UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________


FORM 8-K


CURRENT REPORT


Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934


Date of Report (Date of earliest event reported)    July 10, 2014


_____________________________



GROWLIFE, INC.

(Exact name of registrant as specified in charter)



                           Delaware                           

                0-50385                

                  90-0821083                  

(State or other jurisdiction of incorporation)

(Commission File Number)

(IRS Employer Identification No.)


500 Union Street, Suite 406

                           Seattle, WA 98101                           

(Address of principal executive offices and zip code)


                              (800) 977-5255                              

(Registrant’s telephone number, including area code)


                                      not applicable                                      

(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions:

 

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



Item 1.01 Entry into a Material Definitive Agreement.


On July 10, 2014, GrowLife, Inc. (“GrowLife” or the “Company”), closed a Waiver and Modification Agreement, Amended and Restated Joint Venture Agreement, Secured Credit Facility and Secured Convertible Note.


Previously, the Company entered into a Joint Venture Agreement with CANX USA LLC, a Nevada limited liability company. Under the terms of the Joint Venture Agreement, the Company and CANX formed Organic Growth International, LLC (“OGI”), a Nevada limited liability company, for the purpose of expanding the Company’s operations in its current retail hydroponic businesses and in other synergistic business verticals and facilitating additional funding for commercially financeable transactions of up to $40,000,000. In connection with the closing of the Agreement, CANX agreed to provide a commitment for funding in the amount of $1,300,000 for a GrowLife Infrastructure Funding Technology program transaction and provided additional funding under a 7% Convertible Note instrument for $1,000,000. The Company initially owned a non-dilutive forty five percent (45%) share of OGI and the Company may acquire a controlling share of OGI as provided in the Joint Venture Agreement. In accordance with the Joint Venture Agreement, the Company and CANX entered into a Warrant Agreement whereby the Company delivered to CANX a warrant to purchase 140,000,000 shares of the Company common stock at a maximum strike price of $0.033 per share. Also in accordance with the Joint Venture Agreement, the Company issued an additional warrant to purchase 100,000,000 shares of the Company’s common stock at a maximum strike price of $0.033 per share on February 7, 2014.


On April 10, 2014, as a result of the suspension in the trading of the Company’s securities, the Company went into default on its 7% Convertible Notes Payable for $1,000,000. As a result, the Company accrued interest on these notes at the default rate of 24% per annum. Furthermore, as a result of being in default on these notes, the Holders may, at their sole discretion, call these notes.


The description of the Waiver and Modification Agreement, Amended and Restated Joint Venture Agreement, Secured Credit Facility and Secured Convertible Note are qualified in its entirety by reference to the Agreements, copies of which are attached to this Current Report on Form 8-K as Exhibits 10.1, 10.2, and 10.3, incorporated by reference into this 1.01.


Waiver and Modification Agreement


The Company entered into a Waiver and Modification Agreement dated June 25, 2014 with Logic Works LLC whereby the 7% Convertible Note with Logic Works dated December 20, 2013 was modified to provide for (i) a waiver of the default under the 7% Convertible Note; (ii) a conversion price is $0.025 per share, subject to adjustment; (iii) a registration on form S-1 within 30 days of June 25, 2014; and (iv) continuing interest of 24% per annum.


Amended and Restated Joint Venture Agreement


The Company entered into an Amended and Restated Joint Venture Agreement dated July 1, 2014 with CANX whereby the Joint Venture Agreement dated November 19, 2013 was modified to provide for (i) up to $12,000,000 in conditional financing subject to approval for OGI for business growth development opportunities in the legal cannabis industry for up to six months, subject to extension; (ii) confirmed that the five year warrants, subject to extension, at $.033 per share for the purchase of 140,000,000 and 100,000,000 were fully earned and were not considered compensation by the Company; (iii) granted CANX five year warrants, subject to extension, to purchase 300,000,000 shares of common stock at the fair market price as determined by an independent appraisal; (iv) defined warrants related to the achievement of OGI milestones; (v) a four year term, subject to adjustment and (vi) a registration on form S-1 within 30 days of July 1, 2014.


Secured Convertible Note and Secured Credit Facility


The Company entered into a Secured Convertible Note and Secured Credit Facility dated June 25, 2014 with Logic Works whereby Logic Works agreed to provide up to $500,000 in funding. Each funding requires approval in advance by Logic Works, provides for interest at 6% with a default interest of 24% per annum and requires repayment by June 26, 2016. The Note is convertible into common stock of the Company at the lesser of $0.0070 or (B) twenty percent (20%) of the average of the three (3) lowest daily VWAPs occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable conversion date on which Logic Works elects to convert all or part of this 6% Convertible Note, subject to adjustment as provided in the Note. The 6% Convertible Note is collateralized by the assets of the Company. The Company also has agreed to file a registration statement on Form S-1 within thirty days of June 25, 2014 to register the resale of all shares issued in the Transaction and have the registration statement declared effective within ninety days of the June 25, 2014 signing of the 7% Convertible Note.


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Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant


See the disclosures made in Item 1.01, which are incorporated herein by reference.


Settlement Agreement and Waiver of Default with Forglen LLC


The Company entered into a 7% Convertible Note on October 11, 2013. On April 10, 2014, as a result of the suspension in the trading of the Company’s securities, the Company went into default on its 7% Convertible Note payable with Forglen LLC for $250,000. As a result, the Company accrued interest on this 7% Convertible Note at the default rate of 24% per annum. Furthermore, as a result of being in default on these notes, the Holders may, at their sole discretion, call this 7% Convertible Note.


On July 14, 2014, the Board of Directors approved a Settlement Agreement and Waiver of Default dated June 19, 2014 with Forglen related to a 7% Convertible Note, which was modified to provide for (i) waiver of the default under the 7% Convertible Note; (ii) the “Conversion Price was adjusted to the lesser of (A) $.025, (B) seventy percent (70%) of the average of three (3) lowest daily VWAP’s occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this 7% Convertible Note, and (C) the lower price any other party now or in the future has to acquire Common Stock including but not limited to options to convert in a note or warrants, all subject to adjustment as provided in this Note; and (iii) continuing interest of 24% per annum.


The description of the Settlement Agreement and Waiver of Default is qualified in its entirety by reference to the Agreement, a copy of which is attached to this Current Report on Form 8-K as Exhibit 10.4, incorporated by reference into this 2.03.


Item 3.02 Unregistered Sales of Equity Securities.


See the disclosures made in Item 1.01, which are incorporated herein by reference. The Company’s securities were issued to an accredited investor in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D. The transaction did not involve a public offering, the sale of the securities was made without general solicitation or advertising, there was no underwriter, and no underwriting commissions were paid.


Item 9.01 Financial Statements and Exhibits.


(d)   Exhibits .


Exhibit No.

 

Description

 

 

 

10.1

 

Waiver and Modification Agreement dated June 25, 2014 by and between Growlife, Inc. and Logic Works LLC.

10.2

 

Amended and Restated Joint Venture Agreement dated July 1, 2013 by and between GrowLife, Inc. and CANX USA LLC.

10.3

 

Secured Credit Facility and Secured Convertible Note dated June 25, 2014 by and between Growlife, Inc. and Logic Works LLC.

10.4

 

Settlement Agreement and Waiver of Default dated June 19, 2014 by and between GrowLife, Inc. and Forglen LLC.

99.1

 

Press release dated July 18, 2014 concerning the transactions with CANX USA LLC and Logic Works LLC.



SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



  

GrowLife, Inc.

  

  

  

Date:  July 18, 2014

By:

/s/ Marco Hegyi

  

  

Marco Hegyi

  

  

President


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Exhibit 10.1


WAIVER AND MODIFICATION AGREEMENT


THIS WAIVER AND MODIFICATION AGREEMENT (“ Agreement ”) dated June 25, 2013 (“ Effective Date ”) is entered into by and between Logic Works LLC, a Nevada limited liability company (“ Lender ” and “ Holder ”) and GrowLife, Inc., Delaware corporation (“ Borrower ” and “ Company ”).  Unless otherwise defined herein, capitalized terms shall have the meaning given to them in a 7% Convertible Note (“ Note ”) between Lender and Borrower, in the original principal amount of Five Hundred Thousand Dollars ($500,000), dated December 20, 2013.


R E C I T A L S


A.        The Note is currently in Default, pursuant to Section 2(a)(v), as a result of the suspension in the trading of the Borrower’s securities by the Securities and Exchange Commission (“ SEC ”) on April 10, 2014 (“ Suspension Default ”).  


B.        By this Agreement, Borrower and Lender intend to modify and amend certain terms and provisions of the Note in consideration for Lender waiving the Default.


NOW, THEREFORE, Borrower and Lender agree as follows:


1.

MODIFICATION OF NOTE AND WAIVER .  The Note is hereby supplemented and modified to incorporate the following, which shall supersede and prevail over any conflicting provisions of the Note:


 

1.1

Conversion Price and Pre-Payment .  On the Effective Date, Section 3(a)(2) of the Note shall be modified in its entirety to read as follows:  “ Conversion Price ” shall equal the lesser of (A) $0.025 (B) twenty percent (20%) of the average of the three (3) lowest daily VWAPs occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.  The Company may, upon ten (10) Business Days’ written notice to Holder, prepay all or any portion of the remaining outstanding Principal amount of this Note in cash only with the Holder’s consent, which such consent may be withheld in Holder’s sole and absolute discretion.


 

1.2

Interest Rate .  Section 1(b) is modified in its entirety to read as follows:


 

(b)

Interest . Interest on the unpaid Principal shall accrue daily at the rate of the lesser of twenty four percent (24%)(the “ Interest Rate ”) per annum, or the maximum rate permitted under any applicable law.


 

1.3

Registration of Conversion Shares.   Section 3 is modified to add the following as 3(a)(v):


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Notwithstanding anything else in this Note to the contrary, the Borrower shall prepare, and not later than Thirty (30) days from the Effective Date (the “ Filing Deadline ”), file with the SEC a Registration Statement on Form S-1, covering the Conversion Shares that are to be issued upon a Conversion of this Note (the “ Registrable Securities ”). Such Registration Statement shall not include any shares of Common Stock or other securities for the account of any other person without the prior written consent of Lender.  If a Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to the Filing Deadline, the Borrower will pay to Lender, as liquidated damages and not as a penalty, an amount equal to one percent (1%) of the total VWAP of such Registrable Securities measured on a per share basis for each 30-day period (or pro rata for any portion thereof) following the Filing Deadline for which no Registration Statement is filled with respect to the Registrable Securities. Such payment(s) shall constitute the Lender’s exclusive monetary remedy for such failure, but shall not affect the Lender’s right to seek injunctive relief.  Such payment(s) shall be made to the Lender in cash no later than three (3) Business Days after the end of each 30-day period. Lender shall have the right to approve the legal counsel selected by GrowLife to perform the registration work, and such approval shall not be unreasonably withheld or delayed. The Company will pay all expenses associated with affecting the registration of the Registrable Securities, including filing and printing fees, the Company’s legal counsel, accounting fees and expenses, costs associated with clearing the Registrable Securities for sale under applicable state securities laws, and listing fees.


 

1.4

Mechanics of Conversion .  Section 3(b)(ii) is hereby modified in its entirety to read as follows:


(ii)        Company’s Failure to Timely Convert .  If within one (1) Business Day after the Company’s receipt of the facsimile or email copy of a Conversion Notice, the Company shall fail to issue and deliver to Holder the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any Conversion Amount (a “Conversion Failure”), the Principal amount under this Note shall increase by Three Thousand Dollars ($3,000) per day until the Company issues and delivers a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any Conversion Amount.  If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded Conversion Amount returned to the Principal with the rescinded Conversion Shares returned to the Company.  In addition to any other rights available to the Holder, if a Conversion Failure occurs, and if after such Conversion Failure the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (1) the Holder’s total purchase price (including any brokerage commissions) for the


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Common Stock so purchased exceeds (2) the product of (a) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (b) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000.00 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000.00 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.00. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.


 

1.5

Adjustments to Conversion Price; Subsequent Equity Sales;  Fundamental Transactions .  Section 4 is hereby modified to read as follows:


4.          Adjustments to Conversion Price; Subsequent Equity Sales;  Fundamental Transactions .  The Conversion Price and the number and kind of securities issuable upon conversion of this Note shall be subject to adjustment from time to time as set forth in this Section 4.


(a)         Stock Dividends and Splits .  If at any time while this Note is outstanding the Company: (i) declares or pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock (or securities convertible into or exercisable or exchangeable for capital stock) that is payable in shares of Common Stock, (ii) combines (including, without limitation, by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iii) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company (including, without limitation, in connection with any merger or consolidation), then in each such case the Conversion Price then in effect shall be adjusted by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the number of shares of Common Stock outstanding immediately before such event, and (B) the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for such dividend or distribution, and any adjustment made pursuant to clauses (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision, combination or reclassification.


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(b)        Subsequent Equity Sales .  If, at any time while this Note is outstanding, the Company sells or grants any option to purchase or sells or grants any right or is obligated to reprice (whether or not due to additional loans by Lender to Borrower at any time), or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents 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 issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then and in such event, the Conversion Price shall be reduced, concurrently with such issue, to the lowest price per share for which any one (1) such share of Common Stock or Common Stock Equivalent has been issued. For purposes of this paragraph, the “lowest price per share for which any one such share of Common Stock or Common Stock Equivalent has been issued” shall be equal to the sum of the lowest amount of consideration (but not less than $.0001) received or receivable by the Company with respect to any such share (the “Base Conversion Price”). Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than five (5) Business Days following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 4(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”. For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 4(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.


(c)         Pro Rata Distributions .  Subject to Section 4(c) below, if at any time while this Note is outstanding the Company declares or pays any dividend or otherwise distributes any of its assets, including without limitation, cash, properties, evidences of indebtedness, securities (including any options or other convertible securities, but excluding a distribution of Common Stock covered by Section 4(a) above or Purchase Rights covered by Section 4(c) below), or options or rights to acquire any such assets (in each


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case, “Distributed Property”) to all holders of Common Stock pro rata (and not to all Holders in their capacity as holders of Notes), whether by way of dividend, return of capital, spin-off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction, then in each such case the Conversion Price in effect immediately prior to the close of business on the record date for such dividend or distribution shall be reduced (only), effective as of the close of business on such record date, to a price determined by multiplying such Conversion Price by a fraction of which (i) the denominator shall be the closing price of Common Stock on the Primary Market on such record date (the “Market Price”), and (ii) the numerator shall be such Market Price minus the value of the Distributed Property on such date applicable to one outstanding share of Common Stock, as determined by the Company’s independent certified public accounting firm that regularly examines the financial statements of the Company.


(d)        Rights Offerings Below Market .  Notwithstanding Section 4(b) above, if at any time while this Note is outstanding the Company grants, issues or sells pro rata to all holders of its outstanding shares of Common Stock, any options, convertible securities or other rights (the “Purchase Rights”) entitling them to directly or indirectly subscribe for or purchase shares of Common Stock at an effective price per share less than the Market Price on the record date of such grant, issuance or sale, then in each such case the Conversion Price in effect immediately prior to the close of business on such record date shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Conversion Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding as of the close of business on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares so offered for subscription or purchase (including and assuming receipt by the Company in full of all consideration payable upon both issuance and exercise of such Purchase Rights) would purchase at such Market Price, and (ii) the denominator shall be the number of shares of Common Stock outstanding as of the close of business on such record date plus the total number of additional shares of Common Stock so offered for subscription or purchase; provided, however, that in lieu of receiving such adjustment to the Conversion Price, the Holder shall have the option, upon written notice to the Company within thirty (30) days following its receipt of the notice of such adjustment, to elect to acquire, upon any conversion of this Note and in accordance with the terms applicable to the issuance of such Purchase Rights, the aggregate Purchase Rights which the Holder would have acquired if the Holder had converted such portion of this Note being converted (without regard to any limitations on ownership or conversion and regardless of whether this Note was then convertible) immediately prior to such record date.  To the extent that shares of Common Stock have not been delivered pursuant to such Purchase Rights specified in this Section upon the expiration or termination of such Purchase Rights, the Conversion Price shall be readjusted to the Conversion Price which would


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then be in effect had the adjustment made upon the issuance of such Purchase Rights been made on the basis of delivery of only the number of shares of Common Stock actually delivered.  In determining whether any Purchase Rights entitle the holder thereof to subscribe for or purchase shares of Common Stock at less than such Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such Purchase Rights, the value of such consideration (if other than cash) to be determined in good faith by the Company’s Board of Directors.


(e)        Fundamental Transactions .  If at any time while this Note is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person; (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions; (iii) any tender offer or exchange offer (whether by the Company 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 Company 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 (each, a “Fundamental Transaction”), then the Holder shall have the right thereafter to receive, upon any conversion of this Note, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same amount and kind of securities, cash and property as the Holder would have been entitled to receive upon the occurrence of such Fundamental Transaction if the Holder had been the record holder of one Conversion Share immediately prior to such Fundamental Transaction (without regard to any limitations or restrictions on conversion or acquisition of Conversion Shares and whether or not this Note was then convertible) (the “Alternate Consideration”), and the Conversion Price shall be appropriately and equitably adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction relative to the then Conversion Price.  The Company 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.  In case of any such Fundamental Transaction, any successor to the Company, acquirer or surviving entity (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant, obligation, liability and condition under this Note to be performed and observed by the Company, subject to such modifications as may be reasonably deemed appropriate (as determined in good faith by resolution of


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the Board of Directors of the Company) in order to provide for adjustments of the number and kind of Conversion Shares for which this Note is convertible, which shall be as nearly equivalent as practicable to the adjustments provided for in this Section.  Such assumption shall be pursuant to a written agreement in form and substance reasonably satisfactory to the Holder.  At the Holder’s request, any successor to the Company, acquirer or surviving entity in such Fundamental Transaction shall issue to the Holder a new Note from such entity substantially similar in form and substance to this Note and consistent with the foregoing provisions, which new Note shall be reasonably satisfactory to the Holder and include, without limitation, (A) the outstanding Principal and Interest owed to the Holder under this Note, (B) an interest rate equal to the Interest Rate, (C) similar ranking to this Note, and (D) the Holder’s right to convert the new Note into Alternate Consideration.  The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor, acquirer or surviving entity to comply with the provisions of this Section and ensuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.  Notwithstanding anything to the contrary contained herein, if a Fundamental Transaction (X) is an all cash transaction, (Y) constitutes or results in a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act (going private transaction), or (Z) otherwise results in the successor, surviving or acquiring entity not being traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market, then upon the written request of the Holder, delivered before the sixtieth (60th) day after such Fundamental Transaction, the Company (or any such successor, acquirer or surviving entity) shall redeem this Note from the Holder for a redemption price, payable in cash within five (5) Business Days after such request (or, if later, on the effective date of such Fundamental Transaction), equal to the value of this Note as determined using the Black-Scholes Option Pricing Model via Bloomberg.  The provisions of this Section shall similarly apply to successive Fundamental Transactions and shall be applied without regard to any limitations of this Note.


 

1.6

Governing Law and Venue .   Section 7 is modified in its entirety to read a follows:


All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Note (whether brought against a party hereto or its respective affiliates, directors, officers, stockholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the County of Clark (the “ Clark County Courts ”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Clark County Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and


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hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such Clark County Courts, or Clark County Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the   address in effect for notices to it under this Note, and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby.  If either party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses reasonably incurred in the investigation, preparation and prosecution of such action or proceeding.


 

1.7

Waiver .  In consideration of the foregoing modifications, an expressly subject thereto, Lender hereby waives the Suspension Default.


2.

GENERAL RELEASE.  For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, for itself, and its respective successors and assigns (collectively “ Releasor ”), hereby agrees as follows:


Except for the executory terms of this Agreement, Releasor does hereby fully, forever and irrevocably release, discharge and acquit Lender and its respective past and present parent, subsidiary, and affiliate corporations, and the respective past and present officers, directors, shareholders, agents, and employees of each and all of the foregoing entities, and its and their respective successors, heirs, assigns, and any other person or entity now, previously, or hereafter affiliated with the same (the Lender, together with each and all said parent, subsidiary and affiliated corporations, officers, directors, shareholders, agents, employees and consultants shall be collectively referred to herein below as the “ Released Parties ” and each such reference shall refer jointly and severally to each and all of Lender and such other persons and entities), of and from any and all rights, claims, demands, obligations, liabilities, indebtedness, breaches of contract, breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance, cause or causes of action, debts, sums of money, accounts, compensations, contracts, controversies, promises, damages, costs, losses and expenses of every type, kind, nature, description or character, and irrespective of how, why, or by reason of what facts, whether heretofore or now existing, or that could, might, or may be claimed to exist, of whatever kind or name, whether known or unknown, suspected or unsuspected, liquidated or unliqui­dated, claimed or unclaimed, whether based on contract, tort, breach of any duty, or other legal or equitable theory of recovery, each as though fully set forth herein at length (collectively a “ Claim ” or the “ Claims ”) including, without limitation, any Claims that in any way arise from or out of, are connected with, or relate to the Note, Lender or the administration of the Note, as well as any action or inaction of the Released Parties or any of them with respect to the Note, or the administra­tion thereof, as of the date of this Agreement.


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Releasor irrevocably covenants and agrees that it shall forever refrain from initiating, filing, institut­ing, maintaining, or proceeding upon, or encouraging, advising or volun­tarily assisting any other person or entity to initiate, institute, maintain or proceed upon any Claim of any nature whatsoever released in this Section of the Agreement (“ General Release ”).


Releasor represents and warrants that it is the owner of and has not assigned, sold, transferred, or otherwise disposed of any of the Claims released in this General Release. Releasor represents and warrants that it has the authority and capacity to execute this General Release.


As further consideration for this Agreement, Releasor, for itself, its successors and its assigns, hereby agrees, represents, and warrants that the matters released herein are not limited to matters that are known or disclosed. In this connection, Releasor, hereby agrees, represents, and warrants that it realizes and acknowledges that factual matters now unknown to them may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damages, costs, losses, and expenses that are presently unknown, unanticipated, and unsuspected, and Releasor further agrees, represents, and warrants that this Release has been negotiated and agreed upon in light of that realization and that, except as expressly limited above, Releasor nevertheless hereby intends to release, discharge, and acquit the Released Parties from any Claims, including without limitation, any such unknown causes of action, claims, demands, debts, controversies, damages, costs, losses, and expenses related to the Note or the administration of the Note, or, the collateral therefor, or otherwise.


It is understood and agreed that the acceptance of delivery of this General Release by the Released Parties shall not be deemed or construed as an admission of liability by any Released Parties, and each such party hereby expressly denies liability of any nature whatsoever arising from or related to the subject of the within General Release.


Releasor hereby agrees, represents, and warrants that it has had the opportunity to seek advice of counsel of its own choosing in negotiations for and the preparation of the General Release, that it has read this General Release or has had the same read to them by its counsel, that it has had the General Release fully explained by such counsel, and that it is fully aware of its contents and legal effect.  This General Release may be pleaded as a full and complete defense to or be used as the basis for an injunction against any action, suit, or other proceeding that may be instituted, prosecuted, or attempted in breach of this General Release.  Based upon such review and explanation by the Releasor and its counsel, the Releasor expressly agrees that the customary rule of contract interpre­tation to the effect that ambigu­ities are to be construed or resolved against the drafting party shall not be employed in the interpretation or construction of this General Release.


This General Release will be binding upon and for the benefit of the parties hereto and their respective successors, heirs, devisees, executors, affiliates, representatives, assigns, officers, agents, and employees wherever the context requires or admits.


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3.

FORMATION AND ORGANIZATIONAL DOCUMENTS .  Borrower has previously delivered to Lender all of the relevant formation and organizational documents of Borrower and its subsidiaries, and all such formation documents remain in full force and effect and have not been amended or modified since they were delivered to Lender. Borrower hereby certifies that: (i) the above documents are all of the relevant formation and organizational documents of Borrower; (ii) they remain in full force and effect; and (iii) they have not been amended or modified since they were previously delivered to Lender.


4.

REPRESENTATIONS AND WARRANTIES .  Borrower represents and warrants that no Default, breach or failure of condition has occurred, or would exist with notice or the lapse of time or both, under the Note (as modified by this Agreement) and that all representations and warranties herein and in the original Note are true and correct, which representations and warranties shall survive execution of this Agreement.


5.

NON-IMPAIRMENT .  Except as expressly provided herein, nothing in this Agreement shall alter or affect any provision, condition, or covenant contained in the Note or affect or impair any rights, powers, or remedies of Lender, it being the intent of the parties hereto that the provisions of the Note shall continue in full force and effect except as expressly modified hereby.


6.

MISCELLANEOUS .  This Agreement shall be governed by and interpreted in accordance with the laws of the State of Nevada, except if preempted by federal law. In any action brought or arising out of this Agreement or the Note, Borrower, hereby consents to the jurisdiction of any federal or state court having proper venue within the State of Nevada and also consent to the service of process by any means authorized by Nevada or federal law.  The headings used in this Agreement are for convenience only and shall be disregarded in interpreting the substantive provisions of this Agreement.  In the event that any action, suit or other proceeding arising out of or related to the breach, enforcement, or interpretation of this Agreement, or involving claims within the scope of this Agreement, or other terms of this Agreement, the prevailing party shall recover all of such Party’s reasonable attorneys’ fees, costs, and expenses, regardless whether recoverable by statute or rule, as long as such fees, costs, and expenses are reasonable and related in some manner to such action, suit, or proceedings, including any and all appeals, writs or petitions therefrom, etc. Time is of the essence of each term of the Note, including this Agreement. If any provision of this Agreement or the Note shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed from this Agreement and the remaining parts shall remain in full force as though the invalid, illegal, or unenforceable portion had never been a part thereof.


7.

INTEGRATION; INTERPRETATION . The Note, including this Agreement, contain or expressly incorporate by reference the entire agreement of the parties with respect to the matters contemplated therein and supersede all prior negotiations or agreements, written or oral. The Note shall not be modified except by written instrument executed by all parties. Any reference to the Note includes any amendments, renewals or extensions now or hereafter approved by Lender in writing.


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8.

EXECUTION IN COUNTERPARTS . This Note may be executed in counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective upon the party when signed by him/her, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” or other document or image format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile, document or “pdf” or other document image format data file signature page were an original thereof. It shall not be necessary in making proof of this document to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.



[signatures on next page]


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IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be duly executed as of the date first above written.



“ Borrower and Company ”


GrowLife, Inc.


/s/ Marco Hegyi

By:  Marco Hegyi

Its:   President



“ Lender and Holder ”


Logic Works, LLC


/s/ Rick Crespi

By:  Rick Crespi

Its:   Manager



Signature Page to

Waiver and Modification Agreement


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Exhibit 10.2


AMENDED AND RESTATED

JOINT VENTURE AGREEMENT


THIS AMENDED AND RESTATED JOINT VENTURE AGREEMENT (this “ Agreement ”) dated and made effective as of July 1, 2014 (“ Effective Date ”) is made and entered into, by and between GrowLife, Inc. (“ GrowLife ”), a Delaware corporation, and CANX USA LLC, a Nevada limited liability company, and its affiliates, designees and assignees (“ CANX ”).  GrowLife and CANX shall be severally referred to as a “ Party ” and collectively referred to herein as the “ Parties .”


WHEREAS , GrowLife is in the business of selling hydroponic equipment, supplies and services through GrowLife’s physical retail locations, as well as its online stores; and


WHEREAS , GrowLife and CANX entered into a Joint Venture Agreement (“ JVA ”) on November 19, 2013; and


WHEREAS, on January 6, 2014, pursuant to the JVA, CANX formed a Nevada limited liability company named “ Organic Growth International, LLC ” (hereinafter referred to as “ OGI ” or “ JV ”); and the Parties may, in their absolute and sole discretion, and in accordance with the terms of this Agreement, change the name of the JV at any time and from time to time; and


WHEREAS , GrowLife wishes to amend and clarify the nature and terms of the JVA with CANX, including without limitation any funding obligations and the consideration therefor; and


WHEREAS , GrowLife wishes to secure additional financial support to accomplish GrowLife business objectives; and


  WHEREAS, the Parties desire to amend and restate the JVA in accordance with the terms and conditions set forth in this Agreement.


NOW, THEREFORE , for and in consideration of the mutual covenants and promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:


1.          Incorporation of Recitals .  The Recitals are incorporated herein as if set forth in full and made a part of this Agreement.


2.          Exhibits .   The following exhibits attached hereto are incorporated herein and made a part hereof for all purposes:


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EXHIBIT “A”

Initial Warrant Agreement

 

 

EXHIBIT “B”

Convertible Note

 

 

EXHIBIT “C”

Registration Rights Agreement

 

 

EXHIBIT “D”

Restatement Warrant Agreement


3.          No Partnership .   GrowLife and CANX are not partners by virtue of this Agreement, and neither Party is or shall be in control of the other Party.  Neither Party is or shall be responsible for the debts or liabilities of the other Party.  Likewise, neither Party shall have, by virtue of this Agreement or otherwise, any ownership interest or rights in the other, or any right of interest in assets of the other except as specifically provided herein.


4.          Purpose; Business Opportunities; Control of OGI; No Services; Equity Grants; Warrants; the CANX Parties; CANX Warrant Assignees; Limitations On Exercise Of Warrants.  


 

a.

Purpose . The purpose of OGI is to implement business opportunities related to hydroponic goods, services and sales (including the sale and distribution of GrowLife proprietary products and technology), and other business verticals that may be developed at any time or from time to time, subject to OGI’s sole and absolute discretion.

 

 

 

 

b.

Business Opportunities. OGI may develop business opportunities directly or indirectly through subsidiary companies, joint ventures, partnerships, or other legal commercial structures, with its members, and/or with, through or in conjunction with related or unrelated third parties. Subject to the provisions of this Agreement, at any time or from time to time, OGI may implement business opportunities that directly or indirectly compete with GrowLife.

 

 

 

 

c.

Control of OGI. OGI shall be governed and controlled by its management committee or Board of Managers (“ OGI Board ”) and/or, as the case may be, OGI Board elected officers and managers. This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.

 

 

 

 

d.

No Services.  The Parties acknowledge and agree that neither GrowLife nor CANX is required or obligated to provide (or to incur a liability, cost or payment obligation for) services to the other Party. The Parties further acknowledge and agree that neither has provided services to or received services from the other, at any time.  No compensation of any kind or nature has been paid to, has accrued to the account of, or is owed to GrowLife or CANX by the other Party as a result of the existence of the JVA or this Agreement.  In the event that one of the Parties in the future desires to contract services from the other (e.g., M&A, business development, management, marketing, sales, operational, or other consulting and/or advisory services), it shall be pursuant to a separate written agreement jointly accepted and executed by the Parties.


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e.

Equity Grants . To incentivize CANX to make (or facilitate) loans and investments in GrowLife and the JV, GrowLife agreed and reaffirms such agreement, to grant, issue and deliver to CANX and/or the CANX Parties or any of them (collectively “ CANX Parties, Lenders and Investors ” or “ CANX Warrant Assignees and Designess ”) “equity kickers” in the form of warrants to purchase Registrable Securities (defined below) in GrowLife (“ Equity Grants ”).  GrowLife elected to, and has hereunder agreed to make such Equity Grants due to the level of risk and uncertainty associated with early stage businesses, in general, in need of working capital, and other material considerations, including, without limitation, the limited availability of GrowLife’s liquid assets to pledge as collateral or sufficient cash flow for loan repayment, and the unavailability of other commercial financing from banking institutions, due in part to current FDIC and other federal and state regulatory limits and restrictions on lending to (and investments in) companies in legal cannabis related businesses in the United States.  In addition, GrowLife represents and CANX acknowledges that there are (from insiders and unaffiliated third parties) encumbrances (liens and/or loans outstanding) on some or all of GrowLife assets. For the avoidance of doubt, it is intended that GrowLife will grant, issue and deliver Equity Grants as directed by CANX in writing, directly to named CANX Lenders and Investors. Accordingly, GrowLife shall not claim a tax deduction with respect to the Equity Grants (Warrants and resulting Warrant Shares (if so exercised), as defined in Section 4(f) below) under IRC §83(h), IRC §162, or otherwise.

 

 

 

 

f.

Warrants and Underlying Shares; Exercise of Warrants.  The “ Initial Warrants ” and the “ Restatement Warrants ”, and the “ Transaction Financing Warrants ” each as defined in Section 5, Section 6 and Section 7 below, and any other warrants granted hereunder to purchase GrowLife Registrable Securities (unless otherwise determined by CANX Lenders and Investors to be unregistered common stock) are collectively referred to as the “ Warrants ” or the “ CANX Warrants ”. Registrable Securities issuable upon exercise of the Warrants are also referred to as the “ Underlying Shares ” or “ Warrant Shares ,” and the Warrants or CANX Warrants and the Underlying Shares or Warrant Shares are also referred to herein collectively as the “ Securities .”

 

 

 

 

g.

CANX Parties . For the purposes of this Agreement, the “CANX Parties” shall mean each, any and all of CANX’s past, present and future members, shareholders, officers, directors, managers, affiliates, related parties, professionals, employees, agents, representatives, successors, designees and assigns (and their related and/or affiliated party’s), and, unaffiliated third party lenders and investors.

 

 

 

 

h.

CANX Warrant Designees and Assignees . In addition to the meaning set forth in Section 4(e), the “CANX Warrant Assignees and Designees” shall mean CANX and/or CANX permitted designees and assignees to receive Warrants and Underlying Shares. GrowLife agrees to grant, issue, and deliver any and all current and future Warrants and Underlying Shares that are due, or become due


- 3 -


 

 

hereunder, only as expressly directed by CANX to GrowLife in writing. In connection with and when referencing each, any and all Securities under this Agreement, the CANX Warrant Assignees and Designees or any of them shall be contained in the meaning of “CANX”.

 

 

 

 

i.

Limitations on Exercise of Warrants .  The holder of any Warrants issued under this Agreement shall not have the right to exercise any portion of such Warrants or receive shares of GrowLife common stock hereunder to the extent that after giving effect to such exercise, the Warrant holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules promulgated thereunder) in excess of four and 99/100 percent (4.99%) of the number of shares of GrowLife common stock outstanding immediately after giving effect to such Warrant exercise.  Since the Warrant holder will not be obligated to report to GrowLife the number of shares of common stock it may hold at the time of the exercise of such Warrant, unless the Warrant exercise would result in the issuance of shares of common stock in excess of 4.99% of the then outstanding shares of common stock of GrowLife without regard to any other shares which may be beneficially owned by the holder or an affiliate thereof, the Warrant holder shall have the authority and obligation to determine whether the restriction contained in this Section 4(i) will limit any particular exercise of any Warrant hereunder, and to the extent that the holder determines that the limitation contained in this Section 4(i) applies, the determination of what portion of the Warrant is to be exercised shall be the responsibility and obligation of the Warrant holder.  If the Warrant holder has delivered a Warrant exercise notice that, without regard to any other shares that the Warrant holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, GrowLife shall notify the Warrant holder of this fact and GrowLife shall be obligated to honor the Warrant exercise only for the maximum number of shares of Common Stock permitted to be acquired on such exercise date in accordance with this Section 4(i). A written certification as to the number of shares beneficially owned by the Warrant holder delivered to GrowLife with any Warrant exercise notice or request may be relied upon by GrowLife for the purpose of determining the maximum number of shares of common stock that the Warrant holder is entitled to acquire in accordance with this Section 4(i).  Other than as otherwise provided, the provisions of this Section 4(i) may not be waived by any Warrant holder.


5.          CANX Initial Obligations; GrowLife Right to Appoint Person to OGI Board; Expiration of OGI First Transaction Commitment; First Four Transactions; Business Review; New Conditional Commitments; GrowLife Initial Funding and Warrant Obligations; Restatement Warrants .  


 

a.

CANX Initial Obligations; and New Conditional Commitment .  GrowLife hereby acknowledges, ratifies and reaffirms that CANX and OGI have fully and faithfully performed, delivered and satisfied their respective obligations under the JVA, including without limitation, as described below in (for CANX) 5(a)(i)(1), 5(a)(i)(2), and 5(a)(ii), and (for OGI) 5(a)(iii), which constitute all obligations that were incumbent upon them under the JVA:


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i.

Delivery of OGI Equity and One Million Dollars in Loan Proceeds (collectively the “Initial Funding”):


1. Pursuant to the JVA, GrowLife received forty-five percent (45%) of the voting membership units of OGI (“ GrowLife Units ”).


2. Pursuant to the JVA, GrowLife received One Million Dollars ($1,000,000) in loan proceeds pursuant to one or more promissory notes in the form attached hereto as Exhibit B .

 

 

 

 

ii.

GrowLife Right to Appoint One Person to the OGI Board .  GrowLife replaces its appointment of Sterling Scott (“Scott”) to the OGI Board (“ GrowLife Designated OGI Board Member ”) with Marco Hegyi (“ Hegyi ”) to serve as the GrowLife Designated OGI Board Member.

 

 

 

 

iii.

Expiration of the OGI First Transaction Commitment; First Four Transactions.  GrowLife acknowledges that under JVA, the Parties set forth the First Transaction Commitment, which OGI delivered to the JV and GrowLife respectively. The First Transaction Commitment was established to support the Greenest Green, 7/10 Labs (“ GG ”) transaction, promoted by GrowLife as the first transaction for the JV. GrowLife elected in their sole discretion, and informed CANX of such election, to cancel the GG transaction. Accordingly, GrowLife hereby acknowledges and reaffirms that the First Transaction Commitment has been fully satisfied by OGI (and CANX to the extent it required their participation), has expired and is of no further force and effect. Since November 19, 2013, GrowLife promoted to OGI and OGI entered into four (4) separate purchase agreements (collectively, the “ First Four Transactions ”). The Parties acknowledge that the purchase price to be paid under each of the First Four Transactions is deemed to be “ Transaction Financing ”. GrowLife hereby acknowledges and reaffirms that CANX will be entitled to payment for Transaction Financing, equal to Ten Percent (10%) of the purchase price of each, any or all of the individual First Four Transactions, upon final GrowLife corporate approvals, completion, and closing of any or all of the First Four Transactions. In the event that the purchase price is paid with GrowLife common stock, CANX will pay its proportionate share of the purchase price, by cash, promissory note or Securities, or a combination of any, as determined by CANX in its sole and absolute discretion, to GrowLife.

 

 

 

 

iv.

Business Review; OGI Business Development; GrowLife Business Opportunities; Issuance of New Conditional Financing by OGI of up to Twelve Million Dollar ($12,000,000) .  The Parties recognize that the legal cannabis industry is a developing one, is challenged by regulatory and operating complexities, including restrictive federal banking laws.


- 5 -


 

 

Accordingly, each business opportunity will be subject to strict criteria and review by the Parties. On behalf of the JV, GrowLife hereby agrees that it shall be their responsibility to conduct a special review of each prospective business opportunity developed under the JV. Such review will focus on legal compliance, tax compliance and regulatory compliance. GrowLife will use commercially reasonable efforts to expedite the review so as not to impede the business opportunity. GrowLife acknowledges that OGI intends to engage in merger and acquisition (“ M&A ”) transactions and other investments, using Transaction Financing (as defined in Section 6 below) (“ OGI Business Development ”). Any and all such OGI Business Development must first meet certain pre-qualifications, established by OGI at any time and from time to time, before OGI will consider (and such consideration by OGI is in OGI’s sole and absolute discretion) initiating or conducting due-diligence and/or transaction commitments and/or the negotiation and drafting of definitive agreements. Without limiting the generality of the foregoing, as a limited example, OGI requires that each such transaction be of a business or product that has been actively in the market, in good standing, and generating at least $300,000 in EBITDA consecutively for at least the last 3 years. In addition, each such business or product must be lawful, commercially financeable, feasible, scalable and sustainable, and relevant to OGI’s business (this sentence and the preceding sentences are collectively referred to as “ Funding Qualifications ”). In addition to OGI Business Development, OGI contemplates using Transaction Financing to support GrowLife’s business development objectives that GrowLife desires to conduct exclusively under the JV, to be owned by the JV (for the benefit of OGI and its members) (“ GrowLife Business Opportunities ”), provided; however, that such support by OGI is expressly conditioned on the following terms, which GrowLife hereby confirms that it understands and agrees to comply with: (1) each GrowLife Business Opportunity will meet any and all Funding Qualifications (which may be further refined or expanded by OGI on a deal by deal basis, at any time or from time to time), and (2) each GrowLife Business Opportunity is subject to OGI’s approval, which approval may be granted or denied in OGI’s sole and absolute discretion. GrowLife acknowledges that the first conditional commitment for any GrowLife Business Opportunity is for a single transaction of up to One Million Dollars ($1,000,000) (“ Conditional Commitment ”). With each and every request to use the Conditional Commitment, GrowLife agrees to submit to OGI a comprehensive transaction memorandum initially consisting of a full description of the business opportunity, proposed deal terms and conditions, and evidence that such opportunity complies with the then Funding Qualifications (“ GrowLife Proposed Deal Memorandum ”). OGI agrees to use commercially reasonable efforts to respond to GrowLife’s submission within ten (10) business days from the date OGI receives such submission. For the avoidance of doubt, a response from OGI to a GrowLife submission shall be deemed a reasonable response if such response includes one of the following: (1) approved, (2) denied, or (3) a reasonable request for more information.  Each response to a GrowLife


- 6 -


 

 

Proposed Deal Memorandum is final and binding and without recourse to CANX, the CANX Parties, OGI, or any other participating parties. The Conditional Commitment will expire on the six (6) month anniversary date of this Agreement if not used; provided; however, that GrowLife may: (1) extend the term for an additional six (6) months, by delivering written notice to OGI at least ninety (90) days prior to the expiration date, or (2) if the Conditional Commitment has been used, GrowLife may request additional, consecutive conditional commitments of $1,000,000 each (each an “ Additional Conditional Commitment ”) for up to an aggregate of Twelve Million Dollars ($12,000,000), inclusive of the Conditional Commitment.  OGI shall have the right to approve or reject GrowLife’s request for an extension and/or any Additional Conditional Commitment in its sole and absolute discretion.  Each and every GrowLife Business Opportunity funded under the Conditional Commitment or any Additional Conditional Commitment shall be owned by OGI, shall be subject to the terms of this Agreement, be included and counted as part of the Transaction Financing as set forth under Section 6 hereof, and be subject to all requirements, approvals and other provisions of the Transaction Financing. The Conditional Commitment and any Additional Conditional Commitments are subject to GrowLife’s full and satisfactory performance hereunder, including without limitation, GrowLife’s obligation to deliver to CANX the Initial Warrants, the Restatement Warrants (defined below) and the Financing Warrants. Upon an Event of Default, as set forth in Section 6(b), the Conditional Commitment and any Additional Conditional Commitments shall terminate.


 

b.

Outstanding GrowLife Initial Funding Obligation; Initial Warrants . GrowLife acknowledges, ratifies and reaffirms it has received the Initial Funding, and CANX fully satisfied its obligation to deliver GrowLife the Initial Funding set forth under 5(a)(i)(1) and 5(a)(i)(2). In exchange for the receipt of the Initial Funding, GrowLife agreed to deliver to CANX an Equity Grant in the form of warrants to purchase a total of Two Hundred and Forty Million (240,000,000) shares of common stock of GrowLife (the “ Initial Warrants ”). The Initial Warrants and the obligations by GrowLife to deliver them to CANX Investors and Lenders are irrevocable and not subject to any further performance, and remain, as of the Effective Date, a material outstanding obligation of GrowLife to CANX. Accordingly, GrowLife shall, upon the Effective Date, immediately ratify and deliver the Initial Warrants to CANX. Each and all of the Initial Warrants: (1) shall have an exercise price of $0.033 per share, exercisable at the option of CANX and/or the CANX Warrant; (2) shall be delivered to CANX with cashless exercise rights (exercisable on a cashless basis); (3) shall have a term of sixty (60) months from the date of issuance, subject to extension, in the sole and absolute discretion of CANX, for an additional 60-month period if the Warrants have not been exercised as of the end of the initial 60-month term; and (4) shall have demand registration rights in accordance with Section 7 and the Registration Rights Agreement, attached as Exhibit C hereto. This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.


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c.

Restated Agreement; Restatement Warrants.


 

i.

In consideration for CANX entering into this Agreement, GrowLife shall grant and issue to CANX, additional Equity Grants, in the form of warrants to purchase a total of Three Hundred Million (300,000,000) Registrable Securities of GrowLife (the “ Restatement Warrants ”).

 

 

 

 

ii.

Each and all of the Restatement Warrants: (1) shall have an exercise price not less than the current fair market value of GrowLife’s Common Stock, as determined by an independent, third party expert selected, engaged and paid for by GrowLife, to ascertain the fair market value for GrowLife Common Stock on the Effective Date of this Agreement, (2) shall be delivered to CANX with cashless exercise rights (exercisable on a cashless basis); (3) shall have a term of sixty (60) months from the date of issuance, subject to extension, in the sole and absolute discretion of CANX, for an additional 60-month period if the Warrants have not been exercised as of the end of the initial 60-month term; (4) shall be exercisable by CANX into Registrable Securities as set forth in Section 7, and (5) shall have demand registration rights in accordance with Section 7 and the Registration Rights Agreement, attached as Exhibit C hereto. This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.


6.          Transaction Financing; Transaction Financing Warrants .


 

a.

Transaction Financing . The term “ Transaction Financing ” shall mean any denomination of value, dollar ($) value, value in kind (non-cash), tangible or intangible, and/or in kind consideration for value, that includes, without limitation, equity and/or debt, and/or other at risk value, and/or the contribution and/or conveyance of value, in any form, of any kind or nature, whereby the establishment of value (if the financing includes some or no cash) will be determined by CANX, in its sole, and absolute discretion.  Without limiting the generality of the foregoing, Transaction Financing may be derived from, include or be any one or a combination of the following: payments, purchases, pledges, contracts, rights, use, permits, assets, property, cash, securities/stock (including GrowLife securities/stock), loans, promissory notes, letters of credit, financing, leases, rentals, sales, deposits (bank (cash) deposits or a deposit used to secure a matter or thing), businesses, operations, partnerships, joint ventures, or other matter or thing of value. In addition to the aforementioned, Transaction Financing includes New/Additional Conditional Financing Commitments, Loan or Loans (as described in Section 9(d)) and any source of financing/funding specified under this Agreement, notwithstanding how it may be described. Transaction Financing may be procured from any lawful source, in any denomination or kind, matter or thing, subject to OGI approval, which such approval or rejection shall be in OGI’s sole and absolute discretion. The Parties agree there is no limit to the amount of Transaction Financing that may be applied hereunder (the Parties agree to eliminate the Forty Million Dollar ($40,000,000) Transaction Financing maximum limit set forth in the JVA).


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Separate from and completely unrelated to the Initial Funding and the obligation of GrowLife to deliver to CANX the Initial Warrants and Restatement Warrants, CANX shall have the right and option (but in no event and not under any circumstances shall CANX be obligated) to procure, facilitate and/or fund Transaction Financing for OGI, as the case may be, from time to time or any time. CANX may apply Transaction Financing to any business opportunities developed or procured by it for OGI, by OGI, and/or by GrowLife for OGI, including OGI Business Development and GrowLife Business Opportunities. CANX may source Transaction Financing, directly or indirectly, from or in conjunction with its members, future members, GrowLife, or related or unrelated third parties, or any combination of the foregoing. CANX may, directly or indirectly, or in conjunction with or through related or unrelated third parties, use any form of legal entity to facilitate, transact, manage or operate any Transaction Financing. Any and all business opportunities and Transaction Financing in which CANX is involved, shall be approved or rejected in the sole and absolute discretion of CANX; provided, however, if so approved by CANX, each business opportunity and related Transaction Financing shall be subject to the approval or rejection of OGI, in its sole and absolute discretion. CANX shall have the right, upon 24 hour written notice to OGI and GrowLife, to withdraw from any proposed or pending transaction or application for Transaction Financing or any other future transaction, for any reason or no reason, at any time, without penalty or liability to CANX or OGI.

 

 

 

 

b.

Event of Default . Unless otherwise provided for hereunder, an Event of Default shall have occurred if: (i) GrowLife breaches any of its performance obligations, representations, warranties, or covenants hereunder (including any Exhibits and related agreements) or any other agreement between the Parties, including without limitation, future agreements and promissory notes; (ii) the Company or any subsidiary of the Company shall commence, or there shall be commenced against the Company or any subsidiary of the Company, any proceeding under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any subsidiary of the Company, or there is commenced against the Company or any subsidiary of the Company any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of sixty-one (61) days; or (iii) the Company or any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or (iv) the Company or any subsidiary of the Company suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty-one (61) days; or (v) the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or (vi) the Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to


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pay, or shall be unable to pay, its debts generally as they become due; or (vii) the Company or any subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (viii) the Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or (ix) any corporate or other action is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the foregoing; or (x) the Company or any subsidiary of the Company shall default in any of its obligations under any promissory note or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any subsidiary of the Company in an amount exceeding Ten Thousand Dollars ($10,000.00), whether such indebtedness now exists or shall hereafter be created; or (xi) the Company shall default in any of its obligations under any material agreement, including, without limitation any material supplier agreement, lease agreement, or contractor agreement; or (x) the Company failed to use its best efforts to maintain its Common Stock of the Company from being suspended or delisted for trading on the Over-the-Counter Bulletin Board market and the OTCQB; or (xi) the Company failed to use its best efforts to maintain its status as “DTC Eligible”; or (xii) the Company shall become late or delinquent in its filing requirements as a fully-reporting issuer registered with the U.S. Securities and Exchange Commission. Upon receiving a written notice of the occurrence of an Event of Default, the Company shall have a grace period of five (5) Business Days to cure such Event of Default, unless otherwise extended by CANX, in its sole and absolute discretion. In the Event of Default, this Agreement, any Transaction Financing and any and all benefits and value flowing to or due GrowLife from CANX or OGI, are subject to immediate cancellation by CANX or OGI, as applicable. In such event, any promissory note, mortgage, credit agreement, security agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, arising from, directly or indirectly, this Agreement, notwithstanding any terms or conditions that may be in effect contained in any of the foregoing to the contrary, shall be accelerated, and due and payable immediately, without notice. In such case that any Event of Default has injured or harmed, in any way, CANX, the CANX Parties or OGI, or any of them, GrowLife, in addition to the indemnification provisions set forth in Section 12(d) in favor of CANX, the CANX Warrant Assignees, the CANX Parties and OGI, shall be responsible and obligated to reimburse each and all of them for any consequential losses and costs they may have suffered (“ Default Losses ”). The Parties acknowledge that in some cases it is difficult to establish the extent of Default Losses, and therefore in the event the Parties cannot mutually agree to a final resolution, they shall cooperate with the other to mutually identify and engage a reputable expert or firm experienced in the area of the subject matter Default Losses, to assist the Parties in establishing a fair settlement. GrowLife hereby acknowledges and reaffirms its irrevocable obligation to immediately deliver to CANX Investors


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and Lenders: (1) the Initial Warrants and Restatement Warrants upon execution of this Agreement, and (2) the Financing Warrants concurrent with any implementation and/or funding of any Transaction Financing, Conditional Commitment or Additional Conditional Commitments, pursuant to the provisions set forth in Sections 6(c)(i) and (ii) and Section 7 hereof, and any Loan or Loans pursuant to the provisions set forth in Sections 9(d). This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.

 

 

 

 

c.

GrowLife Obligations; Transaction Financing Warrants .  GrowLife hereby reaffirms and agrees that concurrent with the execution and closing of any Transaction Financing (including, without limitation, any Conditional Commitment, Additional Conditional Commitments, Loan or Loans), GrowLife shall issue and deliver to CANX additional Equity Grants, in the form of warrants, to purchase Registrable Securities (as set forth in Section 7) (the “ Financing Warrants ”), based on the following terms and conditions:


 

(i)

All Transaction Financing will be measured in increments of One Dollar ($1.00). GrowLife will issue to CANX, warrants to purchase ten (10) shares of Registrable Securities of GrowLife for each One Dollar ($1.00) of Transaction Financing implemented under this Agreement at an exercise price equal to the greater of: (a) three and three-tenths cents ($0.033) per share, or (b) thirty percent (30%) of the average closing price of GrowLife’s common stock for the ten (10) trading days immediately preceding the closing date of the Transaction Financing to which such warrants pertain.  For the avoidance of doubt, if the average closing price of GrowLife’s common stock for the ten (10) trading days immediately preceding the closing date is One Hundred Dollars ($100), the per share price will be Thirty Dollars ($30). Each such Financing Warrant shall have cashless exercise rights and may be exercised on a cashless basis, and will have a term of sixty (60) months from the date of issuance, subject to extension for an additional 60-month period if the Warrants have not been exercised as of the end of the initial 60-month term. Each of the Financing Warrants shall be vested with all rights related to Warrants and Warrant Shares under this Agreement, including, without limitation, demand registration rights set forth under Section 7 and the Exhibit C.

 

 

 

 

(ii)

Notwithstanding the provisions of the foregoing paragraph, if the average closing price of GrowLife’s common stock for the ten (10) trading days immediately preceding the closing date of the Transaction Financing to which such warrants pertain is less than $0.033 per share, then the exercise price of those Financing Warrants shall be equal to fifty percent (50%) of such average closing price. For the avoidance of doubt, if the average closing price of GrowLife’s common stock for the ten (10) trading days immediately preceding the closing date is Two Cents ($0.02), the per share

 

 

 

 

(iii)

GrowLife and CANX acknowledge and agree that the Financing Warrants exercise price will be One Cent ($0.01).are not compensation for services,


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and that GrowLife will not claim a tax deduction with respect thereto, under IRC §83(h), IRC §162, or otherwise. CANX shall not be entitled to any form of compensation (e.g., commissions, broker’s fees, service fees, advisory fees, underwriting fees, etc.). CANX is entitled to receive dividends and member profit distributions made by OGI to its members based upon CANX’s proportionate ownership interest in OGI. The Financing Warrants will be freely transferable by CANX, subject, however, to any restrictions on transfer imposed by applicable federal and/or state securities laws.


7.          Additional Warrant Terms and Obligations of the Parties .


a.          Exercise of CANX Warrants; S-1 Registration Statement for the Underlying Shares .  The Company shall prepare, and not later than thirty (30) days from the Effective Date (the “ Filing Deadline ”), file with the SEC a Registration Statement on Form S-1, covering the resale of any and all shares underlying each, any and all Warrants (the “ Registrable Securities ”), and use its good faith best efforts to have such Registration Statement declared effective by the SEC.  Such Registration Statement shall not include any shares of Common Stock or other securities for the account of any other person without the prior written consent of CANX.  If a Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to the Filing Deadline, the Company will pay to CANX, as liquidated damages and not as a penalty, an amount equal to one percent (1%) of the total fair market value of such Registrable Securities measured on a per share basis for each 30-day period (or pro rata for any portion thereof) following the Filing Deadline for which no Registration Statement is filed with respect to the Registrable Securities.  Such payment(s) shall constitute CANX’s exclusive monetary remedy for such failure, but shall not affect CANX’s right to seek injunctive or other equitable relief.  Such payment(s) shall be made to CANX in cash no later than three (3) Business Days after the end of each 30-day period. CANX Investors and Lenders, or any of them, may exercise the Initial Warrants, Restatement Warrants, the Financing Warrants, or any other Warrants provided for under this Agreement at any time pursuant to the terms and conditions hereunder, including any restrictions and limitations (which such restrictions and limitations may be waived by a holder (but only as to itself and not to any other holder) upon not less than sixty-five (65) days’ prior notice to the GrowLife, as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules promulgated thereunder (other holders shall be unaffected by any such waiver by another holder) during the applicable term with respect to such Warrants.  In addition to the aforementioned, upon demand by CANX Investors and Lenders, or any of them, GrowLife will commence the registration process for any or all of the Underlying Shares by preparing an S-1 Registration Statement for filing with the SEC.  CANX shall have the right to approve the legal counsel selected by GrowLife to perform the registration work, and such approval shall not be unreasonably withheld or delayed. This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.


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b.          No Call Rights .  GrowLife shall have no call rights with respect to any of the CANX Warrants.


8.          OGI Ownership and Management .


a.          OGI Ownership . GrowLife currently owns forty-five percent (45%) of the voting membership units of OGI (“ GrowLife Units ”). CANX currently owns fifty-five percent (55%) of the voting membership units of OGI (“CANX Units”). The GrowLife Units and the CANX Units are subject to adjustment as provided in this Agreement and subject to possible future dilution in connection with any subsequent investment or financing transaction, and also subject to other terms and conditions as provided for under the OGI operating agreement (“ OGI Operating Agreement ”). The OGI Operating Agreement will be distributed to the Parties and may be amended at any time or from time to time as determined by a majority vote of the OGI Board.


b.          OGI Board; GrowLife Appointment of a Member to the OGI Board .  OGI shall be governed and controlled by the OGI Board and/or, as the case may be, managers and officers appointed by the OGI Board.  GrowLife shall have the right to appoint one member of the OGI Board (the “ GrowLife Designated OGI Board Member ”).  By a majority vote of the members of the OGI Board, the number of members comprising the OGI Board may be increased or decreased, subject to GrowLife’s continuing right to appoint one member of the OGI Board.  Concurrent with the execution and delivery of this Agreement by the Parties, GrowLife appoints Hegyi as the GrowLife Designated OGI Board Member.  


c.          OGI Management and Operations Responsibilities.  GrowLife and CANX shall be jointly responsible for the day-to-day operational costs and liabilities of OGI (pro-rata based on their respective ownership), in all respects except as specifically provided under this Agreement. The day-to-day conduct of operations of OGI will be the responsibility of the duly appointed officers or managers of OGI, who shall report to the OGI Board.  However, if and until such time as there are profit-producing operations in OGI, the Parties agree OGI does not require employees, contractors (including officers), operational infrastructure and support, of any kind, but this decision may be and can be overridden in the discretion of the OGI Board. The Parties agree that OGI, subject to a majority vote of the OGI Board, may enter into a separate contract with GrowLife and/or CANX, as the case may be, at any time or from time to time, to provide management services to OGI in exchange for compensation as agreed upon by the parties. Upon all reasonable requests of OGI, GrowLife and CANX shall fully cooperate with OGI and each other, including without limitation, to accurately and timely provide any and all information and consents to OGI for any and all matters related to the management and operations (including the payment of any and all costs incurred as a result of the existence of OGI) as OGI may require. This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.


d.          Third Party Services .  GrowLife and/or CANX, acting solely as members of and on behalf of OGI and subject to approval by a majority vote of the OGI Board, may, directly or indirectly, engage third party experts and managers to support OGI in the conduct of OGI’s business and related operations (“ Third Party Services ”).  GrowLife


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and CANX agree that OGI may in its discretion, enter into a separate written agreement with GrowLife and/or CANX and compensate them, as the case may be, at any time or from time to time, for any contribution they or any of them may make or services they or any of them may perform for OGI in connection with such Third Party Services.


e.          OGI Purchase of GrowLife Goods and Services.  OGI shall cause each and every OGI New Business to purchase, to the extent possible and reasonable, all of its goods and services for resale to its customers from GrowLife on an exclusive basis ; provided, GrowLife has the capability to provide such goods and services as may be required (e.g., timing and quantity), and that such goods and services are competitively priced.


f.          OGI Usage of GrowLife Private Label Goods.  OGI shall have the right to use all goods made available to it by GrowLife that are GrowLife private label branded. This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.


9.          GrowLife Operations and Financing .


a.          GrowLife Board Appointment . OGI shall have the right to appoint three (3) members to the GrowLife Board of Directors (the “ OGI Directors ”).  Such appointments are subject to the approval of the GrowLife Designated OGI Board Member, which approval shall not be unreasonably withheld or delayed. The OGI Directors shall be referred to and act as independent directors of GrowLife.  GrowLife represents and reaffirms that it will maintain up to a maximum of a seven (7) member Board of Directors, inclusive of the OGI Directors.  GrowLife agrees that if necessary to fulfill the intent of this paragraph, GrowLife will amend its bylaws.  This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.


b.          No Services, Support or Financing to GrowLife .  GrowLife reaffirms that CANX has not provided services to GrowLife, nor has GrowLife paid CANX for any services. GrowLife acknowledges and agrees that CANX and/or OGI, as of the date of this Agreement, have no obligations to GrowLife with regard to providing it services, support or future financing. For the avoidance of doubt, GrowLife acknowledges that the Transaction Financing, Conditional Commitment, Addition Conditional Commitment, and the Loan or Loans, are each subject to approval (without any obligation to approve or promise that any approval will be granted) for terms, conditions and information not yet known or available to the Parties.


c.          Purchase of GrowLife Assets .  During the Term of this Agreement, including any Renewal Term, OGI shall have the option, right of first offer and right of first refusal to purchase assets from GrowLife and its subsidiaries, subject to mutually agreed upon terms and conditions.  Such assets shall include some or all of the intellectual property, real or personal property leases, businesses and operations of GrowLife and its subsidiaries. This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.


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d.          GrowLife Working Capital; Loans . GrowLife may submit a loan application to CANX or OGI, which application shall include the proposed terms and conditions GrowLife desires, including without limitation, the intended use of the loan proceeds and the proposed security or collateral.  Any such loan application may be approved or rejected in the sole and absolute discretion of CANX or OGI, or any third party (identified or facilitated by CANX) who has offered to serve as a lender for such loan, as the case may be (the “ Lender ”).  If a loan application is approved, and there are terms and conditions outstanding between the GrowLife and the Lender, such other terms and conditions are subject to mutual agreement between GrowLife and the Lender. Specifically, any loan granted under this provision (“ Loan ”) may be deemed partially or completely to be Transaction Financing (by the Lender) and may be used for GrowLife working capital. Precedent to the granting of any Loan, GrowLife will obtain any and all subordination agreements (and other security instruments, disclosures, and miscellaneous requirements as the case may be), which all shall be subject to the Lender’s approval, which may be approved or rejected in the sole and absolute discretion of the Lender. Pursuant to this Section 9(d) and the approvals herein, the maximum single Loan amount shall be One Million Dollars ($1,000,000) and the maximum aggregate amount of all Loans shall be Ten Million Dollars ($10,000,000).


10.        Additional Equity Grant upon OGI Milestones .


a.          Top Up Warrant .  Subject to Section 4(i), at such time as OGI and GrowLife reach an aggregate, cumulative total of Eighty Million Dollars ($80,000,000) in gross revenues, or upon OGI receiving an aggregate of Forty Million Dollars ($40,000,000) in Transaction Financing (measured by cash received and/or the gross value of other purchase price consideration), whichever occurs first, GrowLife will issue to CANX an additional Warrant to purchase that number of shares of GrowLife Registrable Securities equal to (upon full exercise of such Warrant) a total of forty-nine percent (49%) of GrowLife’s total issued and outstanding capital stock (the “ Top Up Warrant ”), determined on a fully diluted basis and after giving effect to the issuance of and accounting for all outstanding options, warrants (both pursuant to and outside this Agreement), and other rights to acquire stock.  The Top Up Warrant shall have an exercise price per share equal to seventy-five percent (75%) of the average closing price of GrowLife’s common stock for the ten (10) trading days immediately preceding the date of entitlement to such Top Up Warrant, may be exercised on a cashless basis, and shall be issued as an additional “equity kicker” in connection with the Transaction Financing. The Top Up Warrants are not consideration for and not contingent upon any services performed in the past, present or future by CANX. Accordingly, GrowLife shall not claim a tax deduction with respect thereto under IRC §83(h), IRC §162, or otherwise.  This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.


b.          OGI Ownership Units .  Concurrently with the issuance of the Top Up Warrant to CANX and expressly subject thereto, OGI shall issue to GrowLife additional equity/units of membership interest in OGI in an amount sufficient to increase GrowLife’s total equity ownership in OGI to fifty-one percent (51%) of the total issued and outstanding equity ownership in OGI, determined on a fully-diluted basis as of the date of issuance of such additional equity/units.


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11.        Term .   This Agreement and the joint venture between the Parties shall have a term of four (4) years commencing on November 19, 2013, the effective date of the original JVA (the “ Initial Term ”), unless sooner terminated by mutual agreement of the Parties or by operation of law.  In addition, upon mutual agreement of the Parties, the Initial Term may be extended for an additional period of three (3) years (the “ Renewal Term ”) following the expiration of the Initial Term.  The Initial Term and any Renewal Term are collectively referred to herein as the “ Term .”


12.        Representations and Warranties of GrowLife .  In order to induce CANX to enter into this Agreement, GrowLife hereby makes the following representations and warranties to CANX:

 

 

a.

Underlying Shares and Warrant Shares .  GrowLife has authorized (or will authorize) and has reserved (or will reserve) and covenants to continue to reserve, free of preemptive rights and other similar contractual rights of stockholders, a number of its authorized but unissued shares of common stock equal to the aggregate number of shares of common stock necessary to effect the exercise of all the CANX Warrants.

 

 

 

 

b.

Organization, Good Standing and Power .  GrowLife is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power to own, lease and operate its properties and assets and to conduct its business as it is now being conducted.  GrowLife is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except for any jurisdiction(s) (alone or in the aggregate) in which the failure to be so qualified will not have a Material Adverse Effect.  For the purposes of this Agreement, “ Material Adverse Effect ” means any adverse effect on the business, operations, properties, prospects or financial condition of GrowLife which is material to such entity or other entities controlling or controlled by such entity or which is likely to materially affect GrowLife’s business or hinder the performance by GrowLife of its material obligations hereunder and under the other Transaction Documents.  “ Transaction Documents ” shall mean this Agreement, and all of the documents contemplated by this Agreement, including, without limitation, the Convertible Note, the Warrants, and the Registration Rights Agreement.

 

 

 

 

c.

Authorization; Enforcement .  GrowLife has the requisite corporate power and authority to enter into and perform its obligations under the Transaction Documents and to issue the CANX Warrants in accordance with the terms hereof.  Upon approval and ratification by the Board of Directors of GrowLife, and the execution, delivery and performance of the Transaction Documents by GrowLife, no further consent or authorization of GrowLife, GrowLife’s board of directors (the “ Board of Directors ”) or its stockholders is required.  This Agreement has been duly executed and delivered by GrowLife.  Each of the Transaction Documents constitutes, or shall constitute when executed and


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delivered, a valid and binding obligation of GrowLife enforceable against GrowLife in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.

 

 

 

 

d.

Indemnification by GrowLife .  GrowLife shall indemnify and hold harmless, protect, defend and engage and pay CANX appointed legal counsel (and pay all such other defense costs in real time), and reimburse (and pay any Default Losses) to, CANX, CANX Warrant Assignees and Designees and the CANX Parties, or any of them, from and against any liabilities, claims, actions, judgments, damages, costs, and other losses and expenses incurred by or asserted against CANX, CANX Warrant Assignees and Designees and/or the CANX Parties which are caused by or arise from any Event of Default.  Any claim for indemnification by CANX, CANX Warrant Assignees and Designees and/or the CANX Parties pursuant to this paragraph shall be barred unless written notice of such claim, when discovered by CANX, is delivered to GrowLife in a reasonable time period, so that GrowLife has the opportunity to defend such claim. Notwithstanding the foregoing provision, CANX shall have the right, in its sole discretion, to defend and prosecute any claim for which it may sustain costs and losses, and/or, CANX may designate legal counsel, reasonably acceptable to GrowLife, which GrowLife shall be obligated to engage to defend and prosecute any action. This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.

 

 

 

 

e.

Issuance of Securities .  The CANX Warrants to be issued hereunder have been duly authorized (or will be duly authorized) by all necessary corporate action and, when issued in accordance with the terms hereof, shall be validly issued, free and clear of all liens or encumbrances of any kind.  The Warrant Shares to be issued upon exercise of the CANX Warrants have been (or will be) duly authorized by all necessary corporate action and when issued and paid for in accordance with the terms of this Agreement and as set forth in the CANX Warrants, as applicable, such shares will be validly issued, fully paid and nonassessable, free and clear of all liens, claims, or encumbrances of any kind, and the holders thereof shall be entitled to all rights accorded to a holder of GrowLife’s common stock.

 

 

 

 

f.

No Conflicts .   The execution, delivery and performance of the Transaction Documents by GrowLife and the consummation by GrowLife of the transactions contemplated hereby and thereby do not and will not: (i) violate any provision of its Articles or Bylaws; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which GrowLife is a party or by which GrowLife’s properties or assets are bound; (iii) create or impose a lien, mortgage, security interest, charge or


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encumbrance of any nature on any property or asset of GrowLife under any agreement or any commitment to which GrowLife is a party or by which GrowLife is bound or by which any of its properties or assets are bound; or (iv) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to GrowLife or by which any property or asset of GrowLife is bound or affected, except, in all cases other than violations pursuant to clauses (i) or (iv) (with respect to federal and state securities laws) above, for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect.  The business of GrowLife is not being conducted in violation of any laws, ordinances or regulations of any governmental entity, except for possible violations, which singularly or in the aggregate, do not and will not have a Material Adverse Effect.  GrowLife is not required under federal, state, foreign or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under the Transaction Documents or issue and sell the Securities in accordance with the terms hereof or thereof (other than any filings which may be required to be made by GrowLife with the Securities and Exchange Commission (the “Commission”) and/or FINRA prior to or subsequent to the Effective date of this Agreement, or state securities administrators subsequent to the Effective date of this Agreement, or any registration statement which may be filed pursuant hereto or thereto).

 

 

 

 

g.

Commission Documents; Financial Statements .  GrowLife has made available to CANX through the EDGAR system, true and complete copies of GrowLife’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “ Form 10-K ”), and all other reports, schedules, forms, statements and other documents required to be filed by GrowLife pursuant to the Securities Act and the Exchange Act of 1934, as amended (the “ Exchange Act ”), including pursuant to Section 13(a) or 15(d) thereof, since December 31, 2012 (all of the foregoing, including filings incorporated by reference therein, being referred to herein as the “Commission Documents”).  GrowLife has not provided to CANX any material non-public information or other information, which, according to applicable law, rule, or regulation, should have been disclosed publicly by GrowLife but which has not been so disclosed.  At the time of their filing, other than the timeliness of the filings, each Commission Document complied in all material respects with the requirements of the Securities Act or Exchange Act, as applicable, and the rules and regulations of the Commission promulgated thereunder and other federal, state and local laws, rules and regulations applicable to such documents, and, at the time of its filing, each Commission Document did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  As of their respective dates, the financial statements of GrowLife included in the Commission Documents complied as to form in all material


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respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles (“ GAAP ”) applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the Notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial position of GrowLife and its subsidiary as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

 

 

 

 

h.

No Material Adverse Change .  Since June 30, 2013, GrowLife has not experienced or suffered any Material Adverse Effect which has not been disclosed in a Form 8-K filing with the SEC.

 

 

 

 

i.

No Undisclosed Liabilities .  GrowLife has not incurred any liabilities, obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) other than those set forth in the Commission Documents or incurred in the ordinary course of GrowLife’s business since June 30, 2013, and which, individually or in the aggregate, do not or would not have a Material Adverse Effect on GrowLife.

 

 

 

 

j.

No Undisclosed Events or Circumstances .  Since June 30, 2013, except as disclosed in the Commission Documents filed prior to the date hereof, (i) to GrowLife’s knowledge, there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect; (ii) GrowLife has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice, and (B) liabilities not required to be reflected in GrowLife’s financial statements pursuant to GAAP or disclosed in filings made with the Commission; (iii) GrowLife has not altered its method of accounting; (iv) GrowLife has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock; and (v) GrowLife has not issued any equity securities to any officer, director or affiliate, except pursuant to any existing Company stock option plans.  GrowLife does not have pending before the Commission any request for confidential treatment of information.  Except for the issuance of the Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to GrowLife or its subsidiary or their respective businesses, properties, operations, assets or financial condition that would be required to be disclosed by GrowLife under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one (1) trading day prior to the date that this representation is made.


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k.

Title to Assets .  GrowLife and its subsidiaries has good and marketable title to all of its personal property, free and clear of any mortgages, pledges, charges, liens, security interests or other encumbrances of any nature whatsoever, except for those that, individually or in the aggregate, do not have a Material Adverse Effect and except as set forth on Schedule 12(k) attached hereto.  All of said leases of GrowLife are valid and in full force and effect.  GrowLife does not own any real property.

 

 

 

 

l.

Actions Pending .  Except as set forth in Schedule 12(l) attached hereto, there is no action, suit, claim, investigation, arbitration, alternate dispute resolution proceeding or other proceeding pending or, to the knowledge of GrowLife, threatened, against GrowLife which questions the validity of this Agreement or any of the other Transaction Documents or any of the transactions contemplated hereby or thereby or any action taken or to be taken pursuant hereto or thereto.  Except as disclosed in the Commission Documents, there is no action, suit, claim, investigation, arbitration, alternate dispute resolution proceeding or other proceeding pending or, to the knowledge of GrowLife, threatened against or involving GrowLife or any of its properties or assets, which individually or in the aggregate, would have a Material Adverse Effect.  There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or regulatory body against GrowLife or any officers or directors of GrowLife in their capacities as such, which individually, or in the aggregate, would have a Material Adverse Effect.

 

 

 

 

m.

Compliance with Law .  The business of GrowLife has been and is presently being conducted in accordance with all applicable federal, state and local governmental laws, rules, regulations and ordinances, except as set forth in the Commission Documents or such that, individually or in the aggregate, the noncompliance therewith would not have a Material Adverse Effect.  GrowLife has all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of its business as now being conducted by it unless the failure to possess such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

 

 

 

 

n.

Taxes .  GrowLife has accurately prepared and filed all federal, state and other tax returns required by law to be filed by it, has paid or made provisions for the payment of all taxes shown to be due and all additional assessments, and adequate provisions have been and are reflected in the financial statements of GrowLife for all current taxes and other charges to which GrowLife is subject and which are not currently due and payable.  The Internal Revenue Service has audited none of the federal income tax returns of GrowLife.  GrowLife has no knowledge of any additional assessments, adjustments or contingent tax liability (whether federal or state) of any nature whatsoever, whether pending or threatened against GrowLife for any period, nor of any basis for any such assessment, adjustment or contingency.


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o.

Certain Fees .  GrowLife has not employed any broker or finder or incurred any liability for any brokerage or investment banking fees, commissions, finders’ structuring fees, financial advisory fees or other similar fees in connection with the Transaction Documents.

 

 

 

 

p.

Disclosure .  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, and any updates provided by GrowLife to supplement the disclosures contained herein, GrowLife confirms that neither it nor any other person acting on its behalf has provided CANX or its agents or counsel with any information that it believes constitutes or might constitute material, non-public information which is not otherwise disclosed in the Commission Documents.  GrowLife understands and confirms that CANX will rely on the foregoing representation in effecting transactions in securities of GrowLife.  All of the disclosure furnished by or on behalf of GrowLife to CANX regarding GrowLife and its subsidiaries, their respective businesses and the transactions contemplated hereby, including any disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.  GrowLife acknowledges and agrees that CANX makes no and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in herein.

 

 

 

 

q.

Intellectual Property .  GrowLife and its subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with its current business as described in the Commission Documents (collectively, the “ Intellectual Property Rights ”).  Neither GrowLife nor its subsidiaries has received a notice (written or otherwise) that any of the material Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the effective date of this Agreement.  Neither GrowLife nor any of its subsidiaries has received, since the date of the latest audited financial statements included within the Commission Documents, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person.  To the knowledge of GrowLife, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.  GrowLife and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties.

 

 

 

 

r.

Books and Records; Sarbanes-Oxley; Internal Accounting Controls .  The books, records and documents of GrowLife accurately reflect in all


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respects the information relating to the business of GrowLife, the location and collection of its assets, and the nature of all transactions giving rise to the obligations or accounts receivable of GrowLife.  GrowLife maintains a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  GrowLife and its subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for GrowLife and its subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by GrowLife in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.  GrowLife’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of GrowLife and its subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “ Evaluation Date ”).  GrowLife presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the weaknesses of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of GrowLife that have adversely affected, or are reasonably likely to adversely affect, the internal control over financial reporting of GrowLife.

 

 

 

 

s.

Material Agreements .  Except for the Transaction Documents or as included as exhibits to the Commission Documents, GrowLife is not a party to any written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the Commission (collectively, “ Material Agreements ”) if GrowLife was registering securities under the Securities Act.  GrowLife has in all material respects performed all the obligations required to be performed by it to date under the foregoing agreements, and GrowLife has not a notice of default and, to the best of GrowLife’s knowledge, it is not in default under any Material Agreement now in effect, the result of which could cause a Material Adverse Effect.

 

 

 

 

t.

Securities Act of 1933 .  GrowLife has complied and will comply with all applicable federal and state securities laws in connection with the offer, issuance and sale of the Securities hereunder.  Neither GrowLife nor anyone acting on its behalf, directly or indirectly, has or will sell, offer to sell or solicit offers to buy any of the Securities, or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any person, or has taken or will take any


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action so as to bring the issuance and sale of any of the Securities under the registration provisions of the Securities Act and applicable state securities laws.  Neither GrowLife nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of any of the Securities.

 

 

 

 

u.

Governmental Approvals .  Except for the filing of any notice prior or subsequent to the effective date of this Agreement that may be required under applicable state and/or federal securities laws (which if required, shall be filed on a timely basis), no authorization, consent, approval, license, exemption of, filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary for, or in connection with, the execution or delivery of the CANX Warrants, the Warrant Shares, or for the performance by GrowLife of its obligations under the Transaction Documents.

 

 

 

 

v.

Application of Takeover Protections .  GrowLife and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under GrowLife’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to CANX as a result of CANX and GrowLife fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of GrowLife’s issuance of the Securities and CANX’s ownership of the Securities.

 

 

 

 

w.

Foreign Corrupt Practices.  Neither GrowLife nor to the knowledge of GrowLife, any agent or other Person acting on behalf of GrowLife, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds; (iii) failed to disclose fully any contribution made by GrowLife (or made by any Person acting on its behalf of which GrowLife is aware) which is in violation of law; or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

 

 

 

x.

No Disagreements with Accountants .  There are no disagreements of any kind presently existing between GrowLife and the accountants formerly or presently employed by GrowLife.

 

 

 

 

y.

Acknowledgment Regarding CANX’s Acquisition of Securities .  GrowLife acknowledges and agrees that CANX is acting solely in the capacity of an arm’s length party with respect to the Transaction Documents and the transactions contemplated thereby.  GrowLife further acknowledges CANX is


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not acting as a financial advisor or fiduciary of GrowLife (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby, and any advice given by CANX or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to this Agreement.  GrowLife further represents to CANX that GrowLife’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by GrowLife and its representatives.

 

 

 

 

z.

Investment Company Act Status .  GrowLife is not, and as a result of and as of the effective date of this Agreement will not be, an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

 

 

 

 

aa.

Absence of Manipulation .  GrowLife has not, and to GrowLife’s knowledge no one acting on its behalf has: (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of GrowLife to facilitate the sale or resale of any of the Securities; (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the securities of GrowLife; or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of GrowLife, in connection with the issuance of the Securities.

 

 

 

 

bb.

Office of Foreign Assets Control .  Neither GrowLife nor, to GrowLife’s knowledge, any director, officer, agent, employee or affiliate of GrowLife, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“ OFAC ”).

 

 

 

 

cc.

U.S. Real Property Holding Corporation .  GrowLife is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and GrowLife shall so certify upon CANX’s request.

 

 

 

 

dd.

Money Laundering .  The operations of GrowLife are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “ Money Laundering Laws ”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving GrowLife with respect to the Money Laundering Laws is pending or, to the knowledge of GrowLife, threatened.

 

 

 

 

ee.

Acknowledgement Regarding CANX’s Trading Activity .  Anything in this Agreement or elsewhere herein to the contrary notwithstanding, it is understood and acknowledged by GrowLife that: (i) GrowLife has not asked CANX nor has CANX agreed, to desist from purchasing or selling securities of


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GrowLife, or “derivative” securities based on securities issued by GrowLife or to hold the Securities for any specified term; however, CANX has agreed that it will not engage in any short sales of, or take a “short” position in, any securities of GrowLife; (ii) past or future open market or other transactions by CANX, before or after the effective date of this Agreement or future private placement transactions, may negatively impact the market price of GrowLife’s publicly-traded securities; and (iii) CANX shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction.  CANX acknowledges its obligations under applicable federal and state securities laws regarding insider trading and affiliate trading limitations (if applicable).

 

 

 

 

ff.

Regulatory Permits .  GrowLife and its subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary for their respective businesses as currently conducted and as described in the Commission Documents, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“ Material Permits ”), and neither GrowLife nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

 

 

 

gg.

Labor Relations .  No material labor dispute exists or, to the knowledge of GrowLife, is imminent with respect to any of the employees of GrowLife, which could reasonably be expected to result in a Material Adverse Effect.  None of GrowLife’s or its subsidiaries’ employees is a member of a union that relates to such employee’s relationship with GrowLife or such subsidiary, and neither GrowLife nor any of its subsidiaries is a party to a collective bargaining agreement, and GrowLife and its subsidiaries believe that their relationships with their employees are good.  To the knowledge of GrowLife, no executive officer of GrowLife or any of its subsidiaries, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non- competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject GrowLife or any of its subsidiaries to any liability with respect to any of the foregoing matters.  GrowLife and its subsidiaries are in compliance with all federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

 

 

 

hh.

No Disqualification Events .  None of GrowLife, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of GrowLife participating in the offering, any beneficial owner of 20% or more of GrowLife’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with GrowLife in any capacity at the time of sale


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(each, a “ Company Covered Person ” and, together, “Company Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “ Disqualification Event ”), except for a Disqualification Event covered by Rule 506(d)(2)or (d)(3). GrowLife has exercised reasonable care to determine whether any Company Covered Person is subject to a Disqualification Event.  GrowLife has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Placement Agent a copy of any disclosures provided thereunder.

 

 

 

 

ii.

Notice of Disqualification Events .  GrowLife will notify CANX in writing, prior to the effective date of this Agreement of: (i) any Disqualification Event relating to any Company Covered Person, and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Company Covered Person.


13.        Representations and Warranties of CANX .  CANX hereby makes the following representations and warranties to GrowLife:


 

a.

Organization and Standing of CANX .  CANX is a limited liability company duly incorporated or organized, validly existing and in good standing under the laws of the State of Nevada.

 

 

 

 

b.

Authorization and Power .  CANX has the requisite power and authority to enter into and perform the Transaction Documents and to acquire the CANX Warrants being issued to it hereunder.  The execution, delivery and performance of the Transaction Documents by CANX and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary company or partnership action, and no further consent or authorization of CANX or its Board of Directors/Board of Managers, members, or partners, as the case may be, is required.  This Agreement has been duly authorized, executed and delivered by CANX.  The other Transaction Documents constitute, or shall constitute when executed and delivered, valid and binding obligations of CANX enforceable against CANX in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.

 

 

 

 

c.

General .  CANX understands that the Securities are being offered and sold in reliance on a transactional exemption from the registration requirements of United States federal and state securities laws.  CANX understands that no United States federal or state agency or any government or governmental agency has made any recommendation or endorsement of the Securities.

 

 

 

 

d.

Experience of CANX; Independent Investment Decision .  CANX, either alone or together with its representatives, has such knowledge, sophistication and


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experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, or has so evaluated the merits and risks of such investment.  CANX is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

 

 

 

e.

No General Solicitation .  CANX acknowledges that the Securities were not offered to CANX by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which CANX was invited by any of the foregoing means of communications.

 

 

 

 

f.

Accredited Investor .  At the time CANX was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises CANX Warrants it will be, an “accredited investor” as defined in Rule 501(a) under the Securities Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  CANX is not a registered broker-dealer under Section 15 of the Exchange Act.  CANX has such experience in business and financial matters that it is capable of evaluating the merits and risks of an investment in the Securities.  CANX acknowledges that an investment in the Securities is speculative and involves a high degree of risk.


14.        Additional Covenants of GrowLife.  GrowLife covenants with CANX as follows, which covenants are for the benefit of CANX and its respective permitted assignees.


 

a.

Securities Compliance .  GrowLife shall notify the Commission, in accordance with its rules and regulations, of the transactions contemplated by any of the Transaction Documents, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to CANX, or their respective subsequent holders.

 

 

 

 

b.

Listing of Common Stock .  GrowLife hereby agrees to use best efforts to maintain the listing or quotation of the common stock on the OTC Markets or such other market on which it is currently listed, and if required, on the date of the issuance of the Securities, GrowLife shall apply to list or quote all of the Underlying Shares and Warrant Shares on such trading market and promptly secure the listing of all of the Underlying Shares and Warrant Shares on such trading market.  GrowLife further agrees, if GrowLife applies to have the common stock traded on any other trading market, it will then include in such application all of the Underlying Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Underlying Shares and Warrant Shares to be listed or quoted on such other trading market as promptly as possible.  GrowLife will then take all action reasonably necessary to continue


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the listing or quotation and trading of its common stock on a trading market and will comply in all respects with GrowLife’s reporting, filing and other obligations under the bylaws or rules of the trading market.

 

 

 

 

c.

Keeping of Records and Books of Account .  GrowLife shall keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of GrowLife, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

 

 

 

 

 d.

Reservation of Shares of Common Stock .  So long as the CANX Warrants remain outstanding, GrowLife shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, the maximum number of shares of its common stock to effect the exercise of the CANX Warrants into Registrable Securities.

 

 

 

 

e.

Disclosure of Transactions and Other Material Information .  On or before 8:30 a.m., New York City time, on the third Business Day immediately following the effective date of this Agreement, GrowLife shall file a Current Report on Form 8-K (including all attachments, the “ 8-K Filing ”) with the Commission describing the terms of the transactions contemplated by the Transaction Documents and including as exhibits to such Current Report on Form 8-K this Agreement, the Warrants and the Registration Rights Agreement, and the schedules hereto and thereto in the form required by the Exchange Act.  As of the time of the filing of the 8-K Filing with the Commission, CANX shall not be in possession of any material, nonpublic information received from GrowLife or any of its officers, directors, employees or agents, that is not disclosed in the 8-K Filing.  GrowLife shall not, and shall cause each of its respective officers, directors, employees and agents not to, provide CANX with any material, nonpublic information regarding GrowLife from and after the filing of the 8-K Filing with GrowLife without the express written consent of CANX.  Subject to the foregoing, neither GrowLife nor CANX shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided , however , that GrowLife shall be entitled, without the prior approval of CANX, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith, and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) above, CANX shall be notified by GrowLife (although the consent of CANX shall not be required) in connection with any such press release or other public disclosure prior to its release).

 

 

 

 

f.

Acknowledgment of Dilution .  GrowLife acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of its common stock, which dilution may be substantial under certain market conditions.  GrowLife further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Warrants, the


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Underlying Shares and Warrant Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim GrowLife may have against CANX and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of GrowLife.

 

 

 

 

g.

Form D; Blue Sky Filings .  GrowLife agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of CANX.  GrowLife shall take such action as GrowLife shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, issuance to CANX under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of CANX.

 

 

 

 

 h.

Furnishing of Information; Public Information .  Until the later of the time that (i) CANX owns no Securities, or (ii) the CANX Warrants have expired, GrowLife covenants to maintain the registration of the common stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by GrowLife after the date hereof pursuant to the Exchange Act even if GrowLife is not then subject to the reporting requirements of the Exchange Act.


At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for GrowLife to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, GrowLife shall satisfy the current public information requirement under Rule 144(c).  If GrowLife shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “ Public Information Failure ”), nothing herein shall limit CANX’s right to pursue actual damages for the Public Information Failure, and CANX shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

 

 

 

i.

Subsequent Equity Sales .  Intentionally deleted.

 

 

 

 

j.

Conversion and Exercise Procedures .  Each of the form of notice of exercise included in the Warrants sets forth the totality of the procedures required of CANX in order to exercise the Warrants. GrowLife shall honor exercises and sales of the Warrants and shall deliver Warrant Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents. This provision shall survive the expiration or earlier termination of this Agreement for any reason or no reason.


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15.        Conditions Precedent to CANX Review and Consideration of Any Transaction Financing; Conditional Commitment; or Loan . Before CANX and OGI will agree to consider any Transaction Financing, the conditions set forth below are subject to the satisfaction or waiver by CANX either at or before the effective date of this Agreement.  These conditions are for CANX’s sole benefit and may be waived by CANX at any time in their sole discretion.


 

a.

Accuracy of GrowLife’s Representations and Warranties .  Each of the representations and warranties of GrowLife in the Transaction Documents shall be true and correct in all material respects as of the effective date of this Agreement, except for representations and warranties that speak as of a particular date, which shall be true and correct in all material respects as of such date.

 

 

 

 

b.

Performance by GrowLife .  GrowLife shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by GrowLife at or prior to the effective date of this Agreement.

 

 

 

 

c.

No Suspension, Etc.  Trading in the common stock of GrowLife shall not have been suspended by the Commission (except for any suspension of trading of limited duration agreed to by GrowLife, which suspension shall be terminated prior to the effective date of this Agreement), and trading in securities generally as reported by Bloomberg L.P. (“ Bloomberg ”) shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by Bloomberg, nor shall a banking moratorium have been declared either by the United States or Nevada State authorities, nor shall there have occurred any national or international calamity or crisis of such magnitude in its effect on any financial market which, in each case, in the reasonable judgment of CANX, makes it impracticable or inadvisable to purchase the Securities.

 

 

 

 

d.

No Injunction .  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

 

 

 

e.

No Proceedings or Litigation .  No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been threatened, against GrowLife, or any of the officers, directors or affiliates of GrowLife, seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions.

 

 

 

 

f.

Secretary’s Certificate .  GrowLife shall have delivered to CANX a secretary’s certificate, dated as of the effective date of this Agreement, as to: (i) resolutions adopted by the Board of Directors of GrowLife; (ii) the Articles and the Bylaws of GrowLife, each as in effect at the effective date of this Agreement;


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and (iii) the authority and incumbency of the officers of GrowLife executing the Transaction Documents and any other documents required to be executed or delivered in connection therewith.

 

 

 

 

g.

Officer’s Certificate .  On the Effective Date of this Agreement, GrowLife shall have delivered to CANX a certificate of an executive officer of GrowLife, dated as of the effective date of this Agreement, confirming the accuracy of GrowLife’s representations, warranties and covenants as of the effective date of this Agreement and confirming the compliance by GrowLife with the conditions precedent set forth in this Agreement as of the effective date of this Agreement.

 

 

 

 

h.

Fees and Expenses .  As of the effective date of this Agreement, all fees and expenses required to be paid by GrowLife shall have been paid or authorized to be paid by GrowLife as of the effective date of this Agreement.

 

 

 

 

i.

Exhibits .  As of the effective date of this Agreement, the parties shall have entered into Exhibit A, Exhibit B, Exhibit C, and Exhibit D, as attached hereto.

 

 

 

 

j.

Board Resolution .  Within thirty days of the Effective Date, GrowLife shall deliver to CANX resolutions of the GrowLife Board of Directors approving the Transaction Documents, and all of the transactions contemplated herein, including, without limitation, the issuance of Initial Warrants, the Restatement Warrants, the Transaction Financing Warrants, and any other warrants to purchase GrowLife Registrable Securities granted to CANX herein, or any Underlying Shares or Warrant Shares, or any Securities, and the appointment of Hegyi as the GrowLife Designated OGI Board Member.

 

k.

Material Adverse Effect .  No Material Adverse Effect shall have occurred.

 

 

 

 

l.

Opinion of Counsel .  Counsel to GrowLife shall have delivered to CANX an opinion of counsel satisfactory to CANX, acting reasonably, regarding: (A) the validity of the incorporation of GrowLife; (B) the good standing of GrowLife with respect to the filing of annual reports and the validity of the issue and full payment of the Securities; (C) the due authorization, execution and delivery of this Agreement; (D) the capital of GrowLife; (E) non-contravention and no breach of laws or the articles or bylaws of GrowLife, or any contract or agreement to which GrowLife is a party, as a result of the execution, delivery and performance of this Agreement by GrowLife; (F) no “anti-takeover” laws (including, without limitation, Section 203 of the Delaware corporate code) are triggered by the execution and performance of this Agreement; (G) a subordination to any secured loans GrowLife has executed and that remains outstanding; (F) the enforceability of this Agreement.


16.        Disclosure of Terms of Agreement by GrowLife .  The Parties understand that GrowLife is a publicly-traded company subject to various disclosure requirements under Federal and State securities laws.  GrowLife agrees that prior to issuing a public press release that includes information about this Agreement or any of its related, contemplated


- 31 -


or closed transactions, or OGI, CANX and/or any of their respective affiliates, it will submit a copy of such press release to OGI and CANX, together with a request for OGI and CANX approval, which approval shall not be unreasonably withheld.

 

17.        Allocation of Net Profits and Losses .   Except as otherwise provided in this Agreement, the Net Profits and Net Losses of OGI will be allocated solely as provided in OGI’s operating agreement.


18.        Distributions .   OGI shall distribute the Net Cash from Operations as provided in OGI’s operating agreement.


19.        Intentionally Deleted .

 

20.        Books and Records .   OGI, if and when it commences operations and is revenue producing, shall maintain complete and accurate books of account of OGI as provided by applicable law.


21.        Insurance .   OGI is a separate and distinct limited liability company organized under the laws of the State of Nevada. OGI, if and when it commences operations and is revenue producing, will purchase appropriate insurance for OGI and it will maintain this insurance for the duration of its existence.


22.        Liability of Joint Venturers .   No Party shall be liable, responsible or accountable in damages or otherwise to any other Party for any act or omission performed or omitted to be performed in good faith and pursuant to the authority granted to the Party by this Agreement, unless the act or failure to act is attributable to fraud, gross negligence or willful misconduct on that Party’s part.


23.        Arbitration .   This Agreement, the Exhibits hereto, and the rights of the Parties hereunder shall be governed by and construed in accordance with the laws of the State of Nevada including all matters of construction, validity, performance, and enforcement and without giving effect to the principles of conflict of laws.  Any and all disputes arising under the terms of this Agreement that cannot be resolved by the Parties shall be resolved by binding arbitration under the jurisdiction of JAMS in Clark County, Nevada.


24.        Miscellaneous .

 

 

a.

Notice.  Any notice, request, instruction, or other document required by the terms of this Agreement, or deemed by any of the Parties hereto to be desirable, to be given to any other Party hereto shall be in writing and shall be given by overnight delivery, or mailed by registered or certified mail, postage prepaid, with return receipt requested, to the following addresses:


 

If to GrowLife:

GrowLife, Inc.

 

 

 

20301 Ventura Boulevard, Suite 126

 

 

 

Woodland Hills, CA 91364

 

 

 

Attn: Mr. Marco Hegyi, President

E-Mail: mhegyi@growlifeinc.com

 


- 32 -


 

 

With a copy to:

_______________________________

_______________________________

_______________________________

_______________________________

 

 

 

 

 

 

If to CANX

or OGI:

CANX USA LLC

 

 

 

701 Shadow Lane Suite 160

 

 

 

Las Vegas, Nevada 89106

 

 

 

Attn: Mr. Randy Breitman

 

 

 

 

 

 

 

With a copy to:

_______________________________

_______________________________

_______________________________

_______________________________

 


 

b.

Attorneys’ Fees.  Unless otherwise provided, including pursuant to the indemnification provisions, if a dispute should arise between the Parties hereunder, each of the parties shall pay their own costs and expenses.

 

 

 

 

c.

Applicable Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without giving effect to its principles of conflicts of laws.

 

 

 

 

d.

Assignment.  CANX shall have the right to assign this Agreement. GrowLife shall not assign or transfer any of its rights or obligations under this Agreement without the express prior written consent of CANX.

 

 

 

 

e.

Severability.  If any provision of this Agreement is unenforceable, invalid, or violates applicable law, such provision shall be deemed stricken and shall not affect the enforceability of any other provisions of this Agreement.

 

 

 

 

f.

Modification.  No change, modification, addition, or amendment to this Agreement shall be valid unless in writing and signed by all Parties hereto.

 

 

 

 

g.

Entire Agreement.  This Agreement and its Exhibits set forth the entire agreement and understanding of the Parties hereto with respect to the transactions contemplated hereby, and supersedes all prior agreements, arrangements, and understandings related to the subject matter hereof.  No understanding, promise, inducement, statement of intention, representation, warranty, covenant, or condition, written or oral, express or implied, whether by statute or otherwise, has been made by any Party hereto which is not embodied in this Agreement.


- 33 -


 

h.

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

 

 

 

 

i.

Authority.  Each of the Parties and signatories to this Agreement has full right, power, legal capacity and authority to enter into and perform the Party’s respective obligations under this Agreement, and no approvals or consents of any other persons are necessary in connection with that authority.

 

 

 

 

j.

Captions.  Titles or captions contained in this Agreement are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof.

 

 

 

 

k.

Time of Essence.  Time is of the essence of each and every provision of this Agreement.

 

 

 

 

l.

Approval and Ratification.  The parties agree to submit this Amended and Restated Agreement for approval and ratification by the respective Directors/Managers of each of the Parties as soon as practicable, but in any event not later than July 10, 2014.  




[signatures on next page]




- 34 -


IN WITNESS WHEREOF, the undersigned parties have caused this Amended and Restated Joint Venture Agreement to be executed by their duly authorized representatives as of the Effective Date set forth above.


GROWLIFE, INC.



/s/ Marco Hegyi

By: Marco Hegyi

Its: President, CEO

 

CANX USA LLC, a Nevada limited liability company



/s/ Tony Cox

By: Tony Cox,


duly authorized agent to sign on

behalf of all of CANX  members



The undersigned hereby agrees and consents to the terms of the foregoing Amended and Restated Joint Venture Agreement:



ORGANIC GROWTH INTERNATIONAL LLC



/s/ Tony Cox

By: Tony Cox, duly authorized to sign on

behalf of all members of ORGANIC GROWTH INTERNATIONAL LLC





Amended and Restated Joint Venture Agreement Signature Page 35



- 35 -


Exhibit 10.3


SECURED CREDIT FACILITY


THIS SECURED CREDIT FACILITY AGREEMENT, made and entered as of the 25th day of June 2014 (this “ Agreement ” or “ Credit Facility ”), between GrowLife, Inc., a Delaware corporation ( “GrowLife” ), and its subsidiaries including, Phototron, Inc., a California corporation, SG Technologies Corp, a Nevada corporation, GrowLife Hydroponics, Inc., a Delaware corporation, Soja, Inc., a California corporation, Rocky Mountain Hydroponics, LLC, a Colorado limited liability company, EverGreen Garden Center, LLC, a Delaware limited liability company, GrowLife Productions, Inc., a California corporation, Business Bloom, Inc., a California corporation and any other entity owned and controlled by GrowLife or any of its subsidiaries or affiliates, currently or in the future (collectively, “Subsidiaries” ), (GrowLife and its Subsidiaries, collectively, the “ Borrower ”), and Logic Works, LLC, a Nevada limited liability company (the “ Lender ”).


WITNESSETH:


WHEREAS, the Borrower and the Lender desire to enter into a revolving credit facility (“ Credit Facility ”), upon the terms and subject to the conditions set forth in this Agreement, advances and payments pursuant to which are to be evidenced by promissory notes (individually, a “ Note ” and, collectively, the “ Notes ”, the form of which is attached hereto as Exhibit A ); and


NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements of the parties herein contained, the parties hereby agree as follows:


1.          Credit Facility .  


1.1        Terms of Credit Facility .  The Lender hereby agrees to lend to the Borrower up to a maximum principal amount (the “ Maximum Amount ”) of Five Hundred Thousand Dollars ($500,000), on the following terms and conditions:


1.1.1    Each advance under this Credit Facility (an “ Advance ” and “ Draw ”) shall be made and reflected on Note(s).  Each Advance requested by Borrower under this Credit Facility shall contain a written detailed description of the proposed use of proceeds for each such Advance.  Each Advance shall be in the sole and absolute discretion of the Lender (up to the Maximum Amount), and Lender shall have no obligation to make any additional, future Advances.  Lender may fund Advances directly to Borrower, or indirectly to Borrower (upon direction of Borrower and agreement of Lender, by direct payment by Lender to third parties and/or affiliates of Borrower for the benefit of Borrower, and each such indirect advance/beneficial payment shall be an Advance hereunder, and added to the principal balance outstanding hereunder and provided herein.  


1.1.2    The outstanding balance of the Loan/Advances shall accrue simple interest at six percent (6%).  Interest only payments shall be calculated and paid monthly on the first day of each month in the period, computed on the then weighted average outstanding principal balance of the Loan (“ Monthly Interest Payment(s) ”).  All outstanding, unpaid principal and interest shall be due in no event later than twenty-four (24) months from the date of this Agreement (“ Maturity Date” ), unless sooner accelerated pursuant hereunder or the Note.


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1.1.3    The Loan/Note(s) shall be convertible into Registrable Securities of GrowLife pursuant to the terms and conditions contained in the Note(s).


1.1.4    The Subsidiaries will benefit substantially from the Loan, and all the obligations hereunder shall be joint and several obligations of Growlife and the Subsidiaries.


1.1.5    The Loan and the obligations of Borrower under this Agreement, the Note and the other Loan Documents (as hereinafter defined) shall be secured by (i) a Securities Pledge Agreement (the “Pledge Agreement” ), in the form attached hereto as Exhibit B , pursuant to which Growlife will pledge all of its right, title and interest in and to all its subsidiaries to Lender; (ii) a pledge of the all of the assets of the Borrower pursuant to a UCC Financing Statement which statement shall be filed with applicable governmental offices, including  in the States  of  California, Nevada, Colorado, and Delaware, in the form attached hereto as Exhibit C (the “ UCC Financing Statement ”); and (iii) such other assignments, pledges and other instruments as may be executed and delivered in connection with the Loan (collectively, together with this Agreement, the Note, the Pledge Agreement, and the UCC Financing Statement, the “ Loan Documents ”).  


1.1.6    So long as all or any part of the Note remains unpaid or Borrower has any commitment under the Loan Documents, neither Borrower nor any of its affiliates will without Lender’s prior written consent, which such consent may be withheld for any reason, create, incur, assume, or suffer to exist, any lien, security interest, direct or collateral assignment, or other encumbrance upon or with respect to any real or personal property or other assets owned by the Borrower, nor consent to the further pledge or hypothecation of the Pledged Interest (as defined in the Pledge Agreement) or the Subsidiaries’ assets subject to the UCC Financing Statement, other than pursuant to the Loan Documents.  Borrower shall at all times indemnify, defend (and pay any and all costs and expenses in real time for such indemnification and defense), and hold harmless Lender from and against any and all third party claims, liens or encumbrances asserted against any collateral subject to the Loan Documents or any UCC Financing Statement to ensure that Lender shall, at all times, have a first priority lien and encumbrance on all such collateral.


1.2        Conditions to Advances under the Credit Facility .  Prior to each advance under the Credit Facility:


1.2.1     No Default .  No Default shall have occurred and be continuing.


1.2.2     Representations and Warranties .  Each representation and warranty by the Borrower contained in this Agreement shall be true and correct in all material respects as of the date of such advance, except to the extent any such representation or warranty relates solely to an earlier date and except changes reflecting transactions permitted by this Agreement.


1.2.3     Legal Matters .  All legal matters incident to the making of such Advance shall be reasonably satisfactory to the Lender(s) and his counsel, including, without limitation, compliance with any and all laws and regulations, and the terms of this Agreement.


1.2.4     Use of Proceeds . Lender shall have reviewed and approved Borrower’s proposed use of proceeds for each Advance.


1.3        General .  Each request for an Advance under the Credit Facility shall constitute a representation and warranty by the Borrower that the applicable conditions contained in this Agreement have been satisfied.


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1.4        Default .  Except with respect to a monetary default, which shall have no notice requirement or cure period, the existence or occurrence of any of the events set forth in this Subsection 1.4, which event continues and is not cured by the Borrower within ten (10) Business Days of the earlier to occur of (i) the date a notice of such event is delivered by the Lender(s) to the Borrower pursuant to this Agreement, or (ii) the Borrower’s receipt of a written notice from the Lender setting forth the existence or occurrence of such event, shall be deemed a Default hereunder.   


1.4.1    Any representation or warranty, made by or on behalf of the Borrower hereunder, to the Lender(s) under or in connection with any Loan Document shall be false in any material respect as of the date on which made;


1.4.2    The Borrower fails to make any payment under the Note(s) on the date when due, including, without limitation, any Monthly Interest Payment;


1.4.3    The breach by the Borrower of any loan with Lender which was entered into prior to this Agreement, including, the convertible note dated December 20, 2013, as amended by the Waiver and Modification Agreement, dated June 25, 2014; and


1.4.5    The breach by the Borrower of any covenant contained in this Agreement, including, without limitation, the Note(s), and the Pledge Agreement;


1.4.6    The Borrower shall (i) have an order for relief entered with respect to it under the Federal Bankruptcy Code that is not dismissed within sixty (60) calendar days, (ii) not pay, or admit in writing its inability to pay, its debts generally as they become due, (iii) make an assignment for the benefit of creditors, (iv) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any substantial part of its property and such appointment continues undischarged or unstayed for sixty (60) calendar days, (v) institute any proceeding seeking an order for relief under the Federal Bankruptcy Code or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it provided that such proceeding continues undismissed or unstayed for sixty (60) calendar days, or (vi) suspend operations as presently conducted or discontinue doing business as an ongoing concern; and


1.4.7    Without the application, approval or consent of the Borrower, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower, or any substantial part of its property, or a proceeding described in Section 1.4.4 above shall be instituted against Borrower and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty consecutive days.


1.5        Remedies/Options


1.5.1     Acceleration .  If any Default described in 1.4.2 or above occurs, the Note shall immediately become due and payable without any election or action on the part of the Lender(s), or any cure requirement.  If any other Default occurs, and is not cured as provided herein, the Lender(s) may terminate its commitments hereunder, if any, and declare the Notes to be due and payable, whereupon the Notes shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives.


- 3 -


1.5.2.    Loan Documents.  Upon the occurrence of a Default hereunder Lender shall have the right (but not the obligation) to immediately enforce all of its rights under the Loan Documents, including, without limitation, foreclosure of its security interest contained therein, and taking possession of the collateral described therein.


1.5.3     Obligations of Borrowers Joint and Several; Remedies Cumulative .  It is expressly agreed that the obligations of the various borrowers that collectively constitute the “ Borrower ” hereunder, shall be joint and several.  A default hereunder shall constitute a default under the Note. Upon the occurrence of a Default, the Lender may immediately proceed to exercise all remedies available to it hereunder or under the Note(s) or otherwise under applicable law.  No right or remedy conferred upon or reserved to the Lender hereunder is intended to be exclusive of any other available remedy or right, but each and every remedy shall be cumulative and concurrent and shall be in addition to every other remedy now or hereafter existing at law or in equity.  No single or partial exercise of any power or right shall preclude any further or other exercise of any power or right.


1.5.4     Preservation of Rights .  No delay or omission of the Lender(s) in their exercise of any power or right hereunder shall impair such power or right or be construed to be a waiver of any Default or an acquiescence therein, and any single or partial exercise of any power or right shall not preclude other or further exercise thereof or the exercise of any other power or right.  No Advance hereunder shall constitute a waiver of any of the conditions of the Lender’s obligation to make further advances, nor, in the event Borrower is unable to satisfy any such condition, shall a waiver of such condition in any one instance have the effect of precluding the Lender(s) from thereafter declaring such inability to be a Default hereunder.  No course of dealing shall be binding upon the Lender(s).


2.          Representations and Warranties of the Borrower .  The Borrower represents, warrants and covenants to the Lender, as of the date hereof and as of the date of any Advance as follows:


2.1        Corporate Organization .  The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as and in the places where such properties are now owned, operated and leased or such business is now being conducted.  


2.2        Authorization .  The Borrower has the necessary corporate power and authority to enter into this Agreement and to assume and perform its obligations hereunder.  The execution and delivery of this Agreement, and the performance by the Borrower of its obligations hereunder have been duly authorized by the Board of Directors of the Borrower, or Managers, as the case may be.  This Agreement has been duly executed and delivered by the Borrower and it constitutes the legal, valid and binding obligation of the Borrower enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general application affecting the enforcement of creditors’ rights generally and general principles of equity.


- 4 -


2.3        Approvals and Consents .  No action, approval, consent or authorization, including, but not limited to, any action, approval, consent or authorization by any governmental or quasi-governmental agency, commission, board, bureau, or instrumentality is necessary or required as to the Borrower in order to constitute this Agreement as the valid, binding and enforceable obligation of the Borrower in accordance with its terms.


2.4        Authority .  Borrower is duly formed and organized and in good under the laws of its respective State of Organization, is qualified and in good standing in every jurisdiction where it conducts business, and the signatory for each Borrower is duly authorized to execute and deliver each of the Loan Documents to which Borrower is a party on behalf of Borrower.  Borrower is duly authorized to perform its obligations under each of the Loan Documents to which it is a party.


2.5        No Conflicts.  The execution, delivery, and performance by Borrower of the Loan Documents and the use of the Loan proceeds for such business purposes of Borrower approved by Lender do not and will not:


(a)       result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Borrower is a party or by which they or their properties may be bound or affected; or


(b)       result in, or require, the creation or imposition of any lien, upon or with respect to any of the properties now owned by Borrower; or


(c)       cause Borrower to be in default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award or any such indenture, agreement, lease, or instrument.


2.6        Litigation.  Except as listed on Schedule 2.6, there is no pending or threatened action or proceeding against or affecting Borrower before any court, governmental agency, or arbitrator which may, in any one case or in the aggregate, materially, adversely affect the financial condition, operations, properties, or business of Borrower or the ability of Borrower to perform its obligations under the Loan Documents to which it is a party.


2.7        Collateral .  All collateral required in this Agreement is owned by the grantor of the security interest therein free of any title defects, liens or interests of others and Lender shall at all times have a first priority lien on and security interest in such collateral.


2.8        Other Obligations .  Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation.


2.9        Event of Default .  There is no event, which is, or with notice or lapse of time or both would be, an Event of Default under this Agreement.


2.10      Entity Documents .  The copy of the Articles, Bylaws and Operating Agreements of Borrower provided to Lender pursuant to this Agreement are complete and accurate copies of the originals of such entity documents, each of which is in full force and effect without any modification or amendment from such copies delivered to Lender.


- 5 -


3.          Representations and Warranties of the Lender .  Lender represents, warrants and covenants to the Borrower as of the date hereof and as of the date of any Advance that: (i) the execution, delivery and performance of this Agreement, by such Lender and the consummation by Lender of the transactions contemplated hereby are within the powers of Lender and have been duly authorized by all necessary action, as appropriate, on the part of Lender, and (ii) this Agreement has been duly executed and delivered by Lender and constitutes a legal, valid and binding obligation of Lender enforceable against Lender in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general application affecting the enforcement of creditors’ rights generally and general principles of equity.


4.          General Provisions .


4.1        Entire Agreement; Amendment and Waiver .  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter contained herein and supersedes all prior oral or written agreements, if any, between the parties hereto with respect to such subject matter and, except as otherwise expressly provided herein, are not intended to confer upon any other person any rights or remedies hereunder.  Any amendments hereto or modifications hereof must be made in writing and executed by each of the parties hereto.  Any failure by the Borrower or the Lender to enforce any rights hereunder shall not be deemed a waiver of such rights.  


4.2        Notices .  Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing, hand delivered, via e-mail PDF, or facsimile, or one (1) day after deposit with a reputable overnight courier service and addressed to the party to be notified at the address indicated for such party on the signature pages hereof, or at such other address as such party may designate by written notice to the other parties.


4.3        Governing Law/Excusive Venue .  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Nevada without giving effect to conflict of laws principles.  Exclusive venue for any dispute regarding this Agreement shall be in the Federal and State District Court of Nevada, located in Las Vegas, Nevada.  


4.4        Binding Effect; Assignment .  This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the Borrower and the Lender and each of their respective authorized successors and assigns.  Lender may freely assign this Agreement, in Lender’s sole and absolute discretion. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by Borrower without the prior written consent of Lender.  Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect.


4.5        Expenses .  All costs and expenses incurred in connection with this Agreement (including, without limitation, the drafting of this Agreement, and the enforcement of this Agreement and any Default by Borrower hereunder) and the transactions contemplated hereby, including legal fees and expenses of the Lender, shall be paid by the Borrower, and Borrower hereby expressly authorizes Lender to pay such expenses from Advances under the Note.


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4.6        Severability .  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by virtue of any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the maximum extent possible.


4.7        Signatures and Counterparts .  This Agreement may be executed via facsimile or email, in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.



[signature page to follow]



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


BORROWER:


GrowLife, Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



SUBSIDIARIES:


Phototron, Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



SG Technologies Corp


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



GrowLife Hydroponics, Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



Soja Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



Signature Page to

GrowLife Secured Credit Facility Agreement


- 8 -


Rocky Mountain Hydroponics, LLC


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



EverGreen Garden Center, LLC


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



GrowLife Productions, Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



Business Bloom, Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



LENDER:


Logic Works, LLC


By: /s/ Rick Crespi

Rick Crespi

Its:  Duly Authorized Agent



Signature Page to

GrowLife Secured Credit Facility Agreement


- 9 -


EXHIBIT A


FORM OF NOTE


(see attached)



Exhibit A

Form of Note

(GrowLife Secured Credit Facility)



THIS SECURED CONVERTIBLE NOTE (THIS “ NOTE ”) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), OR THE SECURITIES LAWS OF ANY STATE, AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NO SUCH SALE OR DISPOSITION MAY BE AFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.


THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THIS NOTE IN THE EVENT OF A PARTIAL CONVERSION. AS A RESULT, FOLLOWING ANY CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND ACCRUED INTEREST SET FORTH BELOW.


GROWLIFE, INC.


6% SECURED CONVERTIBLE NOTE


Issuance Date:  June 25, 2014

Las Vegas, Nevada


Original Principal Amount:  USD $500,000



FOR VALUE RECEIVED, GROWLIFE, INC. , a Delaware corporation (the “ Company ”), and its subsidiaries, including, without limitation (i) Phototron Inc., a Delaware corporation, (ii) SG Technologies Corp, a Nevada corporation, (iii) GrowLife Hydroponics Inc., a Delaware corporation, (iv) Soja Inc., a California corporation, (v) Rocky Mountain Hydroponics, LLC, a Colorado limited liability company, (vi) EverGreen Garden Center, LLC, a Maine limited liability company, (vii) GrowLife Productions Inc., a California corporation, (viii) Business Bloom Inc., a California corporation and any other entity owned and controlled by GrowLife or any of its subsidiaries or affiliates, currently or in the future (collectively, the “ Subsidiaries ” ), hereby jointly and severally promise to pay to the order of LOGIC WORKS, LLC , a Nevada limited liability company, or its designees, successors or assigns (the “ Holder ”), the amount set out above as the Original Principal Amount (as may be reduced in accordance with the terms hereof pursuant to conversion or redemption, the “ Principal ”) when due, whether upon the Maturity Date (as defined below), or by conversion or redemption, and to pay interest (“ Interest ”) on any outstanding Principal at the applicable Interest Rate (as defined below) from the date set forth above as the Issuance Date (the “ Issuance Date ”) until the same becomes due and payable upon the Maturity Date or upon conversion or redemption in accordance with the terms hereof.


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 1


1.          General Terms .


(a)        Maturity Date .  The “ Maturity Date ” of this Note is June 25, 2016, at which time all unpaid Principal and Interest amounts shall be due and payable in full.


(b)        Interest .  Simple interest on the unpaid Principal shall accrue at the rate of six percent (6%) per annum (the “ Interest Rate ”) commencing on the Issuance Date and continuing until the Maturity Date, unless this Note is earlier satisfied by conversion or redemption, whichever occurs first; provided that from and after the occurrence and during the continuance of an Event of Default (as defined below) interest shall accrue on all of the unpaid Principal hereunder at the default rate of twenty-four percent (24%) per annum, or the maximum rate allowable under applicable law (the “ Default Rate ”).


(c)        Interest Payments .  Interest only payments shall be paid monthly, commencing on August 1, 2014, and continuing on the first (1 st ) day of each and every month thereafter, computed on the then outstanding Principal balance.  All outstanding unpaid Principal and Interest shall be due and payable in full on the Maturity Date, unless this Note is earlier satisfied in full by conversion or redemption.


(d)        Security .  All obligations of the Company hereunder are secured by a security interest in all of the assets of the Company and all of its Subsidiaries pursuant to the terms of a Secured Credit Facility Agreement (and UCC-1) between the Company and its Subsidiaries, and Holder dated June 25, 2014 (“ Loan Agreement ”).


(e)        Draw Against Principal .  Company shall have the right to request a maximum of five (5) advances against the Principal Amount (each an “ Advance ” and “ Draw ”, collectively “ Advances ” and “ Draws ”).  However, once the Company makes a Draw, it is subject to the terms and conditions of this Note including without limitation Conversion, Security and Price Adjustment provisions.  Each Draw shall be expressly subject to the conditions contained in the Loan Agreement.  In the event of any conflict between this Note and the Credit Agreement, the Credit Agreement shall control.


2.          Events of Default .


(a)        Event of Default .  An “ Event of Default ”, wherever used herein, means any one or more of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree, or order of any court, or any order, rule or regulation of any administrative or governmental body):


(i)        The Company’s failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as due under this Note;


(ii)       A Conversion Failure as defined in Section 3(b)(ii) hereof, or failure by Company with respect to any Registration obligation under Section 5;


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 2


(iii)      The Company or any subsidiary of the Company shall commence, or there shall be commenced against the Company or any subsidiary of the Company, any proceeding under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any subsidiary of the Company, or there is commenced against the Company or any subsidiary of the Company any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of sixty-one (61) days; or the Company or any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary of the Company suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty-one (61) days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or the Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the foregoing;


(iv)      The Company or any subsidiary of the Company shall default in any of its obligations under the Loan Agreement, or any other note or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any subsidiary of the Company, whether such indebtedness now exists or shall hereafter be created;


(v)       The common stock of the Company (“ Common Stock ”) is suspended or delisted for trading on the Over-the-Counter Bulletin Board market (the “ Primary Market ”) and the OTCQB;


(vi)      The Company loses its status as “DTC Eligible”; or


(vii)     The Company shall become late or delinquent in its filing requirements as a fully-reporting issuer registered with the U.S. Securities and Exchange Commission.


(b)        Cure Period .  Upon receiving a written notice of the occurrence of an Event of Default (except with respect to a scheduled monetary payment, which shall require no notice), the Company shall have a grace period of two (2) Business Days (the “ Cure Period ”) to cure such Event of Default.


(c)        Remedies upon Event of Default .  In addition to any other remedies provided for herein, while an Event of Default occurs and is continuing, the outstanding Principal, plus


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 3


accrued but unpaid Interest, and any other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash, and Holder shall be entitled to exercise any and all other rights pursuant to the Loan Agreement and the UCC-1.  After the occurrence and during the continuance of any Event of Default, the interest rate on this Note shall accrue at the applicable Default Rate.  Upon the payment or other satisfaction in full of this Note, the Holder shall promptly surrender this Note to or as directed by the Company.  In connection with any acceleration of this Note as described herein, the Holder need not provide, and the Company 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 under applicable law.  Such acceleration may be rescinded and annulled by the Holder at any time prior to payment hereunder, and the Holder shall have all rights as a holder of this Note until such time, if any, as the Holder receives full payment pursuant to this Section 2(c).  No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.


3.         Conversion of Note .  This Note shall be convertible into shares of Common Stock, on the terms and conditions set forth in this Section 3.


(a)        Conversion Right .  Subject to the conversion cap blocker limitation contained in Section 3(c), at any time or times on or after the Issuance Date (subject to a Draw being made), the Holder shall be entitled to convert all or any portion of the outstanding and unpaid Conversion Amount (as defined below) into Registrable Securities that are (as defined in Section (5)) fully paid and nonassessable shares of Common Stock of the Company in accordance with Section 3(b), at the Conversion Price (as defined below), subject to the Conversion Minimum (as defined below).  The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 3(a) shall be equal to the quotient of dividing the Conversion Amount by the Conversion Price (“ Conversion Shares ”).  The Company shall not issue any fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.  The Company shall pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection with the issuance of shares of Common Stock to the Holder arising out of or relating to the conversion of this Note.


(i)        “ Conversion Amount ” means the portion of the Principal and Interest to be converted.


(ii)       “ Conversion Price ” shall equal the lesser of: (A) $0.0070 or (B) twenty percent (20%) of the average of the three (3) lowest daily VWAPs occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.


(iii)      “ Conversion Minimum ” shall, unless otherwise approved in writing by the Company, constitute any individual conversion of an amount not less than One Thousand Dollars (USD $1,000) of the unpaid Principal.


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 4


(iv)       “ VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Primary Market; (b) if the Common Stock is not then quoted for trading on the Primary Market and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock of the Company as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.


(b)        Mechanics of Conversion .


(i)         Optional Conversion .  To convert any Conversion Amount into shares of Common Stock on any date (a “ Conversion Date ”), the Holder shall transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York, NY Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the “ Conversion Notice ”) to the Company.  On or before the first (1st) Business Day following the date of receipt of a Conversion Notice, the Company shall: (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“ Rule 144 ”) and provided that the Company’s transfer agent is participating in the Depository Trust Company’s (“ DTC ”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC; or (B) if the Company’s transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, which certificates shall not bear any restrictive legends unless required pursuant to Rule 144.  If this Note is physically surrendered for conversion and the outstanding Principal is greater than the Principal portion of the Conversion Amount being converted, then the Company shall, upon request of the Holder, as soon as practicable and in no event later than two (2) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note representing the remaining outstanding Principal not converted.  The individual, corporation, partnership, limited liability company, limited liability partnership, trust, association, organization or other entity (each a “ Person ”) 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 or holders of such shares of Common Stock upon the transmission of a Conversion Notice.  For the purposes hereof, the term “ Business Day ” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States, or any day on which banking institutions in the State of Nevada are authorized or required by law or other governmental action to close.


(ii)        Company’s Failure to Timely Convert .  If within one (1) Business Day after the Company’s receipt of the facsimile or email copy of a Conversion Notice, the Company shall fail to issue and deliver to Holder the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any Conversion Amount (a “ Conversion Failure ”), the Principal amount under this Note shall increase by Three Thousand Dollars


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 5


($3,000) per day until the Company issues and delivers a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any Conversion Amount.  If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded Conversion Amount returned to the Principal with the rescinded Conversion Shares returned to the Company.  In addition to any other rights available to the Holder, if a Conversion Failure occurs, and if after such Conversion Failure the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such date (a “ Buy-In ”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (1) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (2) the product of (a) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (b) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000.00 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000.00 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.00. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.


(iii)        DTC Eligibility .  If the Company loses its status as “DTC Eligible” for any reason, the Conversion Price shall thereafter be redefined to mean the lesser of (A) $0.002 and (B) fifty percent (50%) of the lowest trade occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.


(iv)        Book-Entry . Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless: (A) the full Conversion Amount represented by this Note is being converted, or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note.  The Holder and the


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 6


Company shall maintain records showing the Principal and Interest converted and the dates of such conversions, or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.


(c)        Limitations on Conversions .  The Company shall not effect any conversions of this Note and the Holder shall not have the right to convert any portion of this Note or receive shares of Common Stock as payment of interest hereunder, to the extent that after giving effect to such conversion, receipt of such Interest payment, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of Interest.  Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder.  If the Holder has delivered a Conversion Notice for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with Section 3(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Note.  The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not less than sixty-five (65) days’ prior notice to the Company.  Other Holders shall be unaffected by any such waiver.  A written certification of number of shares beneficially owned by Holder delivered to the Company with any Conversion request shall be conclusive evidence of Holder’s ownership at the time of such request, and the Company shall rely upon same for the determination of the limitations contained herein, and upon such receipt, the Company shall immediately process the requested Conversion pursuant to the provisions contained herein.


(d)        Other Provisions .


(i)         Share Reservation .  In addition to the other requirements of Section 5 below, the Company shall at all times reserve and keep available out of its authorized Common Stock, the full number of shares of Common Stock issuable upon conversion of all outstanding Principal and Interest amounts under this Note; and within five (5) Business Days following the receipt by the Company of a Holder’s notice that such minimum number of underlying shares of Common Stock is not so reserved, the Company shall promptly reserve a sufficient number of shares of Common Stock to comply with such requirement.  The Company will at all times


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 7


reserve at least the minimum number of shares of Common Stock which are, at any given time, necessary for conversion of the full amount due on this Note.


(ii)        Prepayment .  The Company may, upon ten (10) Business Days’ written notice to Holder, prepay all or any portion of the remaining outstanding Principal amount of this Note in cash only with the Holder’s consent, which such consent may be withheld in Holder’s sole and absolute discretion.


(iii)       All calculations under this Section 3 shall be rounded up to the nearest whole share.


(iv)       Nothing herein shall limit the Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 2 herein for the Company’s failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein, and the Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, in each case without the need to post a bond or provide other security.  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.


4.          Adjustments to Conversion Price; Subsequent Equity Sales; Fundamental Transactions .  The Conversion Price and the number and kind of securities issuable upon conversion of this Note shall be subject to adjustment from time to time as set forth in this Section 4.


(a)        Stock Dividends and Splits .  If at any time while this Note is outstanding, whether or not depleted of Advances, the Company: (i) declares or pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock (or securities convertible into or exercisable or exchangeable for capital stock) that is payable in shares of Common Stock, (ii) combines (including, without limitation, by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iii) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company (including, without limitation, in connection with any merger or consolidation), then in each such case the Conversion Price then in effect shall be adjusted by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the number of shares of Common Stock outstanding immediately before such event, and (B) the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for such dividend or distribution, and any adjustment made pursuant to clauses (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision, combination or reclassification.  


(b)        Subsequent Equity Sales .  If, at any time while this Note is outstanding, the Company sells or grants any option to purchase or sells or grants any right or is obligated to reprice (even as a result of loans from Lender at any time), or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such issuances, collectively, a “ Dilutive Issuance ”) (if the holder of the Common Stock or Common Stock


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 8


Equivalents 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 issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then and in such event, the Conversion Price shall be reduced, concurrently with such issue, to the lowest price per share for which any one (1) such share of Common Stock or Common Stock Equivalent has been issued. For purposes of this paragraph, the “lowest price per share for which any one such share of Common Stock or Common Stock Equivalent has been issued” shall be equal to the sum of the lowest amount of consideration (but not less than $.0001) received or receivable by the Company with respect to any such share (the “ Base Conversion Price ”). Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than five (5) Business Days following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 4(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “ Dilutive Issuance Notice ”. For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 4(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.


(c)        Pro Rata Distributions .  Subject to Section 4(c) below, if at any time while this Note is outstanding the Company declares or pays any dividend or otherwise distributes any of its assets, including without limitation, cash, properties, evidences of indebtedness, securities (including any options or other convertible securities, but excluding a distribution of Common Stock covered by Section 4(a) above or Purchase Rights covered by Section 4(c) below), or options or rights to acquire any such assets (in each case, “ Distributed Property ”) to all holders of Common Stock pro rata (and not to all Holders in their capacity as holders of Notes), whether by way of dividend, return of capital, spin-off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction, then in each such case the Conversion Price in effect immediately prior to the close of business on the record date for such dividend or distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Conversion Price by a fraction of which (i) the denominator shall be the closing price of Common Stock on the Primary Market on such record date (the “ Market Price ”), and (ii) the numerator shall be such Market Price minus the value of the Distributed Property on such date applicable to one outstanding share of Common Stock, as determined by the Company’s independent certified public accounting firm that regularly examines the financial statements of the Company.


(d)        Rights Offerings Below Market .  Notwithstanding Section 4(b) above, if at any time while this Note is outstanding the Company grants, issues or sells pro rata to all holders of its outstanding shares of Common Stock, any options, convertible securities or other rights (the “ Purchase Rights ”) entitling them to directly or indirectly subscribe for or purchase shares of Common Stock at an effective price per share less than the Market Price on the record date of such grant, issuance or sale, then in each such case the Conversion Price in effect immediately


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 9


prior to the close of business on such record date shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Conversion Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding as of the close of business on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares so offered for subscription or purchase (including and assuming receipt by the Company in full of all consideration payable upon both issuance and exercise of such Purchase Rights) would purchase at such Market Price, and (ii) the denominator shall be the number of shares of Common Stock outstanding as of the close of business on such record date plus the total number of additional shares of Common Stock so offered for subscription or purchase; provided, however, that in lieu of receiving such adjustment to the Conversion Price, the Holder shall have the option, upon written notice to the Company within thirty (30) days following its receipt of the notice of such adjustment, to elect to acquire, upon any conversion of this Note and in accordance with the terms applicable to the issuance of such Purchase Rights, the aggregate Purchase Rights which the Holder would have acquired if the Holder had converted such portion of this Note being converted (without regard to any limitations on ownership or conversion and regardless of whether this Note was then convertible) immediately prior to such record date.  To the extent that shares of Common Stock have not been delivered pursuant to such Purchase Rights specified in this Section upon the expiration or termination of such Purchase Rights, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustment made upon the issuance of such Purchase Rights been made on the basis of delivery of only the number of shares of Common Stock actually delivered.  In determining whether any Purchase Rights entitle the holder thereof to subscribe for or purchase shares of Common Stock at less than such Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such Purchase Rights, the value of such consideration (if other than cash) to be determined in good faith by the Company’s Board of Directors.


(e)        Fundamental Transactions .  If at any time while this Note is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person; (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions; (iii) any tender offer or exchange offer (whether by the Company 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 Company 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 (each, a “ Fundamental Transaction ”), then the Holder shall have the right thereafter to receive, upon any conversion of this Note, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same amount and kind of securities, cash and property as the Holder would have been entitled to receive upon the occurrence of such Fundamental Transaction if the Holder had been the record holder of one Conversion Share immediately prior to such Fundamental Transaction (without regard to any limitations or restrictions on conversion or acquisition of Conversion Shares and whether or not this Note was then convertible) (the “ Alternate Consideration ”), and the Conversion Price shall be appropriately and equitably adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 10


Common Stock in such Fundamental Transaction relative to the then Conversion Price.  The Company 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.  In case of any such Fundamental Transaction, any successor to the Company, acquirer or surviving entity (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant, obligation, liability and condition under this Note to be performed and observed by the Company, subject to such modifications as may be reasonably deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of the number and kind of Conversion Shares for which this Note is convertible, which shall be as nearly equivalent as practicable to the adjustments provided for in this Section.  Such assumption shall be pursuant to a written agreement in form and substance reasonably satisfactory to the Holder.  At the Holder’s request, any successor to the Company, acquirer or surviving entity in such Fundamental Transaction shall issue to the Holder a new Note from such entity substantially similar in form and substance to this Note and consistent with the foregoing provisions, which new Note shall be reasonably satisfactory to the Holder and include, without limitation, (A) the outstanding Principal and Interest owed to the Holder under this Note, (B) an interest rate equal to the Interest Rate, (C) similar ranking to this Note, and (D) the Holder’s right to convert the new Note into Alternate Consideration.  The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor, acquirer or surviving entity to comply with the provisions of this Section and ensuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.  Notwithstanding anything to the contrary contained herein, if a Fundamental Transaction (X) is an all cash transaction, (Y) constitutes or results in a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act (going private transaction), or (Z) otherwise results in the successor, surviving or acquiring entity not being traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market, then upon the written request of the Holder, delivered before the sixtieth (60 th ) day after such Fundamental Transaction, the Company (or any such successor, acquirer or surviving entity) shall redeem this Note from the Holder for a redemption price, payable in cash within five (5) Business Days after such request (or, if later, on the effective date of such Fundamental Transaction), equal to the value of this Note as determined using the Black-Scholes Option Pricing Model via Bloomberg.  The provisions of this Section shall similarly apply to successive Fundamental Transactions and shall be applied without regard to any limitations of this Note.


5.          Registration.


(a)         Registration Statement .  Promptly following the issuance of this Note, but no later than thirty (30) days after the Issuance Date (the “ Filing Deadline ”), the Company shall prepare and file with the SEC a Registration Statement on Form S-1, covering the resale of all of the Conversion Shares (the “ Registrable Securities ”). Such Registration Statement shall not include any shares of Common Stock or other securities for the account of any other Person without the prior written consent of the Holder of this Note.  If a Registration Statement covering the


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 11


Registrable Securities is not filed with the SEC on or prior to the Filing Deadline, the Company will pay to the Holder, as liquidated damages and not as a penalty, an amount equal to one percent (1%) of the unpaid Principal amount of this Note for each 30-day period (or pro rata for any portion thereof) following the Filing Deadline for which no Registration Statement is filed with respect to the Registrable Securities.  Such payment(s) shall constitute the Holder’s exclusive monetary remedy for such failure, but shall not affect the Holder’s right to seek injunctive relief.  Such payment(s) shall be made to the Holder in cash, or at the option of the Holder, be added to the unpaid Principal amount of the Note, no later than three (3) Business Days after the end of each 30-day period.


Expenses .  The Company will pay all expenses associated with effecting the registration of the Registrable Securities, including filing and printing fees, the Company’s legal counsel, accounting fees and expenses, costs associated with clearing the Registrable Securities for sale under applicable state securities laws, and listing fees.


(c)        Effectiveness .


(a)       The Company shall use commercially best efforts to have the Registration Statement declared effective as soon as practicable.  The Company shall notify the Holder by facsimile or e-mail as promptly as practicable, and in any event, within twenty-four (24) hours, after any Registration Statement is declared effective and shall simultaneously provide the Holder with a copy of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby.  If: (1) a Registration Statement covering the Registrable Securities is not declared effective by the SEC prior to the earlier of (A) five (5) Business Days after the SEC shall have informed the Company that no review of such Registration Statement will be made or that the SEC has no further comments on the Registration Statement, or (B) the 90 th day after the Issuance Date (if the SEC reviews such Registration Statement); or (2) a Shelf Registration Statement is not declared effective by the SEC prior to the earlier of (i) five (5) Business Days after the SEC shall have informed the Company that no review of the Registration Statement will be made or that the SEC has no further comments on the Registration Statement, or (ii) the 90 th day after the Issuance Date (if the SEC reviews such Registration Statement), then the Company will pay to the Holder, as liquidated damages and not as a penalty, an amount equal to one percent (1%) of the unpaid Principal amount of this Note for each 30-day period (or pro rata for any portion thereof) following the date by which such Registration Statement should have been effective (the “ Blackout Period ”).  Such payment(s) shall constitute the Holder’s exclusive monetary remedy for such failure, but shall not affect the Holder’s right to seek injunctive relief.  The amounts payable as liquidated damages pursuant to this paragraph shall be paid monthly within three (3) Business Days of the last day of each month following the commencement of the Blackout Period until the termination of the Blackout Period.  Such payment(s) shall be made to the Holder in cash, or at the option of the Holder, be added to the unpaid Principal amount of this Note, no later than three (3) Business Days after the end of each 30-day period.


(b)       For not more than twenty (20) consecutive days or for a total of not more than forty-five (45) days in any twelve (12) month period, the Company may suspend the use of any Prospectus included in any Registration Statement contemplated by this Section 5 in the event that the Company determines in good faith that such suspension is necessary to: (A) delay the disclosure of material non-public information concerning the Company, the disclosure of


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 12


which at the time is not, in the good faith opinion of the Company, in the best interests of the Company; or (B) amend or supplement the affected Registration Statement or the related Prospectus so that such Registration Statement or Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading (an “ Allowed Delay ”); provided, that the Company shall promptly (a) notify the Holder in writing of the commencement of an Allowed Delay, but shall not (without the prior written consent of the Holder) disclose to such Holder any material non-public information giving rise to an Allowed Delay; (b) advise the Holder in writing to cease all sales under the Registration Statement until the end of the Allowed Delay; and (c) use commercially reasonable efforts to terminate an Allowed Delay as promptly as practicable.


(d)       R ule 415; Cutback.  If at any time the SEC takes the position that the offering of some or all of the Registrable Securities in a Registration Statement is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415 under the 1933 Act, or requires the Holder to be named as an “underwriter”, the Company shall use its best efforts to persuade the SEC that the offering contemplated by the Registration Statement is a valid secondary offering and not an offering “by or on behalf of the issuer” as defined in Rule 415 and that the Holder is not an “underwriter”.  The Holder shall have the right to participate or to have its legal counsel participate in any meetings or discussions with the SEC regarding the SEC’s position and to comment or have its counsel comment on any written submission made to the SEC with respect thereto.  No such written submission shall be made to the SEC to which the Holder’s counsel reasonably objects.  In the event that, despite the Company’s best efforts and compliance with the terms of this Section 5(d), the SEC refuses to alter its position, the Company shall (i) remove from the Registration Statement such portion of the Registrable Securities (the “ Cut Back Shares ”) and/or (ii) agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the SEC may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “ SEC Restrictions ”); provided, however , that the Company shall not agree to name the Holder as an “underwriter” in such Registration Statement without the prior written consent of such Holder.  No liquidated damages shall accrue as to any Cut Back Shares until such date as the Company is able to effect the registration of such Cut Back Shares in accordance with any SEC Restrictions (such date, the “ Restriction Termination Date ” of such Cut Back Shares).  From and after the Restriction Termination Date applicable to any Cut Back Shares, all of the provisions of this Section 5 (including the liquidated damages provision) shall again be applicable to such Cut Back Shares; provided, however , that (i) the date by which the Company is required to file the Registration Statement including such Cut Back Shares shall be thirty (30) calendar days after such Restriction Termination Date, and (ii) the date by which the Company is required to obtain effectiveness with respect to such Cut Back Shares under Section 5(c) shall be the [180 th ] day immediately after the Restriction Termination Date.


(e)        Right to Piggyback Registration .


(i)        If at any time following the Issuance Date: (A) there is not one or more effective Registration Statements covering all of the Registrable Securities, and (B) the Company proposes for any reason to register any shares of Common Stock under the 1933 Act (other than pursuant to a registration statement on Form S-4 or Form S-8 (or a similar or successor form))


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 13


with respect to an offering of Common Stock by the Company for its own account or for the account of any of its stockholders, it shall at each such time promptly give written notice to the holder of the Registrable Securities hereunder of the Company’s intention to do so (but in no event less than thirty (30) days before the anticipated filing date) and, to the extent permitted under the provisions of Rule 415 under the 1933 Act, include in such registration all Registrable Securities with respect to which the Company has received a written request for inclusion therein within fifteen (15) days after receipt of the Company’s notice (a “ Piggyback Registration ”).  Such notice shall offer the holder of the Registrable Securities the opportunity to register such number of shares of Registrable Securities as such holder may request and shall indicate the intended method of distribution of such Registrable Securities.


(ii)       Notwithstanding the foregoing, (A) if such registration involves an underwritten public offering, the Holder must sell its Registrable Securities to, if applicable, the underwriter(s) at the same price and subject to the same underwriting discounts and commissions that apply to the other securities sold in such offering (it being acknowledged that the Company shall be responsible for other expenses as set forth in Section 5(b)) and subject to the Holder entering into customary underwriting documentation for selling stockholders in an underwritten public offering, and (B) if, at any time after giving written notice of its intention to register any Registrable Securities pursuant to Section 5(e)(i) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to cause such registration statement to become effective under the 1933 Act, the Company shall deliver written notice to the Holder and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration; provided, however , that nothing contained in this Section 5(e)(ii) shall limit the Company’s other obligations and/or liabilities under this Agreement.


(f)        Additional Company Obligations .  In addition to, and not as a limitation of any other of Holder’s rights herein, with a view to making available to the Holder the benefits of Rule 144 (or its successor rule) and any other rule or regulation of the SEC that may at any time permit the Holder to sell shares of Common Stock without registration, the Company covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable Securities may be sold without restriction by the holder thereof pursuant to Rule 144 or any other rule of similar effect, or (B) such date as all of the Registrable Securities shall have been resold; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the 1934 Act; and (iii) furnish to the Holder upon request, as long as such Holder owns any Registrable Securities, (A) a written statement by the Company that it has complied with the reporting requirements of the 1934 Act, (B) a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other information as may be reasonably requested in order to avail such Holder of any rule or regulation of the SEC that permits the selling of any such Registrable Securities without registration.


6.          Reissuance of this Note .


(a)        Assignability .  This Note is freely assignable by Holder without notice.  The Company may not assign this Note without the prior written consent of the Holder.  This Note


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 14


shall be binding upon the Company and its successors, and shall inure to the benefit of the Holder and its successors and assigns and may be assigned by the Holder to anyone of its choosing without the Company’s approval but upon advance written notice to the Company.


(b)        Lost, Stolen or Mutilated Note .  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note representing the outstanding Principal.


7.          Notices .  Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (c) upon receipt, when sent by email; or (d) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be those set forth in the communications and documents that each party has provided the other immediately preceding the issuance of this Note or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change.  Written confirmation of receipt (x) given by the recipient of such notice, consent, waiver or other communication, (y) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission, or (z) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (x), (y) or (z) above, respectively.


The addresses for such communications shall be:


 

If to the Company:

GROWLIFE, INC.

 

 

20301 Ventura Blvd., Suite 126

 

 

Woodland Hills, CA 91364

 

 

Attn:  Marco Hegyi, President

 

 

Facsimile:  800-770-9788

 

 

E-mail:  mhegyi@growlifeinc.com

 

 

 

 

If to the Holder:

LOGIC WORKS, LLC

 

 

9616 Emeraude Avenue

 

 

Las Vegas, NV  89147

 

 

Attn:  Rick Crespi, Manager


8.          Governing Law and Venue .  All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 15


conflict of laws thereof.  Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Note (whether brought against a party hereto or its respective affiliates, directors, officers, stockholders, employees or agents) shall be commenced in the state and federal courts sitting in the County of Clark (the “ Clark County Courts ”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Clark County Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such Clark County Courts, or Clark County Courts are improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note, and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby.  If either party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses reasonably incurred in the investigation, preparation and prosecution of such action or proceeding.


9.          Waiver .  Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note.  The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver by the Company or the Holder must be in writing.


10.        Severability .  If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.  If it shall be found that any Interest or other amount deemed Interest due hereunder violates the applicable law governing usury, the applicable rate of Interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.


11.        Next Business Day .  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.


12.        Counterparts .  This Note may be executed in counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” or other document image format data


Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 16


file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “pdf” or other document image format data file signature page were an original thereof.



[Signature Page Follows]



Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 17


IN WITNESS WHEREOF, the Company has executed this Note effective as of the Issuance Date.


Company :


GrowLife, Inc.


/s/ Marco Hegyi

By:  Marco Hegyi

Its:   President



Subsidiaries:


Phototron, Inc.


/s/ Marco Hegyi

By:  Marco Hegyi

Its:   President



SG Technologies Corp


/s/ Marco Hegyi

By:  Marco Hegyi

Its:   President



GrowLife Hydroponics, Inc.


/s/ Marco Hegyi

By:  Marco Hegyi

Its:   President



Soja, Inc.


/s/ Marco Hegyi

By:  Marco Hegyi

Its:   President



Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 18


Rocky Mountain Hydroponics, LLC


/s/ Marco Hegyi

By:  Marco Hegyi

Its:   President



EverGreen Garden Center, LLC


/s/ Marco Hegyi

By:  Marco Hegyi

Its:   President



GrowLife Productions, Inc.


/s/ Marco Hegyi

By:  Marco Hegyi

Its:   President



Business Bloom, Inc.


/s/ Marco Hegyi

By:  Marco Hegyi

Its:   President



Accepted and agreed to :


Lender:


Logic Works, LLC


/s/ Rick Crespi

By:  Rick Crespi

Its:   Manager



Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 19


EXHIBIT A


NOTICE OF CONVERSION


The undersigned hereby elects to convert the amount specified below under the 6% Convertible Note (the “ Note ”) of GrowLife, Inc., a Delaware corporation (the “ Company ”), which is due June 25, 2016, into shares of common stock (“ Common Stock ”) of the Company according to the conditions hereof, as of the date written below.


The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock pursuant to any prospectus.


Conversion Calculations :


Date to Effect Conversion:  ____________________, 201__


Principal Amount to be Converted:   $                                    

(not less than $1,000 of Principal)


Accrued Interest to be Converted:   $                                    


Number of Shares of Common Stock to be issued:  ____________________


Signature:  _________________________________


Print Name:  ________________________________


Address for Delivery of Certificate for Common Stock:

_________________________________

 

_________________________________

 

_________________________________



Exhibit A

Form of Note

(GrowLife Secured Credit Facility)

Page 20


EXHIBIT B


SECURITIES PLEDGE AGREEMENT


(see attached)



Exhibit B

Securities Pledge Agreement

(GrowLife Secured Credit Facility)


SECURITIES PLEDGE AGREEMENT


This Securities Pledge Agreement (this “Agreement” ) is made and entered into as of June 18, 2014 by and between GrowLife, Inc., a Delaware corporation (“ GrowLife ”/“ Pledgor ”), and with respect to equity it owns in its subsidiaries including, Phototron, Inc., a California corporation, SG Technologies Corp, a Nevada corporation, GrowLife Hydroponics, Inc., a Delaware corporation, Soja Inc., a California corporation, Rocky Mountain Hydroponics, LLC, a Colorado limited liability company, EverGreen Garden Center, LLC, a Delaware limited liability company, GrowLife Productions, Inc., a California corporation and Business Bloom, Inc., a California corporation (“ Subsidiaries”) for the benefit of Logic Works. LLC, a Nevada limited liability company (the “Secured Party ”).


PRELIMINARY STATEMENTS


 

A.

Pledgor owns 100% of the equity interests of the Subsidiaries;

 

 

 

 

B.

Pledgor and Secured Party are parties to a Secured Credit Facility and Secured Grid Promissory Note dated June 18, 2014 (collectively, the “Credit Agreement” ), and as a material inducement for Secured Party to fund the Credit Agreement/loan to the Pledgor, Pledgor has agreed to pledge, and grant a security interest in 100% of its membership interest in the Subsidiaries in favor of Secured Party (the “Pledged Interest” ).  


AGREEMENT


In consideration of the foregoing, the mutual covenants contained herein and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:  


1.          Pledge .  As security and collateral for the payment when and as due and payable of any and all of Borrower’s obligations under the Credit Agreement (the “Obligations” ), Pledgor pledges and grants a security interest in and assigns to Secured Party all right, title and interest in and to:


(a)       the Pledged Interest and any certificates, if applicable, representing the Pledged Interest and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to the Pledged Interest, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Interest;


(b)       all additional interest in, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire an interest in any issues of the Pledged Interest from time to time acquired by Pledgor in any manner (which interest shall be deemed to be part of the Pledged Interest), the certificates or other instruments representing such additional interest, if any, securities, warrants, options or other rights and any interest of Pledgor in the entries


Exhibit B

Securities Pledge Agreement

(GrowLife Secured Credit Facility Agreement)

Page 1


on the books of any financial intermediary pertaining to such additional interest, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional interest, securities, warrants, options or other rights; and


(c)       to the extent not covered by clauses (a) through (b) above, all proceeds of any or all of the foregoing collateral.  For purposes of this Agreement, the term “proceeds” includes whatever is receivable or received when the collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from time to time with respect to any of the collateral.  


2.          Voting .  Unless an Event of Default (as defined below) shall have occurred and be continuing, Pledgor shall be entitled to vote his interest in the Pledged Interest and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would violate or not comply with any of the terms and provisions of this Agreement.  If an Event of Default shall have occurred and be continuing, Pledgor grants to Secured Party an irrevocable proxy coupled with an interest in the Pledged Interest, pursuant to which proxy, Secured Party shall be entitled to vote or consent in its discretion and in such event Pledgor agrees to deliver to Secured Party such further evidence of such proxy as Secured Party may reasonably request.


3.          Distributions .  All distributions payable to Pledgor in respect of the Pledged Interest shall be paid to the Secured Party, subject to the terms/restrictions of the Credit Agreement, until the Credit Agreement is paid in full.


4.          Title to Pledged Interest .  The Pledgor hereby represents and warrants to the Secured Party that he has good and marketable title to the Pledged Interest, free and clear of any and all encumbrances.


5.          Events of Default .  For purposes of this Agreement, the terms “ Default ” and “ Event of Default ” shall mean the happening of any of the following events:


(a)       any failure of Pledgor to perform or fulfill in full any of the obligations or conditions contained in the Credit Agreement or any of the other documents or agreements referenced therein; or


(b)       any failure to observe or perform any of the other provisions of this Agreement if such failure continues for a period of ten (10) days after written notice of such default is received by the Pledgor; or


(c)       if the Pledgor becomes insolvent or is the subject of a petition in bankruptcy, either voluntary or involuntary, or in any other proceeding under the federal bankruptcy laws or makes an assignment for the benefit of creditors or is subject to a proceeding for reorganization, arrangement, readjustment of debt, dissolution or liquidation or if Pledgor is named in a suit for the appointment of a receiver.


Exhibit B

Securities Pledge Agreement

(GrowLife Secured Credit Facility Agreement)

Page 2


6.          Remedies Upon Default .  In case an Event of Default shall have occurred and be continuing, subject to compliance with applicable city, state and other applicable food service and related laws Secured Party shall be entitled to exercise all of the rights, powers and remedies (whether vested in it by this Agreement or by law or otherwise (including, without limitation, those of a secured party under the Uniform Commercial Code) for the protection and enforcement of its rights in respect of the Pledged Interest, and Secured Party shall be entitled, without limitation:


(a)       to receive all amounts payable in respect of the Pledged Interest otherwise payable under Paragraph 3 of this Agreement to Pledgor;


(b)       to require Pledgor to cause Secured Party to transfer and register all or any part of the Pledged Interest into Secured Party’s name or the name of his nominee or nominees and amend such limited partnership agreements and documents of the Secured Party to reflect the Secured Party or its nominees as a limited partner of the Secured Party; and


(c)       to vote all or any part of the Pledged Interest (whether or not transferred or registered into the name of Secured Party) and give all consents, waivers and ratification’s in respect thereof and otherwise act with respect to the Pledged Interest as though it were the outright owner thereof pursuant to the proxy granted in Paragraph 2 of this Agreement hereof.


7.          Remedies, Cumulative .  Each right, power and remedy of Secured Party provided for in this Agreement or in the Credit Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy.  The exercise or beginning of the exercise by Secured Party of any one or more of the rights, powers or remedies provided for in this Agreement or in the Credit Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by Secured Party of all such other rights, powers or remedies, and no failure or delay on the part of Secured Party to exercise any such right, power or remedy shall operate as a waiver thereof.


8.          Application of Money by Secured Party .  All money collected upon any sale or sales of the Pledged Interest hereunder, together with all other monies received by Secured Party hereunder, shall be applied to the payment of all reasonable costs and expenses incurred or paid by Secured Party in connection with any sale, transfer or delivery of the Pledged Interest or the collection of any such money (including reasonable attorneys’ fees and expenses), and the balance of such money shall be held by Secured Party and applied by it at any time or from time to time to the payment of the Obligations and in such order and manner as Secured Party in its reasonable discretion may determine.


9.          Further Assurances .  Pledgor at its expense will execute, acknowledge and deliver all such instruments and take all such action as the Secured Party may reasonably request in order to further effectuate the purposes of this Agreement and to carry out the terms hereof.


10.        Termination and Release .  Upon the payment in full of the Obligations in accordance with the terms of the Credit Agreement and the payment of all other sums payable (including, without limitation, the reasonable expenses and disbursements of Secured Party) this Agreement


Exhibit B

Securities Pledge Agreement

(GrowLife Secured Credit Facility Agreement)

Page 3


shall terminate and Secured Party, at the request and expense of Pledgor, will promptly execute and deliver to Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to Pledgor such of the Pledged Interest as has not theretofore been sold or otherwise applied or released pursuant to this Agreement, together with any monies at the time held by Secured Party hereunder.


11.        Notices .  All notices, requests, demands or other communications to or upon the parties hereto shall be in writing, shall be given or made to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, at such address as either party hereto may hereafter specify to the other in writing, and (unless otherwise specified herein) shall be deemed to have been duly given (i) when delivered personally; (ii) three (3) days after being sent by a nationally recognized overnight courier; or (iii) five (5) days after mailing, and all mailed notices shall be by certified or registered mail, return receipt requested, postage prepaid.


12.        Miscellaneous .


(a)       This Agreement may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.


(b)       The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof.


(c)       The representations, covenants and agreements of Pledgor herein contained shall survive the date hereof.


(d)       The terms and conditions of this Agreement shall be construed as a whole according to its fair meaning and not strictly for or against any party.  The parties acknowledge that each of them has reviewed this Agreement and has had the opportunity to have it reviewed by their attorneys and that any rule or construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement, including amendments or any exhibits.


(e)       This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without giving effect to conflict of laws principles.  Exclusive venue for any dispute regarding this Credit Agreement shall be in the Federal and State District Court of Nevada, located in Clark County, Nevada.


(f)       This Agreement may be executed via facsimile or email, in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.



[signatures on next page]



Exhibit B

Securities Pledge Agreement

(GrowLife Secured Credit Facility Agreement)

Page 4


IN WITNESS WHEREOF, the parties hereto have duly authorized, executed and delivered this Agreement effective as of the date hereof.


PLEDGORS:


GrowLife, Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



Phototron, Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



SG Technologies Corp


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



GrowLife Hydroponics, Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



Soja Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



Exhibit B

Signature Page to

Securities Pledge Agreement

(GrowLife Secured Credit Facility Agreement)

Page 5


Rocky Mountain Hydroponics, LLC


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



EverGreen Garden Center, LLC


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



GrowLife Productions, Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



Business Bloom, Inc.


/s/ Marco Hegyi

By: Marco Hegyi

Its:  President



Exhibit B

Signature Page to

Securities Pledge Agreement

(GrowLife Secured Credit Facility Agreement)

Page 6


EXHIBIT C


UCC FINANCING STATEMENT


(see attached)



Exhibit C

UCC Financing Statement

(GrowLife Secured Credit Facility Agreement)



Exhibit 10.4


SETTLEMENT AGREEMENT AND WAIVER OF DEFAULT


This SETTLEMENT AGREEMENT AND WAIVER OF DEFAULT (the “Waiver”), is entered into on June 19, 2014 by and between GrowLife, Inc. (“GrowLife”), a Delaware corporation, and Forglen LLC (the “Noteholder”).  GrowLife and the Noteholder shall be collectively referred to herein as the “Parties.”


RECITALS


WHEREAS , the Parties entered into a certain 7% Convertible Note (the “Note”) on October 11, 2013;


WHEREAS , on April 10, 2014, as a result of the suspension in the trading of the Company’s securities by the Securities and Exchange Commission (“SEC”), the Company went into default on the Note under Section 2(a)(v) of the Note.  As a result, the Company is now accruing interest on the Note at the applicable “default” rate of interest as stipulated in the Note. Furthermore, as a result of being in default, the Noteholder can, at its sole discretion, accelerate payment of the Note; and


WHEREAS , GrowLife acknowledges that a default has occurred under the terms of the Note between the Parties and the Noteholder hereby elects to waive any and all rights to the default by GrowLife on the Note as a result of the trading suspension and hereby acknowledges the Note is currently in good standing via the execution of this Waiver in exchange for an amendment to the Note as attached hereto as Exhibit  “A”.


NOW, THEREFORE , for good and valuable consideration the sufficiency of which is hereby acknowledged, the Parties agree as follows:


AGREEMENT


1.          Waiver of Default.  Pursuant to Section 8 of the Note, the Noteholder hereby agrees in writing to an express waiver of default pursuant to Section 2(a)(v) of the Note.  Noteholder hereby acknowledges and agrees that no other events of default have occurred other than pursuant to Section 2(a)(v) and to the extent such events of default have occurred they are hereby expressly waived as well. Noteholder further acknowledges and agrees that, as a result of said waiver of default, the Note is in good standing and no longer in default.


2.          Amendment to Note.  In exchange for the Waiver of Default set forth in Section 1, GrowLife agrees to amend the Note as set forth in attached Exhibit “A”.


3.          Severance.   If any provision of this Agreement is determined by a court of competent jurisdiction to be illegal, invalid or unenforceable, that provision will be deemed severed and deleted from the Agreement as a whole, and neither such provision nor its severance and deletion shall in any way affect the validity of the remaining provisions of the Agreement.


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No Reliance.   Each of the Parties represents and declares that in executing this Agreement, he, she, it and they rely solely upon his, her, its and their own judgment, belief and knowledge. The undersigned for the Company warrants and represents that they have the authority to enter into this Agreement and Amendment.


4.          Counterparts.   This Agreement may be executed in two or more counterparts.


5.          Signatures.   This Agreement may be executed with electronic, facsimile or emailed signatures.  Such signatures shall be deemed valid for all purposes as if they were signed by hand.


6.          Integration.  This Agreement constitutes the entire understanding of the Parties and supersedes all other negotiations and or agreements.  


7.          Amendment.   This Agreement may be amended only by written agreement executed by each of the Parties.


8.          Governing Law. The law that shall be applied to this Agreement at all times shall be law of the State of California, without giving effect to conflicts of laws principles.


9.          Enforcement.    In the event that any action, suit or other proceeding arising out of or related to the breach, enforcement, or interpretation of this Agreement, or involving claims within the scope of this Agreement, or other terms of this Agreement, the prevailing party shall recover all of such Party’s reasonable attorneys’ fees, costs, and expenses, regardless whether recoverable by statute or rule, as long as such fees, costs, and expenses are reasonable and related in some manner to such action, suit, or proceedings, including any and all appeals, writs or petitions therefrom, etc.



[Signatures on following page]



GROWLIFE, INC.

NOTEHOLDER

 

 

 

 

/s/ Marco Hegyi

/s/ Ronald Franco

By: Marco Hegyi

By: Ronald Franco

Its: President

Its: President


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EXHIBIT “A”


AMENDMENT TO 7% CONVERTIBLE NOTE


THIS AMENDMENT TO 7% CONVERTIBLE NOTE (this “Amendment”), made this 19th day of June, 2014 (the “Amendment Effective Date”) by and between GrowLife, Inc. (the “Company”), a Delaware corporation, on the one hand and Forglen LLC (the “Noteholder”) on the other hand.  The Company and the Noteholder shall each separately be referred to as a “Party” and collectively as the “Parties.”


RECITALS


WHEREAS, the Company and the Noteholder entered into a 7% Convertible Note (the “Note”) on or about October 10, 2013;


WHEREAS , on April 10, 2014, as a result of the suspension in the trading of the Company’s securities by the Securities and Exchange Commission (“SEC”), the Company went into default on the Note under Section 2(a)(v) of the Note.  As a result, the Company is now accruing interest on the Note at the applicable “default” rate of interest as stipulated in the Note. Furthermore, as a result of being in default, the Noteholder can, at its sole discretion, accelerate payment of the Note; and


WHEREAS , GrowLife acknowledges that a default has occurred under the terms of the Note between the Parties and the Noteholder hereby elects to waive any and all rights to the default by GrowLife on the Note as a result of the trading suspension in exchange for an amendment to the Note set forth below.


NOW, THEREFORE , for good and valuable consideration the sufficiency of which is hereby acknowledged, the Parties agree as follows:


AGREEMENT


1.         Section 1(b) of the Note is hereby replaced in its entirety with the following language:


(b)            Interest . Interest on the unpaid Principal shall accrue daily at the lesser of the rate of twenty-four percent (24%) (the “Interest Rate”) per annum or the maximum rate permitted under any applicable law and compounding on the Maturity Date; provided that from and after the occurrence and during the continuance of an Event of Default (as defined below) interest shall continue to accrue at the same rate as the Interest Rate (the “Default Rate”). The Company warrants and represents that at the time the Note and was entered into, and on the day of default on or about April 10, 2014 and thereafter the Company was exempt from the usury provisions of the California Constitution regarding this Note’s interest and specifically warrants and represents that Company and this Note’s interest, met and meets the exemption set forth in Section 25118 (a) of the California Corporations Code.  


2.         The obligation of Company to meet the provisions of Section 2(a)(v) is waived.  


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3.         Section 3. (a) (ii) of the Note is hereby replaced in its entirety with the following language:  The “Conversion Price shall equal the lesser of (A) $.025, (B) seventy percent (70%) of the average of three (3) lowest daily VWAP’s occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, and (C) the lower price any other party now or in the future has to acquire Common Stock including but not limited to options to convert in a note or warrants, all subject to adjustment as provided in this Note.


4.         In the event there is a conflict between this Amendment and the Note, the terms of this Amendment shall control.  All other terms of the Agreements and Note shall remain in full force and effect.


5.         Company acknowledges that the current unpaid principal balance on the Note is $250,000 and that the prior notice to convert was rescinded and is null and void.



[signatures on following page]



IN WITNESS WHEREOF , the Company has executed this Amendment as of the date first set forth above. The undersigned for the Company warrants and represents that they have the authority to enter into this Agreement and Amendment.



“COMPANY”


GROWLIFE, INC. ,

a Delaware corporation



By:/s/ Marco Hegyi

Name: Marco Hegyi

Title:  President



“NOTEHOLDER”


By: /s/ Ronald Franco

Name: Ronald Franco

Title: President


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Exhibit 99.1


GrowLife Ignites Nationwide Launch Backed with Strategic Partnership and Growth Capital


The Company makes a transformative move to become the nation’s largest cultivation service provider, starting with a major expansion to 17 states, and new CANX partnership


SEATTLE, July 18, 2014 – GrowLife, Inc. (OTC: PHOT) aims to become the nation’s largest cultivation facility service provider for organics, greens and plant-based medicines. The Company announced today its first significant achievement towards that vision with the nationwide launch of its direct-to-cultivator sales network and automated replenishment services beginning in 17 states. Additional states will be added by the end of the year. GrowLife also announced a new strategic partnership with CANX USA LLC (CANX). The partnership with CANX provides financial resources to GrowLife under an expanded joint venture agreement that will support the Company’s national expansion, and mergers and acquisitions (M&A) initiatives.


“The most efficient way for us to take advantage of the explosive growth in the industry is to be proactive and bring our goods directly to our customers. Since June, we’ve developed and launched the first 17 states of our nationwide sales expansion plan,” said GrowLife President, Marco Hegyi. “Also, we’ve shed more than 60 percent in operating expenses from under performing retail and business units with this plan. This increases our ability to reach a significantly larger customer base, thus generating greater revenue at a much lower operating cost. We’ve passed on these savings to the customer as well.”


GrowLife activated its nationwide sales network initially servicing Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington. With GrowLife, specialty cultivation facilities can be assured they will have timely and reliable access to the industry’s premium supplies such as farming soil, plant nutrients, hydroponic equipment, and thousands more products.


“Building a cultivation facility requires huge investments in certified lighting, premium grade soil, and top nutrients,” said Daniel Curlyo of Cascade Crops. “We’re a GrowLife customer because we can’t afford to invest in supplies or services that could jeopardize the quality of our crops, or our government compliance status.”


Also announced today is an enhanced strategic partnership between GrowLife and CANX. The partnership, as agreed to under an amended joint venture, increases funding resources to three new and significant channels for GrowLife. In addition to its expansion efforts, GrowLife will apply these new funding resources to high-value, cash-flowing mergers and acquisitions that are critical to the business.


Under this partnership, CANX agrees to provide GrowLife with $10 million in working capital with secured loans, $12 million in GrowLife-direct M&A capital resources, and joint venture M&A financing exceeding the $40 million cap, imposed by the previous arrangement. All transactions must be approved by the joint venture and meet a pre-determined deal criteria.  Furthermore, CANX has waived defaults from the prior November 19, 2013 contract with GrowLife. In addition, the Company obtained waivers of default from other lenders, which were triggered by the trading halt back in April.


“We’ve removed many obstacles, distractions, and secured financial resources necessary to stabilize the company and launch 2.0,” said Hegyi. “CANX and GrowLife have come together under a revised agreement that gives us access to capital under favorable terms that are designed to mitigate risk, generate cash flow and return on investment. Except for resolving the class action and grey sheet matters, which we are pursuing, we’ve paid the price to take corrective action, cut about $160,000 in spending each month, and are now focused on building the nation’s largest cultivation product and service network.”



GrowLife offers high-quality supplies to commercial and independent cultivators across the nation to help ensure grows are safe, certified and produce premium results. As a result, GrowLife, along with its valued customers, is responsibly building a new high-growth economy that is keeping revenue accrued on our shores. GrowLife is now poised to capture a large share of the market while exercising a conservative financial structure that strengthens operations. Learn more about what’s happening at GrowLife from Hegyi here, or visit: www.GrowLifeInc.com.


About GrowLife, Inc.


GrowLife, Inc. (PHOT) (www.growlifeinc.com) aims to become the nation’s largest cultivation service provider for cultivating organics, herbs and greens and plant-based medicines. Our mission is to best serve more cultivators in the design, build-out and expansion of their facilities with products of high quality, exceptional value and competitive price. Through a nationwide network of local representative, regional centers and its e-Commerce team, GrowLife provides essential goods and services including media (farming soil), industry-leading hydroponics equipment, plant nutrients, and thousands more products to specialty grow operations in 17 states. GrowLife is headquartered in Seattle, WA and was founded in 2012.


Cautionary Language Concerning Forward-Looking Statements


This release contains “forward-looking statements” that include information relating to future events and future financial and operating performance.  The words “may,” “would,” “will,” “expect,” “estimate,” “can,” “believe,” “potential” and similar expressions and variations thereof are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which that performance or those results will be achieved.  Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to: fluctuations in demand for GrowLife’s products, the introduction of new products, the Company’s ability to maintain customer and strategic business relationships, the impact of competitive products and pricing, growth in targeted markets, the adequacy of the Company’s liquidity and financial strength to support its growth, and other information that may be detailed from time-to-time in GrowLife’s filings with the United States Securities and Exchange Commission. Examples of such forward-looking statements in this release include statements regarding future sales, costs and market acceptance of products as well as regulatory actions at the State or Federal level.  For a more detailed description of the risk factors and uncertainties affecting GrowLife, Inc. please refer to the Company’s Securities and Exchange Commission filings, which are available at www.sec.gov.  GrowLife, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


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Media Relations:

Tina Qunell

GrowLife Communication Team

(206) 919-9652

tina@growlifeinc.com


Investor Relations:

Tina Qunell

Shareholders Support Team

(206) 919-9652

tina@growlifeinc.com