................................

Witness occupation:...........................................

	
 

 

........................................

Signature

 

	
 

Executed as a deed by [                        ] )                                                                in the presence of:                                                    )

 

Witness signature:.............................................

Witness name:..................................................

Witness address: ..............................................

...................................................................

Witness occupation:...........................................

	
 

 

........................................

Signature 

	
 

Executed as a deed by [                                    ] )                                                                in the presence of:                                                      )

 

Witness signature:.............................................

Witness name:..................................................

Witness address: ..............................................

...................................................................

Witness occupation:...........................................

	
 

 

........................................

Signature

 

	
 

Executed as a deed by [                            ] )                                                                in the presence of:                                                    )

 

Witness signature:.............................................

Witness name:..................................................

Witness address: ..............................................

...................................................................

Witness occupation:...........................................

	
 

 

........................................

Signature

 

27

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