Document:

Exhibit
10.2

 

NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A
LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER.

 

UNSECURED
CONVERTIBLE PROMISSORY NOTE

 

	Effective
    Date: February 10, 2015	U.S.
    $2,000,000.00

 

FOR
VALUE RECEIVED, VAPE HOLDINGS, INC., a Delaware corporation (“Borrower”), promises to pay to REDWOOD MANAGEMENT,
LLC, a Florida limited liability company, or its successors or assigns (“Lender”), $2,000,000.00 and any interest,
fees, charges, and late fees on the date that is twelve (12) months after the Purchase Price Date (as defined below) (the “Maturity
Date”) in accordance with the terms hereof. This Unsecured Convertible Promissory Note (this “Note”)
is issued and made effective as of February 10, 2015 (the “Effective Date”). For purposes hereof, the “Outstanding
Balance” of this Note means, as of any date of determination, the Purchase Price (as defined below), as reduced or increased,
as the case may be, pursuant to the terms hereof for redemption, conversion, offset, or otherwise, plus any original issue discount
(“OID”), the Transaction Expense Amount (as defined below), accrued but unpaid interest, collection and enforcements
costs (including attorneys’ fees) incurred by Lender, transfer, stamp, issuance and similar taxes and fees related to Conversions
(as defined below), and any other fees or charges (including without limitation late charges) incurred under this Note. This Note
is issued pursuant to that certain Securities Purchase Agreement dated February 10, 2015, as the same may be amended from time
to time (the “Purchase Agreement”), by and between Borrower and Lender. Certain capitalized terms used herein
but not otherwise defined shall have the meaning ascribed thereto in the Purchase Agreement. Certain other capitalized terms used
herein are defined in Attachment 1 attached hereto and incorporated herein by this reference.

 

This
Note carries an OID of $182,000.00. In addition, Borrower agrees to pay $10,000.00 to Lender to cover Lender’s legal fees,
accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of this
Note (the “Transaction Expense Amount”), all of which amount is included in the initial principal balance of
this Note. The purchase price for this Note shall be $1,808,000.00 (the “Purchase Price”), computed as follows:
$2,000,000.00 original principal balance, less the OID, less the Transaction Expense Amount. The Purchase Price shall be payable
by delivery to Borrower at Closing of the Investor Note and a wire transfer of immediately available funds in the amount of the
Initial Cash Purchase Price (as defined in the Purchase Agreement). For purposes hereof, the term “Purchase Price Date”
means the date the Initial Cash Purchase Price is delivered by Lender to Borrower.

 

    	 

    	 

    

 

Notwithstanding
any other provision contained in this Note, the conversion by Lender of any portion of the Outstanding Balance shall only be
exercisable in ten (10) tranches (each, a “Tranche”), consisting of (i) an initial Tranche in an amount
equal to $200,000.00 and any interest, costs, fees or charges accrued thereon or added thereto under the terms of this Note
and the other Transaction  Documents (as defined in the Purchase Agreement) (the
“Initial Tranche”), and (ii) nine (9) additional Tranches, each in the amount of $200,000.00, plus any
interest, costs, fees or charges accrued thereon or added thereto under the terms of this Note and the other Transaction
Documents (each, a “Subsequent Tranche”). The Initial Tranche shall correspond to the Initial Cash
Purchase Price, $19,200.00 of the OID and the Transaction Expense Amount, and may be converted any time subsequent to the
Purchase Price Date. Each Subsequent Tranche shall correspond to the Investor Note Payment required under the Investor Note
and $19,200.00 of the OID and the Transaction Expense Amount. Lender’s right to convert any portion of any of the
Subsequent Tranches is conditioned upon Lender’s payment in full of the Investor Note Payment corresponding to such
Subsequent Tranche (upon the satisfaction of such condition, such Subsequent Tranche becomes a “Conversion Eligible
Tranche”). For the avoidance of doubt, subject to the other terms and conditions hereof, the Initial Tranche shall
be deemed a Conversion Eligible Tranche as of the Purchase Price Date for all purposes hereunder and may be converted
in whole or in part at any time subsequent to the Purchase Price Date, and each Subsequent Tranche that becomes a Conversion
Eligible Tranche may be converted in whole or in part at any time subsequent to the first date on which such Subsequent
Tranche becomes a Conversion Eligible Tranche. For all purposes hereunder, Conversion Eligible Tranches shall be converted
(or redeemed, as applicable) in order of the most recent in time Conversion Eligible Tranche. At all times hereunder, the
aggregate amount of any costs, fees or charges incurred by or assessable against Borrower hereunder, including, without
limitation, any fees, charges or premiums incurred in connection with an Event of Default (as defined below), shall be added
to the most recent in time then-current Conversion Eligible Tranche.

 

1.       Payment;
Prepayment. All payments owing hereunder shall be in lawful money of the United States of America or Conversion Shares (as
defined below), as provided for herein, and delivered to Lender at the address furnished to Borrower for that purpose. All payments
shall be applied first to (a) costs of collection, if any, then to (b) fees and charges, if any, then to (c) accrued and unpaid
interest, and thereafter, to (d) principal. Notwithstanding the foregoing, so long as Borrower has not received a Conversion Notice
(as defined below) from Lender where the applicable Conversion Shares have not yet been delivered and so long as no Event of Default
has occurred since the Effective Date (whether declared by Lender or undeclared), then Borrower shall have the right, exercisable
on not less than five (5) Trading Days prior written notice to Lender to prepay the Outstanding Balance of this Note, in full,
in accordance with this Section 1. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall
be delivered to Lender at its registered address and shall state: (y) that Borrower is exercising its right to prepay this Note,
and (z) the date of prepayment, which shall be not less than five (5) Trading Days from the date of the Optional Prepayment Notice.
On the date fixed for prepayment (the “Optional Prepayment Date”), Borrower shall make payment of the Optional
Prepayment Amount (as defined below) to or upon the order of Lender as may be specified by Lender in writing to Borrower. If Borrower
exercises its right to prepay this Note, Borrower shall make payment to Lender of an amount in cash (the “Optional Prepayment
Amount”) equal to 125% (the “Prepayment Premium”) multiplied by the then Outstanding Balance of this
Note. In the event Borrower delivers the Optional Prepayment Amount to Lender prior to the Optional Prepayment Date or without
delivering an Optional Prepayment Notice to Lender as set forth herein without Lender’s prior written consent, the Optional
Prepayment Amount shall not be deemed to have been paid to Lender until the Optional Prepayment Date. Moreover, in such event
the Optional Prepayment Liquidated Damages Amount will automatically be added to the Outstanding Balance of this Note on the day
Borrower delivers the Optional Prepayment Amount to Lender. In the event Borrower delivers the Optional Prepayment Amount without
an Optional Prepayment Notice, then the Optional Prepayment Date will be deemed to be the date that is five (5) Trading Days from
the date that the Optional Prepayment Amount was delivered to Lender. In addition, if Borrower delivers an Optional Prepayment
Notice and fails to pay the Optional Prepayment Amount due to Lender within two (2) Trading Days following the Optional Prepayment
Date, Borrower shall forever forfeit its right to prepay this Note.

 

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2.       Amortization
and Interest.

 

2.1.       Payment
of Interest. Borrower shall pay interest to Lender on the Outstanding Balance (including all Tranches, both Conversion Eligible
Tranches and Subsequent Tranches that have not yet become Conversion Eligible Tranches) at the rate of 10% per annum from the
Purchase Price Date. Any accrued interest will be payable upon each Conversion (as defined below) and on each Amortization Payment
Date (as defined below). Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods,
and shall accrue daily commencing on the Purchase Price Date until payment in full of the outstanding principal, together with
all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.

 

2.2.       Amortization
Payments. Starting on August 1, 2015 and August 15, 2015 and continuing on the first and fifteenth day of each of the following
six (6) successive months thereafter (each, an “Amortization Payment Date”) (provided that, the twelfth and
final Amortization Payment Date will be on the twelve month anniversary of the Purchase Price Date), Borrower shall make payments
(each, an “Amortization Payment”) in the amount and on the date set forth on the Amortization Schedule attached
as Exhibit B. Each Amortization Payment shall, at the option of Borrower, be made in cash, subject to the Prepayment Premium,
or in Conversion Shares, subject to the Equity Conditions, at the Amortization Conversion Rate (each such conversion of an Amortization
Payment into Conversion Shares, an “Amortization Conversion”). Notwithstanding any provision in this Note to
the contrary, Borrower will not be required to make any Amortization Payment to the extent any such Amortization Payment would
result in Borrower making aggregate Amortization Payments in an amount greater than the Outstanding Balance. The Outstanding Balance
of this Note will be due and payable on the Maturity Date and may be paid in cash, or, in Borrower’s discretion, in Conversion
Shares (subject to the Equity Conditions). For the avoidance of doubt, Borrower will not have the right to make an Amortization
Conversion if the Equity Conditions are not satisfied in full or waived in writing by Lender with respect to each Amortization
Payment. If Borrower elects to make an Amortization Conversion, Borrower must deliver on the Amortization Payment Date (i) a certificate
representing the applicable number of Conversion Shares, and (ii) a notice detailing how Borrower calculated such number of Conversion
Shares. Any Conversion Shares delivered in connection with an Amortization Conversion shall be delivered in accordance with Section
8 below.

 

2.3.       Amortization
Conversion Calculation Errors. In the event Borrower delivers any Conversion Shares to Lender pursuant to an Amortization
Conversion and Lender reasonably believes Borrower delivered an incorrect number of Conversion Shares, Lender shall have the right,
within five (5) Trading Days of its receipt of the applicable Conversion Shares, to dispute Borrower’s calculation of the
number of Conversion Shares delivered by delivering written notice of such dispute to Borrower. If Borrower disagrees with Lender’s
dispute, Borrower and Lender agree to resolve such dispute in accordance with the provisions of Section 8.5 of the Purchase Agreement.
If, following the resolution of such dispute, it is determined that Borrower is required to deliver additional Conversion Shares
to Lender, Borrower shall deliver such additional Conversion Shares (in the manner prescribed in Section 8 below) to Lender within
three (3) Trading Days of the resolution of such dispute. However, if it is determined that Borrower delivered too many Conversion
Shares to Lender, Borrower may elect to either require that Lender return such excess Conversion Shares to Borrower or apply such
excess Conversion Shares towards its next delivery of Conversion Shares.

 

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3.       Conversion.

 

3.1.       Conversion
Price. Subject to the adjustments set forth herein, the conversion price for each Conversion (the “Conversion Price”)
shall be 70% (the “Conversion Factor”) of the lowest daily VWAP (as defined below) in the ten (10) Trading
Days immediately preceding the applicable Conversion. Additionally, if at any time after the Effective Date, the Conversion Shares
are not DTC Eligible, then the then-current Conversion Factor will automatically be reduced by 5% for all future Conversions.
Finally, in addition to the Default Effect, if any Major Default occurs after the Effective Date, the Conversion Factor shall
automatically be reduced for all future Conversions by an additional 5% for each of the first three (3) Major Defaults that occur
after the Effective Date (for the avoidance of doubt, each occurrence of any Major Default shall be deemed to be a separate occurrence
for purposes of the foregoing reductions in Conversion Factor, even if the same Major Default occurs three (3) separate times).
For example, the first time the Conversion Shares are not DTC Eligible, the Conversion Factor for future Conversions thereafter
will be reduced from 70% to 65% for purposes of this example. If, thereafter, there are three (3) separate occurrences of a Major
Default pursuant to Section 4.1(i), then for purposes of this example the Conversion Factor would be reduced by 5% for the first
such occurrence, and so on for each of the second and third occurrences of such Major Default. Notwithstanding the foregoing,
in no event shall the Conversion Factor be less than 50% or the Conversion Price be less than $0.50 (the “Conversion
Price Floor”).

 

3.2.       Conversions.
Lender has the right at any time after the Purchase Price Date until the Outstanding Balance has been paid in full, including
without limitation until any Optional Prepayment Date (even if Lender has received an Optional Prepayment Notice), at its election,
to convert (each instance of conversion pursuant to this Section 3 is referred to herein as a “Lender Conversion”,
and together with an Amortization Conversion, a “Conversion”) all or any part of the Outstanding Balance into
Conversion Shares, as per the following conversion formula: the number of Conversion Shares equals the amount being converted
(the “Conversion Amount”) divided by the Conversion Price. Conversion notices in the form attached hereto as
Exhibit A (each, a “Conversion Notice”) may be effectively delivered to Borrower by any method of Lender’s
choice (including but not limited to facsimile, email, mail, overnight courier, or personal delivery), and all Conversions shall
be cashless and not require further payment from Lender. Borrower shall deliver the Conversion Shares from any Conversion to Lender
in accordance with Section 8 below within three (3) Trading Days of Lender’s delivery of the Conversion Notice to Borrower.

 

3.3.       Cash
Payment Option. Notwithstanding Section 3.2 above, Borrower may, at its option, elect to pay any Conversion Amount in cash
in lieu of delivering Conversion Shares. If Borrower elects to pay a Conversion Amount in cash, it must (i) notify Lender of its
intention to pay the Conversion Amount in cash within 24 hours of Lender’s delivery of the Conversion Notice, and (ii) deliver
the cash via wire transfer of immediately available funds within three (3) Trading Days of Lender’s delivery of the Conversion
Notice to Borrower. If Borrower fails to deliver notice pursuant to the immediately foregoing clause (i) or fails to make the
wire transfer when due pursuant to the immediately foregoing clause (ii), then Borrower shall be deemed to have waived its right
to pay such Conversion Amount in cash.

 

4.       Defaults
and Remedies.

 

4.1.       Defaults.
The following are events of default under this Note (each, an “Event of Default”): (i) Borrower shall fail
to pay any principal, interest, fees, charges, or any other amount when due and payable hereunder; or (ii) Borrower shall fail
to deliver any Conversion Shares pursuant to Section 2 above in accordance with the terms hereof; or (iii) Borrower shall fail
to deliver any Conversion Shares pursuant to Section 3 above in accordance with the terms hereof; or (iv) a receiver, trustee
or other similar official shall be appointed over Borrower or a material part of its assets and such appointment shall remain
uncontested for twenty (20) days or shall not be dismissed or discharged within sixty (60) days; (v) Borrower shall become insolvent
or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace
periods, if any; or (vi) Borrower shall make a general assignment for the benefit of creditors; or (vii) Borrower shall file a
petition for relief under any bankruptcy, insolvency or similar law (domestic or foreign); or (viii) an involuntary proceeding
shall be commenced or filed against Borrower; or (ix) Borrower shall default or otherwise fail to observe or perform in any material
respect any covenant, obligation, condition or agreement of Borrower contained herein or in any other Transaction Document, other
than those specifically set forth in this Section 4.1; or (x) Borrower shall become delinquent in its filing requirements as a
fully-reporting issuer registered with the SEC or shall fail to timely file all required quarterly and annual reports and any
other filings that are necessary to enable Lender to sell Conversion Shares pursuant to Rule 144; or (xi) any representation,
warranty or other statement made or furnished by or on behalf of Borrower to Lender herein, in any Transaction Document, or otherwise
in connection with the issuance of this Note shall be false, incorrect, incomplete or misleading in any material respect when
made or furnished; or (xii) the occurrence of a Fundamental Transaction without Lender’s prior written consent; or (xiii)
Borrower shall fail to maintain the Share Reserve as required under the Purchase Agreement; or (xiv) Borrower effectuates a reverse
split of its Common Stock without twenty (20) Trading Days prior written notice to Lender; or (xv) any money judgment, writ or
similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets
for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) calendar days unless otherwise
consented to by Lender; or (xvi) Borrower shall fail to deliver to Lender original signature pages to all Transaction Documents
within five (5) Trading Days of the Purchase Price Date; or (xvii) Borrower is not DTC Eligible.

 

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4.2.       Remedies.
Upon the occurrence of any Event of Default, Borrower shall within three (3) Trading Days deliver written notice thereof via
facsimile, email or reputable overnight courier (with next day delivery specified) (an “Event of Default Notice”)
to Lender. At any time and from time to time after the earlier of Lender’s receipt of an Event of Default Notice and Lender
becoming aware of the occurrence of any Event of Default, Lender may accelerate this Note by written notice to Borrower, with
the Outstanding Balance becoming immediately due and payable in cash at the Mandatory Default Amount (as defined hereafter). Notwithstanding
the foregoing, at any time following the occurrence of any Event of Default, Lender may, at its option, elect to increase the
Outstanding Balance by applying the Default Effect (as defined below) (subject to the limitation set forth below) via written
notice to Borrower without accelerating the Outstanding Balance, in which event the Outstanding Balance shall be increased as
of the date of the occurrence of the applicable Event of Default pursuant to the Default Effect, but the Outstanding Balance shall
not be immediately due and payable unless so declared by Lender (for the avoidance of doubt, if Lender elects to apply the Default
Effect pursuant to this sentence, it shall reserve the right to declare the Outstanding Balance immediately due and payable at
any time and no such election by Lender shall be deemed to be a waiver of its right to declare the Outstanding Balance immediately
due and payable as set forth herein unless otherwise agreed to by Lender in writing). For purposes hereof, the “Default
Effect” is calculated by multiplying the Conversion Eligible Outstanding Balance as of the date the applicable Event
of Default occurred by (i) 15% for each occurrence of any Major Default, or (ii) 5% for each occurrence of any Minor Default,
and then adding the resulting product to the Outstanding Balance as of the date the applicable Event of Default occurred, with
the sum of the foregoing then becoming the Outstanding Balance under this Note as of the date the applicable Event of Default
occurred; provided that the Default Effect may only be applied three (3) times hereunder with respect to Major Defaults and three
(3) times hereunder with respect to Minor Defaults; and provided further that the Default Effect shall not apply to any Event
of Default pursuant to Section 4.1(iii) hereof. Notwithstanding the foregoing, upon the occurrence of any Event of Default described
in clauses (iv), (v), (vi), (vii) or (viii) of Section 4.1, the Outstanding Balance as of the date of acceleration shall become
immediately and automatically due and payable in cash at the Mandatory Default Amount, without any written notice required by
Lender. The “Mandatory Default Amount” means the greater of (i) the Outstanding Balance (including all Tranches,
both Conversion Eligible Tranches and Subsequent Tranches that have not yet become Conversion Eligible Tranches) divided by the
Conversion Price on the date the Mandatory Default Amount is demanded, multiplied by the volume weighted average price (the “VWAP”)
on the date the Mandatory Default Amount is demanded, or (ii) the Default Effect. At any time following the occurrence of any
Event of Default, upon written notice given by Lender to Borrower, interest shall accrue on the Outstanding Balance beginning
on the date the applicable Event of Default occurred at an interest rate equal to the lesser of 22% per annum or the maximum rate
permitted under applicable law (“Default Interest”). In connection with acceleration described herein, Lender
need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and Lender may immediately
and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available
to it under applicable law. Such acceleration may be  rescinded and annulled
by Lender at any time prior to payment hereunder and Lender shall have all rights as a holder of the Note until such time, if
any, as Lender receives full payment pursuant to this Section 4.2. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon. Nothing herein shall limit Lender’s right to pursue any other remedies
available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with
respect to Borrower’s failure to timely deliver Conversion Shares upon Conversion of the Notes as required pursuant to the
terms hereof. In no event shall the Outstanding Balance increase by more than 20% pursuant to the application of the Default Effect
or Mandatory Default Amount; provided, however, that the foregoing 20% cap shall not apply to Default Interest or Conversion
Delay Late Fees (as defined below).

 

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4.3.       Cure
for Minor Defaults. If any Minor Default is curable, then the default may be cured (and no Event of Default will have occurred)
if Borrower cures the default within three (3) trading days of the occurrence of the Minor Default.

 

4.4.       Cross
Default. A breach or default by Borrower of any covenant or other term or condition contained in any Other Agreements (as
defined below) shall, at the option of Lender, be considered an Event of Default under this Note, in which event Lender shall
be entitled (but in no event required) to apply all rights and remedies of Lender under the terms of this Note. “Other
Agreements” means, collectively, (a) all existing and future agreements and instruments between, among or by Borrower
(or an affiliate), on the one hand, and Lender (or an affiliate), on the other hand, and (b) any financing agreement or a material
agreement that affects Borrower’s ongoing business operations. For the avoidance of doubt, all existing and future loan
transactions between Borrower and Lender and their respective affiliates will be cross-defaulted with each other loan transaction
and with all other existing and future debt of Borrower to Lender.

 

5.       Unconditional
Obligation; No Offset. Borrower acknowledges that this Note is an unconditional, valid, binding and enforceable obligation
of Borrower not subject to offset (except as set forth in Section 18 below), deduction or counterclaim of any kind. Borrower hereby
waives any rights of offset it now has or may have hereafter against Lender, its successors and assigns, and agrees to make the
payments or conversions called for herein in accordance with the terms of this Note.

 

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

 

7.       Rights
Upon Issuance of Securities.

 

7.1.       Subsequent
Equity Sales. Except with respect to Excluded Securities, if Borrower or any subsidiary thereof, as applicable, at any
time this Note is outstanding, shall sell or issue any Common Stock to Lender or any third party for a price that is less
than the then effective Conversion Price, then such Conversion Price shall be automatically reduced and only reduced to equal
such lower issuance price. Except with respect to Excluded Securities, if Borrower or any subsidiary thereof, as applicable,
at any time this Note is outstanding, shall sell or grant any option to any party to purchase, or sell or grant any right to
reprice, or issue any Common Stock, preferred shares convertible into Common Stock, or debt, warrants, options or other
instruments or securities to Lender or any third party which are convertible into or exercisable for shares of Common Stock
(together herein referred to as “Equity Securities”), at an effective price per share less than the then
effective Conversion Price (such issuance, together with any sale of Common Stock, is referred to herein as a
“Dilutive Issuance”), then, the Conversion Price shall be automatically reduced and only reduced to equal
such lower effective price per share. If the holder of any Equity Securities so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options, or rights per share which are issued in connection with such Dilutive Issuance, be entitled to
receive shares of Common Stock at an effective price per share that is less than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price on the date of such Dilutive Issuance, and the then effective
Conversion Price shall be reduced and only reduced to equal such lower effective price per share. Such adjustments described
above to the Conversion Price shall be permanent (subject to additional adjustments under this section), and shall be made
whenever such Common Stock or Equity Securities are issued. Borrower shall notify Lender, in writing, no later than the
Trading Day following the issuance of any Common Stock or Equity Securities subject to this Section 7.1, indicating therein
the applicable issuance price, or applicable reset price, exchange price, conversion price, or other pricing terms (such
notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not Borrower provides a
Dilutive Issuance Notice pursuant to this Section 7.1, upon the occurrence of any Dilutive Issuance, on the date of such
Dilutive Issuance the Conversion Price shall be lowered to equal the applicable effective price per share regardless of
whether Borrower or Lender accurately refers to such lower effective price per share in any Conversion Notice.

 

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7.2.       Adjustment
of Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision hereof, if Borrower at
any time on or after the Effective Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price and Conversion Price
Floor in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision hereof,
if Borrower at any time on or after the Effective Date combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price and Conversion Price Floor
in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7.2
shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment
under this Section 7.2 occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such
Conversion Price shall be adjusted appropriately to reflect such event.

 

7.3.       Other
Events. In the event that Borrower (or any subsidiary) shall take any action to which the provisions of this Section 7 are
not strictly applicable, or, if applicable, would not operate to protect Lender from dilution or if any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then Borrower’s board
of directors shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the
rights of Lender, provided that no such adjustment pursuant to this Section 7.3 will increase the Conversion Price as otherwise
determined pursuant to this Section 7, provided further that if Lender does not accept such adjustments as appropriately protecting
its interests hereunder against such dilution, then Borrower’s board of directors and Lender shall agree, in good faith,
upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination
shall be final and binding and whose fees and expenses shall be borne by Borrower.

 

8.       Method
of Conversion Share Delivery. On or before the close of business on the third (3rd) Trading Day following the date
of delivery of a Conversion Notice or on the Amortization Payment Date for an Amortization Conversion (the “Delivery
Date”), Borrower shall deliver to Lender or its broker (as designated in the Conversion Notice, as applicable), via
reputable overnight courier, a certificate representing the number of shares of Common Stock equal to the number of Conversion
Shares to which Lender shall be entitled, registered in the name of Lender or its designee. For the avoidance of doubt, Borrower
has not met its obligation to deliver Conversion Shares by the Delivery Date unless Lender or its broker, as applicable, has actually
received the certificate representing the applicable Conversion Shares no later than the close of business on the relevant Delivery
Date pursuant to the terms set forth above.

 

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9.       Conversion
Delays. If Borrower fails to deliver Conversion Shares in accordance with the timeframes stated in Sections 3 and 8, Lender,
at any time prior to selling all of those Conversion Shares, may rescind in whole or in part that particular Conversion attributable
to the unsold Conversion Shares with a corresponding increase to the Outstanding Balance as set forth in this Note (any returned
Conversion Amount will tack back to the Purchase Price Date for purposes of determining the holding period under Rule 144). In
addition, for each Conversion pursuant to Section 3, in the event that Conversion Shares are not delivered by the fourth Trading
Day (inclusive of the day of the Conversion), a late fee equal to the greater of (a) $500.00 per day and (b) 2% of the applicable
Conversion Share Value rounded to the nearest multiple of $100.00 (but in any event the cumulative amount of such late fees for
each Conversion shall not exceed 200% of the applicable Conversion Share Value) will be assessed for each day after the third
Trading Day (inclusive of the day of the Conversion) until Conversion Share delivery is made; and such late fee will be added
to the Outstanding Balance (such fees, the “Conversion Delay Late Fees”). For illustration purposes only, if
Lender delivers a Conversion Notice to Borrower pursuant to which Borrower is required to deliver 100,000 Conversion Shares to
Lender and on the Delivery Date such Conversion Shares have a Conversion Share Value of $20,000.00 (assuming a VWAP on the Delivery
Date of $0.20 per share of Common Stock), then in such event a Conversion Delay Late Fee in the amount of $500.00 per day (the
greater of $500.00 per day and $20,000.00 multiplied by 2%, which is $400.00) would be added to the Outstanding Balance of the
Note until such Conversion Shares are delivered to Lender. For purposes of this example, if the Conversion Shares are delivered
to Lender twenty (20) days after the applicable Delivery Date, the total Conversion Delay Late Fees that would be added to the
Outstanding Balance would be $10,000.00 (20 days multiplied by $500.00 per day). If the Conversion Shares are delivered to Lender
one hundred (100) days after the applicable Delivery Date, the total Conversion Delay Late Fees that would be added to the Outstanding
Balance would be $40,000.00 (100 days multiplied by $500.00 per day, but capped at 200% of the Conversion Share Value).

 

10.       Ownership
Limitation. Notwithstanding anything to the contrary contained in this Note or the other Transaction Documents, if at any
time Lender shall or would be issued shares of Common Stock under any of the Transaction Documents, but such issuance would cause
Lender (together with its affiliates) to beneficially own a number of shares exceeding 4.99% of the number of shares of Common
Stock outstanding on such date (including for such purpose the shares of Common Stock issuable upon such issuance) (the “Maximum
Percentage”), then Borrower must not issue to Lender shares of the Common Stock which would exceed the Maximum Percentage.
For purposes of this section, beneficial ownership of Common Stock will be determined pursuant to Section 13(d) of the 1934 Act.
The shares of Common Stock issuable to Lender that would cause the Maximum Percentage to be exceeded are referred to herein as
the “Ownership Limitation Shares”. Borrower will reserve the Ownership Limitation Shares for the exclusive
benefit of Lender. From time to time, Lender may notify Borrower in writing of the number of the Ownership Limitation Shares that
may be issued to Lender without causing Lender to exceed the Maximum Percentage. Upon receipt of such notice, Borrower shall be
unconditionally obligated to immediately issue such designated shares to Lender, with a corresponding reduction in the number
of the Ownership Limitation Shares. Notwithstanding the forgoing, the term “4.99%” above shall be replaced with “9.99%”
at such time as the Market Capitalization of the Common Stock is less than $10,000,000.00. Notwithstanding any other provision
contained herein, if the term “4.99%” is replaced with “9.99%” pursuant to the preceding sentence, such
increase to “9.99%” shall remain at 9.99% until increased, decreased or waived by Lender as set forth below. By written
notice to Borrower, Lender may increase, decrease or waive the Maximum Percentage as to itself but any such waiver will not be
effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and
non-waivable and shall apply to all affiliates and assigns of Lender.

 

    	8

    	 

    

 

11.       Payment
of Collection Costs. If this Note is placed in the hands of an attorney for collection or enforcement prior to
commencing arbitration or legal proceedings, or is collected or enforced through any arbitration or legal proceeding,
or Lender otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note, then
Borrower shall pay the costs incurred by Lender for such collection, enforcement or action including, without limitation,
attorneys’ fees and disbursements. Borrower also agrees to pay for any costs, fees or charges of its transfer agent
that are charged to Lender pursuant to any Conversion or issuance of shares pursuant to this Note.

 

12.       Opinion
of Counsel. In the event that an opinion of counsel is needed for any matter related to this Note, Lender has the right to
have any such opinion provided by its counsel. Lender also has the right to have any such opinion provided by Borrower’s
counsel.

 

13.       Governing
Law. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal laws of the State of California, without giving
effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the State of California. The provisions set forth
in the Purchase Agreement to determine the proper venue for any disputes are incorporated herein by this reference.

 

14.       Resolution
of Disputes.

 

14.1.        Arbitration of Disputes. By its acceptance of this Note, each party agrees to be bound by the Arbitration Provisions set
forth as Exhibit G to the Purchase Agreement.

 

14.2.        Calculation Disputes. Notwithstanding the Arbitration Provisions, in the case of a dispute as to any Calculations (as defined
in the Purchase Agreement), such dispute will be resolved in the manner set forth in the Purchase Agreement.

 

15.       Cancellation.
After repayment or conversion of the entire Outstanding Balance this Note shall be deemed paid in full, shall automatically
be deemed canceled, and shall not be reissued.

 

16.       Amendments.
The prior written consent of both parties hereto shall be required for any change or amendment to this Note.

 

17.       Assignments.
Borrower may not assign this Note without the prior written consent of Lender. This Note and any shares of Common Stock issued
upon conversion of this Note may be offered, sold, assigned or transferred by Lender without the consent of Borrower.

 

18.       Offset
Rights. Notwithstanding anything to the contrary herein or in any of the other Transaction Documents, (a) the parties hereto
acknowledge and agree that Lender maintains a right of offset pursuant to the terms of the Investor Note that, under certain circumstances,
permits Lender to deduct amounts owed by Borrower under this Note from amounts otherwise owed by Lender under the Investor Note
(the “Lender Offset Right”), and (b) in the event of the occurrence of any Investor Note Default (as defined
in the Investor Note), or at any other time, Borrower shall be entitled to deduct and offset any amount owing by the initial Lender
under the Investor Note from any amount owed by Borrower under this Note (the “Borrower Offset Right”). In
order to exercise the Borrower Offset Right, Borrower must deliver to Lender (i) a completed and signed Borrower Offset Right
notice, and (ii) the original Investor Note being offset marked “cancelled” or, in the event the applicable Investor
Note has been lost, stolen or destroyed, a lost note affidavit in a form reasonably acceptable to Lender. In the event that Borrower’s
exercise of the Borrower Offset Right results in the full satisfaction of Borrower’s obligations under this Note, Lender
shall return the original Note to Borrower marked “cancelled” or, in the event this Note has been lost, stolen or
destroyed, a lost note affidavit in a form reasonably acceptable to Borrower. For the avoidance of doubt, Borrower shall not incur
any Prepayment Premium set forth in Section 1 hereof with respect to any portions of this Note that are satisfied by way of a
Borrower Offset Right.

 

    	9

    	 

    

 

19.       Time
of the Essence. Time is expressly made of the essence with respect to each and every provision of this Note and the documents
and instruments entered into in connection herewith.

 

20.       Notices.
Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance
with the subsection of the Purchase Agreement entitled “Notices.”

 

21.       Liquidated
Damages. Lender and Borrower agree that in the event Borrower fails to comply with any of the terms or provisions of this
Note, Lender’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’
inability to predict future interest rates, future share prices, future trading volumes and other relevant factors. Accordingly,
Lender and Borrower agree that any fees, balance adjustments, default interest or other charges assessed under this Note are not
penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages (under Lender’s and Borrower’s
expectations that any such liquidated damages will tack back to the Closing Date for purposes of determining the holding period
under Rule 144).

 

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

 

    	10

    	 

    

 

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

 

	 	BORROWER:
	 	 	 
	 	Vape Holdings,
Inc.

	 	 	 
	 	By:	 
	 	Name:	Kyle
    Tracey
	 	Title:	Chief
    Executive Officer

 

ACKNOWLEDGED,
ACCEPTED AND AGREED:

 

LENDER:

 

	Redwood Management,
Llc

	 
	 	 	 	 
	 	By:	 	 
	 	 	John
    DeNobile, Manager	 

 

[Signature
Page to Unsecured Convertible Promissory Note]

 

    	 

    	 

    

ATTACHMENT
1 

DEFINITIONS

 

For purposes
of this Note, the following terms shall have the following meanings:

 

A1       “Amortization
Conversion Rate” means the lower of the Conversion Price or 70% of the lowest daily VWAP in the ten (10) Trading Days
immediately preceding the applicable Amortization Payment Date.

 

A2       “Approved
Stock Plan” means any stock option plan which has been approved by the board of directors of Borrower, pursuant to which
Borrower’s securities may be issued to any employee, officer or director for services provided to Borrower.

 

A3       “Common
Stock” means the Company’s common stock, $0.00001 par value per share.

 

A4       “Conversion
Eligible Outstanding Balance” means the Outstanding Balance of this Note less the sum of the outstanding balances of
each Subsequent Tranche that has not yet become a Conversion Eligible Tranche (i.e., Lender has not yet paid the outstanding balance
of the Investor Note that corresponds to such Subsequent Tranche).

 

A5       “Conversion
Share Value” means the product of the number of Conversion Shares deliverable pursuant to any Conversion multiplied
by the VWAP of the Common Stock on the Delivery Date for such Conversion.

 

A6       “Conversion
Shares” means fully paid and non-assessable shares of the Common Stock issued pursuant to Section 2 or Section 3 of
this Note.

 

A7       “DTC”
means the Depository Trust Company.

 

A8       “DTC
Eligible” means, with respect to the Common Stock, that such Common Stock is eligible to be deposited in certificate
form at the DTC, cleared and converted into electronic shares by the DTC and held in the name of the clearing firm servicing Lender’s
brokerage firm for the benefit of Lender.

 

A9       “DTC/FAST
Program” means the DTC’s Fast Automated Securities Transfer Program.

 

A10       Equity
Conditions” means, during the period in question, (a) Borrower shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notices of Conversion of Lender, if any, (b) Borrower shall have paid
all liquidated damages and other amounts owing to Lender in respect of this Note, (c) all of the Conversion Shares issuable pursuant
to the Transaction Documents (and shares issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144 without
volume or manner-of-sale restrictions as determined by the counsel to Borrower as set forth in a written opinion letter to such
effect, addressed and acceptable to the Transfer Agent and Lender, (d) the Common Stock is trading on a Trading Market and all
of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and Borrower
believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable
future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance
of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing
event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares
in question to Lender would not violate the limitations set forth in Section 10 herein, (h) there has been no public announcement
of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable
Lender is not in possession of any information provided by Borrower that constitutes, or may constitute, material non-public information,
(j) for each Trading Day in a period of 10 consecutive Trading Days prior to the applicable date in question, the daily dollar
trading volume for the Common Stock on the principal Trading Market exceeds $20,000 per Trading Day, (i) Borrower’s Common
Stock must be DTC and DWAC Eligible and not subject to a “DTC Chill” and (j) Borrower has timely filed (or obtain
extensions in respect thereof and file within the applicable grace period) all reports required to be filed by Borrower after
the date hereof pursuant to the Exchange Act.

 

A11     “Excluded
Securities” means any (a) shares of Common Stock or options to employees, officers, consultants or directors of Borrower
pursuant to an Approved Stock Plan duly adopted for such purpose, by the Board of Directors, (b) securities issued pursuant to
acquisitions or strategic transactions, provided that any such issuance shall only be to a Person (or to the equityholders of
a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic
with the business of Borrower and shall provide to Borrower additional benefits in addition to the investment of funds, but shall
not include a transaction in which Borrower is issuing securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities, (c) securities issued for consideration other than cash pursuant to a merger,
consolidation, acquisition, or similar business combination approved by the Board of Directors, (d) securities issued pursuant
to an equipment loan or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar financial
institution approved by the Board of Directors, and (e) securities with respect to which the holders of the majority of the outstanding
principal under this Note have waived their anti-dilution rights in writing.

 

Attachment
1 to Unsecured Convertible Promissory Note, Page 1 

    	 

    	 

    

 

A12     “Fundamental
Transaction” means that (y) (i) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related
transactions, consolidate or merge with or into (whether or not Borrower or any of its subsidiaries is the surviving corporation)
any other person or entity, or (ii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related
transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective
properties or assets to any other person or entity, or (iii) Borrower or any of its subsidiaries shall, directly or indirectly,
in one or more related transactions, allow any other person or entity to make a purchase, tender or exchange offer that is accepted
by the holders of more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock
of Borrower held by the person or persons making or party to, or associated or affiliated with the persons or entities making
or party to, such purchase, tender or exchange offer), or (iv) Borrower or any of its subsidiaries shall, directly or indirectly,
in one or more related transactions, consummate a stock or share purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby
such other person or entity acquires more than 50% of the outstanding shares of voting stock of Borrower (not including any shares
of voting stock of Borrower held by the other persons or entities making or party to, or associated or affiliated with the other
persons or entities making or party to, such stock or share purchase agreement or other business combination), or (v) Borrower
or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify
the Common Stock, other than an increase in the number of authorized shares of Borrower’s Common Stock, or (z) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations
promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly
or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of Borrower.

 

A13     “Major
Default” means any Event of Default occurring under Sections 4.1(i), (ii), (x), or (xiii) of this Note.

 

A14     “Market
Capitalization of the Common Stock” shall mean the product equal to (a) the average VWAP of the Common Stock for the
immediately preceding fifteen (15) Trading Days, multiplied by (b) the aggregate number of outstanding shares of Common Stock
as reported on Borrower’s most recently filed Form 10-Q or Form 10-K.

 

A15     “Minor
Default” means any Event of Default that is not a Major Default.

 

A16     “Optional
Prepayment Liquidated Damages Amount” means an amount equal to the difference between (a) the product of (i) the number
of shares of Common Stock obtained by dividing (1) the applicable Optional Prepayment Amount by (2) the Conversion Price as of
the date Borrower delivered the applicable Optional Prepayment Amount to Lender, multiplied by (ii) the VWAP of the Common Stock
on the date Borrower delivered the applicable Optional Prepayment Amount to Lender, and (b) the applicable Optional Prepayment
Amount paid by Borrower to Lender. For illustration purposes only, if the applicable Optional Prepayment Amount were $50,000.00,
the Conversion Price as of the date the Optional Prepayment Amount was paid to Lender was equal to $0.75 per share of Common Stock,
and the VWAP of a share of Common Stock as of such date was equal to $1.00, then the Optional Prepayment Liquidated Damages Amount
would equal $16,666.67 computed as follows: (a) $66,666.67 (calculated as (i) (1) $50,000.00 divided by (2) $0.75 multiplied by
(ii) $1.00) minus (b) $50,000.00.

 

A17     “Trading
Day” shall mean any day on which the Common Stock is traded or tradable for any period on the Common Stock’s principal
market, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

  

Attachment
1 to Unsecured Convertible Promissory Note, Page 2

    	 

    	 

    

 

EXHIBIT
A

 

Redwood
Management, LLC

16850
Collins Avenue, Suite 112-341

Sunny Isles, Florida, 33160

 

	Vape
                                         Holdings, Inc.

        Attn:
        Kyle Tracey

        21822
        Lassen Street, Suite A Chatsworth, California 91311
	Date:                           

 

CONVERSION
NOTICE

 

The
above-captioned Lender hereby gives notice to Vape Holdings, Inc., a Delaware corporation (the “Borrower”),
pursuant to that certain Unsecured Convertible Promissory Note made by Borrower in favor of Lender on February 10, 2015 (the “Note”),
that Lender elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common
Stock of Borrower as of the date of conversion specified below. Said conversion shall be based on the Conversion Price set forth
below. In the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative,
at the election of Lender in its sole discretion, Lender may provide a new form of Conversion Notice to conform to the Note. Capitalized
terms used in this notice without definition shall have the meanings given to them in the Note.

 

	 	A.	Date of Conversion:                         
	 	B.	 Conversion #:                         
	 	C.	Conversion Amount:                         
	 	D.	Conversion Price:                         
	 	E.	Conversion Shares:                          (C divided by D)
	 	F.	Remaining Outstanding Balance of Note:                         *

 

* Subject
to adjustments for corrections, defaults, interest and other adjustments permitted by the Transaction Documents (as defined in
the Purchase Agreement), the terms of which shall control in the event of any dispute between the terms of this Conversion Notice
and such Transaction Documents.

 

                                                                      

 

                                                                      

 

                                                                      

 

To
the extent the Conversion Shares are not able to be delivered to Lender electronically via the DWAC system, deliver all such certificated
shares to Lender via reputable overnight courier after receipt of this Conversion Notice (by facsimile transmission or otherwise)
to:

 

Sincerely,

 

Lender:

 

Redwood Management,
LLC

 

	 	By:	 	 
	 	 	John
    DeNobile, Manager	 

 

 

Exhibit
A to Unsecured Convertible Promissory Note, Page 1

    	 

    	 

    

 

EXHIBIT
B

 

AMORTIZATION
SCHEDULE

 

	Amortization
    Payments	Cash
    (25% Premium)	Common
    Stock
	First
    Payment (8/1/15)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Second
    Payment (8/15/15)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Third
    Payment (9/1/15)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Fourth
    payment (9/15/15)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Fifth
    Payment (10/1/15)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Sixth
    Payment (10/15/15)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Seventh
    Payment (11/1/15)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Eighth
    Payment (11/15/15)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Ninth
    Payment (12/1/15)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Tenth
    Payment (12/15/15)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Eleventh
    Payment (1/1/16)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)
	Twelfth
    Payment (1/15/16)	1/12
    of the Outstanding Balance 

    (plus interest) * 125%	1/12
    of the Outstanding Balance 

    (plus interest)

 

 

Exhibit
B to Unsecured Convertible Promissory Note, Page 1EXHIBIT 10.2

 

ACKNOWLEDGMENT OF DEBT

 SATISFACTION AND FULL RELEASE

THIS ACKNOWLEDGEMENT OF DEBT SATISFACTION AND FULL RELEASE (this "Release") is made by and between James P.R. Samuels (the "Creditor"), and Worldwide Strategies Incorporated, a Nevada corporation (the "Company"), as of this 31st day of July, 2013.

WHEREAS, the Company owes Creditor $241,874.92 for accrued compensation and $108,843.72 for accrued expenses (the "Accrued Liabilities"); and

WHEREAS, Creditor has agreed to accept a convertible promissory note from the Company in the amount of $28,500.00, a copy of which is attached to this Acknowledgement as Exhibit A (the "Note") and to forgive the remaining $322,218.64;

NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, the parties mutually agree as follows:

1.            Acknowledgment of Satisfaction; Release.  Creditor acknowledges and agrees that the Note will be issued to Creditor in full and complete satisfaction of any and all obligations of the Company arising in connection with or related to the Accrued Liabilities.  Creditor hereby fully releases, remises and forever discharges the Company from any and all claims, demands, actions, and obligations which Creditor now has, has ever had or may hereafter have against the Company on account of, arising out of or relating in any way to any matter, cause or event relating to the Accrued Liabilities.

 

2.            Restricted Securities.  Creditor understands that both the Note and the shares of common stock issuable upon conversion of the Note (the "Underlying Shares") will be "restricted securities" under the federal securities laws inasmuch as they will be acquired in a transaction not involving a public offering, and that under such laws and applicable regulations, such securities may be resold without registration under the federal securities laws only in certain limited circumstances.  Creditor acknowledges that neither the Note nor the Underlying Shares have been registered under the Securities Act of 1933, as amended (the "Act") or under any state securities laws, based in part upon Creditor's representations in this Agreement.  The Note and any certificates evidencing the Underlying Shares shall bear a legend restricting transfer under the federal securities laws, which shall be substantially as follows:

THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE CORPORATION OF A FAVORABLE OPINION OF ITS COUNSEL OR SUBMISSION TO THE CORPORATION OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL FOR THE CORPORATION, TO 

 

THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE ACTS.

3.            Accredited Investor.  Creditor represents, warrants and covenants to the Company that Creditor is an "accredited investor," as defined under Rule 501 of the Act, and that Creditor is acquiring the Note for Creditor's own account, not on behalf of others, and not with a view towards resale or distribution.  Creditor will not sell or otherwise distribute the Note issuable hereunder without registration or an exemption from registration under the Act and the applicable securities laws of any state, as evidenced by an opinion of counsel to such effect.  Creditor is a sophisticated investor with knowledge and experience in financial and business matters that render him capable of evaluating and understanding this investment and its risks and, in making this investment, Creditor has relied on his own independent investigation of the Company and has not relied on any offering materials or oral representations whatsoever.

 

4.            No Hypothecation.  Creditor represents, warrants and covenants to the Company that he has not sold, assigned, pledged, hypothecated, donated or otherwise transferred the Accrued Liabilities or any interest therein to any third party.

 

5.            Entire Release.  This Release sets forth the entire understanding of the parties with regard to the matters contemplated hereunder and supersedes all prior agreements, covenants, arrangements, communications, representations or warranties, whether oral or written, made by the parties or any officer, employee or representative of the parties.

 

6.            Registration Rights.  If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than Creditor) any of its securities under the Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give Creditor notice of such registration.  Upon the request of Creditor given within ten (10) days after such notice is given by the Company, the Company shall, subject to the provisions of subparagraph (b) below, cause to be registered all of the Underlying Shares that Creditor has requested to be included in such registration.  The Company shall have the right to terminate or withdraw any registration initiated by it under this paragraph before the effective date of such registration.  The expenses (other than Selling Expenses) of a registration effected by the Company shall be borne by the Company.

(a)            If Creditor intends to distribute the Underlying Shares covered by its request by means of an underwriting, it shall so advise the Company as a part of its request made pursuant to this paragraph 6.  The underwriter(s) will be selected by Creditor, subject only to the reasonable approval of the Company.

 

(b)            In connection with any offering involving an underwriting of shares of the Company's capital stock pursuant to this paragraph 6, the Company shall not be required to include any of Creditor's Underlying Shares in such underwriting unless Creditor accepts the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company.  If the total number of securities, including Underlying Shares, requested by stockholders to be included in such offering exceeds the number of 

 

 

Page 2 of 3

securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Underlying Shares, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering.

(c)            It shall be a condition precedent to the obligations of the Company to take any action pursuant to this paragraph 6 with respect to the Underlying Shares of Creditor that Creditor shall furnish to the Company such information regarding itself, the Underlying Shares held by him, and the intended method of disposition of such securities as is reasonably required to effect the registration of Creditor's Underlying Shares.

(d)            "Excluded Registration" means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to a transaction Under Rule 145 of the Act; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Underlying Shares; or (iv) a registration in which the only common stock being registered is common stock issuable upon conversion of debt securities that are also being registered.

(e)            "Selling Expenses" means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of the Underlying Shares, and fees and disbursements of counsel for Creditor.

7.            Amendment.  This Release may be amended only by a written instrument signed by the parties or their respective successors or assigns.

8.            Governing Law.  This Release and all amendments hereof and waivers and consents hereunder shall be governed by the internal laws of the State of Nevada, without regard to the conflicts of law principles thereof.

9.            Counterparts.  This Release may be executed in counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party and delivered to the other party.

This Acknowledgment of Debt Satisfaction and Full Release is dated and effective as of the date first written above.

 

 

	
"Company"  

	
"Creditor"

	
WORLDWIDE STRATEGIES

	
 

	
INCORPORATED

	
 

	
 

 

/s/  Thomas E. McCabe                                 

	
 

 

/s/ James P.R. Samuels                       

	
By: Thomas E. McCabe  

	
James P.R. Samuels

	
Chief Financial Officer

	
 

 

 

 

 

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