Item 1.01 Entry into a Material Definitive Agreement
Amendment to Note Settlement Agreement
On May 12, 2016 but effective as of April 15, 2016, Vapor Hub International Inc. (the “Company”) entered into Amendment #2 to Note Settlement Agreement (the “Settlement Agreement Amendment”) with Typenex Co-Investment, LLC (the “Investor”). The Settlement Agreement Amendment relates to the Note Settlement Agreement entered into between the parties on December 18, 2015, as previously amended on February 19, 2016 (as previously amended, the “Original Agreement”).
The Original Agreement, as amended by the Settlement Agreement Amendment, relates to the Secured Convertible Promissory Note issued on November 4, 2014 in the original principal amount of $1,687,500.00 (the “November Note”) pursuant to that certain Securities Purchase Agreement dated November 4, 2014 by and between the Investor and the Company (the “November Purchase Agreement”, and together with the November Note and all other documents entered into in conjunction therewith, the “November Transaction Documents”). The Original Agreement, as amended, also relates to the Promissory Note issued on June 4, 2015 in the original principal amount of $245,000.00 (the “June Note”, and together with the November Note, the “Notes”) pursuant to that certain Note Purchase Agreement dated June 4, 2015 (the “June Purchase Agreement” and together with the June Note and all other documents entered into in conjunction therewith, the “June Transaction Documents” and together with the November Transaction Documents, the “Transaction Documents”).
The Original Agreement, as amended by the Settlement Agreement Amendment, restructures the payment provisions of the Notes. The Settlement Agreement Amendment restructures the payment provisions contained in the Original Agreement and provides that the Company is to make the following payments to Investor notwithstanding the terms of the Notes (the “Restructure”): (a) a cash payment in the amount of $35,000.00 payable on or before April 15, 2016 together with 3,160,556 shares of the Company’s common stock (subject to adjustment as described in the Settlement Agreement Amendment) based on a note conversion amount of $50,000.00 and a conversion price of $0.015820, which shares are to be issued and delivered pursuant to the terms of the Settlement Agreement Amendment and (b) a cash payment on or before May 15, 2016 in the amount of $35,000.00 together with shares of the Company’s common stock based on a note conversion amount of $50,000.00 and a conversion price to be determined in accordance with the Notes, which shares are to be issued and delivered pursuant to the terms of the Settlement Agreement Amendment; and (c) a payment equal to the remaining aggregate outstanding balance of the Notes on or before June 15, 2016, which payment must be made in cash (collectively, the “Note Payments”). Unless specified otherwise by Investor in a written notice delivered to Company, all Note Payments shall be applied first against the outstanding balance of the November Note until the November Note has been paid in full and thereafter against the June Note until the June Note is paid in full. The Settlement Agreement Amendment also provides that outstanding balance on each of the November Note and the June Note will bear interest at the rate of 10% per annum from the effective date of the amendment until such notes are repaid in full; previously, the June Note did not accrue interest on the unpaid principal balance of the note unless an event of default occurred.
As consideration for Investor’s agreement to enter into the Settlement Agreement Amendment, the Company agreed to pay Investor a restructuring fee of $15,315.86.
Upon satisfaction of the Company’s obligations under the Original Agreement, as amended, the Company shall be deemed to have paid the entire outstanding balance of the Notes in full and shall have no further obligations under either Note. In addition, subject to the Company’s compliance with the terms and conditions of the Note Settlement Agreement, the Investor waives the default caused by the non-payment of the June Note on December 4, 2015.
In the event that the Company fails to comply with the conditions of the Original Agreement, as amended by the Settlement Agreement Amendment, the Restructure, the waiver of the June Note default, and all other accommodations given in the Original Agreement, as amended, will be deemed withdrawn and the Investor will be entitled to all remedies available to it as provided in the Notes, the other Transaction Documents, and the Original Agreement, as amended.
As of the date of this report, the outstanding balance on the November Note is $0 and the outstanding balance on the June Note is $84,363.25 (which takes into account a cash payment of $35,000 made on May 11, 2016).
2
Entry into Exchange Agreement and Issuance of Convertible Promissory Note
On May 12, 2016 but effective as of April 15, 2016, the Company entered into an Exchange Agreement with Iliad Research and Trading L.P. (“Iliad”), an affiliate of the Investor (the “Exchange Agreement”). The Exchange Agreement relates to the Promissory Note issued on August 12, 2015 to Iliad in the original principal amount of $245,000, as previously amended on February 19, 2016 (as amended, the “Original Note”).
Pursuant to the Exchange Agreement, the Company and Iliad exchanged the Original Note for a new promissory note in the original principal amount of $272,250.00 (the “Exchange Note”), which balance includes an exchange fee of $24,750.00. The Exchange Note was issued in substitution of and not in satisfaction of the Original Note.
The Exchange Note provides that the Company is to make the following payments to Iliad: (a) a payment in shares of the Company’s common stock within three trading days of June 15, 2016 based on a note conversion amount of $50,000.00 and a conversion price that is equal to 70% of the average of the three lowest closing bid prices of the Company’s common stock in the twenty trading days immediately preceding such conversion, which shares are to be issued and delivered pursuant to the terms of the Exchange Note; and (b) a payment equal to the remaining aggregate outstanding balance of the Exchange Note on or before July 15, 2016, which payment must be made in cash. On the date that is twenty trading days from the date the Company delivers the conversion shares to Iliad, there is a true-up where the Company is required to deliver additional shares if the conversion price as of the true-up date is less than the conversion price used to deliver the initial shares. Interest accrues on the outstanding balance of the Exchange Note at a rate of 10% per annum; provided, however that if the Company fails to repay the Exchange Note when due, or if the Company is otherwise in default under the Exchange Note, at the option of Iliad a default interest rate of 18% per annum will apply. In the event the Company is in default under the Exchange Note, Iliad also has the option to accelerate the note with the outstanding balance becoming immediately due and payable at an amount equal to 115% of the outstanding balance of the Exchange Note as of the date the event of default occurred. The Exchange Note may be prepaid without penalty. The Exchange Note provides that the Company may not issue shares to Iliad under the Exchange Note if the issuance of such shares would cause Iliad to beneficially own more than 9.99% of the Company’s outstanding common stock.
The foregoing summaries of the Settlement Agreement Amendment, Exchange Agreement and Exchange Note do not purport to be complete and are qualified in their entirety by references to the full text of such agreements, which are attached as Exhibits 10.1, 10.2 and 10.3 hereto.