Document:

Converted by EDGARwiz

SECURITY AGREEMENT

THIS SECURITY AGREEMENT, dated as of December 23, 2016 (this “Security Agreement”), is made by Vapor Hub International Inc., a Nevada corporation (“Borrower”), in favor of PLY Technology (“Lender”).

WHEREAS, Borrower and Lender have entered into a Senior Secured Promissory Note of even date herewith (as it may be amended, modified, supplemented, renewed or replaced from time to time, the “Note”; any capitalized terms herein which are not otherwise defined herein shall have the meanings assigned thereto in the Note) and Senior Secured Credit Agreement (“Credit Agreement”) in connection with a loan by Lender to Borrower; 

WHEREAS, on December 24, 2015, Borrower entered into a Senior Secured Credit Facility Agreement with TCA Global Credit Master Fund, LP (“TCA”) and issued to TCA a Convertible Promissory Note in the principal amount of $750,000 (the “TCA Note”) in accordance with the Senior Secured Credit Agreement (“TCA Credit Agreement”), pursuant to which the payment and performance of all Borrower’s indebtedness and other obligations to TCA, including all borrowings under the loan agreement and related agreements, are secured by liens on substantially all of Borrower’s assets pursuant to a Security Agreement with TCA (“TCA Security Agreement” and collectively with the TCA Note and the TCA Credit Agreement, the “TCA Agreements”).

WHEREAS, the proceeds from the Note shall be used to fully satisfy and discharge all obligations under the TCA Agreements and the Outstanding Obligations (as defined in the Credit Agreement), pursuant to which the TCA Agreements shall be automatically terminated and Lender shall have a first priority security interest in and to the Collateral (as defined below).

WHEREAS, execution and delivery of this Security Agreement to Lender is a condition to certain obligations of Lender under the Note;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower hereby agrees as follows:

1.

(a)  As security for the due and punctual payment of each sum now or hereafter due whether at stated maturity, by acceleration or otherwise (including the payment of amounts which would become due but for the operation of an automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. §362(a)) from Borrower to Lender, and for the due and punctual performance of each and every obligation now or hereafter existing of Borrower to Lender, pursuant to the provisions of the Note, the Credit Agreement, this Security Agreement and any related agreements, including without limitation any personal guaranty, share pledge or other agreement or document required in connection with the Note or any extension of credit thereunder (collectively, the “Loan Documents”),whether for principal, premium, interest (including without limitation interest which, but for the filing of a petition in bankruptcy with respect to Borrower, would accrue on such obligations), payments for early termination, fees, expenses or otherwise, direct or indirect (including participations or any interest of Lender in 

1

obligations of Borrower to others), acquired outright, conditionally, or as collateral security from another, absolute or contingent, joint or several, secured or unsecured, due or not, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, and all obligations of Borrower under this Security Agreement (collectively, the “Obligations”), Borrower hereby grants to Lender a continuing security interest in all of the personal property of Borrower and any and all proceeds and products thereof (all such property and proceeds being hereafter referred to as the “Collateral”), whether now or hereafter existing, wherever located, and in which Borrower now has or hereafter has any right, title or interest, including without limitation:

(a)

Goods;

(b)

Equipment; 

(c)

Inventory;

(d)

Accounts; 

(e)

Chattel Paper;

(f)

Instruments (including promissory notes); 

(g)

General Intangibles;

(h)

Investment Property; 

(i)

Documents; 

(j)

Deposit Accounts; 

(k)

Money;

(l)

Oil, Gas and Other Minerals Before Extraction;

(m)

Commercial Tort Claims;

(n)

Letters of Credit;

(o)

Letter of Credit Rights; 

(p)

Supporting Obligations; and

(q)

To the extent not included in Subsections 1(a) through 1(p) above, all products and proceeds of the foregoing.

Any capitalized term herein that is defined in the California Uniform Commercial Code (“CUCC”) and not defined in this Security Agreement or the Note shall have the meaning given to it in the CUCC (as may be amended from time to time).  Borrower hereby authorizes Lender to file one or more financing statements describing the Collateral, including without limitation a 

2

description as “all assets of Debtor, whether now owned or hereafter acquired, and wherever located”. 

(b)

Certain Limited Exclusions.  The Lender may determine at its sole discretion whether the Collateral shall include or the security interest granted under Section 1(a) shall attach to (a) any lease, license, contract, property rights or agreement to which Borrower is a party or any of its rights or interests thereunder if and for so long as the grant of such security interest shall constitute or result in (i) the abandonment, invalidation or unenforceability of any right, title or interest of Borrower therein or (ii) a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract, property rights or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the CUCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, however, that in any event the Collateral shall include and such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied and to the extent severable, shall attach immediately to any portion of such lease, license, contract, property rights or agreement that does not result in any of the consequences specified in clause (i) or (ii) above; or (b) any intent to use trademark application filed in the United States to the extent that, and solely during the period in which the grant of a security interest therein would impair the validity and enforceability of such intent to use trademark application or the trademark that is the subject thereof under trademark application law.  Notwithstanding anything in this Section 1(b) to the contrary, the foregoing exclusions shall not in any way limit, impair or otherwise affect Lender’s continuing liens upon any rights or interests of Borrower in (A) monies due or to become due to Borrower in respect of such lease, license, contract, property rights agreement or other interests or (B) any and all Proceeds from the sale, transfer, assignment, license, lease or other dispositions of such lease, license, contract, property rights, agreements or other interests.

2.

Anything herein to the contrary notwithstanding:

(a)

Borrower shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Security Agreement had not been executed;

(b)

The exercise by Lender of any of the rights hereunder shall not release Borrower from any of its duties or obligations under the contracts and agreements included in the Collateral; and

(c)

Lender shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Security Agreement, nor shall Lender be obligated to perform any of the obligations or duties of Borrower thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

3

3.

Borrower represents, warrants and covenants that: 

(a)

The execution and delivery of this Security Agreement has been authorized by the Board of Directors of Borrower and by any necessary vote or consent of the shareholders of Borrower.

(b)

Concurrently with the execution of this Security Agreement, Borrower will fully pay, satisfy and discharge any and all obligations under the TCA Agreements using the proceeds from the Note.

Following the repayment of the TCA Obligations and the release of TCA’s security interest in the Collateral as required by Borrower under the Credit Agreement

, the Lender will have a first priority security interest in and to the Collateral. Borrower has the right and authority to prepay any and all amounts payable under the TCA Agreements without TCA’s prior written consent, and upon prepayment of all such amounts the TCA Note,  the TCA Agreements, and any and all liens in favor of TCA with respect to the Collateral shall be automatically terminated and of no further force and effect.  Immediately after receipt of the funds under the Note, Borrower shall take all actions requested by Lender to obtain a payoff letter and have TCA file any and all termination statements necessary to reflect the release of any and all liens on the collateral by TCA.  Except for the TCA Agreements and accounts payable and payroll accrued in the ordinary course of business, Borrower has no other secured indebtedness, and any remaining balance of the Note shall be used to satisfy and discharge  obligations to any and all creditors in the ordinary course of business.   

(c)

Upon Borrower’s payment of amounts to TCA as set forth in subsection (b), the pledge and charge of and grant of a security interest in the Collateral pursuant to this Security Agreement together with the steps taken pursuant to this Security Agreement for perfection (that is, the filing of a financing statement with the relevant Secretary of State, entering into control agreements with organizations at which Borrower maintains deposit accounts, acknowledgment from third parties holding Collateral that they are doing so for the benefit of Lender, and continued possession by Lender of the money, negotiable documents and other property for which possession is required under the CUCC to perfect a security interest) creates or, with respect to after-acquired property, will create when Borrower has rights in such property, a valid and perfected first priority security interest in the Collateral, securing the payment of the Obligations, to the extent a security interest in such Collateral may be perfected by filing of a financing statement with the California Secretary of State, by control agreements as to deposit accounts, by written acknowledgement by third party bailees and custodians, or by Lender’s possession thereof, respectively.

(d)

Borrower has rights in or the power to transfer the Collateral (or, as to after-acquired property, will have the rights or the power to transfer the Collateral) and its title to the Collateral is free and clear of any lien, security interest, charge or encumbrance except for any security interest created by this Security Agreement.  No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except (i) such as may have been filed in favor of Lender relating to this Security Agreement or (ii) for which duly executed termination statements have been delivered to Lender, or (iii) such as have been disclosed in writing to Lender and may have been filed for 

4

information purposes only by persons leasing property to Borrower to the extent permitted under the Note;

(e)

The chief place of business of Borrower, the location of all Collateral, and the books and records relating to the Collateral are located at the address set forth below;  

1871 Tapo Street

Simi Valley, CA

(f)

Except as set forth in paragraph (c) of this Section, no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other person is required either (i) for the grant by Borrower of the security interest granted hereby or for the execution, delivery or performance of this Security Agreement by Borrower or (ii) for the perfection of such security interest or the exercise by Lender of its rights and remedies provided for in this Security Agreement (except as may be required in connection with such granting or perfection by laws affecting the offering and sale of securities generally or by laws affecting the transferring of certificates of title for motor vehicles or by the CUCC with respect to the exercise of sale and other rights and remedies granted under this Security Agreement);

(g)

All accounts are and will, at all times pertinent hereto, be bona fide existing obligations created by sale and delivery of merchandise or rendition of services to customers in the ordinary course of business, free of liens and security interests and unconditionally owed to Borrower without defenses, disputes, offsets, counterclaims, rights of return or cancellation, and Borrower has no knowledge of any fact, including without limitation any imminent or threatened bankruptcy, insolvency, or financial embarrassment of any account debtor, which would impair the validity or collectability of any of the accounts or of the instruments connected with such accounts, and each obligor liable upon the accounts or upon the instruments connected with such accounts has and will have capacity to contract;

(h)

Borrower’s true and complete legal name is set forth in the first paragraph of this Security Agreement, and Borrower has not had or used any other name within the past five years, except as indicated below:

DogInn, Inc.

(if none, insert “None”)

(i)

Borrower is presently organized and existing under the laws of Nevada.

(j)

Each representation and warranty set forth in the Note as to Borrower is true and correct in all material respects, and such representations and warranties are hereby incorporated herein by this reference with the same effect as though set forth in their entirety herein.

4.

Until Lender exercises its right to collect proceeds and amounts in respect of the Collateral pursuant to this Security Agreement, Borrower will collect with diligence and at its 

5

own expense any and all proceeds and amounts in respect of the Collateral.  Upon the occurrence and during the continuation of an Event of Default (as defined below), upon written request by Lender, any such collections made by Borrower shall be held in trust for Lender, and Borrower shall keep all such collections separate and apart from all other funds and property so as to be capable of identification as the property of Lender and shall deliver such collections at such time as Lender may request to Lender in the identical form received, properly endorsed or assigned when required to enable Lender to complete collection thereof.

5.

Borrower shall:

(a)

permit representatives of Lender to inspect the Collateral and Borrower’s books and records relating to the Collateral and make extracts therefrom, during Borrower’s regular business hours, and to arrange for verification of the amount of Collateral, under procedures acceptable to Lender, directly with Borrower’s debtors or otherwise at Borrower’s expense;

(b)

promptly notify Lender of any attachment or other legal process levied against any of the Collateral and any information received by Borrower relative to the Collateral, Borrower’s debtors or other persons obligated in connection therewith, which may in any way affect the value of the Collateral or the rights and remedies of Lender in respect thereto;

(c)

promptly notify Lender of any change in the state of incorporation or organization, as the case may be, of Borrower; 

(d)

promptly notify Lender of each bank or other account into which proceeds or revenues of the Collateral are or will be deposited; 

(e)

reimburse Lender upon demand for any and all costs, including without limitation reasonable attorneys’ and accountants’ fees, and other expenses incurred in collecting any sums payable by Borrower under any obligation secured hereby, enforcing or defending any term or provision of this Security Agreement or otherwise or in the checking, custody, preservation, use, handling and collection of the Collateral (from any person whomsoever) and the negotiation, preparation, enforcement, and defense of any agreement relating thereto;

(f)

promptly notify Lender of each location at which the Collateral is or will be kept, other than for temporary processing, repair, storage or similar purposes, and of any removal thereof to a new location, including without limitation each office of Borrower at which records relating to the Collateral are kept;

(g)

provide, maintain and deliver to Lender policies of insurance insuring the Collateral in the name of and with loss or damage payable to Lender, as its interest may appear, against loss or damage by fire and other hazards including but not limited to extended coverage, theft, burglary, bodily injury and such other risks, with such companies and in such amounts, as is required by Lender at any time (all such policies providing 30 days minimum written notice of cancellation to Lender) and Borrower will deliver to Lender the original or duplicate policies, or certificates or other evidence satisfactory to Lender of compliance with the foregoing insurance provisions, and Borrower will promptly notify Lender of any loss or damage to any of the 

6

Collateral or arising from its use, and, in the event Lender takes possession of the Collateral, the insurance policy or policies and any unearned or returned premium thereon shall at the option of Lender become the sole property of Lender;

(h)

do all acts necessary to maintain, preserve and protect all Collateral, keep all Collateral in good condition and repair and prevent any waste or unusual or unreasonable depreciation thereof;

(i)

after an Event of Default shall occur and be continuing, segregate the proceeds of the Collateral received by Borrower from other property of Borrower, and hold the same in trust as the exclusive property of Lender, and immediately deliver to Lender the identical checks, monies, or other proceeds of Collateral received, duly endorsed in blank where appropriate to effectuate the provisions hereof, the same to be held by Lender as additional Collateral hereunder or, at Lender’s option, to be applied to payment of any of the Obligations, whether or not due and in any order;

(j)

acknowledge and agree that Lender, at its option, may apply any insurance monies received at any time to the cost of repairs to or replacements for the Collateral and/or to payment of any of the Obligations, whether or not due, in any order Lender may determine, any surplus (after payment of all costs, reasonable attorney’s fees and disbursements) to be remitted to Borrower, who shall remain liable for any deficiency;

(k)

make, and continue to make, payment or deposit or otherwise provide for the payment, when due, of all taxes, assessments or contributions required by law which have been or may be levied or assessed against Borrower, whether with respect to any of the Collateral, to any wages or salaries paid by Borrower, or otherwise, and will deliver to Lender, on demand, certificates or other evidence satisfactory to Lender attesting thereto; 

(l)

shall join with Lender at its request from time to time in executing financing statements, control agreements, acknowledgments of bailees and of custodians, amendments thereto and continuation statements, and pay the cost of the filing of the same whenever Lender deems desirable, and execute and deliver to Lender further documents and instruments and do such other acts and things as Lender may reasonably request in order to effectuate fully the purpose and intent of this Security Agreement; and

(m)

shall cooperate with Lender in obtaining control (as that term is used in the CUCC) with respect to Collateral consisting of Deposit Accounts, Investment Property, Letter of Credit Rights and Electronic Chattel Paper.

6.

Except as otherwise permitted by the Note, Borrower shall not:

(a)

Sell, assign (by operation of law or otherwise) or otherwise dispose of, lease, license, or grant any option with respect to, any of the Collateral, except that prior to the exercise of rights by Lender during the continuance of an Event of Default hereunder, Borrower may sell Collateral consisting of furniture, furnishings, inventory and obsolete equipment in the ordinary course of its business and in accordance with its past practices and may license to any person in the ordinary course of business the right to use any trademark, patent or copyright 

7

owned by Borrower and Borrower may dispose of cash proceeds in the ordinary course of its business; nor

(b)

Create or suffer to exist any lien, security interest or other charge or encumbrance upon or with respect to any of the Collateral to secure debt or other obligations of any person or entity, except for security interests in favor of Lender, nor 

(c)

Permit any of the Collateral to become a part of or affixed to real property without prior written notice to Lender and without first making all arrangements, and delivering, or causing to be delivered, to Lender all instruments and documents, including without limitation waivers and subordination agreements by any landlords or mortgagees, requested by and satisfactory to Lender to preserve and protect the first priority security interest granted herein against all persons; nor 

(d)

Create any chattel paper without placing a legend thereon acceptable to Lender indicating that Lender has a security interest in the Chattel Paper.

7.

In case of the occurrence of an Event of Default as defined in item 8 (a), Lender may at any time, without prior notice to Borrower, collect proceeds and amounts in respect of the Collateral and may, in its sole discretion and at any time, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for, or make any compromise or settlement deemed desirable by Lender with respect to, any of the Collateral, and/or extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, or release, any of the Collateral or the Obligations, all without notice to or consent by Borrower and without otherwise discharging or affecting the Obligations, the Collateral or the security interest granted herein.  To effectuate the terms and provisions hereof, Borrower hereby designates and appoints Lender and its designees or agents as attorney-in-fact of Borrower, irrevocably and with power of substitution, with authority to endorse the name of Borrower on any notes, acceptances, checks, drafts, money orders, instruments or other evidences of payment or proceeds of the Collateral that may come into Lender’s possession; to sign the name of Borrower on any documents or drafts against and notices to debtors or obligors of Borrower, assignments and requests for verification of claims; to execute proofs of claim and loss; to execute any endorsements, assignments, or other instruments of conveyance or transfer; to adjust and compromise any claims under insurance policies; to execute releases; and to do all other acts and things necessary and advisable in the sole discretion of Lender to carry out and enforce this Security Agreement.  All acts of said attorney or designee are hereby ratified and approved, and said attorney or designee shall not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law.  This power of attorney, being coupled with an interest, is irrevocable while any of the Obligations shall remain unpaid.

8.

a)

Any of the following events shall constitute a default (each an “Event of Default”) under this Security Agreement:

(i)

an Event of Default under any of the Loan Documents; or

8

(ii)

failure of Borrower to perform any of Borrower’s obligations under this Security Agreement; 

(iii)

Lender shall at any time receive a state UCC filing office report indicating that Lender’s security interest hereunder is not prior to all other security interests or other interests reflected in that report; or 

(iv)

in the event of loss, theft, substantial damage to or destruction of any of the Collateral, or the making or filing of any lien, levy, or execution on, or seizure, attachment or garnishment of, any of the Collateral.

(b)

Upon the occurrence and continuation of an Event of Default, Lender at its option and without notice to Borrower may do any one or more of the following:

(i)

immediately or from time to time take possession of any or all of the Collateral, wherever it may be found, using all reasonable force so to do, either directly or through a receiver, conservator or similar officer of the court, or from time to time require Borrower, at Borrower’s expense, to assemble any or all of the Collateral, and make it available to Lender at a place designated by Lender which is reasonably convenient to Borrower and Lender; provided, however, that Borrower hereby waives all claims for damages due to, arising from or connected with any such taking; 

(ii)

from time to time proceed in the foreclosure of Lender’s security interest in any or all of the Collateral in any manner permitted by law or provided for herein;

(iii)

sell, lease or otherwise dispose of any or all of the Collateral at public or private sale, with or without having any or all of the Collateral at the place of sale, upon terms and in such manner as Lender may determine, and Lender may purchase any or all of the Collateral sold at any such sale and Lender may specifically disclaim any warranty of title or the like at its sole option;

(iv)

retain all or any of the Collateral in full or partial satisfaction of the Obligations;

(v)

appropriate, set off and apply to the payment of any or all of the Obligations, any or all Collateral in or coming into the possession of Lender or its agents and belonging or owing to Borrower, without notice to Borrower, and in such manner as Lender may in its discretion determine;

(vi)

receive, take, endorse, assign, deliver, accept and deposit, in its or Borrower’s name, any or all checks, notes, drafts, remittances and other instruments and documents relating to the Collateral;

(vii)

receive, open and dispose of all mail addressed to Borrower and notify postal authorities to change the address for delivery to such address as Lender may designate;

9

(viii)

transmit to account debtors notice of Lender’s interest therein and to request from such account debtors at any time, in Lender’s or Borrower’s name or that of Lender’s designee, information concerning the accounts and the amounts owing thereon;

(ix)

notify account debtors to make payment directly to Lender;

(x)

take or bring, in Lender’s or Borrower’s name, all steps, actions, suits or proceedings deemed by Lender necessary or desirable to effect collection of the Collateral;

(xi)

execute in Borrower’s name and on Borrower’s behalf any UCC financing statements or amendments thereto;

(xii)

settle, compromise or release, in whole or in part, any amounts owing on the Collateral, prosecute any action, suit or proceeding with respect to the Collateral, extend the time of payment of any and all Collateral, make allowances and adjustments with respect thereto, issue credits in Lender’s or Borrower’s name;

(xiii)

exercise any or all other rights or remedies available to Lender in accordance with the Uniform Commercial Code as from time to time in effect in the state in which the Collateral is located; and

(xiv)

exercise any or all rights of Lender pursuant to this Security Agreement, the Note, or any other Loan Document or now or hereafter existing at law, in equity or by statute in such order, at such times and in such manner as Lender, may, in its sole and exclusive judgment, determine.

After five (5) days’ prior written notice to Borrower and before any such disposition, Lender at its option may cause any or all of the Collateral to be repaired or reconditioned in such manner and to such extent as Lender may deem advisable, and any sums expended therefor by Lender shall be repaid by Borrower and secured by this Security Agreement.  Lender shall have no obligation, however, to clean-up or otherwise condition the Collateral for sale.  If a sufficient sum is not realized from any such disposition of Collateral to pay all obligations secured hereby, Borrower hereby promises and agrees to pay Lender any deficiency upon demand.  Lender has no obligation to attempt to satisfy the Obligations by collecting them from any other person   liable for them, and Lender may release, modify, or waive any Collateral provided by any other person to secure the Obligations, all without affecting Lender’s rights against Borrower.  Borrower waives any right it may have to require Lender to pursue any third person for any of the Obligations. If any of the Collateral is sold by Lender for future delivery, Lender shall not be liable for the failure of the purchaser to pay for same and in such event Lender may resell such Collateral.  If Lender sells any of the Collateral on credit, Borrower will be credited only with payment actually made by the purchaser, received by Lender, and applied to the indebtedness of the purchaser.  If the purchaser fails to pay for the Collateral, Lender may resell the Collateral, and Borrower shall be credited with the proceeds of the re-sale.  Lender may buy any part or all of the Collateral at any public sale (free from any right of redemption, which is expressly waived), and if any part or all of the Collateral is of a type customarily sold in a recognized 

10

market or is of the type which is the subject of widely distributed standard price quotations, Lender may buy at private sale and may make payment therefor by any means.

9.

Any cash held by Lender as Collateral after and during the continuance of an Event of Default, and any cash held by Lender as Collateral and all cash proceeds received by Lender (all such cash being “Proceeds”) in respect of any sale of, collection from, or other realization upon all or any part of the Collateral, shall be applied promptly from time to time by Lender:

First, to the payment of the costs and expenses of such sale, collection or other realization, including reasonable compensation to Lender and its agents and counsel, and all expenses, liabilities and advances made or incurred by Lender in connection therewith;

Second, to the payment of the Obligations; and

Third, after payment in full of all Obligations, to Borrower or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such Proceeds.

10.

No waiver of any breach of or default under any provision of this Security Agreement shall constitute or be construed as a waiver by Lender of any subsequent breach of or default under that or any other provision of this Security Agreement.

11.

No remedy herein conferred upon Lender is intended to be exclusive of any other remedy herein or in any other agreement between the parties hereto or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law, in equity or by statute.

12.

Lender shall not be deemed to assume any responsibility for, or obligation or duty with respect to, any part or all of the Collateral, of any nature or kind, or any matter or proceedings arising out of or relating thereto, including without limitation any obligation or duty to take any action to collect, preserve or protect its or Borrower’s rights in the Collateral or against any prior parties thereto, but the same shall be at Borrower’s sole risk at all times.  Borrower hereby releases Lender from any claims, causes of action and demands at any time arising out of or with respect to this Security Agreement, the Obligations, the use of the Collateral and/or any actions taken or omitted to be taken by Lender with respect thereto, and Borrower hereby agrees to hold Lender harmless from and with respect to any and all such claims, causes of action and demands.  Lender shall in no way or manner be liable or responsible for any act or omission of any carrier, warehouseman, bailee, forwarding agency, or any other person whosoever.  All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.

13.

Borrower hereby waives presentment, notice of dishonor and protest of all instruments included in or evidencing any of the Obligations or the Collateral, and any and all other notices and demands whatsoever (except as expressly provided herein).  

11

14.

If Borrower fails to make any payment or do any act required by this Security Agreement, then Lender without notice to or demand on Borrower may, but is not obliged to, make any payments and do any acts that Lender may consider necessary to protect Lender’s security interest in the Collateral, and Borrower hereby authorizes Lender to take possession of any or all of the Collateral and to pay, purchase, contest and compromise any encumbrance, charge or lien that in the judgment of Lender is or may be prior or superior to Lender’s security interest.

15.

All judicial proceedings brought against Borrower with respect to this Security Agreement may be brought in any state or federal court of competent jurisdiction in Los Angeles County in the State of California, and, by execution and delivery of this Security Agreement, Borrower accepts for itself and in connection with its properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Security Agreement.  Borrower irrevocably waives any right it may have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance with this Section.  Borrower hereby agrees that service upon it by mail at the address set forth in the Note shall constitute sufficient notice.  Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Lender to bring proceedings against Borrower in courts of any jurisdiction.

16.

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AS MAY BE IN EFFECT FROM TIME TO TIME, BORROWER AND LENDER HEREBY AGREE TO WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SECURITY AGREEMENT, ANY OBLIGATION OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE LOAN TRANSACTION CONTEMPLATED BY THE NOTE AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED.  The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims and all other common law and statutory claims.  Borrower and Lender further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel.  THIS WAIVER IS IRREVOCABLE, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS SECURITY AGREEMENT, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS CONTEMPLATED BY THE NOTE.  In the event of litigation, this Security Agreement may be filed as a written consent to a trial by the court. THIS SECTION IS SEVERABLE FROM THE REST OF THIS SECURITY AGREEMENT.

17.

Without limiting any other provision of this Security Agreement, Borrower hereby authorizes Lender to execute in Borrower’s name and/or to file and/or deliver on behalf of Borrower any documents and take any actions necessary or appropriate to perfect Lender’s security interest granted hereunder and to continue such perfection in effect so long as this Security Agreement remains in effect, including without limitation the filing of financing statements and continuation statements and amendments and notices to custodians and bailees.

12

18.

In case any provision of this Security Agreement shall be invalid, illegal or unenforceable, such provision shall be severable from the rest of this Security Agreement, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

19.

This Security Agreement cannot be changed, modified or supplemented except in a writing signed by the party against whom enforcement of such change, modification or supplement is sought.

20.

This Security Agreement and all Obligations shall be binding upon the successors or assigns of Borrower, shall bind all persons who become bound as a debtor under this Security Agreement, and shall, together with the rights and remedies of Lender hereunder, inure to the benefit of Lender, its successors, endorsees and assigns.

21.

THIS SECURITY AGREEMENT IS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTERESTS HEREUNDER OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.  Unless otherwise defined herein, terms used in Division 9 of the CUCC are used herein as therein defined.

13

IN WITNESS WHEREOF, Borrower has executed this Security Agreement as of the date first set forth above.

Vapor Hub International Inc., 

a Nevada corporation

By: /s/ Lori Winther

Name:  Lori Winther

Title:   Chief Financial Officer

 

14Converted by EDGARwiz

NEITHER THIS NOTE NOR THE SECURITIES THAT ARE ISSUABLE TO THE HOLDER UPON CONVERSION HEREOF (COLLECTIVELY, THE “SECURITIES”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THE SECURITIES NOR ANY INTEREST OR PARTICIPATION THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED: (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT OR APPLICABLE STATE SECURITIES LAWS; OR (II) IN THE ABSENCE OF AN OPINION OF COUNSEL IN CUSTOMARY FORM, THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR; (III) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 OR ANY EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT.

SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

Issuance and Effective Date: As of December 23, 2016 (“Effective Date”)

$543,110.30

RECITALS:

WHEREAS, on December 24, 2015, VAPOR HUB INTERNATIONAL INC., a Nevada corporation (“Borrower”), whose address is 1871 Tapo Street, Simi Valley, CA 93063, entered into a Senior Secured Credit Facility Agreement with TCA Global Credit Master Fund, LP (“TCA”) and issued to TCA a Convertible Promissory Note in the principal amount of $750,000 (the “TCA Note”) in accordance with the Senior Secured Credit Agreement (“TCA Credit Agreement”), pursuant to which the payment and performance of all Borrower’s indebtedness and other obligations to TCA, including all borrowings under the loan agreement and related agreements, are secured by liens on substantially all of Borrower’s assets pursuant to a Security Agreement with TCA (“TCA Security Agreement” and collectively with the TCA Note and the TCA Credit Agreement and all other ancillary agreements thereto, the “TCA Agreements”).

WHEREAS, the proceeds from this Note shall be used to fully satisfy and discharge all obligations under the TCA Agreements and such other obligations set forth in Exhibit A (collectively, the “Outstanding Obligations”), pursuant to which the TCA Agreements shall be terminated and Lender shall have a first priority security interest in and to the Collateral (as defined below) pursuant to a Security Agreement between Holder and Borrower dated as of December 23, 2016 (“Security Agreement”).

AGREEMENT:

FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of PLY Technology, a California corporation  and its successors or assigns (collectively, the “Holder”), on or before the Maturity Date (as defined in the Credit Agreement): (i) the principal amount of 

- 1 -

$543,110.30; together with (ii) interest on the unpaid principal balance hereof at the rate of eighteen percent (18%) per annum commencing as of the Effective Date hereof; together with (iii) all other Obligations due, owing and payable under the terms of the Credit Agreement and all other Loan Documents, all in accordance with the terms hereof and the terms and provisions of that certain Credit Agreement between the Borrower and the Holder dated as of December 23, 2016 (such Credit Agreement, as amended, supplemented, renewed, or modified from time to time, the “Credit Agreement”).  The proceeds from this Note shall be used by the Company solely to fully satisfy and discharge the Outstanding Obligations in the amounts set forth in Exhibit A, unless otherwise approved in advance in writing by the Holder.  This Senior Secured Convertible Promissory Note (this note, and all modifications, extensions, future advances, supplements, and renewals thereof, and any substitutions therefor, hereinafter referred to as the “Note”) shall be payable in accordance with the terms of the Credit Agreement and the specific terms set forth below.  Capitalized words and phrases not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement and the Security Agreement.

1.  

Payments.

(a)

Intentionally left blank.

(b)

Prepayment Prior to Maturity.  The Borrower, at its option, shall have the right to prepay this Note in full and for cash, at any time prior to the Maturity Date, with Holder’s prior written consent by submitting a prepayment request notice (the “Prepayment Notice”) to the Holder. The amount required to prepay this Note in full pursuant to this Section 1(b) shall be equal to: (i) the aggregate principal amount then outstanding under this Note; plus (ii) all accrued and unpaid interest due under this Note as of the prepayment date; plus (iii) all other costs, fees, charges, and all other Obligations due and payable hereunder or under any other “Loan Documents” (as hereinafter defined) (collectively, the “Prepayment Amount”).  The Borrower shall deliver the Prepayment Amount to the Holder on the third (3rd) Business Day after Holder’s written acceptance of the Prepayment Notice.

(c)

Payment at Maturity.  The principal amount of this Note, together with all accrued and unpaid interest, and all other sums due and payable hereunder and/or under any other Loan Documents, are and shall be due and payable in full to the Holder by no later than 2:00 P.M., EST, on the Maturity Date.

(d)

Payment of Default Interest.  Any amount of principal, interest, or other sums due on this Note or any other Loan Documents which are not paid when due shall, at Lender’s option, bear interest from the date due until such past due amount is paid in full at the Default Rate.  

(e)

Late Fee. If all or any portion of the payments of principal, interest, or other charges due hereunder are not received by the Holder within five (5) days of the date such payment is due, then the Borrower shall pay to the Holder a late charge (in addition to any other remedies that Holder may have) equal to five percent (5%) of each such unpaid payment or sum.  Any payments returned to Holder for any reason must be covered by wire transfer of immediately available funds to an account designated by Holder, plus a $100.00 administrative 

- 2 -

fee charge.  Holder shall have no responsibility or liability for payments purportedly made hereunder but not actually received by Holder, and the Borrower shall not be discharged from the obligation to make such payments due to loss of same in the mails or due to any other excuse or justification ultimately involving facts where such payments were not actually received by Holder.

(f)

General Payment Provisions.  Interest shall be calculated on the basis of a 360-day year, and shall accrue daily on the outstanding principal amount outstanding from time to time for the actual number of days elapsed, commencing as of the Effective Date hereof until payment in full of the outstanding principal, together with all accrued and unpaid interest, and other amounts which may become due hereunder or under any Loan Documents, has been received and cleared to the Holder.  All payments received and actually collected by Holder hereunder shall be applied first to any costs, fees and expenses due or incurred hereunder or under any other Loan Documents, second to accrued and unpaid interest hereunder, and last to reduce the outstanding principal balance of this Note.  All payments on this Note shall be made in lawful money of the United States of America in the manner required by the Credit Agreement.

2.

Secured Nature of Note.  This Note is being issued in connection with the Credit Agreement.  The indebtedness evidenced by this Note is also secured by all of the Collateral of the Borrower and various other instruments and documents referred to in the Credit Agreement as the “Loan Documents” (which term shall have the same meaning in this Note as such term is given in the Credit Agreement). All of the agreements, conditions, covenants, provisions, representations, warranties and stipulations contained in any of the Loan Documents which are to be kept and performed by the Borrower are hereby made a part of this Note to the same extent and with the same force and effect as if they were fully set forth herein, and the Borrower covenants and agrees to keep and perform them, or cause them to be kept or performed, strictly in accordance with their terms.

3.

Defaults and Remedies.

(a)

Events of Default.  The occurrence of any of the following events shall constitute an “Event of Default” hereunder: (i) the Borrower shall fail to pay any installment of interest, principal, or other sums due under this Note or any other Loan Documents when any such payment shall be due and payable; (ii) the Borrower or any of its Subsidiaries makes an assignment for the benefit of creditors; (iii) any order or decree is rendered by a court which appoints or requires the appointment of a receiver, liquidator or trustee for the Borrower or any of its Subsidiaries, and the order or decree is not vacated within thirty (30) days from the date of entry thereof; (iv) any order or decree is rendered by a court adjudicating the Borrower or any of its Subsidiaries, insolvent, and the order or decree is not vacated within  (30) days from the date of entry thereof; (v) the Borrower or any of its Subsidiaries files a petition in bankruptcy under the provisions of any bankruptcy law or any insolvency act; (vi) the Borrower or any of its Subsidiaries admits, in writing, its inability to pay its debts as they become due; (vii) a proceeding or petition in bankruptcy is filed against the Borrower or any of its Subsidiaries, and such proceeding or  petition is not dismissed within thirty (30) days from the date it is filed; (viii) the Borrower or any of its Subsidiaries files a petition or answer seeking reorganization or arrangement under the bankruptcy laws or any law or statute of the United States or any other 

- 3 -

foreign country or state; (ix) the occurrence of any “Event of Default” (as such term may be defined in any of the other Loan Documents) under the Credit Agreement or any other Loan Documents; or (x) the Borrower shall fail to perform, comply with or abide by any of the material stipulations, agreements, conditions and/or covenants contained in this Note or any other Loan Documents on the part of the Borrower to be performed, complied with, or abided by, and such failure is not cured within ten (10) days after written notice of such failure is delivered by Holder to the Borrower (provided that if the failure to perform or default in performance is not capable of being cured, in Holder’s sole but reasonable discretion, then the cure period set forth herein shall not be applicable and the failure or default shall be an immediate Event of Default hereunder).

(b)

Remedies.  Upon the occurrence of an Event of Default, the interest on this Note shall immediately accrue at the Default Rate, and, in addition to all other rights or remedies the Holder may have, at law or in equity, the Holder may, in its sole discretion, accelerate full repayment of all principal amounts outstanding hereunder, together with accrued interest thereon, together with all other fees, charges and amounts due under any Loan Documents, together with all reasonable attorneys’ fees, paralegals’ fees and costs and expenses incurred by the Holder in collecting or enforcing payment hereof (whether such fees, costs or expenses are incurred in negotiations, all trial and appellate levels, administrative proceedings, bankruptcy proceedings or otherwise), and together with all other Obligations due by the Borrower hereunder and under the Loan Documents, and all such amounts shall thereafter accrue interest at the Default Rate,  all without any relief whatsoever from any valuation or appraisement laws, and payment thereof may be enforced and recovered in whole or in part at any time by one or more of the remedies provided to the Holder at law, in equity, or under this Note or any of the other Loan Documents.  In connection with the Holder’s rights hereunder upon an Event of Default, the Holder need not provide, and the Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately enforce any and all of its rights and remedies hereunder and all other remedies available to it in equity or under applicable law.

(c)

Exercise of Remedies.  The remedies of the Holder as provided herein and in any of the other Loan Documents shall be cumulative and concurrent and may be pursued singly, successively or together, at the sole discretion of the Holder, and may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof.

4.

Lost or Stolen Note.  Upon notice to the Borrower of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of an indemnification undertaking by the Holder to the Borrower in a form reasonably acceptable to the Borrower and customary for similar circumstances in commercial lender/borrower circumstances, and, in the case of mutilation, upon surrender and cancellation of the mutilated Note, the Borrower shall promptly execute and deliver a new Note of like tenor and date and in substantially the same form as this Note.

5.

Cancellation.  After all principal, accrued interest, and all other Obligations at any time owed on this Note or any other Loan Documents have been indefeasibly paid in full, and 

- 4 -

there are no existing or outstanding commitments for Holder to make any loans or other advances of credit to Borrower under the Credit Agreement or otherwise, this Note shall be canceled by Holder.

6.

Waivers.  Borrower hereby waives and releases all benefit that might accrue to the Borrower by virtue of any present or future laws exempting any property that may serve as security for this Note, or any other property or Collateral, real or personal, or any part of the proceeds arising from any sale of any such property or Collateral, from attachment, levy, or sale under execution, exemption from civil process, or extension of time for payment, including, without limitation, any and all homestead exemption rights of the Borrower; and the Borrower agrees that any property that may be levied upon pursuant to a judgment obtained by virtue hereof, on any writ of execution issued thereon, may be sold upon any such writ in whole or in part in any order or manner desired by Holder.  In addition, the Borrower and all others who are, or may become liable for the payment hereof: (i) severally waive presentment for payment, demand, notice of nonpayment or dishonor, protest and notice of protest of this Note or the other Loan Documents, and all other notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note or the other Loan Documents; (ii) expressly consent to all extensions of time, renewals or postponements of time of payment of this Note or the other Loan Documents from time to time prior to or after the maturity of this Note without notice, consent or further consideration to any of the foregoing; (iii) expressly agree that the Holder shall not be required first to institute any suit, or to exhaust its remedies against the Borrower, or any other Person or party to become liable hereunder or against any Collateral that may secure this Note in order to enforce the payment of this Note; and (iv) expressly agree that, notwithstanding the occurrence of any of the foregoing (except the express written release by the Holder of any such Person), the undersigned shall be and remain, directly and primarily liable for all sums due under this Note.

7.

Governing Law; Venue.  The Borrower irrevocably agrees that any dispute arising under, relating to, or in connection with, directly or indirectly, this Note or related to any matter which is the subject of or incidental to this Note (whether or not such claim is based upon breach of contract or tort) shall be subject to the exclusive jurisdiction and venue of the state and/or federal courts located in Los Angeles, California.  This provision is intended to be a “mandatory” forum selection clause and governed by and interpreted consistent with California law.  Borrower hereby consents to the exclusive jurisdiction and venue of any state or federal court having its situs in said county (or to any other jurisdiction or venue, if Holder so elects), and waives any objection based on forum non conveniens. Borrower hereby waives personal service of any and all process and consents that all such service of process may be made by certified mail, return receipt requested, directed to Borrower, as applicable, as set forth herein or in the manner provided by applicable statute, law, rule of court or otherwise.  In addition to the foregoing mandatory forum selection clause, all terms and provisions hereof and the rights and obligations of the Borrower and Holder hereunder shall be governed, construed and interpreted in accordance with the laws of the State of California, without reference to conflict of laws principles.

8.

Expenses.  The Borrower agrees to pay and reimburse the Holder upon demand for all costs and expenses (including, without limitation, reasonable attorneys’ fees and 

- 5 -

expenses) that the Holder may incur in connection with (i) the exercise or enforcement of any rights or remedies (including, but not limited to, collection) granted hereunder or otherwise available to it (whether at law, in equity or otherwise); or (ii) the failure by the Borrower to perform or observe any of the provisions hereof.  The provisions of this Section 8 shall survive the execution and delivery of this Note, the repayment of any or all of the Obligations, and the termination of this Note.

9.

Waiver of Jury Trail.  TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW, THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON THIS NOTE, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER LOAN DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF OR BETWEEN ANY PARTY HERETO, AND THE BORROWER AGREES AND CONSENTS TO THE GRANTING TO HOLDER OF RELIEF FROM ANY STAY ORDER WHICH MIGHT BE ENTERED BY ANY COURT AGAINST HOLDER AND TO ASSIST HOLDER IN OBTAINING SUCH RELIEF.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER ACCEPTING THIS NOTE FROM THE BORROWER. THE BORROWER’S REASONABLE RELIANCE UPON SUCH INDUCEMENT IS HEREBY ACKNOWLEDGED.

10.

Specific Shall Not Limit General; Construction.  No specific provision contained in this Note shall limit or modify any more general provision contained herein.  This Note shall be deemed to be jointly drafted by the Borrower and the Holder and shall not be construed against any person as the drafter hereof.

11.

Failure or Indulgence Not Waiver.  Holder shall not be deemed, by any act of omission or commission, to have waived any of its rights or remedies hereunder or under any Loan Documents, unless such waiver is in writing and signed by Holder, and then only to the extent specifically set forth in the writing.  A waiver on one event shall not be construed as continuing or as a bar to or waiver of any right or remedy to a subsequent event.

12.

Notice.  Notice shall be given to each party at the address for such party set forth in the Credit Agreement, and such notice shall be deemed properly given in accordance with the notice provisions set forth in the Credit Agreement.

13.

Usury Savings Clause.  Notwithstanding any provision in this Note or the other Loan Documents, the total liability for payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions, or other sums which may at any time be deemed to be interest, shall not exceed the limit imposed by the usury laws of the jurisdiction governing this Note or any other applicable law.  In the event the total liability of payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions or other sums which may at any time be deemed to be interest, shall, for any reason whatsoever, result in an effective rate of interest, which for any month or other interest payment period exceeds the limit imposed by the usury laws of the jurisdiction governing this Note, all sums in excess of those lawfully collectible as interest for the period in 

- 6 -

question shall, without further agreement or notice by, between, or to any party hereto, be applied to the reduction of the outstanding principal balance of this Note immediately upon receipt of such sums by the Holder hereof, with the same force and effect as though the Borrower had specifically designated such excess sums to be so applied to the reduction of such outstanding principal balance and the Holder hereof had agreed to accept such sums as a penalty-free payment of principal; provided, however, that the Holder of this Note may, at any time and from time to time, elect, by notice in writing to the Borrower, to waive, reduce, or limit the collection of any sums in excess of those lawfully collectible as interest rather than accept such sums as a prepayment of the outstanding principal balance.  It is the intention of the parties that the Borrower do not intend or expect to pay nor does the Holder intend or expect to charge or collect any interest under this Note greater than the highest non-usurious rate of interest which may be charged under applicable law.

14.

Binding Effect.  This Note shall be binding upon the Borrower and the successors and assigns of the Borrower and shall inure to the benefit of Holder and the successors and assigns of Holder.

15.

Severability.  In the event any one or more of the provisions of this Note shall for any reason be held to be invalid, illegal, or unenforceable, in whole or in part, in any respect, or in the event that any one or more of the provisions of this Note operates or would prospectively operate to invalidate this Note, then and in any of those events, only such provision or provisions shall be deemed null and void and shall not affect any other provision of this Note.  The remaining provisions of this Note shall remain operative and in full force and effect and shall in no way be affected, prejudiced, or disturbed thereby.

16.

Participations.  Holder may from time to time sell or assign, in whole or in part, or grant participations in this Note and/or the obligations evidenced hereby, without any requirement to obtain the Borrower’s written consent or approval.  The holder of any such sale, assignment or participation, if the applicable agreement between Holder and such holder so provides, shall be: (a) entitled to all of the rights, obligations and benefits of Holder (to the extent of such holder’s interest or participation); and (b) deemed to hold and may exercise the rights of setoff or banker’s lien with respect to any and all obligations of such holder to the Borrower (to the extent of such holder’s interest or participation), in each case as fully as though the Borrower was directly indebted to such holder.  Holder may in its discretion give notice to the Borrower of such sale, assignment or participation; however, the failure to give such notice shall not affect any of Holder’s or such holder’s rights hereunder.

17.

Amendments.  The provisions of this Note may be changed only by a written agreement executed by the Borrower and Holder.

18.

Conversion of Note.  At any time and from time to time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under any of the Loan Documents; or (ii) mutual agreement between the Borrower and the Holder, this Note may be, at the sole option of the Holder, convertible into shares of the common stock, which has a par value of $0.001 per share (the “Common Stock”) of the Borrower, in accordance with the terms and conditions set forth below.

- 7 -

(a)

Voluntary Conversion.  At any time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under any of the Loan Documents; or (ii) mutual agreement between the Borrower and the Holder, the Holder may at its sole discretion convert all or any portion of the outstanding principal, accrued and unpaid interest, Premium, if applicable, and any other sums due and payable hereunder or under any other Loan Documents (such total amount, the “Conversion Amount”) into shares of Common Stock of the Borrower (the “Conversion Shares”) at a price equal to: (i) the Conversion Amount (the numerator); divided by (ii) eighty-five percent (85%) of the lowest of the daily volume weighted average price of the Borrower’s Common Stock during the five (5) Business Days immediately prior to the Conversion Date, which price shall be indicated in the conversion notice (in the form attached hereto as Exhibit “B”, the “Conversion Notice”) (the denominator) (the “Conversion Price”).  The Holder shall submit a Conversion Notice indicating the Conversion Amount, the Conversion Price (including a calculation thereof), the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered.  

(b)

The Holder’s Conversion Limitations.  The Borrower shall not effect any conversion of this Note, and the Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the Conversion Notice submitted by the Holder, the Holder (together with the Holder’s Affiliates and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own shares of Common Stock in excess of the Beneficial Ownership Limitation (as defined herein).  To ensure compliance with this restriction, prior to delivery of any Conversion Notice, the Holder shall have the right to request that the Borrower provide to the Holder a written statement of the percentage ownership of the Borrower’s Common Stock that would be beneficially owned by the Holder and its Affiliates in the Borrower if the Holder converted such portion of this Note then intended to be converted by Holder; provided that Holder provides to Borrower all information that Borrower may reasonably request in order to make such calculation.  The Borrower shall, within two (2) Business Days of such request, provide Holder with the requested information in a written statement, and the Holder shall be entitled to rely on such written statement from the Borrower in issuing its Conversion Notice and ensuring that its ownership of the Borrower’s Common Stock is not in excess of the Beneficial Ownership Limitation.  The restriction described in this Section may be waived by Holder, in whole or in part, upon notice not less than sixty-one (61) days prior written notice from the Holder to the Borrower to increase such percentage.

For purposes of this Note, the “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note.  The limitations contained in this Section shall apply to a successor holder of this Note.  

(c)

Mechanics of Conversion.  The conversion of this Note shall be conducted in the following manner:

(i)

To convert this Note into shares of Common Stock on any date set forth in the Conversion Notice by the Holder (the “Conversion Date”), the Holder shall transmit 

- 8 -

by facsimile or electronic mail (or otherwise deliver) a copy of the fully executed Conversion Notice to the Borrower (or, under certain circumstances as set forth below, by delivery of the Conversion Notice to the Borrower’s transfer agent).

(ii)

Borrower’s Response.  Upon receipt by the Borrower of a copy of a Conversion Notice, the Borrower shall as soon as practicable, but in no event later than two (2) Business Days after receipt of such Conversion Notice, send, via facsimile or electronic mail (or otherwise deliver) a confirmation of receipt of such Conversion Notice (the “Conversion Confirmation”) to the Holder indicating that the Borrower will process such Conversion Notice in accordance with the terms herein. In the event the Borrower fails to issue its Conversion Confirmation within said two (2) Business Day time period, the Holder shall have the absolute and irrevocable right and authority to deliver the fully executed Conversion Notice to the Borrower’s transfer agent, and pursuant to the terms of the Loan Documents, the Borrower’s transfer agent shall issue the applicable Conversion Shares to Holder as hereby provided.  Within five (5) Business Days after the date of the Conversion Confirmation (or the date of the Conversion Notice, if the Borrower fails to issue the Conversion Confirmation), provided that the Borrower’s transfer agent is participating in the Depository Trust Borrower (“DTC”) Fast Automated Securities Transfer (“FAST”) program, the Borrower shall cause the transfer agent to (or, if for any reason the Borrower fails to instruct or cause its transfer agent to so act, then pursuant to the Loan Documents, the Holder may request and require the Borrower’s transfer agent to) electronically transmit the applicable Conversion Shares to which the Holder shall be entitled by crediting the account of the Holder’s prime broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system, and provide proof satisfactory to the Holder of such delivery.  In the event that the Borrower’s transfer agent is not participating in the DTC FAST program and is not otherwise DWAC eligible, within five (5) Business Days after the date of the Conversion Confirmation (or the date of the Conversion Notice, if the Borrower fails to issue the Conversion Confirmation), the Borrower shall instruct and cause its transfer agent to (or, if for any reason the Borrower fails to instruct or cause its transfer agent to so act, then pursuant to the Loan Documents, the Holder may request and require the Borrower’s transfer agent to) issue and surrender to a nationally recognized overnight courier for delivery to the address specified in the Conversion Notice, a certificate, registered in the name of the Holder, or its designees, for the number of Conversion Shares to which the Holder shall be entitled.  To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire principal amount of this Note, plus all accrued and unpaid interest, Premium, if applicable, and other sums due hereunder, has been so converted. Subject to the make-whole rights below, conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion.  The Holder and the Borrower shall maintain records showing the principal amount(s) converted and the date of such conversion(s).  The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.  

(iii)

Record Holder.  The Person(s) entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the Conversion Date.

- 9 -

(iv)

Failure to Deliver Certificates. If in the case of any Conversion Notice, the certificate or certificates are not delivered to or as directed by the Holder by the date required hereby, the Holder shall be entitled to elect by written notice to the Borrower at any time on or before its receipt of such certificate or certificates, to rescind such Conversion Notice, in which event the Borrower shall promptly return to the Holder any original Note delivered to the Borrower and the Holder shall promptly return to the Borrower the Common Stock certificates representing the principal amount of this Note unsuccessfully tendered for conversion to the Borrower.

(v)

Obligation Absolute; Partial Liquidated Damages. The Borrower’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof (other than relating to the obligation to issue and deliver the Conversion Shares), the recovery of any judgment against any person or entity or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Borrower or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Borrower of any such action the Borrower may have against the Holder. In the event the Holder of this Note shall elect to convert any or all of the outstanding principal amount hereof and accrued but unpaid interest and Premium, if applicable, thereon in accordance with the terms of this Note, the Borrower may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained, and the Borrower posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Borrower shall issue Conversion Shares upon a properly noticed conversion. If the Borrower fails for any reason to deliver to the Holder such certificate or certificates representing Conversion Shares pursuant to timing and delivery requirements of this Note, the Borrower shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $1.00 per day for each day after the date by which such certificates should have been delivered until such certificates are delivered.  Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to this Note, the other Loan Documents, or any agreement securing the indebtedness under this Note for the Borrower’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.  Nothing herein shall prevent the Holder from having the Conversion Shares issued directly 

- 10 -

by the Borrower’s transfer agent in accordance with the Loan Documents, in the event for any reason the Borrower fails to issue or deliver, or cause its transfer agent to issue and deliver, the Conversion Shares to the Holder upon exercise of Holder’s conversion rights hereunder.  

(vi)

Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes, or any other issuance or transfer fees of any nature or kind that may be payable in respect of the issue or delivery of such certificates, any such taxes or fees, if payable, to be paid by the Borrower.

(d)

Make-Whole Rights.  Upon liquidation by the Holder of Conversion Shares issued pursuant to a Conversion Notice, provided that the Holder realizes a net amount from such liquidation equal to less than the Conversion Amount specified in the relevant Conversion Notice (such net realized amount, the “Realized Amount”), the Borrower shall issue to the Holder additional shares of the Borrower’s Common Stock equal to: (i) the Conversion Amount specified in the relevant Conversion Notice; minus (ii) the Realized Amount, as evidenced by a reconciliation statement from the Holder (a “Sale Reconciliation”) showing the Realized Amount from the sale of the Conversion Shares; divided by (iii) the average volume weighted average price of the Borrower’s Common Stock during the five (5) Business Days immediately prior to the date upon which the Holder delivers notice (the “Make-Whole Notice”) to the Borrower that such additional shares are requested by the Holder (the “Make-Whole Stock Price”) (such number of additional shares to be issued, the “Make-Whole Shares”).  Upon receiving the Make-Whole Notice and Sale Reconciliation evidencing the number of Make-Whole Shares requested, the Borrower shall instruct its transfer agent to issue certificates representing the Make-Whole Shares, which Make Whole Shares shall be issued and delivered in the same manner and within the same time frames as set forth in Subsection (c)(ii) above.  Subsections (c)(iii), (c)(iv), (c)(v) and (c)(vi) above shall be applicable to the issuance of the Make-Whole Shares.  The Make-Whole Shares, when issued, shall be deemed to be validly issued, fully paid, and non-assessable shares of the Borrower’s Common Stock.  Following the sale of the Make-Whole Shares by the Holder: (i) in the event that the Holder receives net proceeds from such sale which, when added to the Realized Amount from the prior relevant Conversion Notice, is less than the Conversion Amount specified in the relevant Conversion Notice, the Holder shall deliver an additional Make-Whole Notice to the Borrower following the procedures provided previously in this paragraph, and such procedures and the delivery of Make-Whole Notices shall continue until the Conversion Amount has been fully satisfied; (ii) in the event that the Holder received net proceeds from the sale of Make-Whole Shares in excess of the Conversion Amount specified in the relevant Conversion Notice, such excess amount shall be applied to satisfy any and all amounts owed hereunder in excess of the Conversion Amount specified in the relevant Conversion Notice.  

(e)

Adjustments to Conversion Price.  The adjustments set forth in Sections (e)(i) and (e)(ii) below shall be applicable only to the extent the Conversion Price of the Common Stock does not already reflect an adjustment for any of such events.

(i)

Stock Dividends and Stock Splits.  If the Borrower, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or 

- 11 -

distributions payable in shares of Common Stock on outstanding shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of Common Stock, any shares of capital stock of the Borrower, then the Conversion Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock (excluding any treasury shares of the Borrower) outstanding immediately before such event, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, or re-classification.

(ii)

Fundamental Transaction. If, at any time while this Note is outstanding: (i) the Borrower effects any merger or consolidation of the Borrower with or into another Person, (ii) the Borrower effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Borrower or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Borrower effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one (1) share of Common Stock (the “Alternate Consideration”).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Borrower shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Borrower or surviving entity in such Fundamental Transaction shall issue to the Holder a new note consistent with the foregoing provisions and evidencing the Holder’s right to convert such note into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section and insuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

- 12 -

(iii)

Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any provision of this Note, the Borrower shall promptly deliver to Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

(iv)

Notice to Allow Conversion by Holder.  If: (A) the Borrower shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Borrower shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Borrower shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Borrower is a party, any sale or transfer of all or substantially all of the assets of the Borrower, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Borrower shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Borrower, then, in each case, the Borrower shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Borrower’s records, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating: (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to convert this Note during the 10-day period commencing on the date of such notice through the effective date of the event triggering such notice.

[Signature page follows]

- 13 -

IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of the Effective Date set forth above.

BORROWER:

VAPOR HUB INTERNATIONAL INC.,

a Nevada corporation

By:

_____________________________

Name:

_____________________________

Title:

_____________________________

[Signature page to Promissory Note]

- 14 -

EXHIBIT “A”

OUTSTANDING OBLIGATIONS

Obligations as of the Effective Date:

Dollar Amount:

TCA Agreements

$483,110.30

 

- 15 -

EXHIBIT B

CONVERSION NOTICE

- 16 -

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00265-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00265-of-00352.parquet"}]]