Document:

ecig_ex101.htm

Exhibit 10.1

 

Dated                                                                                    2014

 

(1)            VICTORY ELECTRONIC CIGARETTES CORPORATION

 

 

	
LOAN NOTE INSTRUMENT

CONSTITUTING

UP TO US$11,000,000 SECURED

LOAN NOTES 2014

 

	
Mishcon de Reya

Summit House

12 Red Lion Square

London WC1R 4QD

Tel: 020 7440 7000

Fax: 020 7404 5982

Ref: KEM/LJ/43296.1

E-mail: kevin.mccarthy@mishcon.com

 

 

  

1

  

 

TABLE OF CONTENTS

 

	 
	
No.

	 	
Heading

	 	
Page

	  	 	  	 	  
	
1

	 	
definitions and interpretation

	 	
3

	
2

	 	
Amount of notes

	 	
5

	
3

	 	
Description of notes

	 	
5

	
4

	 	
Status of notes

	 	
5

	
5

	 	
Repayment of notes

	 	
6

	
6

	 	
Interest on notes

	 	
6

	
7

	 	
Certificates

	 	
6

	
8

	 	
Register

	 	
6

	
9

	 	
Obligations of the Company

	 	
7

	
10

	 	
warranties

	 	
7

	
11

	 	
events of Default

	 	
7

	
12

	 	
Acceleration

	 	
8

	
13

	 	
security

	 	
8

	
14

	 	
set-off

	 	
8

	
15

	 	
Meetings of noteholders

	 	
8

	
16

	 	
Enforcement

	 	
8

	
17

	 	
Modification

	 	
9

	
18

	 	
Governing law and jurisdiction

	 	
9

	
Schedule 1 - Form of note

	 	10
	
Schedule 2 - The Conditions

	 	11
	
Schedule 3 - Provisions as to registration, transfer and other matters

	 	13
	
Schedule 4 - Provisions for meetings of the noteholders

	 	16

 

  

2

  

 

THIS DEED is dated                                                                                     2014

 

PARTIES

 

	
(1)  

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

 

BACKGROUND

 

	
(A)  

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

 

AGREED TERMS

 

	
1.  

	
DEFINITIONS AND INTERPRETATION

 

	
1.1  

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

 

Asset Sale means the disposal by the Company of all or substantially all of its assets;

 

Business Day means any day, other than a Saturday or Sunday or English bank holiday;

 

Change of Control means the acquisition (by any means) by a purchaser of any interest in any share capital if, upon completion of that acquisition that purchaser (together with any person connected with or acting in concert with that purchaser) would be entitled to exercise more than fifty per cent (50%) of the total voting rights normally exercisable at any meeting of the shareholders of the Company;

 

Conditions means the conditions set out in Schedule 2 as from time to time amended and Condition shall be construed accordingly;

 

Debenture means the debenture to be entered into on the date of this instrument between MHL and the Security Trustee, pursuant to which inter alia MHL will grant a charge over its assets and undertaking in favour of the Security Trustee as security for its obligations under the Guarantee;

 

Directors means the board of directors of the Company from time to time;

 

Event of Default means any of those events specified in clause 11;

 

Exchange Rate shall have the meaning as set out in the Share Purchase Agreement;

 

Guarantee means the guarantee to be entered into on the date of this instrument by MHL in favour of the Noteholders pursuant to which inter alia MHL guarantees the payment obligations in respect of the Notes;

 

Initial Registered Offering means the raising of not less than $40,000,000 in an underwritten public offering pursuant to an effective registration statement filed with the US Securities and Exchange Commission on Form S - 1 or other registration form that the Company is eligible to use;

 

Interest Start Date means the date falling 120 days after the date of this instrument;

 

  

3

  

ITEPA means the Income Tax (Earnings & Pensions) Act 2003;

 

Listing means the first day of trading of the Company’s common stock on any of the following exchanges on which the common stock is listed for trading: the NYSE Market, the Nasdaq Capital Market, the Nasdaq Global Select Market, the Nasdaq Global Market, the New York Stock Exchange or any successors of the foregoing;

 

MHL means Must Have Limited, a company registered in England and Wales with number 05101019 whose registered office is at Unit 14, Dale Street Industrial Estate, Radcliffe, Manchester M26 1AD;

 

Noteholder means each person from time to time entered in the Register as a holder of any Notes;

 

Noteholders' Notes means the Notes issued to any of the Noteholders pursuant to the Share Purchase Agreement, such Notes apportioned between the Noteholders in the proportions set out opposite their respective names in Schedule 1 to the Share Purchase Agreement;

 

Notes means up to US$11,000,000 secured loan notes 2014 constituted by this instrument or, as the case may be, the amount of such loan notes for the time being issued and outstanding;

 

Realisation means a Share Sale or an Asset Sale;

 

Register means the register of Noteholders (provisions relating to which are set out in clause 8);

 

Repayment Date means the earlier of:

 

(i)          the date falling 175 days after the date of this instrument;

 

(ii)          the date of the Listing; and

 

(iii)          the date of the Initial Registered Offering;

 

Security Trustee means                                                             ;

 

Share Purchase Agreement means the share purchase agreement to be entered into on the date of this instrument between the Company and the Noteholders, pursuant to which inter alia the Company shall acquire the entire issued share capital of MHL from the Noteholders; and

 

Shares mean shares of common stock, par value US$0.001 each in the capital of the Company;

 

Share Sale means the transfer of any interest in any non-assessable shares of common stock in the capital of the Company (whether by one transaction or a series of transactions) which results in a Change of Control;

 

Special Resolution means a resolution passed at a meeting of the Noteholders duly convened and held in accordance with the provisions of this instrument and carried by a majority consisting of not less than 75% of the persons voting at such meeting upon a show of hands or, if a poll is demanded, a majority consisting of not less than 75% of the votes given on such poll.

 

	
1.2  

	
Any reference in this instrument to:

 

	
1.2.1  

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

 

	
1.2.2  

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

 

  

4

  

 

	
1.2.3  

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

 

	
1.2.4  

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

 

	
1.2.5  

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

 

	
1.2.6  

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

 

	
1.2.7  

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

 

	
1.3  

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

 

	
1.4  

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

 

	
1.5  

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

 

	
1.6  

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

 

	
1.7  

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

 

	
2.  

	
AMOUNT OF NOTES

 

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

 

	
3.  

	
DESCRIPTION OF NOTES

 

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

 

	
4.  

	
STATUS OF NOTES

 

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

 

  

5

  

 

	
5.  

	
REPAYMENT OF NOTES

 

	
5.1  

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

 

	
5.2  

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

 

	
5.3  

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

 

	
5.4  

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

 

	
5.5  

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

 

	
6.  

	
INTEREST ON NOTES

 

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

 

	
7.  

	
CERTIFICATES

 

	
7.1  

	
Each certificate for Notes shall:

 

	
7.1.1  

	
bear a denoting number;

 

	
7.1.2  

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

 

	
7.1.3  

	
have the Conditions endorsed on it or annexed to it.

 

	
7.2  

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

 

	
7.3  

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

 

	
7.4  

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

 

	
8.  

	
REGISTER

 

	
8.1  

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

 

	
8.2  

	
The Register shall contain the following details:

 

	
8.2.1  

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

 

  

6

  

 

	
8.2.2  

	
the principal amount of the Notes held by each Noteholder;

 

	
8.2.3  

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

 

	
8.2.4  

	
the date of issue of each Note; and

 

	
8.2.5  

	
all permitted transfers and changes of ownership of the Notes.

 

	
8.3  

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

 

	
8.4  

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

 

	
9.  

	
OBLIGATIONS OF THE COMPANY

 

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

 

	
10.  

	
WARRANTIES

 

	
10.1  

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

 

	
10.1.1  

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

 

	
10.1.2  

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

 

	
10.1.3  

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

 

	
(a)  

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

 

	
(b)  

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

 

	
(c)  

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

 

	
(d)  

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

 

	
11.  

	
EVENTS OF DEFAULT

 

	
11.1  

	
The following are Events of Default:

 

	
11.1.1  

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

 

  

7

  

 

	
11.1.2  

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

 

	
11.1.3  

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

 

	
11.1.4  

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

 

	
11.1.5  

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

 

	
11.1.6  

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

 

	
11.2  

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

 

	
12.  

	
ACCELERATION

 

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

 

	
13.  

	
SECURITY

 

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

 

	
14.  

	
SET-OFF

 

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

 

	
15.  

	
MEETINGS OF NOTEHOLDERS

 

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

 

	
16.  

	
ENFORCEMENT

 

	
16.1  

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

 

	
16.2  

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

 

	
16.3  

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

 

  

8

  

 

	
17.  

	
MODIFICATION

 

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

 

	
18.  

	
GOVERNING LAW AND JURISDICTION

 

	
18.1  

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

 

	
18.2  

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

 

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

 

  

9

  

 

SCHEDULE 1- FORM OF NOTE

 

	 Certificate No.    	
[NUMBER]

	 Date of Issue      	
[DATE]

	 Amount    	
US$[AMOUNT]

	
 

VICTORY ELECTRONIC CIGARETTES CORPORATION

US$11,000,000 SECURED

LOAN NOTES 2014

 

Created and issued pursuant to a resolution of the board of directors of the Company passed on [DATE] 2014.

 

THIS IS TO CERTIFY THAT [NAME OF NOTEHOLDER] is the registered holder of US$[AMOUNT] of the US$11,000,000 secured loan notes 2014 constituted by an instrument entered into by the Company on [DATE] 2014 (the Instrument). Such Notes are issued with the benefit of and subject to the provisions contained in the Instrument and the Conditions endorsed on or annexed to this Certificate.

 

	
1.  

	
Words and expressions defined in the Instrument shall bear the same meaning in this Certificate and in the Conditions endorsed on or annexed to this Certificate.

 

	
2.  

	
The Notes are repayable in accordance with Condition 1.

 

	
3.  

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

 

	
4.  

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

 

	
5.  

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

 

	
6.  

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

 

	
7.  

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

 

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

 

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

[SIGNATURE OF DIRECTOR]

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

[SIGNATURE OF WITNESS]

[NAME AND ADDRESS]

 

  

10

  

 

SCHEDULE 2 - THE CONDITIONS

 

	
1.  

	
Repayment

 

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

 

	
2.  

	
Voluntary early repayment

 

	
2.1  

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

 

	
2.2  

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

 

	
2.3  

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

 

	
2.4  

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

 

	
3.  

	
Cancellation

 

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

 

	
4.  

	
Payment of interest

 

	
4.1  

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

 

	
4.2  

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

 

	
4.3  

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

 

	
4.4  

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

 

	
4.5  

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

 

	
4.6  

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

 

	
4.7  

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

 

	
5.  

	
Dealings

 

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

 

  

11

  

 

	
6.  

	
Notices

 

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

 

	
7.  

	
Tax

 

	
7.1  

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

 

	
7.2  

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

 

	
7.3  

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

 

	
7.3.1  

	
the subscription for or acquisition of Noteholders' Notes;

 

	
7.3.2  

	
the entering into of the Election; or

 

	
7.3.3  

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

 

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

 

	
7.4  

	
The Company shall or shall procure that MHL shall;

 

	
7.4.1  

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

 

	
7.4.2  

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

 

	
8.  

	
Assignment/Transfer

 

Save as provided in paragraph 2.1 of Schedule 3, the Noteholders may not assign, transfer, charge or deal with the Notes or all or any part of the benefit of, or the rights and benefits of the Noteholders under, the Notes, except with the prior written consent of the Company.

 

  

12

  

 

SCHEDULE 3 - PROVISIONS AS TO REGISTRATION, TRANSFER AND OTHER MATTERS

 

	
1.  

	
Recognition of Noteholder as absolute owner

 

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

 

	
2.  

	
Transferability of notes

 

	
2.1  

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

 

	
2.2  

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

 

	
3.  

	
Execution of transfers

 

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

 

	
4.  

	
Registration of transfers

 

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

 

	
5.  

	
No fees for registration of transfers

 

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

 

	
6.  

	
Recognition of personal representatives

 

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

 

	
7.  

	
Transmission of notes

 

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

 

  

13

  

 

	
8.  

	
Payment of interest and principal

 

	
8.1  

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

 

	
8.1.1  

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

 

	
8.1.2  

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

 

	
8.2  

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

 

	
8.3  

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

 

	
9.  

	
Receipt of joint holders

 

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

 

	
10.  

	
Replacement of certificates

 

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

 

	
11.  

	
Notice

 

	
11.1  

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

 

	
11.2  

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

 

	
11.2.1  

	
if delivered personally, at the time of delivery;

 

	
11.2.2  

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

 

	
11.2.3  

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

 

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

 

  

14

  

 

	
11.3  

	
The addresses for service of the parties are:

 

Company:

 

For the attention of: Brent David Willis

 

Address: 11335 Apple Drive, Spring Lake, Michigan 49448, USA

 

E-mail address: brent@victoryecigs.com

 

with a copy by e-mail to ded@robinsonbrog.com  and to kevin.mccarthy@mishcon.com

 

Noteholders:

 

To their respective registered postal address or email address

 

or any other address (postal or e-mail) as may be notified by at least five Business Days notice in writing from time to time by the relevant party to the other parties in accordance with this paragraph 11.

 

For the avoidance of doubt, notice given under this instrument will not be validly given if sent by electronic means or in electronic form (each as defined in section 1168 of the Companies Act 2006), except that it may be validly given if sent by e-mail.

 

In the case of joint registered holders of any Notes a notice given to the Noteholder whose name stands first in the Register in respect of such Notes shall be sufficient notice to all joint holders.

 

  

15

  

 

SCHEDULE 4  - PROVISIONS FOR MEETINGS OF THE NOTEHOLDERS

 

	
1.  

	
Calling of meetings

 

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

 

	
2.  

	
Notice of meetings

 

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

 

	
3.  

	
Chairman of meetings

 

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

 

	
4.  

	
Quorum at meetings

 

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

 

	
5.  

	
Absence of quorum

 

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

 

	
6.  

	
Adjournment of meetings

 

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

 

	
7.  

	
Notice of adjourned meetings

 

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

 

  

16

  

 

	
8.  

	
Resolution on show of hands

 

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

 

	
9.  

	
Demand for poll

 

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

 

	
10.  

	
Manner of taking poll

 

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

 

	
11.  

	
Time for taking poll

 

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

 

	
12.  

	
Persons entitled to vote

 

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

 

	
13.  

	
Instrument appointing proxy

 

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

 

	
14.  

	
Deposit of instrument appointing proxy

 

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

 

  

17

  

 

	
15.  

	
Votes

 

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

 

	
16.  

	
Power of meetings of Noteholders

 

	
16.1  

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

 

	
16.1.1  

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

 

	
16.1.2  

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

 

	
16.1.3  

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

 

	
16.1.4  

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

 

	
16.2  

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

 

	
17.  

	
Special resolution binding on all Noteholders

 

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

 

	
18.  

	
Resolutions in writing

 

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

 

	
19.  

	
Minutes of meetings

 

Minutes of all resolutions and proceedings at every such meeting of the Noteholders shall be made and duly entered in books to be from time to time provided for that purpose by the Company. Any minutes which purport to be signed by the Chairman of the meeting at which such resolutions were passed or proceedings held or by the Chairman of the next succeeding meeting of the Noteholders shall be conclusive evidence of the matters contained in such minutes. Unless the contrary is proved, every such meeting in respect of the proceedings of which minutes have been made shall be deemed to have been duly convened and held and all resolutions passed at such meetings to have been duly passed.

 

  

18

  

 

	
EXECUTED as a deed poll by

VICTORY ELECTRONIC CIGARETTES CORPORATION acting by a director, in the presence of:

	
Signature

 

Director

	  	
Print name

 

	  	
Witness signature

	  
	  	
Name (in BLOCK CAPITALS)

	  
	  	
Address

	  
	  	  	  

 

 

19ecig_ex102.htm

Exhibit 10.2

 

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into as of April __, 2014, between Victory Electronic Cigarettes Corporation, a Nevada corporation (the “Company”), and each of the share holders of Must Have Limited signatory hereto (each such shareholder, a “Holder” and, collectively, the “Holders”).

               This Agreement is made pursuant to the Agreement to buy the shares in Must Have Limited, dated as of April __, 2014, among the Company and the Holders (the “Purchase Agreement”).

               The Company and each Holder hereby agrees as follows:

        1.                      Definitions.

               Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

            “Advice” shall have the meaning set forth in Section 6(c).

“Completion” shall have the meaning set forth in the Purchase Agreement.

“Effectiveness Date” means, with respect to the Initial Registration Statement required to be filed hereunder, the 90th calendar day following the Filing Date, and with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the 90th calendar day following the date on which an additional Registration Statement is required to be filed hereunder; provided, however, that in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates otherwise required above, provided, further, if such Effectiveness Date falls on a day that is not a Trading Day, then the Effectiveness Date shall be the next succeeding Trading Day.

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Event” shall have the meaning set forth in Section 2(d).

“Event Date” shall have the meaning set forth in Section 2(d).

“Filing Date” means, with respect to the Initial Registration Statement required hereunder, the 30th calendar day following the day the Company receives audited financial statements of Must Have Limited pursuant to the Purchase Agreement, subject to underwriter approval should the Company be involved in an underwritten public offering and if such approval is not granted then Filing Date means the 45th calendar day following the closing date of such underwritten public offering, and, with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.  Notwithstanding the above, the Filing Date will not be prior to the date that the registration rights granted to (i) holders of the Company’s 15% Senior Secured Convertible Promissory Notes, which Notes were dated between January 7, 2014 and February 28, 2013 and (ii) the signatories to that Certain Registration Rights Agreement of the Company in connection with FIN Electronic Cigarette Corporation dated as of February 28, 2014, have been satisfied.

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Initial Registration Statement” means the initial Registration Statement filed pursuant to this Agreement.

  

1

  

“Losses” shall have the meaning set forth in Section 5(a).

“Plan of Distribution” shall have the meaning set forth in Section 2(a).

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Purchase Agreement” means that certain agreement to buy the shares in Must Have Limited executed that date hereof between Victory Electronic Cigarettes Corporation and [                               ].

“Registrable Securities” means, as of any date of determination, (a) all of the shares of Common Stock issued to a Holder pursuant to the Purchase Agreement, and (b) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided, however, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company), as reasonably determined by the Company, upon the advice of counsel to the Company.

“Registration Statement” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

“SEC” means the United States Securities and Exchange Commission.

“SEC Guidance” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.

“Selling Stockholder Questionnaire” shall have the meaning set forth in Section 3(a).

        2.                      Registration with the SEC.

(a) On or prior to each Filing Date, the Company shall prepare and file with the SEC a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415, if applicable.  Each Registration Statement filed hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed by at least 85% in interest of the Holders) substantially the “Plan of Distribution” attached hereto as Annex A.  Subject to the terms of this Agreement, the Company shall use its best efforts to cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the “Effectiveness Period”).  The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. Eastern Time on a Trading Day.   The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement.  The Company shall, by 9:30 a.m. Eastern Time on the Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424.  Failure to so notify the Holder within one (1) Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d).

  

2

  

(b)  Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); with respect to filing on Form S-3 or other appropriate form, and subject to the provisions of Section 2(d) with respect to the payment of liquidated damages; provided, however, that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.

(c) Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the Company shall reduce or eliminate any securities to be included on such Registration Statement by any Person other than a Holder.

In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder’s allotment.  In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended.

 

 

(d) If: (i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) prior to the effective date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within ten (10) calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declared effective, or (iv) a Registration Statement registering for resale all of the Registrable Securities is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (v) after the effective date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than ten (10) consecutive calendar days or more than an aggregate of fifteen (15) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “Event”, and for purposes of clauses (i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and for purpose of clause (iii) the date which such ten (10) calendar day period is exceeded, and for purpose of clause (v) the date on which such ten (10) or fifteen (15) calendar day period, as applicable, is exceeded being referred to as “Event Date”), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 2.0% multiplied by the value of the shares of Common Stock issued to a Holder pursuant to the Purchase Agreement at the time of issuance.  If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event.

(e) If Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission.

3.           Registration Procedures.

               In connection with the Company’s registration obligations hereunder, the Company shall:

(a) Not less than five (5) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. Notwithstanding the above, the Company shall not be obligated to provide the Holders advance copies of any universal shelf registration statement registering securities in addition to those required hereunder, or any Prospectus prepared thereto.  The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than five (5) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex B (a “Selling Stockholder Questionnaire”) on a date that is not less than two (2) Trading Days prior to the Filing Date or by the end of the fourth (4th) Trading Day following the date on which such Holder receives draft materials in accordance with this Section.

  

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(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

(c) If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.

(d) Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus, provided, however, in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.

(e) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(f) Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form.

(g) Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).

(h)  The Company shall cooperate with any broker-dealer through which a Holder proposes to resell its Registrable Securities in effecting a filing with the FINRA Corporate Financing Department pursuant to FINRA Rule 5110, as requested by any such Holder, and the Company shall pay the filing fee required by such filing within two (2) Business Days of request therefor.

(i) Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that, the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

  

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(j) If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

(k) Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.  The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company shall be entitled to exercise its right under this Section 3(k) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period.

(l) Comply with all applicable rules and regulations of the Commission.

(m) The Company shall use its best efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.  After the Company has qualified for the use of Form S-3, the Holders shall have the right, without limiting their other rights of registration hereunder, at any time when they cannot sell their Registrable Securities without any restriction under Rule 144, to request registration on Form S-3.

(n) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.

(o) Promptly following the Completion under the Purchase Agreement, but not later than the Filing Date, the Company shall use all reasonable efforts to cause the securities of the Company including all Registrable Securities to be listed on the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the NYSE MKT or the New York Stock Exchange.

(p) The Company shall not, without the prior written consent of the holders of a majority of the Registrable Securities, grant any rights to any persons to register Common Stock of the Company unless such rights are by their terms substantially the same as the rights of the Holders granted pursuant to this Agreement.

        4.                      Registration Expenses. All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) if not previously paid by the Company in connection with an Issuer Filing, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.  In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

        5.                      Indemnification.

(a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(c), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected.  The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(h).

  

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(b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with any applicable prospectus delivery requirements of the Securities Act through no fault of the Company or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such information relates to such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto or (iii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), to the extent, but only to the extent, related to the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(c), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected.  In no event shall the liability of any selling Holder under this Section 5(b) be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that, the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.

               An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

               Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that, the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.

(d) Contribution. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

               The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute pursuant to this Section 5(d), in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

  

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The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

        6.                      Miscellaneous.

(a) Remedies.  In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement.  Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.

(b) Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to a Registration Statement.

(c) Discontinued Disposition.  By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed.  The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(d).

(d) Piggy-Back Registrations. If, at any time starting on the Filing Date and during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering, including an underwritten offering, for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans, then the Company shall deliver to each Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered, subject to any applicable underwriter cutbacks or limits as a result of the application of Rule 415; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 6(d) that are eligible for resale pursuant to Rule 144 (without volume restrictions, manner of sale or current public information requirements) promulgated by the Commission pursuant to the Securities Act or that are the subject of a then effective Registration Statement covering all of the Holder’s Registrable Securities.

(e) Lock-up Agreements. In the event an underwriter in connection with an underwritten offering requests a lock-up of the securities held by shareholders of the Company, the Holders will agree to such lock-up of their shares, provided, such lock-up (i) is requested in good faith, (ii) does not exceed 180 days, and (iii) includes the officers and directors of the Company or its subsidiaries in similar capacities.

(f) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 51% or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security).  If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(f). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

(g) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.

(h) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities.

(i) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.  Except as set forth on Schedule 6(i), neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.

(j) Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

  

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(k) Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with laws of the State of Nevada, without giving effect to the principles of conflicts of laws thereof.

(l) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

(m) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(n) Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.

(o) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not asset any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder.  It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.

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(Signature Pages Follow)

  

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               IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

 

	 	

VICTORY ELECTRONIC CIGARETTES CORPORATION

	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name: 	 
	 	 	Title; 	 
	 	 	 	 

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

  

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Name of Holder:

Address:

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Annex A

Plan of Distribution

Each Selling Stockholder (the “Selling Stockholders”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the securities are traded or in private transactions.  These sales may be at fixed or negotiated prices.  A Selling Stockholder may use any one or more of the following methods when selling securities:

 

	
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

	
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block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

	
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purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

	
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an exchange distribution in accordance with the rules of the applicable exchange;

 

	
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privately negotiated transactions;

 

	
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in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;

 

	
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through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

	
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a combination of any such methods of sale; or

 

	
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any other method permitted pursuant to applicable law.

 

The Selling Stockholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales.  Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume.  The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities.  The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

  

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The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales.  In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.  Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

 

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities.  The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder.  In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Stockholders.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect.  The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution.  In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the Selling Stockholders or any other person.  We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

  

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Annex B

 

VICTORY ELECTRONIC CIGARETTES CORPORATION

 

Selling Stockholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “Registrable Securities”) of VICTORY ELECTRONIC CIGARETTES CORPORATION (the “Company”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) to which this document is annexed.  A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below.  All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “Selling Stockholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

	
  

	
1.

	
Name.

 

	
  

	
(a)

	
Full Legal Name of Selling Stockholder

 

	  
	  

	
  

	
(b)

	
Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

 

	  
	  

	
  

	
(c)

	
Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):

 

	  
	  

 

	
  

	
2.  Address for Notices to Selling Stockholder:

 

	  
	  
	  
	
Telephone:

	
Fax:

	
Contact Person:

 

  

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3.  Broker-Dealer Status:

 

	
  

	
(a)

	
Are you a broker-dealer?

 

Yes                         No   

 

	
  

	
(b)

	
If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes                         No   

 

	
  

	
Note:

	
If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

	
  

	
(c)

	
Are you an affiliate of a broker-dealer?

 

Yes                         No   

 

	
  

	
(d)

	
If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes                         No   

 

	
  

	
Note:

	
If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

	
  

	
4.  Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement.

 

	
  

	
(a)

	
Type and Amount of other securities beneficially owned by the Selling Stockholder:

 

	  
	  
	  

 

	
  

	
5.  Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

	
  

	
State any exceptions here:

 

	  
	  
	  

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto.  The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

  

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IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date:                                                     Beneficial Owner:                                                                              

By:                                                                                       

Name:

Title:

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

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