Exhibit 10.1
THE EXCHANGE CONTEMPLATED HEREIN IS INTENDED TO COMPORT WITH THE REQUIREMENTS OF SECTION 3(a)(9) OF THE SECURITIES ACT OF 1933, AS AMENDED.
Exchange Agreement
This Exchange Agreement
(this “
Agreement
”) is executed as of August 17, 2016 by and between GrowLife, Inc., a Delaware corporation (the “
Company
”), and Chicago Venture Partners, L.P., a Utah limited partnership,
its successors and/or assigns (“
Holder
”). Capitalized terms not defined herein shall have the same meaning as set forth in the Initial Exchange Note (as defined below).
A.
The Company previously sold and issued to TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“
TCA
”), that certain Amended, Restated and Consolidated Senior Secured Convertible
Redeemable Debenture dated and made effective as of October 27, 2015 in the original principal amount of $1,050,000.00 (the “
Original Debenture
”).
B.
Pursuant to that certain Debt Purchase Agreement dated August 17, 2016 between Holder and TCA (the “
Purchase Agreement
”), Holder agreed to purchase the Original Debenture from TCA in multiple tranches
(each, a “
Tranche
”).
C.
In connection with the first Tranche purchased by Holder, TCA severed an $80,000.00 portion of the Original Debenture and the Company reissued such $80,000.00 portion as that certain First Replacement Amended, Restated and Consolidated Senior Secured
Convertible Redeemable Debenture A in the original principal amount of $80,000.00 dated and made effective as of August 17, 2016 but having an original issuance date of October 27, 2015 (the “
Initial Debenture
”).
D.
Pursuant to the Purchase Agreement and with respect to each subsequent Tranche, TCA will sever additional portions of the Original Debenture and the Company will reissue such severed portions as additional First Replacement Amended, Restated and Consolidated
Senior Secured Convertible Redeemable Debentures (each, a “
Subsequent Debenture
”, and together with the Initial Debenture, the “
Purchased Debentures
”).
E.
Subject to the terms of this Agreement, Holder and the Company desire to exchange (such exchange is referred to as the “
Note Exchange
”) (i) the Initial Debenture for a new Convertible Promissory Note
in the original principal amount of $128,000.00 substantially in the form attached hereto as
Exhibit A
(the “
Initial Exchange Note
”); and (ii) all other Purchased Debentures for new Convertible Promissory Notes each in substantially the form attached hereto as
Exhibit B
(each, a “
Subsequent Exchange Note
”, and together
with the Initial Exchange Note, the “
Exchange Notes
”). The Note Exchange will consist of Holder surrendering the Initial Debenture in return for the Initial Exchange Note and, from time to time upon the closing of additional Tranches, the surrender of Subsequent Debentures for Subsequent Exchange Notes. Other than the surrender of the Purchased Debentures, no consideration of any kind whatsoever shall be given by Holder to the Company in connection with this
Agreement.
F.
This Agreement, the Initial Exchange Note, each Subsequent Exchange Note, the Transfer Agent Letter (as defined below), the Secretary’s Certificate (as defined below), the Share Issuance Resolution (as defined below),
the Officer’s Certificate (as defined below) and any other documents, agreements, or instruments entered into or delivered in connection with this Agreement, or any amendments to any of the foregoing, are collectively referred to as the “
Exchange Documents
”.
G.
For purposes of this Agreement: “
Conversion Shares
” means all shares of Common Stock issuable upon conversion of all or any portion of any Exchange Note; and “
Securities
”
means the Initial Exchange Note, all Subsequent Exchange Notes, and the Conversion Shares.
H.
Pursuant to the terms and conditions hereof, Holder and the Company agree to exchange the Purchased Debentures for the Exchange Notes.
NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the parties hereto agree as follows:
1.
Issuance of Exchange Notes; Exchange Fees
.
1.1.
Upon execution of this Agreement, Holder will surrender the Initial Debenture to the Company and the Company will issue to Holder the Initial Exchange Note. In conjunction therewith, the Company hereby confirms that the Initial
Debenture represents the Company’s unconditional obligation to pay the outstanding balance pursuant to the terms of the Original Debenture. The Company and Holder agree that upon surrender, the Initial Debenture will be cancelled and the remaining amount owed to Holder pursuant to the Initial Debenture shall hereafter be evidenced solely by the Initial Exchange Note.
1.2.
Upon each subsequent purchase of a Subsequent Debenture, Holder will surrender such Subsequent Debenture to the Company and the Company will issue to Holder a Subsequent Exchange Note. In conjunction therewith, the Company
hereby confirms that each Subsequent Debenture represents the Company’s unconditional obligation to pay the outstanding balance pursuant to the terms of the Original Debenture. The Company and Holder agree that upon surrender, the applicable Subsequent Debenture will be cancelled and the remaining amount owed to Holder pursuant to such Subsequent Debenture shall hereafter be evidenced solely by the applicable Subsequent Exchange Note.
1.3.
The Company acknowledges that the outstanding balance of the Initial Exchange Note includes an exchange fee in the amount of $48,000.00 (the “
Exchange Fee
”), which sum was added to the outstanding balance of the Initial Exchange Note in consideration of the accommodations granted to the Company and the legal and other fees incurred by Holder in connection with the Note Exchange. The Company further acknowledges and agrees that an additional Exchange Fee shall
be added to the outstanding balance of each Subsequent Exchange Note that is issued hereafter in an amount bearing the same ratio to the outstanding balance of the Subsequent Debenture being exchanged as the initial Exchange Fee bears to the outstanding balance of the Initial Debenture. For illustration purposes only, if the outstanding balance of a Subsequent Debenture being exchanged is equal to $150,000.00, then the Exchange Fee included in the balance of the Subsequent Exchange Note being issued in exchange
for such Subsequent Debenture shall be equal to $90,000.00.
2.
Closings
.
2.1.
Subject to the satisfaction (or written waiver) of the conditions set forth in Section 3 and Section 4 below, The initial closing of the transaction contemplated hereby (the “
Initial Closing
”)
along with the delivery of the Initial Exchange Note and the other Exchange Documents (as defined below) shall occur on the date that is mutually agreed to by the Company and Holder (the “
Initial Closing Date
”) by means of the exchange by express courier and email of .pdf documents, but shall be deemed to have occurred at the offices of Hansen Black Anderson Ashcraft PLLC in Lehi, Utah.
2.2.
Subject to the satisfaction (or written waiver) of the conditions set forth in Section 3 and Section 4 below, the closing of the exchange of each Subsequent Debenture (the “
Subsequent
Closing
”, and together with the Initial Closing, the “
Closings
”) and issuance of each Subsequent Exchange Note shall occur on a date that is mutually agreed upon by the Company and Holder, but in any event is not more than two (2) business days following the date on which Holder gives the Company notice that it has acquired a Subsequent Debenture and desires to exchange it for a Subsequent Exchange Note pursuant to this Agreement (the “
Subsequent
Closing
Date
”, and together with the Initial Closing Date, the “
Closing Dates
”) by means of the exchange by express courier and email of .pdf documents, but shall be deemed to have occurred at the offices of Hansen Black Anderson Ashcraft PLLC in Lehi, Utah.
3.
Conditions to Company s Obligation to Exchange
. The obligation of Company hereunder to exchange the Purchased Debentures for the Exchange Notes at the Closings is subject to the
satisfaction, on or before the applicable Closing Date, of each of the following conditions:
3.1.
With respect to the Initial Closing, Holder shall have executed and delivered this Agreement to the Company.
3.2.
With respect to each Closing, Holder shall have delivered applicable Purchased Debenture for cancellation or a lost note affidavit.
4.
Conditions to Company s Obligation to Exchange
. The obligation of Holder hereunder to Exchange the Purchased Debentures at the Closings is subject to the satisfaction, on or before
the applicable Closing Date, of each of the following conditions, provided that these conditions are for Holder’s sole benefit and may be waived by Holder at any time in its sole discretion:
4.1.
With respect to the Initial Closing, the Company shall have executed and delivered this Agreement.
4.2.
With respect to each Closing, the Company shall have executed and delivered the applicable Exchange Note.
4.3.
With respect to the Initial Closing, the Company shall deliver to Holder a fully executed Letter of Instructions to Transfer Agent (“
Transfer Agent Letter
”) substantially
in the form attached hereto as
Exhibit C
acknowledged and agreed to in writing by Company’s transfer agent (the “
Transfer Agent
”).
4.4.
With respect to the Initial Closing, the Company shall deliver to Holder a fully executed Secretary’s Certificate substantially in the form attached hereto as
Exhibit D
(the
“
Secretary’s Certificate
”) evidencing the Company’s approval of the Note Exchange and the Exchange Documents.
4.5.
With respect to the Initial Closing, the Company shall deliver to Holder a fully executed Share Issuance Resolution substantially in the form attached hereto as
Exhibit E
(the
“
Share Issuance Resolution
”) to be delivered to the Transfer Agent.
4.6.
With respect to each Closing, Company’s Chief Executive Officer shall have executed and delivered a certificate in substantially the form attached hereto as
Exhibit F
(the
“
Officer’s Certificate
”)
4.7.
With respect to each Closing, delivery of all other Exchange Documents.
5.
Holding Period, Tacking and Legal Opinion
. The Company represents, warrants and agrees that for the purposes of Rule 144 (“
Rule 144
”)
of the Securities Act of 1933, as amended (the “
Securities Act
”), the holding period of each Exchange Note will include TCA’s holding period of the Original Debenture from October 27, 2015, which date is the date that the Original Debenture was issued. The Company agrees not to take a position contrary to this Section 5 in any document, statement, setting, or situation and further acknowledges that the Original Debenture has not been amended or altered
since such date. The Company represents that it is not subject to Rule 144(i). Each Exchange Notes is being issued in substitution of and exchange for and not in satisfaction of the applicable Purchased Debenture. The Exchange Notes shall not constitute a novation or satisfaction and accord of the applicable Purchased Debenture.
The Company acknowledges and understands that the representations and agreements of the Company in this Section 5 are a material inducement to
Holder’s decision to consummate the transactions contemplated herein.
6.
Representations, Warranties and Covenants of Holder
. Holder represents, warrants, and covenants to the Company that:
6.1.
Investment Purpose
. Holder is acquiring the Securities for its own account for investment only and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under the Securities Act;
provided, however
, that by making the representations herein, Holder reserves the right to dispose of the Conversion Shares at any time in accordance with or pursuant to an effective registration statement covering such Conversion Shares or an available exemption under the Securities Act.
6.2.
Accredited Investor Status
. Holder is an “Accredited Investor” as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.
6.3.
Authorization, Enforcement
. This Agreement has been duly and validly authorized, executed and delivered on behalf of Holder and is a valid and binding agreement of Holder enforceable
in accordance with its terms.
6.4.
Brokers
.
There are no brokerage commissions, finder’s fees or similar fees or commissions payable by
Holder
in
connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with
Holder
or any action taken by
Holder
.
7.
Representations, Warranties, and Covenants of the Company
. The Company hereby makes the representations set forth below and covenants and agrees as follows to Holder (in addition
to those set forth elsewhere herein):
7.1.
Organization and Qualification
.
The Company has been duly organized, validly exists and is in good standing under the laws of the State of Delaware.
The Company has full corporate power and authority to enter into this Agreement and this Agreement has been duly and validly authorized, executed and delivered by the Company and is a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforcement may be limited by the United States Bankruptcy Code and laws effecting creditors’ rights, generally.
7.2.
Authorization, Enforcement, Compliance with Other Instruments
. (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under
this Agreement, the Exchange Notes, and each of the other Exchange Documents and to issue the Securities in accordance with the terms hereof, (ii) the execution and delivery of the Exchange Documents by the Company and the consummation by the Company of the transactions contemplated hereby, including, without limitation, the issuance of the Securities, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors
or its stockholders, (iii) the Exchange Documents have been duly executed and delivered by the Company, (iv) the Exchange Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, and (v) the Company’s signatory has full corporate or other requisite authority to execute the Exchange Documents and to bind the Company. The
Company’s Board of Directors has duly adopted a resolution authorizing this
Agreement and the other Exchange Documents and ratifying their terms, as indicated by the Secretary’s Certificate.
7.3.
Issuance of Securities
. The issuance of the Securities is duly authorized and the Securities are and will be, upon issuance, free and clear of all taxes, liens, claims, pledges,
mortgages, restrictions, obligations, security interests and encumbrances of any kind, nature and description other than liens in favor of Holder, and when issued will be validly issued, fully paid and non-assessable.
7.4.
No Conflicts
.
The execution and delivery by
the Company
of, and the performance by
the Company
of
its obligations under this Agreement in accordance with the terms of this Agreement will not contravene any provision of applicable law or the charter documents of
the Company
or any agreement or other instrument binding upon
the Company
, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over
the Company
, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the performance by
the Company
of its obligations under this Agreement in accordance with the terms of this Agreement
.
7.5.
SEC Documents: Financial Statements
.
None of
the Company
’s filings (“
SEC
Documents
”) filed with the United States Securities and Exchange Commission (the “
SEC
”) contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Since October
27, 2015,
the Company
has filed all reports, schedules, forms, statements and other documents required to be filed by
the Company
with the SEC under the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”).
7.6.
Brokers
. The Company has taken no action which would give rise to any claim by any person for a brokerage commission, placement agent or finder’s fees or similar payments
by Holder relating to this Agreement or the transactions contemplated hereby. The Company shall indemnify and hold harmless each of Holder, its employees, officers, directors, stockholders, managers, agents, attorneys, and partners, and their respective affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorneys’ fees) and expenses suffered in respect of any such claimed or existing fees.
7.7.
Authorization and Issuance
. The Original Debenture and each Purchased Debenture was (or, upon issuance, will have been) authorized by all necessary company action and validly
issued and executed, and the Company’s signatory had (or will have) full corporate or other requisite authority to execute such agreements and to bind the Company.
7.8.
Holding Period
. After due inquiry, the Company represents and warrants that at all times, the Company has complied in all material respects with all applicable
securities and other applicable laws in relation with the issuance, holding and transfers of the Original Debenture and each Purchased Debenture. To the Company’s knowledge, no violation of securities and other applicable laws occurred in connection with the acquisition, issuance, or holding of the Original Debenture or any Purchased Debenture.
7.9.
No Modifications
. No written document, agreement, instrument, contract, amendment or modification to the Original
Debenture exists that supplements, modifies, or amends the
Initial Debenture or any Subsequent Debenture
.
7.10.
Absence of Litigation
. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or
body pending against or affecting the Company, the Common Stock of the Company, $0.0001 par value per share (“
Common Stock
”), or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would have a material adverse effect on the Company or its operations.
7.11.
No Additional Consideration
. The Company
has not received any cash or property consideration in any form whatsoever for entering into this Agreement,
other than the surrender of
the Purchased Debentures
.
7.12.
Recitals
. All of the information, facts and representations set forth in the Recitals section of this Agreement are in all respects true and accurate as of the date hereof and
are incorporated as representations and warranties of the Company as if set forth in this Section 7.
7.13.
Acknowledgement of Obligations
. The Company hereby acknowledges, confirms and agrees that the obligations of the Company to Holder under the Exchange Notes are unconditionally
owed by the Company to Holder without offset, defense or counterclaim of any kind, nature or description whatsoever.
8.
Company Covenants
. Until all of the Company’s obligations under all of the Exchange Documents are paid and performed in full, or within the timeframes otherwise specifically
set forth below, the Company shall comply with the following covenants: (i) so long as Holder beneficially owns any of the Securities and for at least twenty (20) Trading Days thereafter, the Company shall timely file on the applicable deadline all reports required to be filed with the SEC pursuant to Sections 13 or 15(d) of the Exchange Act, and shall take all reasonable action under its control to ensure that adequate current public information with respect to the Company, as required in accordance with
Rule 144 of the Securities Act, is publicly available, and shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination; (ii) the Common Stock shall be listed or quoted for trading on any of (a) NYSE, (b) NASDAQ, (c) OTCQX, (d) OTCQB, or (e) OTC Pink Current Information; (iii) when issued, the Conversion Shares shall be duly authorized, validly issued, fully paid for and non-assessable,
free and clear of all liens, claims, charges and encumbrances; (iv) trading in the Company’s Common Stock shall not be suspended, halted, chilled, frozen, reach zero bid or otherwise cease on the Company’s principal trading market; (v) the Company shall not at any given time have any Variable Security Holders (as defined below), excluding Holder and any existing rights granted prior to the date hereof, without Holder’s prior written consent, which consent may be granted or withheld in Holder’s
sole and absolute discretion; (vi) at each Closing and on the first day of each calendar quarter for so long as any Exchange Note remains outstanding or on any other date during which any Exchange Note is outstanding, as may be requested by Holder, the Chief Executive Officer of the Company shall provide to Holder an Officer’s Certificate certifying in his capacity as Chief Executive Officer of the Company the number of Variable Security Holders of the Company as of the date the applicable Officer’s
Certificate is executed; (vii) upon the purchase by Holder of each Subsequent Debenture, the Company will immediately exchange such Subsequent Debenture for a Subsequent Exchange Note that includes an Exchange Fee in the original outstanding balance in accordance with Section 1.3 above; and (viii) if at any time the Common Stock trades below $0.0005, the Company shall, as soon as practicable but in no event longer than sixty (60) days thereafter, reduce the par value of its Common Stock to $0.00001 or below.
For purposes hereof, the term “
Variable Security Holder
” means any holder of any the Company securities that (A) have or may have conversion rights of any kind, contingent, conditional or otherwise, in which the number of shares that may be issued pursuant to such conversion right varies with the market price of the Common Stock, or (B) are or may become convertible into Common Stock (including without limitation convertible debt, warrants or convertible preferred
stock), with a conversion price that varies with the market price of the Common Stock, even if such security only becomes convertible following an event of default, the passage of time, or another trigger event or condition (each a “
Variable Security Issuance
”). For avoidance of doubt, the issuance of shares of Common Stock under, pursuant to, in exchange for or in connection with any contract or instrument, whether convertible or not, is deemed a Variable Security
Issuance for purposes hereof if the number of shares of Common Stock to be issued is based upon or related in any way to the market price of the Common Stock, including, but not limited to, Common Stock issued in connection with a Section 3(a)(9) exchange, a Section 3(a)(10) settlement, or any other similar settlement or exchange.
9.
Releases and Waivers
.
9.1.
Upon the full repayment of the Initial Exchange Note, Holder releases and forever discharges the Company of and from any and all manner of actions, suits, debts, sums of money, contracts, agreements, claims and demands at
law or in equity, that Holder had, or may have arising from the Initial Debenture.
9.2.
Upon the full repayment of each Subsequent Exchange Note, Holder releases and forever discharges the Company of and from any and all manner of actions, suits, debts, sums of money, contracts, agreements, claims and demands
at law or in equity, that Holder had, or may have arising from the applicable Subsequent Debenture.
9.3.
The Company hereby affirms that the obligations under the Exchange Notes and as set forth herein are valid and binding obligations of the Company, and hereby waives, to the fullest extent allowable under law, any and all defenses
that may be available to a debtor under applicable state and federal law including, without limiting the foregoing, any and all defenses available to a debtor or maker under the provisions of the Uniform Commercial Code pertaining to negotiable instruments.
9.4.
Upon execution of this Agreement, the Company releases and forever discharges Holder of and from any and all manner of actions, suits, debts, sums of money, contracts, agreements, claims and demands at law or in equity, that
the Company had, or may have arising from the Purchased Debentures.
10.
Reservation of Shares
. At all times during which any Exchange Note is convertible, the Company will reserve from its authorized and unissued Common Stock to provide for all issuances
of Common Stock under the Exchange Notes at least three (3) times the number of shares of Common Stock obtained by dividing the aggregate Outstanding Balance of all potential Exchange Notes by the Conversion Price (as defined in the Exchange Notes) (the “
Share Reserve
”), but in any event not less than 215,000,000 shares of Common Stock shall be reserved at all times for such purpose (the “
Transfer Agent Reserve
”).
The Company further agrees that it will cause the Transfer Agent to immediately add shares of Common Stock to the Transfer Agent Reserve in increments of 20,000,000 shares as and when requested by Holder in writing from time to time, provided that such incremental increases do not cause the Transfer Agent Reserve to exceed the Share Reserve. In furtherance thereof, from and after the date hereof and until such time that all of the Exchange Notes have been paid in full, the Company shall require the Transfer Agent
to reserve for the purpose of issuance of Conversion Shares under the Exchange Notes, a number of shares of Common Stock equal to the Transfer Agent Reserve. The Company shall further require the Transfer Agent to hold such shares of Common Stock exclusively for the benefit of Holder and to issue such shares to Holder promptly upon Holder’s delivery of a conversion notice under the Exchange Note. Finally, the Company shall require the Transfer Agent to issue shares of Common Stock pursuant to the Exchange
Note to Holder out of its authorized and unissued shares, and not the Transfer Agent Reserve, to the extent shares of Common Stock have been authorized, but not issued, and are not included in the Transfer Agent Reserve. The Transfer Agent shall only issue shares out of the Transfer Agent Reserve to the extent there are no other authorized shares available for issuance and then only with Holder’s written consent.
11.
Miscellaneous
. The provisions set forth in this Section 11 shall apply to this Agreement, as well as all other Exchange Documents as if these terms were fully set forth therein.
11.1.
To the extent any capitalized term used in any Exchange Document is defined in any other Exchange Document (as noted therein), such capitalized term shall remain applicable in the Exchange Document in which it is so used
even if the other Exchange Document (wherein such term is defined) has been released, satisfied, or is otherwise cancelled.
11.2.
Arbitration of Claims
. The parties shall submit all Claims (as defined in
Exhibit G
) arising under this Agreement, any other
Exchange Document, or any other agreement between the parties and their affiliates to binding arbitration pursuant to the arbitration provisions set forth in
Exhibit G
attached hereto (the “
Arbitration Provisions
”). The parties hereby acknowledge and agree that the Arbitration Provisions are unconditionally binding on the parties hereto and are severable from all other provisions of this Agreement. By executing
this Agreement, the Company represents, warrants and covenants that the Company has reviewed the Arbitration Provisions carefully, consulted with legal counsel about such provisions (or waived its right to do so), understands that the Arbitration Provisions are intended to allow for the expeditious and efficient resolution of any dispute hereunder, agrees to the terms and limitations set forth in the Arbitration Provisions, and that the Company will not take a position contrary to the foregoing representations.
The Company acknowledges and agrees that Holder may rely upon the foregoing representations and covenants of the Company regarding the Arbitration Provisions.
11.3.
Governing Law; Venue
. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Utah without regard to the principles of conflict of laws.
Each party consents to and expressly agrees that the exclusive venue for arbitration of any dispute arising out of or relating to this Agreement or the relationship of the parties or their affiliates shall be in Salt Lake County, Utah. Without modifying the parties’ obligations to resolve disputes hereunder pursuant to the Arbitration Provisions, each party hereto submits to the exclusive jurisdiction of any state or federal court sitting in Salt Lake County, Utah in any proceeding arising out of or relating
to this Agreement and agrees that all Claims (as defined in the Arbitration Provisions) in respect of the proceeding may only be heard and determined in any such court and hereby expressly submits to the exclusive personal jurisdiction and venue of such court for the purposes hereof and expressly waives any claim of improper venue and any claim that such courts are an inconvenient forum. Each party hereto hereby irrevocably consents to the service of process of any of the aforementioned courts in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage prepaid, to its address as set forth in the Purchase Agreement, such service to become effective ten (10) days after such mailing.
11.4.
Calculation Disputes
. Notwithstanding the Arbitration Provisions, in the case of a dispute as to any determination or arithmetic calculation under the Exchange Documents, including
without limitation, calculating the Outstanding Balance, Conversion Price (as defined in the Exchange Notes), Conversion Shares, Conversion Factor (as defined in the Exchange Notes), or VWAP (as defined in the Exchange Notes) (each, a “
Calculation
”), the Company or Holder (as the case may be) shall submit any disputed Calculation via email or facsimile with confirmation of receipt (i) within two (2) Trading Days after receipt of the applicable notice giving rise
to such dispute to the Company or Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after Holder learned of the circumstances giving rise to such dispute. If Holder and the Company are unable to agree upon such Calculation within two (2) Trading Days of such disputed Calculation being submitted to the Company or Holder (as the case may be), then Holder will promptly submit via email or facsimile the disputed Calculation to Unkar Systems Inc. (“
Unkar
Systems
”). The Company shall cause Unkar Systems to perform the Calculation and notify the Company and Holder of the results no later than ten (10) Trading Days from the time it receives such disputed Calculation. Unkar Systems’ determination of the disputed Calculation shall be binding upon all parties absent demonstrable and manifest error. Unkar Systems’ fee for performing such Calculation shall be paid by the incorrect party, or if both parties are incorrect, by the party whose Calculation
is furthest from the correct Calculation as determined by Unkar Systems. In the event the Company is the losing party, no extension of the Delivery Date (as defined in the Note) shall be granted and the Company shall incur all effects for failing to deliver the applicable shares in a timely manner as set forth in the Exchange Documents. Notwithstanding the foregoing, Holder may, in its sole discretion, designate an independent, reputable investment bank or accounting firm other than Unkar Systems to resolve any
such dispute and in such event, all references to “Unkar Systems” herein will be replaced with references to such independent, reputable investment bank or accounting firm so designated by Holder.
11.5.
Successors and Assigns; Third Party Beneficiaries
. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto.
Except as otherwise expressly provided herein, no person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.
11.6.
Pronouns
. All pronouns and any variations thereof in this Agreement refer to the masculine, feminine or neuter, singular or plural, as the context may permit or require.
11.7.
Counterparts
.
This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together
shall constitute one instrument. The parties
hereto
confirm that any electronic copy of another party’s executed counterpart of this Agreement (or its signature page thereof) will be deemed to be an executed original thereof
.
11.8.
Document Imaging
. Holder shall be entitled, in its sole discretion, to image or make copies of all or any selection of the agreements, instruments, documents, and items and
records governing, arising from or relating to any of the Company’s loans, including, without limitation, this Agreement and the other Exchange Documents, and Holder may destroy or archive the paper originals. The parties hereto (a) waive any right to insist or require that Holder produce paper originals, (b) agree that such images shall be accorded the same force and effect as the paper originals, (c) agree that Holder is entitled to use such images in lieu of destroyed or archived originals for any
purpose, including as admissible evidence in any demand, presentment or other proceedings, and (d) further agree that any executed facsimile (faxed), scanned, emailed, or other imaged copy of this Agreement or any other Exchange Document shall be deemed to be of the same force and effect as the original manually executed document.
11.9.
Headings
. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.
11.10.
Severability
. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be invalid or unenforceable in any jurisdiction, such provision shall be modified to achieve the objective of the parties to the fullest extent permitted and such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.
11.11.
Entire Agreement
. This Agreement, together with the Exchange Notes, and the other Exchange Documents, constitutes and contains the entire agreement between the parties hereto,
and supersedes all prior oral or written agreements and understandings between Holder, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor Holder makes any representation, warranty, covenant or undertaking with respect
to such matters.
11.12.
No Reliance
. The Company acknowledges and agrees that neither Holder nor any of its officers, directors, members, managers, partners, representatives or agents has made any
representations or warranties to the Company or any of its officers, directors, stockholders, agents, representatives, or employees except as expressly set forth in the Exchange Documents and, in making its decision to enter into the transactions contemplated by the Exchange Documents, the Company is not relying on any representation, warranty, covenant or promise of Holder or its officers, directors, members, managers, agents or representatives other than as set forth in the Exchange Documents.
11.13.
Amendment
. Any amendment, supplement or modification of or to any provision of this Agreement, shall be effective only if it is made or given by an instrument in writing (excluding
any email message) and signed by the Company and Holder.
11.14.
No Waiver
. No forbearance, failure or delay on the part of a party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver of any provision of this Agreement shall be effective (a) only if it is made or given in writing (including an email message) and (b) only in the specific instance and for the specific purpose for which made or given.
11.15.
Assignment
. Notwithstanding anything to the contrary herein, the rights, interests or obligations of the Company hereunder may not be assigned, by operation of law or otherwise,
in whole or in part, by the Company without the prior written consent of Holder, which consent may be withheld at the sole discretion of Holder;
provided, however
, that in the case of a merger, sale of substantially all of the Company’s assets or other corporate reorganization, Holder shall not unreasonably withhold, condition or delay such consent. This Agreement or any of the severable rights and obligations inuring to the benefit of or to be performed by Holder
hereunder may be assigned by Holder to a third party, including its financing sources, in whole or in part.
11.16.
Advice of Counsel
. In connection with the preparation of this Agreement and all other Exchange Documents, each of the Company, its stockholders, officers, agents, and representatives
acknowledges and agrees that the attorney that prepared this Agreement and all of the other Exchange Documents acted as legal counsel to Holder only. Each of the Company, its stockholders, officers, agents, and representatives (a) hereby acknowledges that he/she/it has been, and hereby is, advised to seek legal counsel and to review this Agreement and all of the other Exchange Documents with legal counsel of his/her/its choice, and (b) either has sought such legal counsel or hereby waives the right to do so.
11.17.
No Strict Construction
. The language used in this Agreement is the language chosen mutually by the parties hereto and no doctrine of construction shall be applied for or against
any party.
11.18.
Attorneys’ Fees
. In the event of any action at law or in equity to enforce or interpret the terms of this Agreement or any of the other Exchange Documents, the parties
agree that the party who is awarded the most money (which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses paid by such prevailing party in connection with the litigation and/or dispute without reduction or apportionment based upon the individual claims
or defenses giving rise to the fees and expenses. Nothing herein shall restrict or impair a court’s power to award fees and expenses for frivolous or bad faith pleading.
11.19.
Waiver of Jury Trial
. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER EXCHANGE DOCUMENT, OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY.
11.20.
Further Assurances
. Each party shall do and perform or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
11.21.
Notices
. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:
(i) the date delivered, if delivered by personal delivery as against written receipt therefor or by email to an executive officer, or by facsimile (with successful transmission confirmation), (ii) the earlier of the date delivered or the third Trading Day after deposit, postage prepaid, in the United States Postal Service by certified mail, or (iii) the earlier of the date delivered or the third Trading Day after mailing by express courier, with delivery costs and fees prepaid, in each case, addressed to each
of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by five (5) calendar days’ advance written notice similarly given to each of the other parties hereto):
If to the Company:
GrowLife, Inc.
Attn: Marco Hegyi
5400 Carillon Point
Kirkland, Washington 98033
If to Holder:
Chicago Venture Partners, L.P.
Attn: John Fife
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
With a copy to (which copy shall not constitute notice):
Hansen Black Anderson Ashcraft PLLC
Attn: Jonathan Hansen
3051 West Maple Loop Drive, Suite 325
Lehi, Utah 84043
11.22.
Certain Transactions
. During the period beginning on the Initial Closing Date and ending on the date that Holder no longer owns any of the Securities, Holder will not directly
or through an affiliate engage in any open market Short Sales (as defined below) of the Common Stock; provided; however, that unless and until Company has affirmatively demonstrated by the use of specific evidence that Holder is engaging in open market Short Sales, Holder shall be assumed to be in compliance with the provisions of this Section and Company shall remain fully obligated to fulfill all of its obligations under the Exchange Documents; and provided, further, that (i) Company shall under no circumstances
be entitled to request or demand that Holder either (A) provide trading or other records of Holder or of any party or (B) affirmatively demonstrate that Holder or any other party has not engaged in any such Short Sales in breach of these provisions as a condition to Company’s fulfillment of its obligations under any of the Exchange Documents, (ii) Company shall not assert Holder’s or any other party’s failure to demonstrate such absence of such Short Sales or provide any trading or other records
of Holder or any other party as all or part of a defense to any breach of Company’s obligations under any of the Exchange Documents, and (iii) Company shall have no setoff right with respect to any such Short Sales. As used herein, “Short Sale” has the meaning provided in Rule 3b-3 under the Exchange Act.
11.23.
Survival of Representations and Warranties
. All of the representations and warranties made herein shall survive the execution and delivery of this Agreement for the maximum
time allowable by applicable law.
11.24.
Transaction Fees
. Each party shall be responsible for its own attorneys’ fees and other costs and expenses associated with documenting and closing the transaction contemplated
by this Agreement.
11.25.
Specific Performance
. The Company
and
Holder
acknowledge and agree that irreparable damage would occur in the
event that any provision of this Agreement or any of the other Exchange Documents were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions, without (except as specified in the Arbitration Provisions) the necessity to post a bond, to prevent or
cure
breaches of the provisions of this Agreement or such other Exchange Document and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.
11.26.
Time is of the Essence
. Time is expressly made of the essence of each and every provision of this Agreement and the Exchange Documents
.
11.27.
Voluntary Agreement
. The
Company has carefully read this Agreement and each of the other Exchange Documents and has asked any questions needed
for the Company to understand the terms, consequences and binding effect of this Agreement and each of the other Exchange Documents and fully understand them. The Company has had the opportunity to seek the advice of an attorney of the Company’s choosing, or has waived the right to do so, and is executing this Agreement and each of the other Exchange Documents voluntarily and without any duress or undue influence by Holder or anyone else.
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]
IN WITNESS WHEREOF, each of the undersigned represents that the foregoing statements made by it above are true and correct and that it has caused this Exchange Agreement to be duly executed on its behalf (if an entity, by one of its officers thereunto duly authorized) as of the date first above written.
HOLDER
:
Chicago Venture Partners, L.P.
By: Chicago Venture Management, L.L.C., its General Partner
By: CVM, Inc., its Manager
By:/s/ John M. Fife
John M. Fife, President
COMPANY:
GrowLife, Inc.
By: /s/ Marco Hegyi
Name: Marco Hegyi
Title: CEO
ATTACHMENTS:
Exhibit A
Initial Exchange Note
Exhibit B
Form of Subsequent Exchange Note
Exhibit C
Transfer Agent Letter
Exhibit D
Secretary’s Certificate
Exhibit E
Share Issuance Resolution
Exhibit F
Officer’s Certificate
Exhibit G
Arbitration Provisions
EXHIBIT G
ARBITRATION PROVISIONS
1.
Dispute Resolution
. For purposes of this
Exhibit G
, the term “
Claims
” means any disputes, claims, demands, causes of action, requests for injunctive
relief, requests for specific performance, liabilities, damages, losses, or controversies whatsoever arising from, related to, or connected with the transactions contemplated in the Exchange Documents, and any communications between the parties related thereto, including without limitation any claims of mutual mistake, mistake, fraud, misrepresentation, failure of formation, failure of consideration, promissory estoppel, unconscionability, failure of condition precedent, rescission, and any statutory claims,
tort claims, contract claims, or claims to void, invalidate or terminate the Agreement (or these Arbitration Provisions (defined below)), any of the other Exchange Documents, if applicable. The term “Claims” specifically excludes a dispute over Calculations. The parties to the Agreement (the “
parties
”) hereby agree that the arbitration provisions set forth in this
Exhibit G
(“
Arbitration
Provisions
”) are binding on each of them. As a result, any attempt to rescind the Agreement (or these Arbitration Provisions) or declare the Agreement (or these Arbitration Provisions), any other Exchange Document, invalid or unenforceable for any reason is subject to these Arbitration Provisions. These Arbitration Provisions shall also survive any termination or expiration of the Agreement. Any capitalized term not defined in these Arbitration Provisions shall have the meaning set forth in the Agreement.
2.
Arbitration
. Except as otherwise provided herein, all Claims must be submitted to arbitration (“
Arbitration
”) to be conducted exclusively in Salt Lake County or Utah County, Utah and pursuant
to the terms set forth in these Arbitration Provisions. Subject to the arbitration appeal right provided for in Paragraph 5 below (the “
Appeal Right
”), the parties agree that the award of the arbitrator rendered pursuant to Paragraph 4 below (the “
Arbitration Award
”) shall be (a) final and binding upon the parties, (b) the sole and exclusive remedy between them regarding any Claims, counterclaims, issues, or
accountings presented or pleaded to the arbitrator, and (c) promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Subject to the Appeal Right, any costs or fees, including without limitation attorneys’ fees, incurred in connection with or incident to enforcing the Arbitration Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Arbitration Award shall include default interest (as defined
or otherwise provided for in the applicable Note (“
Default Interest
”)) (with respect to monetary awards) at the rate specified in the applicable Note for Default Interest both before and after the Arbitration Award. Judgment upon the Arbitration Award will be entered and enforced by any state or federal court sitting in Salt Lake County, Utah.
3.
The Arbitration Act
. The parties hereby incorporate herein the provisions and procedures set forth in the Utah Uniform Arbitration Act, U.C.A. § 78B-11-101
et seq.
(as amended or superseded from
time to time, the “
Arbitration Act
”). Notwithstanding the foregoing, pursuant to, and to the maximum extent permitted by, Section 105 of the Arbitration Act, in the event of conflict or variation between the terms of these Arbitration Provisions and the provisions of the Arbitration Act, the terms of these Arbitration Provisions shall control and the parties hereby waive or otherwise agree to vary the effect of all requirements of the Arbitration Act that may
conflict with or vary from these Arbitration Provisions.
4.
Arbitration Proceedings
. Arbitration between the parties will be subject to the following:
4.1
Initiation of Arbitration
. Pursuant to Section 110 of the Arbitration Act, the parties agree that a party may initiate Arbitration by giving written notice to the other party (“
Arbitration Notice
”)
in the same manner that notice is permitted under Section 11.21 of the Agreement;
provided, however
, that the Arbitration Notice may not be given by email or fax. Arbitration will be deemed initiated as of the date that the Arbitration Notice is deemed delivered to such other party under Section 11.21 of the Agreement (the “
Service Date
”). After the Service Date, information may be delivered, and notices may be given, by
email or fax pursuant to Section 11.21 of the Agreement or any other method permitted thereunder. The Arbitration Notice must describe the nature of the controversy, the remedies sought, and the election to commence Arbitration proceedings. All Claims in the Arbitration Notice must be pleaded consistent with the Utah Rules of Civil Procedure.
4.2
Selection and Payment of Arbitrator
.
(a) Within ten (10) calendar days after the Service Date, Holder shall select and submit to the Company the names of three (3) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com) (such three (3) designated persons hereunder are referred to herein
as the “
Proposed Arbitrators
”). For the avoidance of doubt, each Proposed Arbitrator must be qualified as a “neutral” with Utah ADR Services. Within five (5) calendar days after Holder has submitted to the Company the names of the Proposed Arbitrators, the Company must select, by written notice to Holder, one (1) of the Proposed Arbitrators to act as the arbitrator for the parties under these Arbitration Provisions. If the Company fails to select
one of the Proposed Arbitrators in writing within such 5-day period, then Holder may select the arbitrator from the Proposed Arbitrators by providing written notice of such selection to the Company.
(b) If Holder fails to submit to the Company the Proposed Arbitrators within ten (10) calendar days after the Service Date pursuant to subparagraph (a) above, then the Company may at any time prior to Holder so designating the Proposed Arbitrators, identify the names of three (3) arbitrators that are designated as “neutrals”
or qualified arbitrators by Utah ADR Service by written notice to Holder. Holder may then, within five (5) calendar days after the Company has submitted notice of its Proposed Arbitrators to Holder, select, by written notice to the Company, one (1) of the Proposed Arbitrators to act as the arbitrator for the parties under these Arbitration Provisions. If Holder fails to select in writing and within such 5-day period one (1) of the three (3) Proposed Arbitrators selected by the Company, then the Company may select
the arbitrator from its three (3) previously selected Proposed Arbitrators by providing written notice of such selection to Holder.
(c) If a Proposed Arbitrator chosen to serve as arbitrator declines or is otherwise unable to serve as arbitrator, then the party that selected such Proposed Arbitrator may select one (1) of the other three (3) Proposed Arbitrators within three (3) calendar days of the date the chosen Proposed Arbitrator declines or notifies the
parties he or she is unable to serve as arbitrator. If all three (3) Proposed Arbitrators decline or are otherwise unable to serve as arbitrator, then the arbitrator selection process shall begin again in accordance with this Paragraph 4.2.
(d) The date that the Proposed Arbitrator selected pursuant to this Paragraph 4.2 agrees in writing (including via email) delivered to both parties to serve as the arbitrator hereunder is referred to herein as the “
Arbitration Commencement Date
”. If an arbitrator resigns or is unable
to act during the Arbitration, a replacement arbitrator shall be chosen in accordance with this Paragraph 4.2 to continue the Arbitration. If Utah ADR Services ceases to exist or to provide a list of neutrals, then the arbitrator shall be selected under the then prevailing rules of the American Arbitration Association.
(e) Subject to Paragraph 4.10 below, the cost of the arbitrator must be paid equally by both parties. Subject to Paragraph 4.10 below, if one party refuses or fails to pay its portion of the arbitrator fee, then the other party can advance such unpaid amount (subject to the accrual of Default Interest thereupon), with such amount
being added to or subtracted from, as applicable, the Arbitration Award.
4.3
Applicability of Certain Utah Rules
. The parties agree that the Arbitration shall be conducted generally in accordance with the Utah Rules of Civil Procedure and the Utah Rules of Evidence. More specifically, the Utah Rules of Civil
Procedure shall apply, without limitation, to the filing of any pleadings, motions or memoranda, the conducting of discovery, and the taking of any depositions. The Utah Rules of Evidence shall apply to any hearings, whether telephonic or in person, held by the arbitrator. Notwithstanding the foregoing, it is the parties’ intent that the incorporation of such rules will in no event supersede these Arbitration Provisions. In the event of any conflict between the Utah Rules of Civil Procedure or the Utah
Rules of Evidence and these Arbitration Provisions, these Arbitration Provisions shall control.
4.4
Answer and Default
. An answer and any counterclaims to the Arbitration Notice shall be required to be delivered to the party initiating the Arbitration within twenty (20) calendar days after the Arbitration Commencement Date. If an answer
is not delivered by the required deadline, the arbitrator must provide written notice to the defaulting party stating that the arbitrator will enter a default award against such party if such party does not file an answer within five (5) calendar days of receipt of such notice. If an answer is not filed within the five (5) day extension period, the arbitrator must render a default award, consistent with the relief requested in the Arbitration Notice, against a party that fails to submit an answer within such
time period.
4.5
Related Litigation
. The party that delivers the Arbitration Notice to the other party shall have the option to also commence concurrent legal proceedings with any state or federal court sitting in Salt Lake County, Utah (“
Litigation
Proceedings
”), subject to the following: (a) the complaint in the Litigation Proceedings is to be substantially similar to the claims set forth in the Arbitration Notice, provided that an additional cause of action to compel arbitration will also be included therein, (b) so long as the other party files an answer to the complaint in the Litigation Proceedings and an answer to the Arbitration Notice, the Litigation Proceedings will be stayed pending an Arbitration Award (or Appeal Panel Award (defined
below), as applicable) hereunder, (c) if the other party fails to file an answer in the Litigation Proceedings or an answer in the Arbitration proceedings, then the party initiating Arbitration shall be entitled to a default judgment consistent with the relief requested, to be entered in the Litigation Proceedings, and (d) any legal or procedural issue arising under the Arbitration Act that requires a decision of a court of competent jurisdiction may be determined in the Litigation Proceedings. Any award of the
arbitrator (or of the Appeal Panel (defined below)) may be entered in such Litigation Proceedings pursuant to the Arbitration Act.
4.6
Discovery
. Pursuant to Section 118(8) of the Arbitration Act, the parties agree that discovery shall be conducted as follows:
(a) Written discovery will only be allowed if the likely benefits of the proposed written discovery outweigh the burden or expense thereof, and the written discovery sought is likely to reveal information that will satisfy a specific element of a claim or defense already pleaded in the Arbitration. The party seeking written discovery
shall always have the burden of showing that all of the standards and limitations set forth in these Arbitration Provisions are satisfied. The scope of discovery in the Arbitration proceedings shall also be limited as follows:
(i) To facts directly connected with the transactions contemplated by the Agreement.
(ii) To facts and information that cannot be obtained from another source or in another manner that is more convenient, less burdensome or less expensive than in the manner requested.
(b) No party shall be allowed (i) more than fifteen (15) interrogatories (including discrete subparts), (ii) more than fifteen (15) requests for admission (including discrete subparts), (iii) more than ten (10) document requests (including discrete subparts), or (iv) more than three (3) depositions (excluding expert depositions)
for a maximum of seven (7) hours per deposition. The costs associated with depositions will be borne by the party taking the deposition. The party defending the deposition will submit a notice to the party taking the deposition of the estimated attorneys’ fees that such party expects to incur in connection with defending the deposition. If the party defending the deposition fails to submit an estimate of attorneys’ fees within five (5) calendar days of its receipt of a deposition notice, then such
party shall be deemed to have waived its right to the estimated attorneys’ fees. The party taking the deposition must pay the party defending the deposition the estimated attorneys’ fees prior to taking the deposition, unless such obligation is deemed to be waived as set forth in the immediately preceding sentence. If the party taking the deposition believes that the estimated attorneys’ fees are unreasonable, such party may submit the issue to the arbitrator for a decision. All depositions
will be taken in Utah.
(c) All discovery requests (including document production requests included in deposition notices) must be submitted in writing to the arbitrator and the other party. The party submitting the written discovery requests must include with such discovery requests a detailed explanation of how the proposed discovery requests satisfy
the requirements of these Arbitration Provisions and the Utah Rules of Civil Procedure. The receiving party will then be allowed, within five (5) calendar days of receiving the proposed discovery requests, to submit to the arbitrator an estimate of the attorneys’ fees and costs associated with responding to such written discovery requests and a written challenge to each applicable discovery request. After receipt of an estimate of attorneys’ fees and costs and/or challenge(s) to one or more discovery
requests, consistent with subparagraph (c) above, the arbitrator will within three (3) calendar days make a finding as to the likely attorneys’ fees and costs associated with responding to the discovery requests and issue an order that (i) requires the requesting party to prepay the attorneys’ fees and costs associated with responding to the discovery requests, and (ii) requires the responding party to respond to the discovery requests as limited by the arbitrator within twenty-five (25) calendar
days of the arbitrator’s finding with respect to such discovery requests. If a party entitled to submit an estimate of attorneys’ fees and costs and/or a challenge to discovery requests fails to do so within such 5-day period, the arbitrator will make a finding that (A) there are no attorneys’ fees or costs associated with responding to such discovery requests, and (B) the responding party must respond to such discovery requests (as may be limited by the arbitrator) within twenty-five (25) calendar
days of the arbitrator’s finding with respect to such discovery requests. Any party submitting any written discovery requests, including without limitation interrogatories, requests for production subpoenas to a party or a third party, or requests for admissions, must prepay the estimated attorneys’ fees and costs, before the responding party has any obligation to produce or respond to the same, unless such obligation is deemed waived as set forth above.
(d) In order to allow a written discovery request, the arbitrator must find that the discovery request satisfies the standards set forth in these Arbitration Provisions and the Utah Rules of Civil Procedure. The arbitrator must strictly enforce these standards. If a discovery request does not satisfy any of the standards set forth
in these Arbitration Provisions or the Utah Rules of Civil Procedure, the arbitrator may modify such discovery request to satisfy the applicable standards, or strike such discovery request in whole or in part.
(e) Each party may submit expert reports (and rebuttals thereto), provided that such reports must be submitted within sixty (60) days of the Arbitration Commencement Date. Each party will be allowed a maximum of two (2) experts. Expert reports must contain the following: (i) a complete statement of all opinions the expert will offer
at trial and the basis and reasons for them; (ii) the expert’s name and qualifications, including a list of all the expert’s publications within the preceding ten (10) years, and a list of any other cases in which the expert has testified at trial or in a deposition or prepared a report within the preceding ten (10) years; and (iii) the compensation to be paid for the expert’s report and testimony. The parties are entitled to depose any other party’s expert witness one (1) time for no
more than four (4) hours. An expert may not testify in a party’s case-in-chief concerning any matter not fairly disclosed in the expert report.
4.6
Dispositive Motions
. Each party shall have the right to submit dispositive motions pursuant Rule 12 or Rule 56 of the Utah Rules of Civil Procedure (a “
Dispositive Motion
”). The party
submitting the Dispositive Motion may, but is not required to, deliver to the arbitrator and to the other party a memorandum in support (the “
Memorandum in Support
”) of the Dispositive Motion. Within seven (7) calendar days of delivery of the Memorandum in Support, the other party shall deliver to the arbitrator and to the other party a memorandum in opposition to the Memorandum in Support (the “
Memorandum in Opposition
”).
Within seven (7) calendar days of delivery of the Memorandum in Opposition, as applicable, the party that submitted the Memorandum in Support shall deliver to the arbitrator and to the other party a reply memorandum to the Memorandum in Opposition (“
Reply Memorandum
”). If the applicable party shall fail to deliver the Memorandum in Opposition as required above, or if the other party fails to deliver the Reply Memorandum as required above, then the applicable
party shall lose its right to so deliver the same, and the Dispositive Motion shall proceed regardless.
4.7
Confidentiality
. All information disclosed by either party (or such party’s agents) during the Arbitration process (including without limitation information disclosed during the discovery process or any Appeal (defined below))
shall be considered confidential in nature. Each party agrees not to disclose any confidential information received from the other party (or its agents) during the Arbitration process (including without limitation during the discovery process or any Appeal) unless (a) prior to or after the time of disclosure such information becomes public knowledge or part of the public domain, not as a result of any inaction or action of the receiving party or its agents, (b) such information is required by a court order, subpoena
or similar legal duress to be disclosed if such receiving party has notified the other party thereof in writing and given it a reasonable opportunity to obtain a protective order from a court of competent jurisdiction prior to disclosure, or (c) such information is disclosed to the receiving party’s agents, representatives and legal counsel on a need to know basis who each agree in writing not to disclose such information to any third party. Pursuant to Section 118(5) of the Arbitration Act, the arbitrator
is hereby authorized and directed to issue a protective order to prevent the disclosure of privileged information and confidential information upon the written request of either party.
4.8
Authorization; Timing; Scheduling Order
. Subject to all other portions of these Arbitration Provisions, the parties hereby authorize and direct the arbitrator to take such actions and make such rulings as may be necessary to carry out
the parties’ intent for the Arbitration proceedings to be efficient and expeditious. Pursuant to Section 120 of the Arbitration Act, the parties hereby agree that an Arbitration Award must be made within one hundred twenty (120) calendar days after the Arbitration Commencement Date. The arbitrator is hereby authorized and directed to hold a scheduling conference within ten (10) calendar days after the Arbitration Commencement Date in order to establish a scheduling order with various binding deadlines for
discovery, expert testimony, and the submission of documents by the parties to enable the arbitrator to render a decision prior to the end of such 120-day period.
4.9
Relief
. The arbitrator shall have the right to award or include in the Arbitration Award (or in a preliminary ruling) any relief which the arbitrator deems proper under the circumstances, including, without limitation, specific performance
and injunctive relief, provided that the arbitrator may not award exemplary or punitive damages.
4.10
Fees and Costs
. As part of the Arbitration Award, the arbitrator is hereby directed to require the losing party (the party being awarded the least amount of money by the arbitrator, which,
for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the Arbitration, and (b) reimburse the prevailing party for all reasonable attorneys’ fees, arbitrator costs and fees, deposition costs, other discovery costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration.
5.
Arbitration Appeal
.
5.1
Initiation of Appeal.
Following the entry of the Arbitration Award, either party (the “
Appellant
”) shall have a period of thirty (30) calendar days in which to notify the other party
(the “
Appellee
”), in writing, that the Appellant elects to appeal (the “
Appeal
”) the Arbitration Award (such notice, an “
Appeal Notice
”) to a panel of arbitrators as provided in Paragraph 5.2 below. The date the Appellant delivers an Appeal Notice to the Appellee is referred to herein as the “
Appeal Date
”. The
Appeal Notice must be delivered to the Appellee in accordance with the provisions of Paragraph 4.1 above with respect to delivery of an Arbitration Notice. In addition, together with delivery of the Appeal Notice to the Appellee, the Appellant must also pay for (and provide proof of such payment to the Appellee together with delivery of the Appeal Notice) a bond in the amount of 110% of the sum the Appellant owes to the Appellee as a result of the Arbitration Award the Appellant is appealing. In the event an
Appellant delivers an Appeal Notice to the Appellee (together with proof of payment of the applicable bond) in compliance with the provisions of this Paragraph 5.1, the Appeal will occur as a matter of right and, except as specifically set forth herein, will not be further conditioned. In the event a party does not deliver an Appeal Notice (along with proof of payment of the applicable bond) to the other party within the deadline prescribed in this Paragraph 5.1, such party shall lose its right to appeal the
Arbitration Award. If no party delivers an Appeal Notice (along with proof of payment of the applicable bond) to the other party within the deadline described in this Paragraph 5.1, the Arbitration Award shall be final. The parties acknowledge and agree that any Appeal shall be deemed part of the parties’ agreement to arbitrate for purposes of these Arbitration Provisions and the Arbitration Act.
5.2
Selection and Payment of Appeal Panel.
In the event an Appellant delivers an Appeal Notice to the Appellee (together with proof of payment of the applicable bond) in compliance with the provisions of Paragraph 5.1 above, the Appeal will
be heard by a three (3) person arbitration panel (the “
Appeal Panel
”).
(a) Within ten (10) calendar days after the Appeal Date, the Appellee shall select and submit to the Appellant the names of five (5) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com) (such five
(5) designated persons hereunder are referred to herein as the “
Proposed Appeal Arbitrators
”). For the avoidance of doubt, each Proposed Appeal Arbitrator must be qualified as a “neutral” with Utah ADR Services, and shall not be the arbitrator who rendered the Arbitration Award being appealed (the “
Original Arbitrator
”). Within five (5) calendar days after the Appellee has submitted to the Appellant
the names of the Proposed Appeal Arbitrators, the Appellant must select, by written notice to the Appellee, three (3) of the Proposed Appeal Arbitrators to act as the members of the Appeal Panel. If the Appellant fails to select three (3) of the Proposed Appeal Arbitrators in writing within such 5-day period, then the Appellee may select such three (3) arbitrators from the Proposed Appeal Arbitrators by providing written notice of such selection to the Appellant.
(b) If the Appellee fails to submit to the Appellant the names of the Proposed Appeal Arbitrators within ten (10) calendar days after the Appeal Date pursuant to subparagraph (a) above, then the Appellant may at any time prior to the Appellee so designating the Proposed Appeal
Arbitrators, identify the names of five (5) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Service (none of whom may be the Original Arbitrator) by written notice to the Appellee. The Appellee may then, within five (5) calendar days after the Appellant has submitted notice of its selected arbitrators to the Appellee, select, by written notice to the Appellant, three (3) of such selected arbitrators to serve on the Appeal Panel. If the Appellee fails to select in
writing within such 5-day period three (3) of the arbitrators selected by the Appellant to serve as the members of the Appeal Panel, then the Appellant may select the three (3) members of the Appeal Panel from the Appellant’s list of five (5) arbitrators by providing written notice of such selection to the Appellee.
(c) If a selected Proposed Appeal Arbitrator declines or is otherwise unable to serve, then the party that selected such Proposed Appeal Arbitrator may select one (1) of the other five (5) designated Proposed Appeal Arbitrators within three (3) calendar days of the date a chosen
Proposed Appeal Arbitrator declines or notifies the parties he or she is unable to serve as an arbitrator. If at least three (3) of the five (5) designated Proposed Appeal Arbitrators decline or are otherwise unable to serve, then the Proposed Appeal Arbitrator selection process shall begin again in accordance with this Paragraph 5.2;
provided, however
, that any Proposed Appeal Arbitrators who have already agreed to serve shall remain on the Appeal Panel.
(d) The date that all three (3) Proposed Appeal Arbitrators selected pursuant to this Paragraph 5.2 agree in writing (including via email) delivered to both the Appellant and the Appellee to serve as members of the Appeal Panel hereunder is referred to herein as the “
Appeal
Commencement Date
”. No later than five (5) calendar days after the Appeal Commencement Date, the Appellee shall designate in writing (including via email) to the Appellant and the Appeal Panel the name of one (1) of the three (3) members of the Appeal Panel to serve as the lead arbitrator in the Appeal proceedings. Each member of the Appeal Panel shall be deemed an arbitrator for purposes of these Arbitration Provisions and the Arbitration Act, provided that, in conducting the Appeal, the Appeal
Panel may only act or make determinations upon the approval or vote of no less than the majority vote of its members, as announced or communicated by the lead arbitrator on the Appeal Panel.
If an arbitrator on the Appeal Panel ceases or is unable to act during the Appeal proceedings, a replacement arbitrator shall be chosen in accordance with Paragraph 5.2 above to continue the Appeal as a member of the Appeal Panel.
If Utah ADR Services ceases to exist or to provide
a list of neutrals, then the arbitrators for the Appeal Panel shall be selected under the then prevailing rules of the American Arbitration Association.
(d) Subject to Paragraph 5.7 below, the cost of the Appeal Panel must be paid entirely by the Appellant.
5.3
Appeal Procedure.
The Appeal will be deemed an appeal of the entire Arbitration Award. In conducting the Appeal, the Appeal Panel shall conduct a de novo review of all Claims described or otherwise set forth in the Arbitration Notice.
Subject to the foregoing and all other provisions of this Paragraph 5, the Appeal Panel shall conduct the Appeal in a manner the Appeal Panel considers appropriate for a fair and expeditious disposition of the Appeal, may hold one or more hearings and permit oral argument, and may review all previous evidence and discovery, together with all briefs, pleadings and other documents filed with the Original Arbitrator (as well as any documents filed with the Appeal Panel pursuant to Paragraph 5.4(a) below). Notwithstanding
the foregoing, in connection with the Appeal, the Appeal Panel shall not permit the parties to conduct any additional discovery or raise any new Claims to be arbitrated, shall not permit new witnesses or affidavits, and shall not base any of its findings or determinations on the Original Arbitrator’s findings or the Arbitration Award.
5.4
Timing.
(a) Within seven (7) calendar days of the Appeal Commencement Date, the Appellant (i) shall deliver or cause to be delivered to the Appeal Panel copies of the Appeal Notice, all discovery conducted in connection with the Arbitration, and all briefs, pleadings and other documents
filed with the Original Arbitrator (which material Appellee shall have the right to review and supplement if necessary), and (ii) may, but is not required to, deliver to the Appeal Panel and to the Appellee a Memorandum in Support of the Appellant’s arguments concerning or position with respect to all Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration. Within seven (7) calendar days of the Appellant’s delivery of the Memorandum in Support, as applicable, the Appellee
shall deliver to the Appeal Panel and to the Appellant a Memorandum in Opposition to the Memorandum in Support. Within seven (7) calendar days of the Appellee’s delivery of the Memorandum in Opposition, as applicable, the Appellant shall deliver to the Appeal Panel and to the Appellee a Reply Memorandum to the Memorandum in Opposition. If the Appellant shall fail to substantially comply with the requirements of clause (i) of this subparagraph (a), the Appellant shall lose its right to appeal the Arbitration
Award, and the Arbitration Award shall be final. If the Appellee shall fail to deliver the Memorandum in Opposition as required above, or if the Appellant shall fail to deliver the Reply Memorandum as required above, then the Appellee or the Appellant, as the case may be, shall lose its right to so deliver the same, and the Appeal shall proceed regardless.
(b) Subject to subparagraph (a) above, the parties hereby agree that the Appeal must be heard by the Appeal Panel within thirty (30) calendar days of the Appeal Commencement Date, and that the Appeal Panel must render its decision within thirty (30) calendar days after the Appeal
is heard (and in no event later than sixty (60) calendar days after the Appeal Commencement Date).
5.5
Appeal Panel Award.
The Appeal Panel shall issue its decision (the “
Appeal Panel Award
”) through the lead arbitrator on the Appeal Panel. Notwithstanding any other provision contained
herein, the Appeal Panel Award shall (a) supersede in its entirety and make of no further force or effect the Arbitration Award (provided that any protective orders issued by the Original Arbitrator shall remain in full force and effect), (b) be final and binding upon the parties, with no further rights of appeal, (c) be the sole and exclusive remedy between the parties regarding any Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration, and (d) be promptly payable in United States
dollars free of any tax, deduction or offset (with respect to monetary awards). Any costs or fees, including without limitation attorneys’ fees, incurred in connection with or incident to enforcing the Appeal Panel Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Appeal Panel Award shall include Default Interest (with respect to monetary awards) at the rate specified in applicable Note for Default Interest both before and after the Arbitration
Award. Judgment upon the Appeal Panel Award will be entered and enforced by a state or federal court sitting in Salt Lake County, Utah.
5.6
Relief.
The Appeal Panel shall have the right to award or include in the Appeal Panel Award any relief which the Appeal Panel deems proper under the circumstances, including, without limitation, specific performance and injunctive relief,
provided that the Appeal Panel may not award exemplary or punitive damages.
5.7
Fees and Costs.
As part of the Appeal Panel Award, the Appeal Panel is hereby directed to require the losing party (the party being awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined
without regard to any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the Arbitration and the Appeal Panel, and (b) reimburse the prevailing party (the party being awarded the most amount of money by the Appeal Panel, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any part) the reasonable attorneys’ fees, arbitrator and Appeal Panel
costs and fees, deposition costs, other discovery costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration (including without limitation in connection with the Appeal).
6.
Miscellaneous
.
6.1
Severability.
If any part of these Arbitration Provisions is found to violate or be illegal under applicable law, then such provision shall be modified to the minimum extent necessary to make such provision enforceable under applicable
law, and the remainder of the Arbitration Provisions shall remain unaffected and in full force and effect.
6.2
Governing Law
. These Arbitration Provisions shall be governed by the laws of the State of Utah without regard to the conflict of laws principles therein.
6.3
Interpretation
. The headings of these Arbitration Provisions are for convenience of reference only and shall not form part of, or affect the interpretation of, these Arbitration Provisions.
6.4
Waiver
. No waiver of any provision of these Arbitration Provisions shall be effective unless it is in the form of a writing signed by the party granting the waiver.
6.5
Time is of the Essence
. Time is expressly made of the
essence
with respect to each and every provision of these Arbitration Provisions.
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EXHIBIT A
THIS NOTE (AS DEFINED BELOW) IS ISSUED IN EXCHANGE FOR (WITHOUT ANY ADDITIONAL CONSIDERATION) THAT CERTAIN FIRST REPLACEMENT AMENDED, RESTATED AND CONSOLIDATED SENIOR SECURED CONVERTIBLE REDEEMABLE DEBENTURE A IN THE ORIGINAL PRINCIPAL AMOUNT OF $80,000.00 HAVING AN ORIGINAL ISSUE DATE OF OCTOBER 27, 2015. FOR PURPOSES OF RULE 144
(AS DEFINED BELOW), THIS NOTE SHALL BE DEEMED TO HAVE BEEN ISSUED ON OCTOBER 27, 2015.
CONVERTIBLE PROMISSORY NOTE
“
Original Issue Date
”: October 27, 2015 U.S. $128,000.00
FOR VALUE RECEIVED,
GrowLife, Inc.
, a Delaware corporation (“
Borrower
”), promises to pay to
Chicago Venture Partners, L.P.
, a Utah limited partnership, or its successors or assigns (“
Lender
”),
$128,000.00 and any interest, fees, charges, and late fees on or before the date that is six (6) months from the Exchange Date (as defined below) (the “
Maturity Date
”) in accordance with the terms set forth herein. This Convertible Promissory Note (this “
Note
”) is issued and made effective pursuant to that certain Exchange Agreement dated as of August 17, 2016 (the “
Exchange
Date
”), as the same may be amended from time to time (the “
Exchange Agreement
”), by and between Borrower and Lender,
pursuant to which Lender exchanged the Initial Debenture (as defined in the Exchange Agreement) for this Note, pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended
. Certain capitalized terms used herein are defined in
Attachment 1
attached
hereto and incorporated herein by this reference.
As set forth in the Exchange Agreement, Borrower agreed to pay an Exchange Fee (as defined in the Exchange Agreement) in the amount of $48,000.00, all of which Exchange Fee is
included in the initial principal balance of this Note and all of which amount is fully earned and payable as of the date hereof.
Payment; Prepayment
. All payments owing hereunder shall be in lawful money of the United States of America or Conversion Shares (as defined below), as provided for herein, and delivered to Lender at the address furnished to Borrower for that purpose. All payments shall be applied first to (a) costs
of collection, if any, then to (b) fees and charges, if any, then to (c) accrued and unpaid interest, and thereafter, to (d) principal. Notwithstanding the foregoing, so long as Borrower has not received a Conversion Notice (as defined below) from Lender where the applicable Conversion Shares have not yet been delivered and so long as no Event of Default has occurred since the Exchange Date (whether declared by Lender or undeclared), then Borrower shall have the right, exercisable on not less than five (5) Trading
Days prior written notice to Lender to prepay the Outstanding Balance of this Note, in full, in accordance with this Section 1. Any notice of prepayment hereunder (an “
Optional Prepayment Notice
”) shall be delivered to Lender at its registered address and shall state: (i) that Borrower is exercising its right to prepay this Note, and (ii) the date of prepayment, which shall be not less than five (5) Trading Days from the date of the Optional Prepayment Notice.
On the date fixed for prepayment (the “
Optional Prepayment Date
”), Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of Lender as may be specified by Lender in writing to Borrower. If Borrower exercises its right to prepay this Note, Borrower shall make payment to Lender of an amount in cash equal to 125% multiplied by the then Outstanding Balance of this Note (the “
Optional
Prepayment Amount
”). In the event Borrower delivers the Optional Prepayment Amount to Lender prior to the Optional Prepayment Date or without delivering an Optional Prepayment Notice to Lender as set forth herein without Lender’s prior written consent, the Optional Prepayment Amount shall not be deemed to have been paid to Lender until the Optional Prepayment Date. Moreover, in such event the Optional Prepayment Liquidated Damages Amount will automatically be added to the Outstanding Balance
of this Note on the day Borrower delivers the Optional Prepayment Amount to Lender. In the event Borrower delivers the Optional Prepayment Amount without an Optional Prepayment Notice, then the Optional Prepayment Date will be deemed to be the date that is five (5) Trading Days from the date that the Optional Prepayment Amount was delivered to Lender. In addition, if Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to Lender within two (2) Trading Days following
the Optional Prepayment Date, Borrower shall forever forfeit its right to prepay this Note.
Security
. This Note is unsecured.
Conversion
.
Conversion Price
. Subject to the adjustments set forth herein, the conversion price (the “
Conversion Price
”) for each Conversion (as defined below) shall be equal to the product of 65% (the “
Conversion Factor
”)
multiplied by the average for the three (3) lowest daily VWAPs for the Common Stock (as defined below) in the twenty (20) Trading Days immediately preceding the applicable Conversion. Additionally, if at any time after the Exchange Date, the Conversion Shares are not DTC Eligible, then the then-current Conversion Factor will automatically be reduced by 5% for all future Conversions. Finally, in addition to the Default Effect, if any Major Default occurs after the Exchange Date, the Conversion Factor shall automatically
be reduced for all future Conversions by an additional 5% for each of the first three (3) Major Defaults that occur after the Exchange Date (for the avoidance of doubt, each occurrence of any Major Default shall be deemed to be a separate occurrence for purposes of the foregoing reductions in Conversion Factor, even if the same Major Default occurs three (3) separate times). For example, the first time Borrower is not DTC Eligible, the Conversion Factor for future Conversions thereafter will be reduced from 65%
to 60% for purposes of this example. If, thereafter, there are three (3) separate occurrences of a Major Default pursuant to Section 4.1(a), then for purposes of this example the Conversion Factor would be reduced by 5% for the first such occurrence, and so on for each of the second and third occurrences of such Major Default.
Conversions
. Lender has the right at any time after the Exchange Date until the Outstanding Balance has been paid in full, including without limitation until any Optional Prepayment Date (even if Lender has received an Optional Prepayment Notice), at its election, to convert (each instance of conversion
is referred to herein as a “
Conversion
”) all or any part of the Outstanding Balance into shares (“
Conversion Shares
”) of fully paid and non-assessable common stock, $0.0001 par value per share (“
Common Stock
”), of Borrower as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the “
Conversion
Amount
”) divided by the Conversion Price. Conversion notices in the form attached hereto as
Exhibit A
(each, a “
Conversion Notice
”) may be effectively delivered to Borrower by any method of Lender’s choice (including but not limited to facsimile, email, mail, overnight courier, or personal delivery), and all Conversions shall be cashless and not require further payment from Lender. Borrower shall
deliver the Conversion Shares from any Conversion to Lender in accordance with Section 8 below.
Defaults and Remedies
.
Defaults
. The following are events of default under this Note (each, an “
Event of Default
”): Exhibit H Borrower shall fail to pay any principal, interest, fees, charges, or any other amount when due and payable hereunder; or Exhibit I Borrower shall
fail to deliver any Conversion Shares in accordance with the terms hereof; or Exhibit J a receiver, trustee or other similar official shall be appointed over Borrower or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged within sixty (60) days; or Exhibit K Borrower shall become insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if
any; or Exhibit L Borrower shall make a general assignment for the benefit of creditors; or Exhibit M Borrower shall file a petition for relief under any bankruptcy, insolvency or similar law (domestic or foreign); or Exhibit N an involuntary proceeding shall be commenced or filed against Borrower; or Exhibit O Borrower shall default or otherwise fail to observe or perform any covenant, obligation, condition or agreement of Borrower contained herein or in any other Exchange Document (as defined in the Exchange
Agreement), other than those specifically set forth in this Section 4.1 and Section 8 of the Exchange Agreement; or Exhibit P any representation, warranty or other statement made or furnished by or on behalf of Borrower to Lender herein, in any Exchange Document, or otherwise in connection with the issuance of this Note shall be false, incorrect, incomplete or misleading in any material respect when made or furnished; or Exhibit Q the occurrence of a Fundamental Transaction without Lender’s prior written
consent; or Exhibit R Borrower shall fail to maintain the Share Reserve as required under the Exchange Agreement; or Exhibit S Borrower effectuates a reverse split of its Common Stock without twenty (20) Trading Days prior written notice to Lender; or Exhibit T any money judgment, writ or similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $100,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty
(20) calendar days unless otherwise consented to by Lender; or Exhibit U Borrower shall fail to be DTC Eligible; or Exhibit V Borrower shall fail to observe or perform any covenant set forth in Section 8 of the Exchange Agreement.
Remedies
. Upon the occurrence of any Event of Default, Borrower shall within three (3) Trading Days deliver written notice thereof via facsimile, email or reputable overnight courier (with next day delivery specified) (an “
Event
of Default Notice
”) to Lender. At any time and from time to time after the earlier of Lender’s receipt of an Event of Default Notice and Lender becoming aware of the occurrence of any Event of Default, Lender may accelerate this Note by written notice to Borrower, with the Outstanding Balance becoming immediately due and payable in cash at the Mandatory Default Amount. Notwithstanding the foregoing, at any time following the occurrence of any Event of Default, Lender may, at its option, elect
to increase the Outstanding Balance by applying the Default Effect (subject to the limitation set forth below) via written notice to Borrower without accelerating the Outstanding Balance, in which event the Outstanding Balance shall be increased as of the date of the occurrence of the applicable Event of Default pursuant to the Default Effect, but the Outstanding Balance shall not be immediately due and payable unless so declared by Lender (for the avoidance of doubt, if Lender elects to apply the Default Effect
pursuant to this sentence, it shall reserve the right to declare the Outstanding Balance immediately due and payable at any time and no such election by Lender shall be deemed to be a waiver of its right to declare the Outstanding Balance immediately due and payable as set forth herein unless otherwise agreed to by Lender in writing). Notwithstanding the foregoing, upon the occurrence of any Event of Default described in clauses (c), (d), (e), (f) or (g) of Section 4.1, the Outstanding Balance as of the date
of acceleration shall become immediately and automatically due and payable in cash at the Mandatory Default Amount, without any written notice required by Lender. At any time following the occurrence of any Event of Default, upon written notice given by Lender to Borrower, interest shall accrue on the Outstanding Balance beginning on the date the applicable Event of Default occurred at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted under applicable law (“
Default
Interest
”). Additionally, following the occurrence of any Event of Default, Borrower may, at its option, pay any Conversion in cash instead of Conversion Shares by paying to Lender on or before the applicable Delivery Date (as defined below) a cash amount equal to the number of Conversion Shares set forth in the applicable Conversion Notice multiplied by the highest intra-day trading price of the Common Stock that occurs during the period beginning on the date the applicable Event of Default occurred
and ending on the date of the applicable Conversion Notice. In connection with acceleration described herein, Lender need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and Lender may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Lender at any time prior to payment hereunder and
Lender shall have all rights as a holder of the Note until such time, if any, as Lender receives full payment pursuant to this Section 4.2. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Nothing herein shall limit Lender’s right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to Borrower’s failure to timely deliver
Conversion Shares upon Conversion of the Notes as required pursuant to the terms hereof.
Cross Default
. A breach or default by Borrower of any covenant or other term or condition contained in any Other Agreements shall, at the option of Lender, be considered an Event of Default under this Note, in which event Lender shall be entitled (but in no event required) to apply all rights and remedies
of Lender under the terms of this Note.
Unconditional Obligation; No Offset
. Borrower acknowledges that this Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Lender,
its successors and assigns, and agrees to make the payments or Conversions called for herein in accordance with the terms of this Note.
Waiver
. No waiver of any provision of this Note shall be effective unless it is in the form of a writing signed by the party granting the waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or consent to any other prohibited action,
whether or not similar. No waiver or consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in writing.
Rights Upon Issuance of Securities
.
Subsequent Equity Sales
. Except with respect to Excluded Securities, if Borrower or any subsidiary thereof, as applicable, at any time this Note is outstanding, shall sell, issue or grant any Common Stock, option to purchase Common Stock, right to reprice, preferred shares convertible into Common Stock,
or debt, warrants, options or other instruments or securities to Lender or any third party which are convertible into or exercisable for shares of Common Stock (collectively, the “
Equity Securities
”), at an effective price per share less than the then effective Conversion Price (such issuance is referred to herein as a “
Dilutive Issuance
”), then, the Conversion Price shall be automatically reduced and only reduced
to equal such lower effective price per share. If the holder of any Equity Securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options, or rights per share which are issued in connection with such Dilutive Issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Conversion Price, such issuance shall be deemed to have occurred
for less than the Conversion Price on the date of such Dilutive Issuance, and the then effective Conversion Price shall be reduced and only reduced to equal such lower effective price per share. Such adjustments described above to the Conversion Price shall be permanent (subject to additional adjustments under this section), and shall be made whenever such Equity Securities are issued. Borrower shall notify Lender, in writing, no later than the Trading Day following the issuance of any Equity Securities subject
to this Section 7.1, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price, or other pricing terms (such notice, the “
Dilutive
Issuance Notice
”). For purposes of clarification, whether or not Borrower provides a Dilutive Issuance Notice pursuant to this Section 7.1, upon the occurrence of any Dilutive Issuance, on the date of such Dilutive Issuance the Conversion Price
shall be lowered to equal the applicable effective price per share regardless of whether Borrower or Lender accurately refers to such lower effective price per share in any Conversion Notice.
Adjustment of Conversion Price upon Subdivision or Combination of Common Stock
. Without limiting any provision hereof, if Borrower at any time on or after the Exchange Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision hereof, if Borrower at any time on or after the Exchange Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment
pursuant to this Section 7.2 shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7.2 occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.
Other Events
. In the event that Borrower (or any subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect Lender from
dilution
or if any
event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then Borrower’s board of directors shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of Lender, provided that no such adjustment pursuant to this Section 7.3 will increase
the Conversion Price as otherwise determined pursuant to this Section 7, provided further that if Lender does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then Borrower’s board of directors and Lender shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by Borrower.
Method of Conversion Share Delivery
. On or before the close of business on the third (3
rd
) Trading Day following the date of delivery of a Conversion Notice (the “
Delivery Date
”), Borrower shall,
provided it is DWAC Eligible at such time, deliver or cause its transfer agent to deliver the applicable Conversion Shares electronically via DWAC to the account designated by Lender in the applicable Conversion Notice.
If Borrower is not DWAC Eligible, it shall deliver to Lender or its broker (as designated in the Conversion Notice), via reputable overnight courier, a certificate representing the number of shares of Common Stock equal to the number of Conversion Shares
to which Lender shall be entitled, registered in the name of Lender or its designee. For the avoidance of doubt, Borrower has not met its obligation to deliver Conversion Shares by the Delivery Date unless Lender or its broker, as applicable, has actually received the certificate representing the applicable Conversion Shares no later than the close of business on the relevant Delivery Date pursuant to the terms set forth above. Moreover, and notwithstanding anything to the contrary herein or in any other Exchange
Document, in the event Borrower or its transfer agent refuses to deliver any Conversion Shares to Lender on grounds that such issuance is in violation of Rule 144 under the Securities Act of 1933, as amended (“
Rule 144
”), Borrower shall deliver or cause its transfer agent to deliver the applicable Conversion Shares to Lender with a restricted securities legend, but otherwise in accordance with the provisions of this Section 8. In conjunction therewith, Borrower
will also deliver to Lender a written opinion from its counsel or its transfer agent’s counsel opining as to why the issuance of the applicable Conversion Shares violates Rule 144.
Conversion Delays
. If Borrower fails to deliver Conversion Shares in accordance with the timeframe stated in Section 8, Lender, at any time prior to selling all of those Conversion Shares, may rescind in whole or in part that particular Conversion attributable to the unsold Conversion Shares, with a
corresponding increase to the Outstanding Balance (any returned amount will tack back to the Original Issue Date for purposes of determining the holding period under Rule 144. In addition, for each Conversion, in the event that Conversion Shares are not delivered by the fourth Trading Day (inclusive of the day of the Conversion), a late fee equal to the greater of (a) $500.00 and (b) 2% of the applicable Conversion Share Value rounded to the nearest multiple of $100.00 (but in any event the cumulative amount
of such late fees for each Conversion shall not exceed 200% of the applicable Conversion Share Value) will be assessed for each day after the third Trading Day (inclusive of the day of the Conversion) until Conversion Share delivery is made; and such late fee will be added to the Outstanding Balance (such fees, the “
Conversion Delay Late Fees
”). For illustration purposes only, if Lender delivers a Conversion Notice to Borrower pursuant to which Borrower is required
to deliver 100,000 Conversion Shares to Lender and on the Delivery Date such Conversion Shares have a Conversion Share Value of $20,000.00 (assuming a Closing Trade Price on the Delivery Date of $0.20 per share of Common Stock), then in such event a Conversion Delay Late Fee in the amount of $500.00 per day (the greater of $500.00 per day and $20,000.00 multiplied by 2%, which is $400.00) would be added to the Outstanding Balance of the Note until such Conversion Shares are delivered to Lender. For purposes of
this example, if the Conversion Shares are delivered to Lender twenty (20) days after the applicable Delivery Date, the total Conversion Delay Late Fees that would be added to the Outstanding Balance would be $10,000.00 (20 days multiplied by $500.00 per day). If the Conversion Shares are delivered to Lender one hundred (100) days after the applicable Delivery Date, the total Conversion Delay Late Fees that would be added to the Outstanding Balance would be $40,000.00 (100 days multiplied by $500.00 per day,
but capped at 200% of the Conversion Share Value).
Ownership Limitation
. Notwithstanding anything to the contrary contained in this Note or the other Exchange Documents, if at any time Lender shall or would be issued shares of Common Stock under any of the Exchange Documents, but such issuance would cause Lender (together with its affiliates) to beneficially
own a number of shares exceeding 4.99% of the number of shares of Common Stock outstanding on such date (including for such purpose the shares of Common Stock issuable upon such issuance) (the “
Maximum Percentage
”), then Borrower must not issue to Lender shares of Common Stock which would exceed the Maximum Percentage. For purposes of this section, beneficial ownership of Common Stock will be determined pursuant to Section 13(d) of the 1934 Act. The shares of
Common Stock issuable to Lender that would cause the Maximum Percentage to be exceeded are referred to herein as the “
Ownership
Limitation
Shares
”. Borrower will reserve the Ownership Limitation Shares for the exclusive benefit of Lender. From time to time, Lender may notify Borrower in writing of the number of the Ownership Limitation Shares that may be issued to Lender without causing
Lender to exceed the Maximum Percentage. Upon receipt of such notice, Borrower shall be unconditionally obligated to immediately issue such designated shares to Lender, with a corresponding reduction in the number of the Ownership Limitation Shares. Notwithstanding the forgoing, the term “4.99%” above shall be replaced with “9.99%” at such time as the Market Capitalization is less than $10,000,000.00. Notwithstanding any other provision contained herein, if the term “4.99%”
is replaced with “9.99%” pursuant to the preceding sentence, such increase to “9.99%” shall remain at 9.99% until increased, decreased or waived by Lender as set forth below. By written notice to Borrower, Lender may increase, decrease or waive the Maximum Percentage as to itself but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and
assigns of Lender.
Payment of Collection Costs
. If this Note is placed in the hands of an attorney for collection or enforcement
prior to commencing arbitration or legal proceedings,
or is collected or enforced through any arbitration or legal proceeding, or Lender otherwise takes action
to collect amounts due under this Note or to enforce the provisions of this Note, then Borrower shall pay the costs incurred by Lender for such collection, enforcement or action including, without limitation, attorneys’ fees and disbursements. Borrower also agrees to pay for any costs, fees or charges of its transfer agent that are charged to Lender pursuant to any Conversion or issuance of shares pursuant to this Note.
Opinion of Counsel
. In the event that an opinion of counsel is needed for any matter related to this Note, Lender has the right to have any such opinion provided by its counsel. Lender also has the right to have any such opinion provided by Borrower’s counsel.
Governing Law
.
This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Utah, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Utah. The provisions set forth in the
Exchange Agreement
to determine the proper venue for any disputes are incorporated herein by this reference.
Resolution of Disputes
.
Arbitration of Disputes
. By its acceptance of this Note, each party agrees to be bound by the Arbitration Provisions (as defined in the Exchange Agreement) set forth as an exhibit to the Exchange Agreement.
Calculation Disputes
. Notwithstanding the Arbitration Provisions, i
n the case of a dispute as to any Calculation (as defined in the
Exchange Agreement), such dispute will be resolved in the manner set forth in the Exchange Agreement.
Cancellation
. After repayment or conversion of the entire Outstanding Balance, this Note shall be deemed paid in full, shall automatically be deemed canceled, and shall not be reissued.
Amendments
.
The prior written consent of both parties hereto shall be required for any change or amendment to this Note.
Assignments
. Borrower may not assign this Note without the prior written consent of Lender. This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by Lender without the consent of Borrower.
Time is of the Essence
. Time is expressly made of the essence with respect to each and every provision of this Note and the documents and instruments entered into in connection herewith.
Notices
. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with the subsection of the Exchange Agreement titled “Notices.”
Liquidated Damages
. Lender and Borrower agree that in the event Borrower fails to comply with any of the terms or provisions of this Note, Lender’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict future interest
rates, future share prices, future trading volumes and other relevant factors. Accordingly, Lender and Borrower agree that any fees, balance adjustments, Default Interest or other charges assessed under this Note are not penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages (under Lender’s and Borrower’s expectations that any such liquidated damages will tack back to the Original Issue Date for purposes of determining the holding period under Rule 144).
Waiver of Jury Trial
. EACH OF LENDER AND BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY
AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.
Voluntary Agreement
. Borrower has carefully read this Note and has asked any questions needed for Borrower to understand the terms, consequences and binding effect of this Note and fully understand them. Borrower has had the opportunity to seek the advice
of an attorney of Borrower’s choosing, or has waived the right to do so, and is executing this Note voluntarily and without any duress or undue influence by Lender or anyone else.
Severability
. If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower and Lender to the fullest extent permitted by law and the balance of this Note shall remain in full force and effect.
Par Value Adjustments
. If at any time Lender delivers a Conversion Notice to Borrower and as of such date the Conversion Price would be less than the Par Value, then, as liquidated damages, Company must pay to Lender the Par Value Adjustment Amount in cash within one (1) Trading Day of delivery of the
applicable Conversion Notice (a “
Par Value Adjustment
”). If Borrower does not deliver the Par Value Adjustment Amount as required, then such amount shall automatically be added to the Outstanding Balance. The number of Conversion Shares deliverable pursuant to any relevant Conversion Notice following a Par Value Adjustment shall be equal to (a) the Conversion Amount, divided by (b) the Par Value. In the event of a Par Value Adjustment, Lender will use a Conversion
Notice in substantially the form attached hereto as
Exhibit B
.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the Exchange Date.
BORROWER:
GrowLife, Inc.
By: /s/ Marco Hegyi
Name: Marco Hegyi
Title: CEO
ACKNOWLEDGED, ACCEPTED AND AGREED:
LENDER:
Chicago Venture Partners, L.P.
By: Chicago Venture Management, L.L.C.,
its General Partner
By: CVM, Inc., its Manager
By: /s/ John M. Fife
John M. Fife, President
ATTACHMENT 1
DEFINITIONS
For
purposes
of this Note, the following terms shall have the following meanings:
“
Approved Stock Plan
” means any stock option plan which has been approved by the board of directors of Borrower and is in effect as of the Exchange Date, pursuant to which Borrower’s securities may be issued to
any employee, officer or director for services provided to Borrower.
“
Bloomberg
” means Bloomberg L.P. (or if that service is not then reporting the relevant information regarding the Common Stock, a comparable reporting service of national reputation selected by Lender and reasonably satisfactory
to Borrower).
“
Deemed Issuance
” means an issuance of Common Stock that shall be deemed to have occurred on the latest possible permitted date pursuant to the terms hereof in the event Borrower fails to deliver Conversion Shares as
and when required pursuant to Section 8.
“
Default Effect
” means multiplying the Outstanding Balance as of the date the applicable Event of Default occurred by (a) 15% for each occurrence of any Major Default, or (b) 5% for each occurrence of any Minor Default,
and then adding the resulting product to the Outstanding Balance as of the date the applicable Event of Default occurred, with the sum of the foregoing then becoming the Outstanding Balance under this Note as of the date the applicable Event of Default occurred; provided that the Default Effect may only be applied three (3) times hereunder with respect to Major Defaults and three (3) times hereunder with respect to Minor Defaults; and provided further that the Default Effect shall not apply to any Event of Default
pursuant to Section 4.1(b) hereof.
“
DTC
” means the Depository Trust Company.
“
DTC Eligible
” means, with respect to the Common Stock, that such Common Stock is eligible to be deposited in certificate form at the DTC, cleared and converted into electronic shares by the DTC and held in the name of
the clearing firm servicing Lender’s brokerage firm for the benefit of Lender.
“
DTC/FAST Program
” means the DTC’s Fast Automated Securities Transfer program.
“
DWAC
” means the DTC’s Deposit/Withdrawal at Custodian system.
“
DWAC Eligible
” means that (a) Borrower’s Common Stock is eligible at DTC for full services pursuant to DTC’s operational arrangements, including without limitation transfer through DTC’s DWAC system,
(b) Borrower has been approved (without revocation) by the DTC’s underwriting department, (c) Borrower’s transfer agent is approved as an agent in the DTC/FAST Program, (d) the Conversion Shares are otherwise eligible for delivery via DWAC; (e) Borrower has previously delivered all Conversion Shares to Lender via DWAC; and (f) Borrower’s transfer agent does not have a policy prohibiting or limiting delivery of the Conversion Shares via DWAC.
“
Excluded Securities
” means any shares of Common Stock, options, or convertible securities issued or issuable in connection with any Approved Stock Plan;
provided
that
the option term, exercise price or similar provisions of any issuances pursuant to such Approved Stock Plan are not amended, modified or changed on or after the Exchange Date.
“
Fundamental Transaction
” means that (a) (i) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consolidate or merge with or into (whether or not Borrower or any
of its subsidiaries is the surviving corporation) any other person or entity, or (ii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person or entity, or (iii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other person or entity to
make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the person or persons making or party to, or associated or affiliated with the persons or entities making or party to, such purchase, tender or exchange offer), or (iv) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or share purchase
agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby such other person or entity acquires more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the other persons or entities making or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement
or other business combination), or (v) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify the Common Stock, other than an increase in the number of authorized shares of Borrower’s Common Stock, or (b) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of Borrower.
“
Major Default
” means any Event of Default occurring under Sections 4.1(a), 4.1(k), or 4.1(o) of this Note.
“
Mandatory Default Amount
” means the greater of (a) the Outstanding Balance divided by the Conversion Price on the date the Mandatory Default Amount is demanded, multiplied by the VWAP on the date the Mandatory Default
Amount is demanded, or (b) the Outstanding Balance following the application of the Default Effect.
“
Market Capitalization
” means the product equal to (a) the average VWAP of the Common Stock for the immediately preceding fifteen (15) Trading Days, multiplied by (b) the aggregate number of outstanding shares of Common
Stock as reported on Borrower’s most recently filed Form 10-Q or Form 10-K.
“
Minor Default
” means any Event of Default that is not a Major Default.
“
Optional Prepayment Liquidated Damages Amount
” means an amount equal to the difference between (a) the product of (i) the number of shares of Common Stock obtained by dividing (1) the applicable Optional Prepayment Amount
by (2) the Conversion Price as of the date Borrower delivered the applicable Optional Prepayment Amount to Lender, multiplied by (ii) the Closing Trade Price of the Common Stock on the date Borrower delivered the applicable Optional Prepayment Amount to Lender, and (b) the applicable Optional Prepayment Amount paid by Borrower to Lender. For illustration purposes only, if the applicable Optional Prepayment Amount were $50,000.00, the Conversion Price as of the date the Optional Prepayment Amount was paid to Lender
was equal to $0.75 per share of Common Stock, and the Closing Trade Price of a share of Common Stock as of such date was equal to $1.00, then the Optional Prepayment Liquidated Damages Amount would equal $16,666.67 computed as follows: (a) $66,666.67 (calculated as (i) (1) $50,000.00 divided by (2) $0.75 multiplied by (ii) $1.00) minus (b) $50,000.00.
“
Other Agreements
” means, collectively, (a) all existing and future agreements and instruments between, among or by Borrower (or an affiliate), on the one hand, and Lender (or an affiliate), on the other hand, and (b)
any financing agreement or a material agreement that affects Borrower’s ongoing business operations.
“
Outstanding Balance
” means as of any date of determination, the Purchase Price, as reduced or increased, as the case may be, pursuant to the terms hereof for payment, Conversion, offset, or otherwise, plus the Exchange
Fee, accrued but unpaid interest, collection and enforcements costs (including attorneys’ fees) incurred by Lender, transfer, stamp, issuance and similar taxes and fees related to Conversions, and any other fees or charges (including without limitation Conversion Delay Late Fees) incurred under this Note.
Par Value
” means the par value of the Common Stock on any relevant date of determination. The Par Value as of the Exchange Date is $0.0001.
“
Par Value Adjustment Amount
” means an amount calculated as follows: (a) the number of Conversion Shares deliverable under a particular Conversion Notice (prior to any Par Value Adjustment) multiplied by the Par Value,
less (b) the Conversion Amount (prior to any Par Value Adjustment), plus (c) $500.00. For illustration purposes only, if for a given Conversion, the Conversion Amount was $20,000.00, the Conversion Price was $0.0008 and the Par Value was $0.001 then the Par Value Adjustment Amount would be $5,500.00 (25,000,000 Conversion Shares ($20,000.00/$0.0008) multiplied by the Par Value of $0.001 ($25,000.00) minus the Conversion Amount of $20,000.00 plus $500.00 equals $5,500.00).
“
Trading Day
” means any day on which the New York Stock Exchange is open for trading.
“
VWAP
” means the volume weighted average price of the Common stock on the principal market for a particular Trading Day or set of Trading Days, as the case may be, as reported by Bloomberg.
EXHIBIT A
Chicago Venture Partners, L.P.
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
GrowLife, Inc. Date:
__________________
Attn: Marco Hegyi, CEO
5400 Carillon Point
Kirkland, Washington 98033
CONVERSION NOTICE
The above-captioned Lender hereby gives notice to GrowLife, Inc., a Delaware corporation (the “
Borrower
”), pursuant to that certain Convertible Promissory Note made by Borrower in favor of Lender on August 17, 2016 (the “
Note
”), that Lender elects to convert the portion
of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of Borrower as of the date of conversion specified below. Said conversion shall be based on the Conversion Price set forth below. In the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of Conversion Notice to conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the Note.
A. Date of Conversion: ____________
B. Conversion #: ____________
C. Conversion Amount: ____________
D. Conversion Price: _______________
E. Conversion Shares: _______________ (C divided by D)
F. Remaining Outstanding Balance of Note: ____________*
* Subject to adjustments for corrections, defaults, interest and other adjustments permitted by the Exchange Documents (as defined in the Exchange Agreement), the terms of which shall control in the event of any dispute between the terms of this Conversion Notice and such Exchange Documents.
So that DTC processing can begin, please deliver, via reputable overnight courier, a certificate representing DTC Eligible Lender Conversion Shares to:
Name: _____________________________________
Address: _____________________________________
_____________________________________
To the extent the Lender Conversion Shares are not DTC Eligible, please deliver, via reputable overnight courier, a certificate representing the non-DTC Eligible Lender Conversion Shares to the party at the address set forth above.
[Remainder of page intentionally left blank]
Sincerely,
Lender:
Chicago Venture Partners, L.P.
By: Chicago Venture Management, L.L.C.,
its General Partner
By: CVM, Inc., its Manager
By:
John M. Fife, President
EXHIBIT B
Chicago Venture Partners, L.P.
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
GrowLife, Inc. Date:
__________________
Attn: Marco Hegyi, CEO
5400 Carillon Point
Kirkland, Washington 98033
CONVERSION NOTICE
The above-captioned Lender hereby gives notice to GrowLife, Inc., a Delaware corporation (the “
Borrower
”), pursuant to that certain Convertible Promissory Note made by Borrower in favor of Lender on August 17, 2016 (the “
Note
”), that Lender elects to convert the portion
of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of Borrower as of the date of conversion specified below. Said conversion shall be based on the Conversion Price set forth below. In the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of Conversion Notice to conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the Note.
A. Date of Conversion: ____________
B. Conversion #: ____________
C. Conversion Amount: ____________
D. Par Value Adjustment Amount: _______________
E. Conversion Price: _______________ (Par Value)
F. Conversion Shares: _______________ (C divided by E)
F. Remaining Outstanding Balance of Note: ____________*
* Subject to adjustments for corrections, defaults, interest and other adjustments permitted by the Exchange Documents (as defined in the Exchange Agreement), the terms of which shall control in the event of any dispute between the terms of this Conversion Notice and such Exchange Documents.
So that DTC processing can begin, please deliver, via reputable overnight courier, a certificate representing DTC Eligible Lender Conversion Shares to:
Name: _____________________________________
Address: _____________________________________
_____________________________________
To the extent the Lender Conversion Shares are not DTC Eligible, please deliver, via reputable overnight courier, a certificate representing the non-DTC Eligible Lender Conversion Shares to the party at the address set forth above.
The Par Value Adjustment Amount must be paid in cash within one (1) Trading Day of your receipt of this Conversion Notice.
[Remainder of page intentionally left blank]
Sincerely,
Lender:
Chicago Venture Partners, L.P.
By: Chicago Venture Management, L.L.C.,
its General Partner
By: CVM, Inc., its Manager
By:
John M. Fife, President
EXHIBIT B
THIS NOTE (AS DEFINED BELOW) IS ISSUED IN EXCHANGE FOR (WITHOUT ANY ADDITIONAL CONSIDERATION) THAT CERTAIN FIRST REPLACEMENT AMENDED, RESTATED AND CONSOLIDATED SENIOR SECURED CONVERTIBLE REDEEMABLE DEBENTURE A IN THE ORIGINAL PRINCIPAL AMOUNT OF $________ HAVING AN ORIGINAL ISSUE DATE OF OCTOBER 27, 2015. FOR PURPOSES OF RULE 144
(AS DEFINED BELOW), THIS NOTE SHALL BE DEEMED TO HAVE BEEN ISSUED ON OCTOBER 27, 2015.
FORM OF CONVERTIBLE PROMISSORY NOTE
“
Original Issue Date
”: October 27, 2015 U.S. $_________
FOR VALUE RECEIVED,
GrowLife, Inc.
, a Delaware corporation (“
Borrower
”), promises to pay to
Chicago Venture Partners, L.P.
, a Utah limited partnership, or its successors or assigns (“
Lender
”),
$________ and any interest, fees, charges, and late fees on or before the date that is six (6) months from the Exchange Date (as defined below) (the “
Maturity Date
”) in accordance with the terms set forth herein. This Convertible Promissory Note (this “
Note
”) is issued and made effective pursuant to that certain Exchange Agreement dated as of August 17, 2016 (the “
Exchange
Date
”), as the same may be amended from time to time (the “
Exchange Agreement
”), by and between Borrower and Lender,
pursuant to which Lender exchanged the
First Replacement Amended, Restated and Consolidated Senior Secured Convertible Redeemable Debenture B dated and made effective as of ________ but with an original issuance date of October 27, 2015
for this Note, pursuant to Section
3(a)(9) of the Securities Act of 1933, as amended
. Certain capitalized terms used herein are defined in
Attachment 1
attached hereto and incorporated herein by this reference.
As set forth in the Exchange Agreement, Borrower agreed to pay an Exchange Fee (as defined in the Exchange Agreement) in the amount of $_________, all of which Exchange Fee is
included in the initial principal balance of this Note and all of which amount is fully earned and payable as of the date hereof.
Payment; Prepayment
. All payments owing hereunder shall be in lawful money of the United States of America or Conversion Shares (as defined below), as provided for herein, and delivered to Lender at the address furnished to Borrower for that purpose. All payments shall be applied first to (a) costs
of collection, if any, then to (b) fees and charges, if any, then to (c) accrued and unpaid interest, and thereafter, to (d) principal. Notwithstanding the foregoing, so long as Borrower has not received a Conversion Notice (as defined below) from Lender where the applicable Conversion Shares have not yet been delivered and so long as no Event of Default has occurred since the Exchange Date (whether declared by Lender or undeclared), then Borrower shall have the right, exercisable on not less than five (5) Trading
Days prior written notice to Lender to prepay the Outstanding Balance of this Note, in full, in accordance with this Section 1. Any notice of prepayment hereunder (an “
Optional Prepayment Notice
”) shall be delivered to Lender at its registered address and shall state: (i) that Borrower is exercising its right to prepay this Note, and (ii) the date of prepayment, which shall be not less than five (5) Trading Days from the date of the Optional Prepayment Notice.
On the date fixed for prepayment (the “
Optional Prepayment Date
”), Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of Lender as may be specified by Lender in writing to Borrower. If Borrower exercises its right to prepay this Note, Borrower shall make payment to Lender of an amount in cash equal to 125% multiplied by the then Outstanding Balance of this Note (the “
Optional
Prepayment Amount
”). In the event Borrower delivers the Optional Prepayment Amount to Lender prior to the Optional Prepayment Date or without delivering an Optional Prepayment Notice to Lender as set forth herein without Lender’s prior written consent, the Optional Prepayment Amount shall not be deemed to have been paid to Lender until the Optional Prepayment Date. Moreover, in such event the Optional Prepayment Liquidated Damages Amount will automatically be added to the Outstanding Balance
of this Note on the day Borrower delivers the Optional Prepayment Amount to Lender. In the event Borrower delivers the Optional Prepayment Amount without an Optional Prepayment Notice, then the Optional Prepayment Date will be deemed to be the date that is five (5) Trading Days from the date that the Optional Prepayment Amount was delivered to Lender. In addition, if Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to Lender within two (2) Trading Days following
the Optional Prepayment Date, Borrower shall forever forfeit its right to prepay this Note.
Security
. This Note is unsecured.
Conversion
.
Conversion Price
. Subject to the adjustments set forth herein, the conversion price (the “
Conversion Price
”) for each Conversion (as defined below) shall be equal to the product of 65% (the “
Conversion Factor
”)
multiplied by the average for the three (3) lowest daily VWAPs for the Common Stock (as defined below) in the twenty (20) Trading Days immediately preceding the applicable Conversion. Additionally, if at any time after the Exchange Date, the Conversion Shares are not DTC Eligible, then the then-current Conversion Factor will automatically be reduced by 5% for all future Conversions. Finally, in addition to the Default Effect, if any Major Default occurs after the Exchange Date, the Conversion Factor shall automatically
be reduced for all future Conversions by an additional 5% for each of the first three (3) Major Defaults that occur after the Exchange Date (for the avoidance of doubt, each occurrence of any Major Default shall be deemed to be a separate occurrence for purposes of the foregoing reductions in Conversion Factor, even if the same Major Default occurs three (3) separate times). For example, the first time Borrower is not DTC Eligible, the Conversion Factor for future Conversions thereafter will be reduced from 65%
to 60% for purposes of this example. If, thereafter, there are three (3) separate occurrences of a Major Default pursuant to Section 4.1(a), then for purposes of this example the Conversion Factor would be reduced by 5% for the first such occurrence, and so on for each of the second and third occurrences of such Major Default.
Conversions
. Lender has the right at any time after the Exchange Date until the Outstanding Balance has been paid in full, including without limitation until any Optional Prepayment Date (even if Lender has received an Optional Prepayment Notice), at its election, to convert (each instance of conversion
is referred to herein as a “
Conversion
”) all or any part of the Outstanding Balance into shares (“
Conversion Shares
”) of fully paid and non-assessable common stock, $0.0001 par value per share (“
Common Stock
”), of Borrower as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the “
Conversion
Amount
”) divided by the Conversion Price. Conversion notices in the form attached hereto as
Exhibit A
(each, a “
Conversion Notice
”) may be effectively delivered to Borrower by any method of Lender’s choice (including but not limited to facsimile, email, mail, overnight courier, or personal delivery), and all Conversions shall be cashless and not require further payment from Lender. Borrower shall
deliver the Conversion Shares from any Conversion to Lender in accordance with Section 8 below.
Defaults and Remedies
.
Defaults
. The following are events of default under this Note (each, an “
Event of Default
”): Exhibit W Borrower shall fail to pay any principal, interest, fees, charges, or any other amount when due and payable hereunder; or Exhibit X Borrower shall
fail to deliver any Conversion Shares in accordance with the terms hereof; or Exhibit Y a receiver, trustee or other similar official shall be appointed over Borrower or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged within sixty (60) days; or Exhibit Z Borrower shall become insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if
any; or Exhibit AA Borrower shall make a general assignment for the benefit of creditors; or Exhibit BB Borrower shall file a petition for relief under any bankruptcy, insolvency or similar law (domestic or foreign); or Exhibit CC an involuntary proceeding shall be commenced or filed against Borrower; or Exhibit DD Borrower shall default or otherwise fail to observe or perform any covenant, obligation, condition or agreement of Borrower contained herein or in any other Exchange Document (as defined in the Exchange
Agreement), other than those specifically set forth in this Section 4.1 and Section 8 of the Exchange Agreement; or Exhibit EE any representation, warranty or other statement made or furnished by or on behalf of Borrower to Lender herein, in any Exchange Document, or otherwise in connection with the issuance of this Note shall be false, incorrect, incomplete or misleading in any material respect when made or furnished; or Exhibit FF the occurrence of a Fundamental Transaction without Lender’s prior written
consent; or Exhibit GG Borrower shall fail to maintain the Share Reserve as required under the Exchange Agreement; or Exhibit HH Borrower effectuates a reverse split of its Common Stock without twenty (20) Trading Days prior written notice to Lender; or Exhibit II any money judgment, writ or similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $100,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty
(20) calendar days unless otherwise consented to by Lender; or Exhibit JJ Borrower shall fail to be DTC Eligible; or Exhibit KK Borrower shall fail to observe or perform any covenant set forth in Section 8 of the Exchange Agreement.
Remedies
. Upon the occurrence of any Event of Default, Borrower shall within three (3) Trading Days deliver written notice thereof via facsimile, email or reputable overnight courier (with next day delivery specified) (an “
Event of Default Notice
”)
to Lender. At any time and from time to time after the earlier of Lender’s receipt of an Event of Default Notice and Lender becoming aware of the occurrence of any Event of Default, Lender may accelerate this Note by written notice to Borrower, with the Outstanding Balance becoming immediately due and payable in cash at the Mandatory Default Amount. Notwithstanding the foregoing, at any time following the occurrence of any Event of Default, Lender may, at its option, elect to increase the Outstanding Balance
by applying the Default Effect (subject to the limitation set forth below) via written notice to Borrower without accelerating the Outstanding Balance, in which event the Outstanding Balance shall be increased as of the date of the occurrence of the applicable Event of Default pursuant to the Default Effect, but the Outstanding Balance shall not be immediately due and payable unless so declared by Lender (for the avoidance of doubt, if Lender elects to apply the Default Effect pursuant to this sentence, it shall
reserve the right to declare the Outstanding Balance immediately due and payable at any time and no such election by Lender shall be deemed to be a waiver of its right to declare the Outstanding Balance immediately due and payable as set forth herein unless otherwise agreed to by Lender in writing). Notwithstanding the foregoing, upon the occurrence of any Event of Default described in clauses (c), (d), (e), (f) or (g) of Section 4.1, the Outstanding Balance as of the date of acceleration shall become immediately
and automatically due and payable in cash at the Mandatory Default Amount, without any written notice required by Lender. At any time following the occurrence of any Event of Default, upon written notice given by Lender to Borrower, interest shall accrue on the Outstanding Balance beginning on the date the applicable Event of Default occurred at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted under applicable law (“
Default Interest
”).
Additionally, following the occurrence of any Event of Default, Borrower may, at its option, pay any Conversion in cash instead of Conversion Shares by paying to Lender on or before the applicable Delivery Date (as defined below) a cash amount equal to the number of Conversion Shares set forth in the applicable Conversion Notice multiplied by the highest intra-day trading price of the Common Stock that occurs during the period beginning on the date the applicable Event of Default occurred and ending on the date
of the applicable Conversion Notice. In connection with acceleration described herein, Lender need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and Lender may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Lender at any time prior to payment hereunder and Lender shall have all rights
as a holder of the Note until such time, if any, as Lender receives full payment pursuant to this Section 4.2. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Nothing herein shall limit Lender’s right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to Borrower’s failure to timely deliver Conversion Shares upon Conversion
of the Notes as required pursuant to the terms hereof.
Cross Default
. A breach or default by Borrower of any covenant or other term or condition contained in any Other Agreements shall, at the option of Lender, be considered an Event of Default under this Note, in which event Lender shall be entitled (but in no event required) to apply all rights and remedies
of Lender under the terms of this Note.
Unconditional Obligation; No Offset
. Borrower acknowledges that this Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Lender,
its successors and assigns, and agrees to make the payments or Conversions called for herein in accordance with the terms of this Note.
Waiver
. No waiver of any provision of this Note shall be effective unless it is in the form of a writing signed by the party granting the waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or consent to any other prohibited action,
whether or not similar. No waiver or consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in writing.
Rights Upon Issuance of Securities
.
Subsequent Equity Sales
. Except with respect to Excluded Securities, if Borrower or any subsidiary thereof, as applicable, at any time this Note is outstanding, shall sell, issue or grant any Common Stock, option to purchase Common Stock, right to reprice, preferred shares convertible into Common Stock,
or debt, warrants, options or other instruments or securities to Lender or any third party which are convertible into or exercisable for shares of Common Stock (collectively, the “
Equity Securities
”), at an effective price per share less than the then effective Conversion Price (such issuance is referred to herein as a “
Dilutive Issuance
”), then, the Conversion Price shall be automatically reduced and only reduced
to equal such lower effective price per share. If the holder of any Equity Securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options, or rights per share which are issued in connection with such Dilutive Issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Conversion Price, such issuance shall be deemed to have occurred
for less than the Conversion Price on the date of such Dilutive Issuance, and the then effective Conversion Price shall be reduced and only reduced to equal such lower effective price per share. Such adjustments described above to the Conversion Price shall be permanent (subject to additional adjustments under this section), and shall be made whenever such Equity Securities are issued. Borrower shall notify Lender, in writing, no later than the Trading Day following the issuance of any Equity Securities subject
to this Section 7.1, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price, or other pricing terms (such notice, the “
Dilutive
Issuance Notice
”). For purposes of clarification, whether or not Borrower provides a Dilutive Issuance Notice pursuant to this Section 7.1, upon the occurrence of any Dilutive Issuance, on the date of such Dilutive Issuance the Conversion Price
shall be lowered to equal the applicable effective price per share regardless of whether Borrower or Lender accurately refers to such lower effective price per share in any Conversion Notice.
Adjustment of Conversion Price upon Subdivision or Combination of Common Stock
. Without limiting any provision hereof, if Borrower at any time on or after the Exchange Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision hereof, if Borrower at any time on or after the Exchange Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment
pursuant to this Section 7.2 shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7.2 occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.
Other Events
. In the event that Borrower (or any subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect Lender from
dilution
or if any
event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then Borrower’s board of directors shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of Lender, provided that no such adjustment pursuant to this Section 7.3 will increase
the Conversion Price as otherwise determined pursuant to this Section 7, provided further that if Lender does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then Borrower’s board of directors and Lender shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by Borrower.
Method of Conversion Share Delivery
. On or before the close of business on the third (3
rd
) Trading Day following the date of delivery of a Conversion Notice (the “
Delivery Date
”), Borrower shall,
provided it is DWAC Eligible at such time, deliver or cause its transfer agent to deliver the applicable Conversion Shares electronically via DWAC to the account designated by Lender in the applicable Conversion Notice.
If Borrower is not DWAC Eligible, it shall deliver to Lender or its broker (as designated in the Conversion Notice), via reputable overnight courier, a certificate representing the number of shares of Common Stock equal to the number of Conversion Shares
to which Lender shall be entitled, registered in the name of Lender or its designee. For the avoidance of doubt, Borrower has not met its obligation to deliver Conversion Shares by the Delivery Date unless Lender or its broker, as applicable, has actually received the certificate representing the applicable Conversion Shares no later than the close of business on the relevant Delivery Date pursuant to the terms set forth above. Moreover, and notwithstanding anything to the contrary herein or in any other Exchange
Document, in the event Borrower or its transfer agent refuses to deliver any Conversion Shares to Lender on grounds that such issuance is in violation of Rule 144 under the Securities Act of 1933, as amended (“
Rule 144
”), Borrower shall deliver or cause its transfer agent to deliver the applicable Conversion Shares to Lender with a restricted securities legend, but otherwise in accordance with the provisions of this Section 8. In conjunction therewith, Borrower
will also deliver to Lender a written opinion from its counsel or its transfer agent’s counsel opining as to why the issuance of the applicable Conversion Shares violates Rule 144.
Conversion Delays
. If Borrower fails to deliver Conversion Shares in accordance with the timeframe stated in Section 8, Lender, at any time prior to selling all of those Conversion Shares, may rescind in whole or in part that particular Conversion attributable to the unsold Conversion Shares, with a
corresponding increase to the Outstanding Balance (any returned amount will tack back to the Original Issue Date for purposes of determining the holding period under Rule 144. In addition, for each Conversion, in the event that Conversion Shares are not delivered by the fourth Trading Day (inclusive of the day of the Conversion), a late fee equal to the greater of (a) $500.00 and (b) 2% of the applicable Conversion Share Value rounded to the nearest multiple of $100.00 (but in any event the cumulative amount
of such late fees for each Conversion shall not exceed 200% of the applicable Conversion Share Value) will be assessed for each day after the third Trading Day (inclusive of the day of the Conversion) until Conversion Share delivery is made; and such late fee will be added to the Outstanding Balance (such fees, the “
Conversion Delay Late Fees
”). For illustration purposes only, if Lender delivers a Conversion Notice to Borrower pursuant to which Borrower is required
to deliver 100,000 Conversion Shares to Lender and on the Delivery Date such Conversion Shares have a Conversion Share Value of $20,000.00 (assuming a Closing Trade Price on the Delivery Date of $0.20 per share of Common Stock), then in such event a Conversion Delay Late Fee in the amount of $500.00 per day (the greater of $500.00 per day and $20,000.00 multiplied by 2%, which is $400.00) would be added to the Outstanding Balance of the Note until such Conversion Shares are delivered to Lender. For purposes of
this example, if the Conversion Shares are delivered to Lender twenty (20) days after the applicable Delivery Date, the total Conversion Delay Late Fees that would be added to the Outstanding Balance would be $10,000.00 (20 days multiplied by $500.00 per day). If the Conversion Shares are delivered to Lender one hundred (100) days after the applicable Delivery Date, the total Conversion Delay Late Fees that would be added to the Outstanding Balance would be $40,000.00 (100 days multiplied by $500.00 per day,
but capped at 200% of the Conversion Share Value).
Ownership Limitation
. Notwithstanding anything to the contrary contained in this Note or the other Exchange Documents, if at any time Lender shall or would be issued shares of Common Stock under any of the Exchange Documents, but such issuance would cause Lender (together with its affiliates) to beneficially
own a number of shares exceeding 4.99% of the number of shares of Common Stock outstanding on such date (including for such purpose the shares of Common Stock issuable upon such issuance) (the “
Maximum Percentage
”), then Borrower must not issue to Lender shares of Common Stock which would exceed the Maximum Percentage. For purposes of this section, beneficial ownership of Common Stock will be determined pursuant to Section 13(d) of the 1934 Act. The shares of
Common Stock issuable to Lender that would cause the Maximum Percentage to be exceeded are referred to herein as the “
Ownership
Limitation
Shares
”. Borrower will reserve the Ownership Limitation Shares for the exclusive benefit of Lender. From time to time, Lender may notify Borrower in writing of the number of the Ownership Limitation Shares that may be issued to Lender without causing
Lender to exceed the Maximum Percentage. Upon receipt of such notice, Borrower shall be unconditionally obligated to immediately issue such designated shares to Lender, with a corresponding reduction in the number of the Ownership Limitation Shares. Notwithstanding the forgoing, the term “4.99%” above shall be replaced with “9.99%” at such time as the Market Capitalization is less than $10,000,000.00. Notwithstanding any other provision contained herein, if the term “4.99%”
is replaced with “9.99%” pursuant to the preceding sentence, such increase to “9.99%” shall remain at 9.99% until increased, decreased or waived by Lender as set forth below. By written notice to Borrower, Lender may increase, decrease or waive the Maximum Percentage as to itself but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and
assigns of Lender.
Payment of Collection Costs
. If this Note is placed in the hands of an attorney for collection or enforcement
prior to commencing arbitration or legal proceedings,
or is collected or enforced through any arbitration or legal proceeding, or Lender otherwise takes action
to collect amounts due under this Note or to enforce the provisions of this Note, then Borrower shall pay the costs incurred by Lender for such collection, enforcement or action including, without limitation, attorneys’ fees and disbursements. Borrower also agrees to pay for any costs, fees or charges of its transfer agent that are charged to Lender pursuant to any Conversion or issuance of shares pursuant to this Note.
Opinion of Counsel
. In the event that an opinion of counsel is needed for any matter related to this Note, Lender has the right to have any such opinion provided by its counsel. Lender also has the right to have any such opinion provided by Borrower’s counsel.
Governing Law
.
This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Utah, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Utah. The provisions set forth in the
Exchange Agreement
to determine the proper venue for any disputes are incorporated herein by this reference.
Resolution of Disputes
.
Arbitration of Disputes
. By its acceptance of this Note, each party agrees to be bound by the Arbitration Provisions (as defined in the Exchange Agreement) set forth as an exhibit to the Exchange Agreement.
Calculation Disputes
. Notwithstanding the Arbitration Provisions, i
n the case of a dispute as to any Calculation (as defined in the
Exchange Agreement), such dispute will be resolved in the manner set forth in the Exchange Agreement.
Cancellation
. After repayment or conversion of the entire Outstanding Balance, this Note shall be deemed paid in full, shall automatically be deemed canceled, and shall not be reissued.
Amendments
.
The prior written consent of both parties hereto shall be required for any change or amendment to this Note.
Assignments
. Borrower may not assign this Note without the prior written consent of Lender. This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by Lender without the consent of Borrower.
Time is of the Essence
. Time is expressly made of the essence with respect to each and every provision of this Note and the documents and instruments entered into in connection herewith.
Notices
. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with the subsection of the Exchange Agreement titled “Notices.”
Liquidated Damages
. Lender and Borrower agree that in the event Borrower fails to comply with any of the terms or provisions of this Note, Lender’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict future interest
rates, future share prices, future trading volumes and other relevant factors. Accordingly, Lender and Borrower agree that any fees, balance adjustments, Default Interest or other charges assessed under this Note are not penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages (under Lender’s and Borrower’s expectations that any such liquidated damages will tack back to the Original Issue Date for purposes of determining the holding period under Rule 144).
Waiver of Jury Trial
. EACH OF LENDER AND BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY
AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.
Voluntary Agreement
. Borrower has carefully read this Note and has asked any questions needed for Borrower to understand the terms, consequences and binding effect of this Note and fully understand them. Borrower has had the opportunity to seek the advice
of an attorney of Borrower’s choosing, or has waived the right to do so, and is executing this Note voluntarily and without any duress or undue influence by Lender or anyone else.
Severability
. If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower and Lender to the fullest extent permitted by law and the balance of this Note shall remain in full force and effect.
Par Value Adjustments
. If at any time Lender delivers a Conversion Notice to Borrower and as of such date the Conversion Price would be less than the Par Value, then, as liquidated damages, Company must pay to Lender the Par Value Adjustment Amount in cash within one (1) Trading Day of delivery of the
applicable Conversion Notice (a “
Par Value Adjustment
”). If Borrower does not deliver the Par Value Adjustment Amount as required, then such amount shall automatically be added to the Outstanding Balance. The number of Conversion Shares deliverable pursuant to any relevant Conversion Notice following a Par Value Adjustment shall be equal to (a) the Conversion Amount, divided by (b) the Par Value. In the event of a Par Value Adjustment, Lender will use a Conversion
Notice in substantially the form attached hereto as
Exhibit B
.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the Exchange Date.
BORROWER:
GrowLife, Inc.
By:
Name:
Title:
ACKNOWLEDGED, ACCEPTED AND AGREED:
LENDER:
Chicago Venture Partners, L.P.
By: Chicago Venture Management, L.L.C.,
its General Partner
By: CVM, Inc., its Manager
By:
John M. Fife, President
ATTACHMENT 1
DEFINITIONS
For
purposes
of this Note, the following terms shall have the following meanings:
“
Approved Stock Plan
” means any stock option plan which has been approved by the board of directors of Borrower and is in effect as of the Exchange Date, pursuant to which Borrower’s securities may be issued to
any employee, officer or director for services provided to Borrower.
“
Bloomberg
” means Bloomberg L.P. (or if that service is not then reporting the relevant information regarding the Common Stock, a comparable reporting service of national reputation selected by Lender and reasonably satisfactory
to Borrower).
“
Deemed Issuance
” means an issuance of Common Stock that shall be deemed to have occurred on the latest possible permitted date pursuant to the terms hereof in the event Borrower fails to deliver Conversion Shares as
and when required pursuant to Section 8.
“
Default Effect
” means multiplying the Outstanding Balance as of the date the applicable Event of Default occurred by (a) 15% for each occurrence of any Major Default, or (b) 5% for each occurrence of any Minor Default,
and then adding the resulting product to the Outstanding Balance as of the date the applicable Event of Default occurred, with the sum of the foregoing then becoming the Outstanding Balance under this Note as of the date the applicable Event of Default occurred; provided that the Default Effect may only be applied three (3) times hereunder with respect to Major Defaults and three (3) times hereunder with respect to Minor Defaults; and provided further that the Default Effect shall not apply to any Event of Default
pursuant to Section 4.1(b) hereof.
“
DTC
” means the Depository Trust Company.
“
DTC Eligible
” means, with respect to the Common Stock, that such Common Stock is eligible to be deposited in certificate form at the DTC, cleared and converted into electronic shares by the DTC and held in the name of
the clearing firm servicing Lender’s brokerage firm for the benefit of Lender.
“
DTC/FAST Program
” means the DTC’s Fast Automated Securities Transfer program.
“
DWAC
” means the DTC’s Deposit/Withdrawal at Custodian system.
“
DWAC Eligible
” means that (a) Borrower’s Common Stock is eligible at DTC for full services pursuant to DTC’s operational arrangements, including without limitation transfer through DTC’s DWAC system,
(b) Borrower has been approved (without revocation) by the DTC’s underwriting department, (c) Borrower’s transfer agent is approved as an agent in the DTC/FAST Program, (d) the Conversion Shares are otherwise eligible for delivery via DWAC; (e) Borrower has previously delivered all Conversion Shares to Lender via DWAC; and (f) Borrower’s transfer agent does not have a policy prohibiting or limiting delivery of the Conversion Shares via DWAC.
“
Excluded Securities
” means any shares of Common Stock, options, or convertible securities issued or issuable in connection with any Approved Stock Plan;
provided
that
the option term, exercise price or similar provisions of any issuances pursuant to such Approved Stock Plan are not amended, modified or changed on or after the Exchange Date.
“
Fundamental Transaction
” means that (a) (i) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consolidate or merge with or into (whether or not Borrower or any
of its subsidiaries is the surviving corporation) any other person or entity, or (ii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person or entity, or (iii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other person or entity to
make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the person or persons making or party to, or associated or affiliated with the persons or entities making or party to, such purchase, tender or exchange offer), or (iv) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or share purchase
agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby such other person or entity acquires more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the other persons or entities making or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement
or other business combination), or (v) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify the Common Stock, other than an increase in the number of authorized shares of Borrower’s Common Stock, or (b) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of Borrower.
“
Major Default
” means any Event of Default occurring under Sections 4.1(a), 4.1(k), or 4.1(o) of this Note.
“
Mandatory Default Amount
” means the greater of (a) the Outstanding Balance divided by the Conversion Price on the date the Mandatory Default Amount is demanded, multiplied by the VWAP on the date the Mandatory Default
Amount is demanded, or (b) the Outstanding Balance following the application of the Default Effect.
“
Market Capitalization
” means the product equal to (a) the average VWAP of the Common Stock for the immediately preceding fifteen (15) Trading Days, multiplied by (b) the aggregate number of outstanding shares of Common
Stock as reported on Borrower’s most recently filed Form 10-Q or Form 10-K.
“
Minor Default
” means any Event of Default that is not a Major Default.
“
Optional Prepayment Liquidated Damages Amount
” means an amount equal to the difference between (a) the product of (i) the number of shares of Common Stock obtained by dividing (1) the applicable Optional Prepayment Amount
by (2) the Conversion Price as of the date Borrower delivered the applicable Optional Prepayment Amount to Lender, multiplied by (ii) the Closing Trade Price of the Common Stock on the date Borrower delivered the applicable Optional Prepayment Amount to Lender, and (b) the applicable Optional Prepayment Amount paid by Borrower to Lender. For illustration purposes only, if the applicable Optional Prepayment Amount were $50,000.00, the Conversion Price as of the date the Optional Prepayment Amount was paid to Lender
was equal to $0.75 per share of Common Stock, and the Closing Trade Price of a share of Common Stock as of such date was equal to $1.00, then the Optional Prepayment Liquidated Damages Amount would equal $16,666.67 computed as follows: (a) $66,666.67 (calculated as (i) (1) $50,000.00 divided by (2) $0.75 multiplied by (ii) $1.00) minus (b) $50,000.00.
“
Other Agreements
” means, collectively, (a) all existing and future agreements and instruments between, among or by Borrower (or an affiliate), on the one hand, and Lender (or an affiliate), on the other hand, and (b)
any financing agreement or a material agreement that affects Borrower’s ongoing business operations.
“
Outstanding Balance
” means as of any date of determination, the Purchase Price, as reduced or increased, as the case may be, pursuant to the terms hereof for payment, Conversion, offset, or otherwise, plus the Exchange
Fee, accrued but unpaid interest, collection and enforcements costs (including attorneys’ fees) incurred by Lender, transfer, stamp, issuance and similar taxes and fees related to Conversions, and any other fees or charges (including without limitation Conversion Delay Late Fees) incurred under this Note.
Par Value
” means the par value of the Common Stock on any relevant date of determination. The Par Value as of the Exchange Date is $0.0001.
“
Par Value Adjustment Amount
” means an amount calculated as follows: (a) the number of Conversion Shares deliverable under a particular Conversion Notice (prior to any Par Value Adjustment) multiplied by the Par Value,
less (b) the Conversion Amount (prior to any Par Value Adjustment), plus (c) $500.00. For illustration purposes only, if for a given Conversion, the Conversion Amount was $20,000.00, the Conversion Price was $0.0008 and the Par Value was $0.001 then the Par Value Adjustment Amount would be $5,500.00 (25,000,000 Conversion Shares ($20,000.00/$0.0008) multiplied by the Par Value of $0.001 ($25,000.00) minus the Conversion Amount of $20,000.00 plus $500.00 equals $5,500.00).
“
Trading Day
” means any day on which the New York Stock Exchange is open for trading.
“
VWAP
” means the volume weighted average price of the Common stock on the principal market for a particular Trading Day or set of Trading Days, as the case may be, as reported by Bloomberg.
EXHIBIT A
Chicago Venture Partners, L.P.
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
GrowLife, Inc. Date:
__________________
Attn: Marco Hegyi, CEO
5400 Carillon Point
Kirkland, Washington 98033
CONVERSION NOTICE
The above-captioned Lender hereby gives notice to GrowLife, Inc., a Delaware corporation (the “
Borrower
”), pursuant to that certain Convertible Promissory Note made by Borrower in favor of Lender on August 17, 2016 (the “
Note
”), that Lender elects to convert the portion
of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of Borrower as of the date of conversion specified below. Said conversion shall be based on the Conversion Price set forth below. In the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of Conversion Notice to conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the Note.
A. Date of Conversion: ____________
B. Conversion #: ____________
C. Conversion Amount: ____________
D. Conversion Price: _______________
E. Conversion Shares: _______________ (C divided by D)
F. Remaining Outstanding Balance of Note: ____________*
* Subject to adjustments for corrections, defaults, interest and other adjustments permitted by the Exchange Documents (as defined in the Exchange Agreement), the terms of which shall control in the event of any dispute between the terms of this Conversion Notice and such Exchange Documents.
So that DTC processing can begin, please deliver, via reputable overnight courier, a certificate representing DTC Eligible Lender Conversion Shares to:
Name: _____________________________________
Address: _____________________________________
_____________________________________
To the extent the Lender Conversion Shares are not DTC Eligible, please deliver, via reputable overnight courier, a certificate representing the non-DTC Eligible Lender Conversion Shares to the party at the address set forth above.
[Remainder of page intentionally left blank]
Sincerely,
Lender:
Chicago Venture Partners, L.P.
By: Chicago Venture Management, L.L.C.,
its General Partner
By: CVM, Inc., its Manager
By:
John M. Fife, President
EXHIBIT B
Chicago Venture Partners, L.P.
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
GrowLife, Inc. Date:
__________________
Attn: Marco Hegyi, CEO
5400 Carillon Point
Kirkland, Washington 98033
CONVERSION NOTICE
The above-captioned Lender hereby gives notice to GrowLife, Inc., a Delaware corporation (the “
Borrower
”), pursuant to that certain Convertible Promissory Note made by Borrower in favor of Lender on August 17, 2016 (the “
Note
”), that Lender elects to convert the portion
of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of Borrower as of the date of conversion specified below. Said conversion shall be based on the Conversion Price set forth below. In the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of Conversion Notice to conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the Note.
A. Date of Conversion: ____________
B. Conversion #: ____________
C. Conversion Amount: ____________
D. Par Value Adjustment Amount: _______________
E. Conversion Price: _______________ (Par Value)
F. Conversion Shares: _______________ (C divided by E)
F. Remaining Outstanding Balance of Note: ____________*
* Subject to adjustments for corrections, defaults, interest and other adjustments permitted by the Exchange Documents (as defined in the Exchange Agreement), the terms of which shall control in the event of any dispute between the terms of this Conversion Notice and such Exchange Documents.
So that DTC processing can begin, please deliver, via reputable overnight courier, a certificate representing DTC Eligible Lender Conversion Shares to:
Name: _____________________________________
Address: _____________________________________
_____________________________________
To the extent the Lender Conversion Shares are not DTC Eligible, please deliver, via reputable overnight courier, a certificate representing the non-DTC Eligible Lender Conversion Shares to the party at the address set forth above.
The Par Value Adjustment Amount must be paid in cash within one (1) Trading Day of your receipt of this Conversion Notice.
[Remainder of page intentionally left blank]
Sincerely,
Lender:
Chicago Venture Partners, L.P.
By: Chicago Venture Management, L.L.C.,
its General Partner
By: CVM, Inc., its Manager
By:
John M. Fife, President
Exhibit C
IRREVOCABLE LETTER OF INSTRUCTIONS TO TRANSFER AGENT
Date: August 17, 2016
To the transfer agent of GrowLife, Inc.
Re:
Instructions to Reserve and Issue Shares
Ladies and Gentlemen:
Reference is made to that certain Convertible Promissory Note having an original issue date of October 27, 2015 made by GrowLife, Inc., a Delaware corporation (“
Company
”), pursuant to which Company agreed to pay to Chicago Venture Partners, L.P., a Utah limited partnership, its successors and/or
assigns (“
Investor
”), the aggregate sum of $128,000.00, plus interest, fees, and collection costs (as the same may be amended or exchanged from time to time, the “
Note
”). The Note was issued in an exchange transaction comporting with Section 3(a)(9) of the Securities Act of 1933, as amended (the “
1933 Act
”), pursuant to that certain Exchange Agreement dated August
17, 2016, by and between Company and Investor (the “
Exchange Agreement
”, and together with the Note, the Subsequent Exchange Notes (as defined below) and all other documents entered into in conjunction therewith, including any amendments thereto, the “
Exchange Documents
”). In addition, as set forth in the Exchange Agreement, Investor may, from time to time, purchase certain additional Convertible Promissory Notes
(each, a “
Subsequent Exchange Note
”, and together with the Note, the “
Notes
”). Pursuant to the terms of the Notes, the Outstanding Balance (as defined in the Notes) of the Notes may be converted into shares of the common stock, par value $0.0001 per share, of Company (the “
Common Stock
”, and the shares of Common Stock issuable upon any conversion or otherwise
under the Notes, the “
Shares
”).
Pursuant to the terms of the Exchange Agreement, until all of Company’s obligations under the Exchange Agreement and the Notes are paid and performed in full, Company has agreed to at all times establish and maintain a reserve of shares of authorized but unissued Common Stock equal to the amount calculated as follows (such calculated amount
is referred to herein as the “
Share Reserve
”): three (3) times the number of Shares obtained by dividing the Outstanding Balance by the Conversion Price (as defined in the Notes).
This irrevocable letter of instructions (this “
Letter
”) shall serve as the authorization and direction of Company to Direct Transfer, LLC, or its successors, as Company’s transfer agent (hereinafter, “
you
” or “
your
”),
to reserve shares of Common Stock and to issue (or where relevant, to reissue in the name of Investor) shares of Common Stock to Investor or its broker, upon conversion of the Notes, as follows:
From and after the date hereof and until all of Company’s obligations under the Exchange Agreement and the Notes are paid and performed in full, (a) you shall establish a reserve of shares of authorized but unissued Common Stock in an amount not less than 215,000,000 shares (the “
Transfer Agent Reserve
”),
(b) you shall maintain and hold the Transfer Agent Reserve for the exclusive benefit of Investor, (c) you shall issue the shares of Common Stock held in the Transfer Agent Reserve to Investor or its broker only (subject to the immediately following clause (d)), (d) when you issue shares of Common Stock to Investor or its broker under the Notes pursuant to the other instructions in this Letter, you shall issue such shares from Company’s authorized and unissued shares of Common Stock to the extent the same
are available and not from the Transfer Agent Reserve unless and until there are no authorized shares of Common Stock available for issuance other than those held in the Transfer Agent Reserve, at which point, and upon your receipt of written authorization from Investor, you shall then issue any shares of Common Stock deliverable to Investor under the Notes from the Transfer Agent Reserve, (e) you shall not otherwise reduce the Transfer Agent Reserve under any circumstances, unless Investor delivers to you written
pre-approval of such reduction, and (f) you shall immediately add shares of Common Stock to the Transfer Agent Reserve in increments of 20,000,000 shares as and when requested by Company or Investor in writing from time to time, provided that such incremental increases do not cause the Transfer Agent Reserve to exceed the Share Reserve.
You shall issue the Shares to Investor or its broker in accordance with Paragraph 3 upon a conversion of all or any portion of the Notes, upon delivery to you of a duly executed Conversion Notice substantially in the form attached hereto as
Exhibit A
(a “
Conversion
Notice
”).
In connection with a Conversion Notice delivered to you pursuant to Paragraph 2 above, you will receive a legal opinion as to the free transferability of the Shares, dated within ninety (90) days from the date of the Conversion Notice, from either Investor’s or Company’s legal counsel, indicating that the Shares to be issued are registered
pursuant to an effective registration statement under the 1933 Act, or pursuant to Rule 144 promulgated under the 1933 Act (“
Rule 144
”), or any other available exemption under the 1933 Act, the issuance of the applicable Shares to Investor is exempt from registration under the 1933 Act, and thus the Shares may be issued or delivered without restrictive legend (the “
Opinion Letter
”). Upon your receipt of a Conversion
Notice and an Opinion Letter, you shall, within three (3) Trading Days (as defined below) thereafter, (i) if you are eligible to participate in the Depository Trust Company (“
DTC
”) Fast Automated Securities Transfer program, and the Common Stock is eligible to be transferred electronically with DTC through the Deposit/Withdrawal at Custodian system (“
DWAC Eligible
”), credit such aggregate number of DWAC Eligible
shares of Common Stock to Investor’s or its designee’s balance account with DTC, provided Investor identifies its bank or broker (by providing its name and DTC participant number) and causes its bank or broker to initiate such DWAC Eligible transaction, or (ii) if the Common Stock is not then DWAC Eligible, issue and deliver to Investor or its broker (as specified in the applicable Conversion Notice), via reputable overnight courier, to the address specified in the Conversion Notice, a certificate,
registered in the name of Investor or its designee, representing such aggregate number of shares of Common Stock as have been requested by Investor to be transferred in the Conversion Notice. Such Shares (A) shall not bear any legend restricting transfer, (B) shall not be subject to any stop-transfer restrictions, and (C) shall otherwise be freely transferable on the books and records of Company. For purposes hereof, “
Trading Day
” shall mean any day on which
the New York Stock Exchange is open for trading.
If you receive a Conversion Notice, but you do not also receive an Opinion Letter, and you are required to issue the Shares in certificated form, then any certificates for the applicable Shares shall bear a restrictive legend substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS
OR OTHER EVIDENCE ACCEPTABLE TO COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT
.
Please note that a share issuance resolution is not required for each conversion since this Letter and the Exchange Documents have been approved by resolution of Company’s board of directors (the “
Share Issuance Resolution
”). Pursuant to the Share Issuance Resolution, all of the Shares are
authorized to be issued to Investor. For the avoidance of doubt, this Letter is your authorization and instruction by Company to issue the Shares pursuant to this Letter without any further authorization or direction from Company. You shall rely exclusively on the instructions in this Letter and shall have no liability for relying on any Conversion Notice provided by Investor. Any Conversion Notice delivered hereunder shall constitute an irrevocable instruction to you to process such notice or notices in accordance
with the terms thereof, without any further direction or inquiry. Such notice or notices may be transmitted to you by fax, email, or any commercially reasonable method.
Notwithstanding any other provision hereof, Company and Investor understand that you shall not be required to perform any issuance or transfer of Shares if (a) such an issuance or transfer of Shares is in violation of any state or federal securities laws or regulations;
provided, however
, that if you refuse
to issue Shares to Investor based on an assertion (whether by you, Company, or any other third party) that such issuance would be in violation of Rule 144, you are hereby instructed and agree to issue the applicable Shares to Investor with a restricted legend and to further provide a written opinion to Investor from an attorney explaining why such issuance is considered to be in violation of Rule 144, or (b) the issuance or transfer of Shares is prohibited or stopped as required or directed by a court order from
the court or arbitrator authorized by the Exchange Agreement to resolve disputes between Company and Investor. Additionally, Company and Investor understand that you shall not be required to perform any issuance or transfer of Shares if Company is in default of its payment obligations under its agreement with you;
provided, however
, that in such case Investor shall have the right to pay the applicable issuance or transfer fee on behalf of Company and upon payment of the
issuance or transfer fee by Investor, you shall be obligated to make the requested issuance or transfer.
You understand that a delay in the delivery of Shares hereunder could result in economic loss to Investor and that time is of the essence in your processing of each Conversion Notice.
You are hereby authorized and directed to promptly disclose to Investor, after Investor’s request from time to time, the total number of shares of Common Stock issued and outstanding and the total number of shares that are authorized but unissued and unreserved.
Company hereby confirms to you and to Investor that no instruction other than as contemplated herein (including instructions to increase the Transfer Agent Reserve as necessary pursuant to Paragraph 1(f) above) will be given to you by Company with respect to the matters referenced herein. Company hereby authorizes you, and you shall be obligated,
to disregard any contrary instruction received by or on behalf of Company or any other person purporting to represent Company.
Company hereby agrees not to change you as its transfer agent without first (a) providing Investor with at least 30-days’ written notice of such proposed change, and (b) obtaining Investor’s written consent to such proposed change. Any such consent is conditioned upon the new transfer agent executing an irrevocable letter of instructions
substantially similar to this Letter so that such transfer agent is bound by the same terms set forth herein. You agree not to help facilitate any change to Company’s transfer agent without first receiving such written consent to such change from Investor.
Company acknowledges that Investor is relying on the representations and covenants made by Company in this Letter and that the representations and covenants contained in this Letter constitute a material inducement to Investor to make the loan evidenced by the Notes. Company further acknowledges that without such representations and covenants of
Company, Investor would not have made the loan to Company evidenced by the Notes.
Company shall indemnify you and your officers, directors, members, managers, principals, partners, agents and representatives, and hold each of them harmless from and against any and all loss, liability, damage, claim or expense (including the reasonable fees and disbursements of its attorneys) incurred by or asserted against you or any of them arising
out of or in connection with the instructions set forth herein, the performance of your duties hereunder and otherwise in respect hereof, including the costs and expenses of defending yourself or themselves against any claim or liability hereunder, except that Company shall not be liable hereunder as to matters in respect of which it is determined that you have acted with gross negligence or in bad faith.
Investor is an intended third-party beneficiary of this Letter. The parties hereto specifically acknowledge and agree that in the event of a breach or threatened breach by a party hereto of any provision hereof, Investor will be irreparably damaged, and that damages at law would be an inadequate remedy if this Letter were not specifically enforced.
Therefore, in the event of a breach or threatened breach of this Letter, Investor shall be entitled, in addition to all other rights or remedies, to an injunction restraining such breach, without being required to show any actual damage or to post any bond or other security, and/or to a decree for a specific performance of the provisions of this Letter.
This Letter shall be fully binding and enforceable against Company even if it is not signed by you. If Company takes (or fails to take) any action contrary to this Letter, then such action or inaction will constitute a default under the Exchange Documents. Although no additional direction is required by Company, any refusal by Company to immediately
confirm this Letter and the instructions contemplated herein to you will constitute a default hereunder and under the Exchange Documents.
Whenever possible, each provision of this Letter shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Letter shall be invalid or unenforceable in any jurisdiction, such provision shall be modified to achieve the objective of the parties to the fullest extent permitted and such invalidity
or unenforceability shall not affect the validity or enforceability of the remainder of this Letter or the validity or enforceability of this Letter in any other jurisdiction.
By signing below, (a) each individual executing this Letter on behalf of an entity represents and warrants that he or she has authority to so execute this Letter on behalf of such entity and thereby bind such entity to the terms and conditions hereof, and (b) each party to this Letter represents and warrants that such party has received good and
valuable consideration in exchange for executing this Letter.
This Letter is governed by Utah law.
This Letter is subject to the Arbitration Provisions (as defined in the Exchange Agreement) set forth as an exhibit to the Exchange Agreement (as defined in the Exchange Agreement), which you acknowledge having received and reviewed by your signature below. Each party consents to and expressly agrees that exclusive venue for arbitration of any dispute
arising out of or relating to this Letter or the relationship of the parties or their affiliates shall be in Salt Lake County or Utah County, Utah and, notwithstanding the terms (specifically including any governing law and venue terms) of any transfer agent services agreement or other agreement between you and Company (which agreement, if any, is hereby amended to the extent necessary in order to be consistent with the terms of this Letter and, for the avoidance of doubt, you and Company hereby agree that in
the event of any conflict between the terms of this Letter and any agreement between you and Company, the terms of this Letter shall govern), each party further agrees to not participate in any action, suit, proceeding or arbitration (including without limitation any action or proceeding seeking an injunction or temporary restraining order against your issuance of Shares to Investor) of any dispute arising out of or relating to this Letter or the relationship of the parties or their affiliates that takes place
outside of Salt Lake County, Utah.
Company hereby authorizes and directs you to provide to Investor a copy of any process, stop order, notice or other instructions delivered to you in furtherance of any attempt to prohibit or prevent you from issuing Shares to Investor. By your signature below, you covenant and agree to promptly and as soon as reasonably practicable provide to Investor,
upon a request from Investor, a copy of any such process, stop order, notice or other instructions.
Exhibit A
[
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]
Very truly yours,
GrowLife, Inc.
By: /s/ Marco Hegyi
Name: Marco Hegyi
Title: CEO
ACKNOWLEDGED AND AGREED:
INVESTOR:
Chicago Venture Partners, L.P.
By: Chicago Venture Management, L.L.C.,
its General Partner
By: CVM, Inc., its Manager
By: /s/ John. M. Fife
John M. Fife, President
TRANSFER AGENT:
Direct Transfer, LLC
By: /s/ Eddie Tobler
Name: Eddie Tobler
Title: VP Stock Transfer
Attachments
:
Exhibit B
Form of Conversion Notice
EXHIBIT D
GROWLIFE, INC.
SECRETARY’S CERTIFICATE
I, Michael Fasci, hereby certify that I am the duly elected, qualified and acting Secretary of GrowLife, Inc., a Delaware corporation (“
Company
”), and am authorized to execute this Secretary’s Certificate (this “
Certificate
”) on behalf of Company.
This Certificate is delivered in connection with that certain Exchange Agreement dated August 17, 2016 (the “
Exchange
Agreement
”), by and between Company and Chicago Venture Partners, L.P., a Utah limited partnership.
Solely in my capacity as Secretary, I certify that attached hereto as
Schedule 1
is a true, accurate and complete copy of all of the resolutions adopted by the Board of Directors of Company (the “
Resolutions
”) approving and authorizing the execution,
delivery and performance of the Exchange Agreement and related documents to which Company is a party on the date hereof, and the transactions contemplated thereby. Such Resolutions have not been amended, rescinded or modified since their adoption and remain in effect as of the date hereof.
IN WITNESS WHEREOF, I have executed this Secretary’s Certificate effective as of August 17, 2016.
GrowLife, Inc.
/
s/ Michael Fasci
Printed Name: Michael Fasci
Title: Secretary
Schedule 1
BOARD RESOLUTIONS
[attached]
GROWLIFE, INC.
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS
________________________
Effective August 17, 2016
________________________
APPROVAL OF EXCHANGE
WHEREAS, the Board of Directors (the “
Board
”) of GrowLife, Inc., a Delaware corporation (“
Company
”), hereby ratifies and confirms that certain Amended, Restated and Consolidated Senior Convertible Redeemable Debenture in the original principal amount
of $1,050,000.00 having an original issuance date of October 27, 2015 (the “
Prior Note
”), issued by Company to Chicago Venture Partners, L.P., a Utah limited partnership (“
Investor
”);
WHEREAS, Investor desires to exchange (the “
Exchange
”) (i) that certain First Replacement Amended, Restated and Consolidated Senior Secured Convertible Redeemable Debenture A in the original principal amount of $80,000.00 dated and made effective as of August 17, 2016 but having an original issuance
date of October 27, 2015 pursuant to the terms and conditions of that certain Exchange Agreement of even date herewith, substantially in the form attached hereto as
Exhibit A
(the “
Exchange Agreement
”), for an Exchange Note, substantially in the form attached hereto as
Exhibit B
(the “
Initial Exchange Note
”) and (ii)
certain additional Debentures that may be severed from the Prior Note and purchased by Investor from time to time pursuant to the Exchange Agreement, and exchange such Debentures for additional Convertible Promissory Notes, substantially in the form attached hereto as
Exhibit C
(each, a “
Subsequent Exchange Note
”, and together with the Initial Exchange Note, the “
Exchange Notes
”);
WHEREAS, the terms of the Exchange are further reflected in an Irrevocable Letter of Instructions to Transfer Agent substantially in the form attached hereto as
Exhibit D
, a Share Issuance Resolution substantially in the form attached hereto as
Exhibit E
(“
Share
Issuance Resolution
”), and all other agreements, certificates, instruments and documents being or to be executed and delivered under or in connection with the Exchange (collectively with the Exchange Agreement and the Exchange Notes, the “
Exchange Documents
”);
WHEREAS, the Board, having received and reviewed the Exchange Documents, believes that it is in the best interests of Company and its stockholders to approve the Exchange and the Exchange Documents and authorize the officers of Company to execute the Exchange Documents and issue the Exchange Notes to Investor.
NOW, THEREFORE, BE IT:
RESOLVED, that the Exchange is hereby approved and determined to be in the best interests of Company and its stockholders;
RESOLVED, that the form, terms and provisions of the Exchange Documents are hereby ratified, confirmed and approved (including all exhibits, schedules and other attachments thereto);
RESOLVED, that the Exchange Notes shall be duly and validly issued upon the issuance and delivery thereof in accordance with the Exchange Agreement;
RESOLVED, that upon the issuance and delivery thereof in accordance with the Exchange Notes, the Conversion Shares (as defined in the Exchange Notes) shall be duly and validly issued, fully paid for, and non-assessable;
RESOLVED, that Company shall take all action necessary to at all times have authorized and reserved for the purpose of issuance under the Exchange Notes such number of shares of Company’s Common Stock required under the Exchange Agreement (the “
Share Reserve
”);
RESOLVED FURTHER, that the fixed number of shares of common stock set forth in the Share Issuance Resolution to be reserved by the transfer agent (the “
Transfer Agent Reserve
”) is not meant to limit or restrict in any way the resolutions contained herein, including without limitation the calculation
of the Share Reserve under the Exchange Agreement, as required from time to time;
RESOLVED FURTHER, that each of the officers of Company be, and each of them hereby is, authorized to instruct the transfer agent to increase the Transfer Agent Reserve in the incremental amount set forth in the Share Issuance Resolution, from time to time, to correspond to the Share Reserve;
provided, however
,
that any decrease in the Transfer Agent Reserve will require the prior written consent of Investor;
RESOLVED FURTHER, that with respect to each Conversion (as defined in the Exchange Notes) under the Exchange Notes, the reduction in the Outstanding Balance (as defined in the Exchange Notes and as the same may increase or decrease pursuant to the terms of the Exchange Notes) in an amount equal to the applicable Conversion Amount (as defined in the
Exchange Notes) being converted into Conversion Shares shall constitute fair and adequate consideration to Company for the issuance of the applicable Conversion Shares, regardless of the conversion price used to determine the number of Conversion Shares deliverable with respect to any Conversion;
RESOLVED, that each of the officers of Company be, and each of them hereby is, authorized to execute and deliver in the name of and on behalf of Company, the Exchange Documents and any other related agreements (with such additions to, modifications to, or deletions from such documents as the officer approves, such approval to be conclusively evidenced
by such execution and delivery), to conform Company’s minute books and other records to the matters set forth in these resolutions, and to take all other actions on behalf of Company as any of them deem necessary, required, or advisable with respect to the matters set forth in these resolutions;
RESOLVED, that the Board hereby determines that all acts and deeds previously performed by the Board and other officers of Company relating to the foregoing matters prior to the date of these resolutions are ratified, confirmed and approved in all respects as the authorized acts and deeds of Company; and
RESOLVED, that all prior actions or resolutions of the Board that are inconsistent with the foregoing are hereby amended, corrected and restated to the extent required to be consistent herewith.
******************
EXHIBITS ATTACHED TO BOARD RESOLUTIONS:
Exhibit B
EXCHANGE AGREEMENT
Exhibit C
INITIAL EXCHANGE NOTE
Exhibit D
FORM OF SUBSEQUENT EXCHANGE NOTE
Exhibit E
TRANSFER AGENT LETTER
Exhibit F
SHARE ISSUANCE RESOLUTION
[
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]
Exhibit E
Share Issuance Resolution
Authorizing The Issuance Of New Shares Of Common Stock In
GrowLife, Inc.
___________________________
Effective August 17, 2016
___________________________
The undersigned, as a qualified officer of GrowLife, Inc., a Delaware corporation (“
Company
”), hereby certifies that this Share Issuance Resolution is authorized by and consistent with the resolutions of Company’s board of directors (“
Board Resolutions
”)
regarding that certain Convertible Promissory Note in the face amount of $128,000.00 dated and made effective as of August 17, 2016 but having an original issuance date of October 27, 2015 (the “
Note
,” and together with all other Convertible Promissory Notes issued under the Exchange Agreement (as defined below), the “
Notes
”), made by Company in favor of Chicago Venture Partners, L.P., a Utah limited partnership,
its successors and/or assigns (“
Investor
”), pursuant to that certain Exchange Agreement dated August 17, 2016, by and between Company and Investor (the “
Exchange Agreement
”).
RESOLVED, that Direct Transfer, LLC as transfer agent (including any successor transfer agent, the “
Transfer Agent
”) of shares of Company’s common stock, $0.0001 par value per share (“
Common Stock
”), is authorized to rely upon a Conversion
Notice substantially in the form of
Exhibit A
attached hereto, whether an original or a copy (the “
Conversion Notice
”), without any further inquiry, to be delivered to the Transfer Agent from time to time either by Company or Investor.
RESOLVED FURTHER, that the Transfer Agent is authorized to issue the number of:
(i)
“Conversion Shares” (representing shares of Common Stock) set forth in each Conversion Notice delivered to the Transfer Agent, and
(ii)
all additional shares of Common Stock Company may subsequently instruct the Transfer Agent to issue in connection with any of the foregoing or otherwise under the Notes,
in each case with such shares to be issued in the name of Investor, or its successors, transferees, or designees, free of any restricted security legend, as permitted by the Notes.
RESOLVED FURTHER, that consistent with the terms of the Exchange Agreement, the Transfer Agent is authorized and directed to immediately create a transfer agent share reserve equal to 215,000,000 shares of Company’s Common Stock for the benefit of Investor (the “
Transfer Agent
Reserve
”);
provided
that
the Transfer Agent Reserve may increase in increments of 20,000,000 shares from time to time by written instructions provided to the Transfer Agent by Company or Investor as required by the Exchange Agreement and as contemplated by the Board Resolutions.
RESOLVED FURTHER, that Investor and the Transfer Agent may rely upon the more general approvals and authorizations set forth in the Board Resolutions, and the Transfer Agent is hereby authorized and directed to take those further actions approved under the Board Resolutions.
RESOLVED FURTHER, that Investor must consent in writing to any reduction of the Transfer Agent Reserve;
provided, however,
that upon full conversion and/or full repayment of all Notes, the Transfer Agent Reserve will terminate thirty (30) days thereafter.
RESOLVED FURTHER, that Company shall indemnify the Transfer Agent and its employees against any and all loss, liability, damage, claim or expenses incurred by or asserted against the Transfer Agent arising from any action taken by the Transfer Agent in reliance upon this Share Issuance Resolution.
Nothing in this Share Issuance Resolution shall limit or restrict those resolutions and authorizations set forth in the Board Resolutions, including without limitation, the calculation from time to time of the Share Reserve (as defined in the Exchange Agreement).
The undersigned officer of Company hereby certifies that this is a true copy of Company’s Share Issuance Resolution, effective as of the date set forth below, and that said resolution has not been in any way rescinded, annulled, or revoked, but the same is still in full force and effect.
/s/ Marco Hegyi August 17, 2016
Officer’s Signature Date
Marco Hegyi
Printed Name and Title
EXHIBITS ATTACHED TO SHARE ISSUANCE RESOLUTION:
Exhibit A Conversion Notice
EXHIBIT F
GROWLIFE, INC.
OFFICER’S CERTIFICATE
The undersigned, Marco Hegyi, Chief Executive Officer of GrowLife, Inc., a Delaware corporation (“
Company
”), in connection with the issuance of that certain Convertible Promissory Note in favor of Chicago Venture Partners, L.P., a Utah limited partnership (“
Investor
”)
in the original principal amount of $128,000.00 dated and made effective on August 17, 2016 but having an original issuance date of October 27, 2016 (the “
Note
,” and together with all other Convertible Promissory Notes issued under the Exchange Agreement (as defined below), the “
Notes
”), pursuant to that certain Exchange Agreement dated August 17, 2016 between Investor and Company (the “
Exchange
Agreement
”), in his capacity as an officer of Company, hereby represents, warrants and certifies that:
1.
He is the duly appointed Chief Executive Officer of Company.
2.
As of the date hereof, Company has one (1) Variable Security Holder (as defined in the Exchange Agreement).
3.
He agrees to cause Company to comply with the covenants found in Sections 8(v), 8(vi) and (vii) of the Exchange Agreement.
12.
4.
He acknowledges that his execution and issuance of this Officer’s Certificate to Investor is a material inducement to Investor’s agreement to purchase and exchange the Notes on the terms set forth in the Exchange Agreement and that but for his execution
and issuance of this Officer’s Certificate, Investor would not have purchased the Notes from Company.
IN WITNESS WHEREOF, the undersigned, in his capacity as an officer of Company, has executed this Officer’s Certificate as of August 17, 2016.
/s/ Marco Hegyi
Marco Hegyi
Exhibit 10.2
DEBT PURCHASE AGREEMENT
THIS DEBT PURCHASE AGREEMENT (this “
Agreement
”), is made and entered into as of the 15
th
day of August 2016, by and among
TCA GLOBAL CREDIT MASTER FUND, LP
, a Cayman Islands limited partnership,
with an address of 3960 Howard Hughes Parkway, Suite 500, Las Vegas, NV 89169 (“
Assignor
” or “
Lender
”),
CHICAGO VENTURE PARTNERS, L.P.
, a Utah limited partnership (“
Assignee
”), and
GROWLIFE, INC
., a
Delaware corporation (the “
Borrower
”).
W I T N E S S E T H
WHEREAS, Borrower, Lender and others entered into, or are otherwise parties to and bound by, the terms of that certain Securities Purchase Agreement, dated as of April 30, 2015, but made effective as of July 9, 2015 (the “
Original Purchase Agreement
”), pursuant to which the Borrower executed
and delivered that certain Senior Secured, Convertible, Redeemable, Debenture, dated as of April 30, 2015 but made effective as of July 9, 2015, in the original principal amount of $700,000 (the “
Original Debenture
”);
WHEREAS, Borrower, Lender and others entered into, or are otherwise parties to and bound by, the terms of that certain Securities Purchase Agreement, dated as of April 30, 2015, but made effective as of August 6, 2015 and made effective as of October 27, 2015 (the “
Supplemental Purchase Agreement
”),
pursuant to which the Borrower executed and delivered that certain Senior Secured, Convertible, Redeemable, Debenture, dated as of April 30, 2015 but made effective as of August 6, 2015, in the original principal amount of $100,000 (the “
Supplemental Debenture
”);
WHEREAS, Borrower, Lender and others entered into, or are otherwise parties to and bound by, the terms of that certain Amended and Restated Securities Purchase Agreement, dated and made effective as of October 27, 2015 (the “
Restated Purchase Agreement
”), which amended and restated the terms
and conditions of the Original Purchase Agreement in its entirety, as further modified by that certain First Amendment to Amended and Restated Securities Purchase Agreement, dated as of April 30, 2016 (the “
First Amendment
”, together with the Supplemental Purchase Agreement and the Restated Purchase Agreement together with any amendments, renewals, substitutions, replacements or modifications from time to time, collectively referred
to as the “
Purchase Agreement
”); and
WHEREAS, pursuant to the Restated Purchase Agreement, Borrower executed and delivered to Lender that certain Amended, Restated and Consolidated Senior Secured Convertible Redeemable Debenture, dated and made effective as of October 27, 2015 in the original principal amount of $1,050,000 (the “
Restated Debenture
”),
which Restated Debenture amended, restated, consolidated and replaced the Original Debenture in its entirety (the Restated Debenture and the Supplemental Debenture, collectively referred to as the “
First Debentures
”); and
WHEREAS, pursuant to the First Amendment, the Borrower executed and delivered to Lender that certain Second Replacement Debenture A, dated as of April 30, 2016, in the original principal amount of $150,000 (the “
Second Replacement Debenture A
”), as well as that certain Second Replacement Debenture
B, dated as of April 30, 2016, in the original principal amount of $2,681,209.82 (the “
Second Replacement Debenture B
”), which Second Replacement Debenture A and Second Replacement Debenture B, together, replaced and superseded the First Debentures; and
WHEREAS, pursuant to a Debt Purchase Agreement, dated June 9, 2016 (the “
DPA
”), Lender sold, assigned, and transferred the Second Replacement Debenture A to Old Main Capital, LLC (“
Old Main
”); and
WHEREAS, pursuant to the DPA, Lender and Old Main entered into that certain Option Agreement, dated June 9, 2016 (the “
Option Agreement
”), pursuant to which Lender granted Old Main an Option (as defined therein) to purchase assigned debt, provided Old Main exercised the Option in accordance
with the terms and conditions of the Option Agreement and made certain options payments to Lender as required by the Option Agreement; and
WHEREAS, pursuant to the DPA and Option Agreement, the Second Replacement Debenture B was further severed, split, divided and apportioned into two (2) separate and distinct replacement debentures, same being a Third Replacement Debenture A dated as of July 14, 2016 from Borrower to Lender in the original principal amount of $150,000 (the “
Third
Replacement Debenture A
”) and a Third Replacement Debenture B dated as of July 14, 2016 from Borrower to Lender in the original principal amount of $2,484,433.61 (the “
Third Replacement Debenture B
”), which Third Replacement Debenture A and Third Replacement Debenture B, together, replaced and superseded the Second Replacement B in its entirety; and
WHEREAS, pursuant to the DPA and Option Agreement, Lender sold, assigned and transferred Third Replacement Debenture A to Old Main; and
WHEREAS, pursuant to the DPA and Option Agreement, the Third Replacement Debenture B was further severed, split, divided and apportioned into two (2) separate and distinct replacement debentures, same being a Fourth Replacement Debenture A dated as of August 3, 2016 from Borrower to Lender in the original principal amount of $150,000 (the “
Fourth
Replacement Debenture A
”) and a Fourth Replacement Debenture B dated as of August 3, 2016 from Borrower to Lender in the original principal amount of $2,360,777.95 (the “
Fourth Replacement Debenture B
”), which Fourth Replacement Debenture A and Fourth Replacement Debenture B, together, replaced and superseded the Third Replacement B in its entirety; and
WHEREAS, pursuant to the DPA and Option Agreement, Lender sold, assigned and transferred Fourth Replacement Debenture A to Old Main; and
WHEREAS, on or about August 2016, the Lender, Old Main and the Borrower entered into that certain First Amendment to Debt Purchase Agreement pursuant to which Old Main was granted the right to purchase from Lender up to two (2) additional tranches of remaining debt, each in an amount up to $150,000, the first of such tranche to be purchased by no later than August 25,
2016 and the second tranche to be purchased by no later than September 25, 2016; and
WHEREAS, Assignee desires to purchase from Lender, and Lender is amenable to selling and assigning to Assignee, Assignor’s right, title and interest in and to a portion of the monetary obligations evidenced by the Fourth Replacement Debenture B, not including $300,000 of such monetary obligations which the Assignor is permitted to sell and assign to Old Main following
the date hereof (the “
Assigned Debt
”), which Assigned Debt shall be purchased by Assignee in multiple tranches as more specifically hereinafter set forth; and
WHEREAS, on or prior to each “Purchase Tranche Closing” (as hereinafter defined), as directed by Lender, Borrower agrees to sever, split, divide and apportion the Fourth Replacement Debenture B (or any replacement debentures issued in replacement thereof as hereby contemplated, as applicable) into two separate and distinct replacement debentures, each in substantially
the form as set forth on
Exhibit “A”
attached hereto (the “
Debenture Form
”), one for the amount of the portion of the Assigned Debt being sold and assigned at such Purchase Tranche Closing (the portion of the Assigned Debt being sold and assigned at each separate Purchase Tranche Closing, as applicable, being referred to as the “
Applicable
Assigned Debt
”), and one for the remaining amount of the overall debt evidenced by the Fourth Replacement Debenture B (or any replacement debentures issued in replacement thereof as hereby contemplated, as applicable).
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, Assignor, Assignee, and Borrower hereby covenant and agree as follows:
1.
Recitals
. The recitations set forth in the preamble of this Agreement are true and correct and incorporated herein by this reference.
2.
Agreement to Assign Assigned Debt
.
(a)
Purchase Tranche Closings
. Provided Assignee is not in default or breach under this Agreement, and that no event has occurred that, with the passage of time, the giving of notice, or both, would constitute a default or breach by Assignee under this Agreement, and subject to all the terms and provisions of this Agreement, Assignor hereby agrees to sell and assign to Assignee, and Assignee hereby agrees to purchase from Assignor, the Assigned Debt, which Assigned
Debt shall be sold in multiple separate tranches (each of such tranches hereinafter referred to as a “
Purchase Tranche
”), each of such separate Purchase Tranches to be sold and assigned on the respective dates and for the respective amounts set forth in the schedule attached hereto as
Exhibit “B”
(each closing of a Purchase Tranche referred to as a “
Purchase
Tranche Closing
” and the purchase price to be paid for each Applicable Assigned Debt at each Purchase Tranche Closing, as shown on such attached schedule, referred to as the “
Applicable Purchase Price
”); provided, however, nothing herein shall prevent Assignee from electing to purchase a greater portion of the Assigned Debt than that set forth in the attached schedule for any given Purchase Tranche Closing, up to the aggregate
amount of the Assigned Debt, by written notice to Assignor delivered prior to the applicable Purchase Tranche Closing. Notwithstanding the foregoing or anything to the contrary herein, Assignee may elect, at any time and in its sole discretion, to not effect up to two (2) separate Purchase Tranche Closings without triggering any rights hereunder in favor of Assignor or obligations of Assignee that would otherwise apply in the event Assignee failed to purchase any applicable Assigned Debt at an applicable Purchase
Tranche Closing. For the avoidance of doubt, with respect to the first two (2) separate Purchase Tranche Closings that Assignee fails to effect (by not delivering the Applicable Purchase Price at such Purchase Tranche Closing or otherwise), neither of such failures shall constitute a default of Assignee’s obligations under this Agreement, nor shall such failures give rise to a right of termination pursuant to Section 8(b) below or trigger a termination of Assignor’s covenants described in Section
2(f) below (as is described in the last sentence of such section).
(b)
Deliveries at Each Purchase Tranche Closing
. Subject to the terms of this Agreement, at each Purchase Tranche Closing: (i) Lender shall execute and deliver to Assignee, an assignment of the Applicable
Assigned Debt being sold and assigned at such Purchase Tranche Closing, substantially in the form attached hereto as
Exhibit “C”
(each, an “
Assignment
”); (ii) Lender shall deliver to Assignee the replacement debenture for the Applicable Assigned Debt being sold and assigned at such Purchase Tranche Closing (subject to receipt of same by Lender from Borrower
as provided in Section 2(c) below); (iii) Lender shall cause its attorney to deliver to Assignee a legal opinion that as of the date of such Purchase Tranche Closing, Lender is not and has not at any time been an Affiliate (as that term is defined in the Securities Act of 1933, as amended (the “
Securities Act
”)) of Borrower; and (iv) Assignee shall pay to Lender the Applicable Purchase Price for the Applicable Assigned Debt being sold
and assigned at such Purchase Tranche Closing, by wire transfer of good and cleared U.S. currency to an account designated by Lender.
(c)
Borrower’s Obligation to Sever Debentures
. On or prior to each Purchase Tranche Closing, and within no later than two (2) business days after request therefor is made by Lender to Borrower, Borrower
agrees to sever, split, divide and apportion the Debenture (or any replacement debentures issued in replacement thereof as hereby contemplated, as applicable) into two separate and distinct and newly issued replacement debentures, each substantially in the Debenture Form. One of such replacement debentures shall be for a principal amount equal to the Applicable Purchase Price corresponding to the Applicable Assigned Debt for the applicable Purchase Tranche Closing, and the other replacement debenture shall be
for a principal amount equal to the remaining amount of the overall debt then existing and evidenced by the Fourth Replacement Debenture B (or any replacement debenture issued in replacement thereof as hereby contemplated, as applicable). In order to clarify the foregoing, as an example, on or prior to the first Purchase Tranche Closing contemplated hereby, upon request by Lender, Borrower shall provide to Lender two replacement debentures in replacement of the Fourth Replacement Debenture B, one for $80,000,
which is the Applicable Purchase Price for the Applicable Assigned Debt being sold and assigned at the first Purchase Tranche Closing, and the second for $2,445,842.62 (as of August 15, 2016), which is the amount of the overall debt evidenced by the Fourth Replacement Debenture B, less the Applicable Purchase Price for the fifth replacement debenture being sold and assigned at the first Purchase Tranche Closing. This second replacement debenture shall then be severed in the same manner for the second Purchase
Tranche Closing, and this foregoing process of severing and issuing replacement debentures shall be repeated for each Purchase Tranche Closing, until the Assigned Debt is sold and assigned in full, or this Agreement is otherwise earlier terminated in accordance with its terms. Assignee acknowledges and understands that Lender’s obligation to sell, assign and deliver each replacement debenture representing the Applicable Assigned Debt at each Purchase Tranche Closing is subject to and conditioned upon Borrower
executing and delivering such replacement debentures to Lender in accordance with this Agreement. Likewise, Lender acknowledges and understands that Assignee’s obligation to pay the Applicable Purchase Price for the Applicable Assigned Debt at each Purchase Tranche Closing is subject to and conditioned upon Borrower executing and delivering such replacement debentures in accordance with this Agreement.
(d)
Remaining Debt
. Assignee and Borrower acknowledge that at each Purchase Tranche Closing, and subject to Lender’s receipt of the Applicable Purchase Price, only the Applicable Assigned Debt represented
by the specific replacement debenture representing the applicable Purchase Tranche shall be deemed sold and assigned hereunder, it being acknowledged by Assignee and by Borrower that the remaining portion of the debt evidenced by the Fourth Replacement Debenture B (or any replacement debentures issued in replacement thereof as hereby contemplated, as applicable) for which the Applicable Purchase Price has not been paid and received by Lender (the “
Remaining
Debt
”) shall not be sold or assigned thereby unless and until additional replacement debentures for additional Purchase Tranches are thereafter sold in accordance with this Agreement and the Applicable Purchase Price therefor is received by Lender. The Remaining Debt shall include no less than $300,000 of debt which shall remain in the possession of the Assignor to be sold and assigned to Old Main.
(e)
No Security Rights
. Assignee and Borrower each hereby agree and acknowledge that the sale, transfer and assignment of the Assigned Debt, or any portion thereof, shall be a sale, transfer and assignment
of the monetary obligations evidenced by such Assigned Debt (or portion thereof) only, and shall not include, and such sale, transfer and assignment expressly excludes, the Remaining Debt, as well as excluding any and all security rights, rights to any collateral, or any other security interests or rights of Assignor of any nature or kind related to, arising under, or pursuant to, the Purchase Agreement, any other “Transaction Documents” (as defined in the Purchase Agreement) related thereto, or any
other security agreements, UCC financing statements, or any other documents or instruments relating to the obligations of Borrower or any “Guarantors” (as defined in the Purchase Agreement) to Assignor (collectively, the “
Security Rights
”), it being agreed and acknowledged that all Security Rights shall remain with Assignor, as security for any portion of the Assigned Debt not assigned at any Purchase Tranche Closing, the
Remaining Debt, or any other obligations of Borrower or any Guarantors to Assignor.
(f)
Covenants of Assignor
. As a material inducement to Assignee entering into this Agreement, for so long as this Agreement remains in effect (but subject to the last sentence of this Section 2(f)), Assignor
covenants and agrees that it will not: (i) sell all or any portion of the Fourth Replacement Debenture B or any other Borrower debt owned by Assignor to any other Person (as defined below) other than Assignee pursuant to the terms of this Agreement,
provided
,
however
, that Assignor shall be permitted to sell $300,000 of the Fourth Replacement Debenture B to Old Main; (ii) convert or attempt to convert all or any portion
of the Remaining Debt; and (iii) at any time, accept payments (whether in full or partial payments) of the then outstanding Remaining Debt, or any portion of the Assigned Debt not assigned at any Purchase Tranche Closing, in an amount of less than $250,000.00, whether such payments are made by Borrower, any other Person purchasing all or any portion of the then outstanding Remaining Debt, or any portion of the Assigned Debt not assigned at any Purchase Tranche Closing, or any other Person,
provided
,
however
,
that Assignor shall be permitted to sell $300,000 of the Fourth Replacement Debenture B to Old Main in tranches of less than $250,000. Notwithstanding anything herein to the contrary, Assignor’s covenants set forth in this Section 2(f) shall terminate in the event Assignee fails to pay the Applicable Purchase Price for any Assigned Debt as and when required under the terms of this Agreement.
3.
Conditions to Purchases
.
(a)
Closing Conditions
. The obligation of Assignee to purchase any Assigned Debt, to pay the Applicable Purchase Price at each applicable Purchase Tranche Closing
and to perform any other obligations hereunder shall be subject to the satisfaction as determined by, or waived by, Assignee of the following conditions on or before each applicable Purchase Tranche Closing:
(i) the representations, warranties and covenants of Assignor and Borrower contained herein shall be true and correct in all material respects on the date hereof and as of the date of each applicable Purchase Tranche Closing with the same force and effect as though made on and as of the Effective Date,
except for those representations and warranties that are expressly limited by their terms to dates or times other than the Effective Date, which representations and warranties need only be true and correct in all material respects as of such other date or time; (ii) Assignor shall have performed and complied in all material respects with all covenants and agreements required hereby to be performed or complied with by Assignor on or prior to date of each applicable Purchase Tranche Closing; (iii) Assignor shall
have delivered to Assignee those documents required under Section 2(b) above; and (iv)
Borrower and Assignee shall have signed, or be unconditionally prepared to sign, an Exchange Agreement in a form reasonably acceptable to Assignee (the “
Exchange Agreement
”). The Exchange Agreement shall (A) be effective subsequent to the each Purchase Tranche Closing
hereunder (e.g., to be effective the day following the applicable Purchase Tranche Closing), (B) be in a form satisfactory to Assignee in its sole discretion, and (C) serve as a material inducement to Buyer for purposes of each Purchase Tranche Closing under this Agreement.
(b)
Initial Purchase
. The initial Purchase Tranche contemplated hereunder shall be closed and funded simultaneous with the execution of this Agreement by Lender, Assignee and Borrower.
(c)
Subsequent Purchases
. If the first Purchase Tranche Closing is consummated hereunder, and the Applicable Purchase Price therefor is paid and received by Lender as contemplated under this Agreement,
then Assignee’s obligation to purchase any additional Purchase Tranches as hereby contemplated is a binding and continuing obligation of Assignee (subject, however, to the last sentence of Section 2(a) above); provided, however, Assignee shall have the right to terminate such obligation at any time during the term of this Agreement upon the occurrence of any of the following events (each a “
Trigger Event
”): (i) Borrower fails
to stay current in its filing obligations with the SEC; (ii) trading of Borrower’s Common Stock on the “Principal Trading Market” (as defined in the Purchase Agreement) is stopped or halted for any reason; (iii) any suspension of electronic trading or settlement services by the Depository Trust Company (“
DTC
”) with respect to the Common Stock occurs and is continuing, or any receipt by Borrower of any notice from
DTC to the effect that a suspension of electronic trading or settlement services by DTC with respect to the Common Stock is being imposed or is contemplated (unless, prior to such suspension, DTC shall have notified Borrower in writing that DTC has determined not to impose any such suspension); (iv) Borrower’s transfer agent (the “
Transfer Agent
”) fails to issue to Assignee any shares of Borrower’s Common Stock which may
be due to Assignee in connection with any conversion rights exercised by Assignee under any debentures purchased by Assignee hereunder, or debentures issued in replacement thereof; (v) Borrower fails to maintain its active status with its state of organization; (vi) Borrower shall default (beyond any applicable notice and cure periods) in any of its obligations to Assignee under the debentures purchased by Assignee hereunder, or debentures issued in replacement thereof, the Exchange Agreement, or any other obligations
of Borrower to Assignee; (vii) Borrower fails to maintain any share reserve required by Assignee; (viii) Assignor shall accelerate or otherwise seek to collect any amount due and payable by Borrower to Assignor under the Debenture; or (ix) or in the event of any default or breach by Lender or Borrower of any covenant, representation, or warranty made to Assignee under this Agreement, including without limitation if any representation or warranty made by Lender or Borrower hereunder was false when made or as of
the date of any Purchase Tranche Closing. Upon the occurrence of a Trigger Event, in the event Assignee desires to terminate its obligation to purchase Purchase Tranches as hereby contemplated, Assignee shall deliver to Lender written notice of such termination at any time following the occurrence of the Trigger Event (which notice shall include a statement of the Trigger Event that has occurred and reasonable evidence of the occurrence thereof), whereupon Assignee’s obligation to purchase any additional
Purchase Tranches thereafter shall immediately terminate and be of no further force or effect. Notwithstanding the foregoing, following the occurrence of any Trigger Event, Assignee may elect to terminate its obligation to purchase additional Purchase Tranches without terminating this Agreement, in which event Assignee may continue purchasing additional Purchase Tranches under this Agreement in its sole discretion, but shall have no obligation to do so. Moreover, and for the avoidance of doubt, once a Trigger
Event has occurred, Assignee shall be entitled to all rights set forth in this Section 3(c) and such rights shall continue thereafter until this Agreement is terminated, even if such Trigger Event is subsequently cured.
4.
Representations and Warranties of Assignor
. Assignor makes the following representations and warranties to Assignee, each of which shall be deemed made as of the Effective Date, and re-made as of each
Purchase Tranche Closing:
(a)
Assignor acquired: (i) the Original Debenture directly from Borrower on July 9, 2015; (ii) the Supplemental Debenture directly from Borrower on August 6, 2015; and (iii) and the Restated Debenture directly from Borrower on October 27, 2015 and delivered
to Borrower the full amount of the purchase price therefor in cash on or before each applicable date (in furtherance thereof, on or prior to the Effective Date, Assignor has delivered documentary evidence to Assignee that such purchase price was paid in full on or before such date). Assignor is the legal and equitable owner of Assignor’s right, title and interest in and to the Assigned Debt, except for any portion of the Assigned Debt previously sold and assigned to Assignee pursuant to this Agreement,
and Assignor has the sole and unrestricted right to sell and/or transfer the Assigned Debt to Assignee pursuant to this Agreement; and
(b)
Upon transfer to Assignee of the Assigned Debt hereunder, Assignee will have good and unencumbered title to the Assigned Debt, free and clear of any and all liens, claims, and encumbrances (for the avoidance of doubt, the Assigned Debt shall not include
the debt to be purchased by Old Main following the date hereof); and
(c)
Assignor has not sold, transferred, assigned, pledged, hypothecated, or otherwise encumbered the Assigned Debt, or any portion thereof, except for any portion of the Assigned Debt previously sold and assigned to Assignee pursuant to this Agreement (for
the avoidance of doubt, the Assigned Debt shall not include the debt to be purchased by Old Main following the date hereof).
Assignor makes this representation and warranty after diligent inquiry. Assignor has complied in all respects with all securities and other applicable laws in relation with the purchase, holding and transfer of the Fourth Replacement Debenture B as contemplated herein. No violation of securities and other applicable laws occurred in connection with the acquisition,
issuance, or holding of the Fourth Replacement Debenture B
; and
(d)
No other written document, loan agreement, instrument, contract, amendment or modification to the Fourth Replacement Debenture B exists that supplements, modifies, or amends the terms set forth in the Debenture, except as have
been delivered to Assignee prior to the Effective Date;
(e)
Assignor has not acquired any other promissory notes or debt instrument issued by Borrower and is not seeking to otherwise invest in debt instruments or equity securities issued by Borrower. Assignor is not currently trying
to sell or market any debt instrument or equitable securities in Borrower other than the Assigned Debt; and
(f)
Assignor is voluntarily assuming all risks associated with the sale of the Assigned Debt and expressly warrants and represents that (i) Assignee has not made, and Assignor disclaims the existence of or its reliance on, any representation by Assignee concerning
Borrower or the Fourth
Replacement Debenture B
; (ii) Assignor is not relying on any disclosure or non-disclosure made or not made, or the completeness thereof, in connection with or arising out of the sale of the Assigned Debt; (iii) Assignor has no claims against Assignee or Borrower with respect to the foregoing and if any such claim may exist, Assignor, recognizing its disclaimer of reliance and Assignee’s reliance on such disclaimer as a condition to entering into
this transaction, covenants and agrees not to assert it against Assignee, Borrower or any of Assignee’s partners, representatives, agents or affiliates; (iv) Assignee and Borrower shall have no liability to Assignor; (v) and Assignor waives and releases any claim that it might have against Assignee and/or Borrower or any of Assignee’s partners, representatives, agents and affiliates whether under applicable securities law or otherwise, based on any Assignee’s knowledge, possession or nondisclosure
to Assignor of any material, non-public information concerning Borrower or its direct and indirect subsidiaries, or its future prospects; and
(g)
Assignor has conducted its own independent investigation, review and analysis of the business, operations, assets, liabilities, results of operations, financial condition, technology and prospects of Borrower, which investigation,
review and analysis was done by Assignor. Assignor acknowledges that it has been provided adequate access to the personnel, properties, premises and records of Borrower for such purpose; and
(h)
To the knowledge of Assignor,
Assignor is not in possession of any material non-public information regarding claims against or the ongoing business operations, risks, or business prospects of Borrower; and
(i)
The Fourth Replacement Debenture B was issued as a result of a pre-existing business relationship between Borrower and Assignor and not the result of any advertising or general solicitations; and
(j)
Assignor is aware of Borrower’s business affairs and financial condition and has reached an informed and knowledgeable decision to assign the Assigned Debt to Assignee; and
(k)
Assignor, together with its affiliates, is not and has not at any time during the last ninety (90) days been an officer, director, or beneficial owner (as such term is defined in the Securities Exchange Act of 1934, as amended)
of 10% or more of the equity of Borrower, and is not otherwise an Affiliate of Borrower; and
(l)
Assignor has not taken any other action and is not aware of any action taken by Borrower or any other Person that would restart the holding period for the Assigned Debt as described in Rule 144 of the Rules and Regulations promulgated under the Securities
Act (“
Rule 144
”); and
(m)
Assignor is an “Accredited Investor” within the meaning of Rule 501 of Regulation D under the Securities Act, as presently in effect; and
(n)
Assignor is acting exclusively for its own account and not in concert with any other person or entity in connection with the transactions contemplated hereby. Assignor does not intend to, and will not, directly or indirectly,
use the proceeds received pursuant to this Agreement for the purpose of investing in Borrower; and
(o)
Assignor is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate, partnership or other applicable power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations hereunder, and the execution, delivery and performance by Assignor of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate, partnership, or similar action on the part of Assignor; and
(p)
The execution, delivery and performance by Assignor of this Agreement, all other documents referred to herein, and the transactions contemplated hereby (i) have been duly authorized by all necessary officers, managers or general partners of Assignor,
(ii) do not contravene the terms of Assignor’s charter documents, or any amendment thereof, (iii) do not materially violate, conflict with or result in any material breach or contravention of, or the creation of any lien under, any contractual obligation of Assignor or any requirement of law applicable to Assignor, and (iv) to the knowledge of Assignor, do not materially violate any orders of any governmental authority against, or binding upon, Assignor; and
(q)
No approval, consent, compliance, exemption, authorization or other action by, or notice to, or filing with, any governmental authority or any other person or entity, and no lapse of a waiting period under any requirement of law, is necessary or required
in connection with the execution, delivery or performance by, or enforcement against, Assignor, of this Agreement; and
(r)
This Agreement has been duly executed and delivered by Assignor and constitutes the legal, valid and binding obligations of Assignor, enforceable against Assignor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability (regardless of whether considered in a proceeding at law or in equity); and
(s)
There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Assignor, threatened against Assignor which could reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially delay
any of the transactions contemplated hereby; and
(t)
Following the purchase of no more than $300,000 of Remaining Debt from the Assignor, Old Main shall have no further options or rights to purchase all or any portion of the Assigned Debt and both the Option Agreement and the DPA shall be terminated (or
otherwise expire) and each such agreement shall be of no further force or effect; and
(u)
Except for the foregoing representations and warranties, this Agreement and the Assignment is made by Assignor without recourse, representation or warranty of any nature or kind, express or implied, and Assignor specifically disclaims any warranty, guaranty
or representation, oral or written, past, present or future with respect to the Assigned Debt, any portion thereof, or any instruments evidencing same, including, without limitation: (i) the validity, existence, or priority of any lien or security interest securing the obligations of Borrower or any other credit parties evidenced by the Assigned Debt, any portion thereof, or any instruments evidencing same; (ii) the existence of, or basis for, any claim, counterclaim, defense or offset relating to the Assigned
Debt, any portion thereof, or any instruments evidencing same; (iii) the financial condition of Borrower, or any other credit parties or guarantor or obligor liable under the Assigned Debt, any portion thereof, or any instruments evidencing same, or the ability of any such parties to pay or perform their respective obligations under the Assigned Debt, any portion thereof, or any instruments evidencing same; (iv) the value or condition of any collateral securing the obligations under the Assigned Debt, any portion
thereof, or any instruments evidencing same; and (v) the future performance of Borrower or any other credit parties or guarantor or obligor liable under the Assigned Debt, any portion thereof, or any instruments evidencing same. Assignee acknowledges and represents to Assignor that Assignee has been given the opportunity to undertake its own investigations of Borrower, the Assigned Debt, any portion thereof, or any instruments evidencing same, and having undertaken and performed all such investigations as Assignee
deemed necessary or desirable, Assignee represents, warrants and agrees that it is relying solely on its own investigation of Borrower, the Assigned Debt, any portion thereof, or any instruments evidencing same, and not any information whatsoever provided or to be provided by Assignor, other than Assignor’s representations, warranties, and covenants set forth in this Agreement.
5.
Representations and Warranties of Assignee
. Assignee makes the following representations and warranties to Assignor, each of which shall be deemed made as of the Effective Date, and re-made as of each
Purchase Tranche Closing:
(a)
Assignee is a legally recognized entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate, partnership or other applicable power and authority to enter into and
to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder, and the execution, delivery and performance by Assignee of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of Assignee.
(b)
This Agreement, when executed and delivered by Assignee, will constitute a valid and legally binding obligation of Assignee, enforceable against Assignee in accordance with its terms, except: (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally; or (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
(c)
Assignee: (i) either alone or together with its representatives, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of this investment and make an informed decision to so invest,
and has so evaluated the risks and merits of such investment; (ii) has the ability to bear the economic risks of this investment and can afford a complete loss of such investment; (iii) understands the terms of and risks associated with the acquisition of the Assigned Debt, or any portion thereof, or any instruments evidencing same, including, without limitation, a lack of liquidity, price transparency or pricing availability and risks associated with the industry in which Borrower operates; (iv) has had the
opportunity to review Borrower, its business, its financial condition, its prospects, the Purchase Agreement, the Assigned Debt, any portion thereof, or any instruments evidencing same, all as Assignee has determined to be necessary in connection with this Agreement and the assignments contemplated hereby.
(d)
Assignee understands that: (i) the Assigned Debt, any portion thereof, or any instruments evidencing same, have not been registered under the Securities Act or the securities laws of any state; (ii) the Assigned Debt, any portion thereof, or any instruments
evidencing same, and any securities issuable upon conversion of the Assigned Debt, or any portion thereof, is and will be “restricted securities” as said term is defined in Rule 144; (iii) the Assigned Debt, any portion thereof, or any instruments evidencing same, may not be sold, pledged or otherwise transferred unless a registration statement for such transaction is effective under the Securities Act and any applicable state securities laws, or unless an exemption from such registration is available
with respect to such transaction; and (iv) the Assigned Debt, any portion thereof, or any instruments evidencing same, will restrictive legends as to the foregoing in customary form.
(e)
Assignee is not accepting this Agreement or any Assignment as a result of any advertisement, article, notice or other communication regarding the Assigned Debt, any portion thereof, or any instruments evidencing same published in any newspaper, magazine,
internet or social media, broadcast over television or radio, presented at any seminary, or under any other media generally circulated or available to the public or any other general solicitation or general advertisement.
(f)
Neither the execution and delivery of this Agreement, or any Assignment, nor the consummation of the transactions contemplated hereby, does or will violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge
or other restriction of any government, governmental agency, or court to which Assignee is subject or any provision of its organizational documents or other similar governing instruments, or conflict with, violate or constitute a default under any agreement, credit facility, debt or other instrument or understanding to which Assignee is a party. Assignee has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with this Agreement and
the assignment of the Assigned Debt, any portion thereof, or any instruments evidencing same as contemplated hereby.
(g)
There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Assignee, threatened against Assignee which could reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially
delay any of the transactions contemplated hereby.
(h)
No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other Person is required for the valid authorization, execution, delivery and performance by Assignee of this Agreement and
the consummation of the transactions contemplated hereby.
(i)
Assignee hereby acknowledges that the Assigned Debt, any portion thereof, or any instruments evidencing same may only be disposed of in compliance with state and federal securities laws. Assignee further acknowledges that in connection with any transfer
of the Assigned Debt, any portion thereof, or any instruments evidencing same subsequent to the date hereof and other than pursuant to an effective registration statement, or an applicable exemption to such registration requirements, Borrower and/or Borrower’s transfer agent may require an opinion of counsel, the form and substance of which opinion shall be reasonably satisfactory Borrower’s transfer agent.
6.
Borrower Acknowledgments
. Borrower hereby consents to the sale and purchase of the Assigned Debt pursuant to the terms of this Agreement. Borrower further represents and warrants that the obligations
evidenced by the Fourth
Replacement Debenture B
, including, without limitation, all obligations for the Assigned Debt and the Remaining Debt, are valid and enforceable obligations of Borrower subject to no defenses, setoffs, counterclaims, cross-actions or equities in favor of Borrower, and to the extent Borrower has any defenses, setoffs, counterclaims, cross-actions or equities against Assignor and/or against the enforceability of any such obligations, Borrower acknowledges
and agrees that same are hereby fully and unconditionally waived by Borrower. Borrower further acknowledges its obligations under Section 2(c) above, and agrees to timely and promptly deliver replacement debentures to Lender as required by this Agreement. Borrower further acknowledges that the Assigned Debt may only represent a portion of the obligations due or owing under the Fourth
Replacement Debenture B
, and that the Assigned Debt is only being assigned hereunder in Purchase
Tranches as contemplated above. In that regard, Borrower further acknowledges that the Remaining Debt, and any portion of the Assigned Debt for which the Applicable Purchase Price therefor has not been received by Lender, are and remain valid and enforceable obligations of Borrower. Borrower agrees and acknowledges that it is and shall remain liable to pay the Remaining Debt, and any portion of the Assigned Debt for which the Applicable Purchase Price therefor has not been received by Lender, as same becomes
due in accordance with the terms of the Purchase Agreement and the Fourth
Replacement Debenture B
, or any replacement debentures issued in replacement thereof as hereby contemplated, and nothing contained herein shall be deemed or construed any waiver or to otherwise excuse performance by Borrower under its obligations to Lender.
7.
RELEASE
.
(a)
AS A MATERIAL INDUCEMENT FOR LENDER TO AGREE TO ENTER INTO THIS AGREEMENT, BORROWER AND ASSIGNEE HEREBY RELEASE LENDER, TOGETHER WITH ALL OF ITS PARTNERS AND AFFILIATES, AND THE OFFICERS, MEMBERS, DIRECTORS, PARTNERS, EMPLOYEES, AGENTS AND ATTORNEYS
OF EACH OF THE FOREGOING, FROM ALL CLAIMS, CAUSES OF ACTION AND LIABILITIES OF ANY NATURE OR KIND IN ANY WAY RELATING, DIRECTLY OR INDIRECTLY, TO THE ASSIGNED DEBT, ANY COLLATERAL SECURING ANY OBLIGATIONS THEREUNDER, THIS AGREEMENT, OR ANY OTHER DEBTS OR OBLIGATIONS IN ANY WAY RELATING TO THE PURCHASE AGREEMENT, TO THE EXTENT ARISING ON OR PRIOR TO THE DATE HEREOF, INCLUDING, WITHOUT LIMITATION, ANY AND ALL CLAIMS ARISING FROM OR RELATING TO NEGOTIATIONS, DEMANDS, REQUESTS OR EXERCISE OF REMEDIES IN CONNECTION
WITH THE ASSIGNED DEBT, THIS AGREEMENT, ANY OTHER DEBTS OR OBLIGATIONS IN ANY WAY RELATING TO THE PURCHASE AGREEMENT, AND ANY AND ALL FEES OR CHARGES COLLECTED IN CONNECTION WITH THE ASSIGNED DEBT, THIS AGREEMENT, OR ANY OTHER DEBTS OR OBLIGATIONS IN ANY WAY RELATING TO THE PURCHASE AGREEMENT. MOREOVER UPON DELIVERY OF EACH ASSIGNMENT HEREUNDER, THE FOREGOING RELEASE SHALL BE DEEMED AUTOMATICALLY RE-MADE AND EFFECTIVE FOR ALL CLAIMS, CAUSES OF ACTION AND LIABILITIES OF ANY NATURE OR KIND COVERED HEREBY TO THE
EXTENT ARISING ON OR PRIOR TO THE DATE OF SUCH ASSIGNMENT.
(b)
AS A MATERIAL INDUCEMENT FOR ASSIGNEE TO AGREE TO ENTER INTO THIS AGREEMENT, BORROWER AND LENDER HEREBY RELEASE ASSIGNEE, TOGETHER WITH ALL OF ITS PARTNERS AND AFFILIATES, AND THE OFFICERS, MEMBERS, DIRECTORS, PARTNERS, EMPLOYEES, AGENTS AND ATTORNEYS
OF EACH OF THE FOREGOING, FROM ALL CLAIMS, CAUSES OF ACTION AND LIABILITIES OF ANY NATURE OR KIND IN ANY WAY RELATING, DIRECTLY OR INDIRECTLY, TO THE ASSIGNED DEBT, ANY COLLATERAL SECURING ANY OBLIGATIONS THEREUNDER, THIS AGREEMENT, OR ANY OTHER DEBTS OR OBLIGATIONS IN ANY WAY RELATING TO THE PURCHASE AGREEMENT, TO THE EXTENT ARISING ON OR PRIOR TO THE DATE HEREOF, INCLUDING, WITHOUT LIMITATION, ANY AND ALL CLAIMS ARISING FROM OR RELATING TO NEGOTIATIONS, DEMANDS, REQUESTS OR EXERCISE OF REMEDIES IN CONNECTION
WITH THE ASSIGNED DEBT, THIS AGREEMENT, ANY OTHER DEBTS OR OBLIGATIONS IN ANY WAY RELATING TO THE PURCHASE AGREEMENT, AND ANY AND ALL FEES OR CHARGES COLLECTED IN CONNECTION WITH THE ASSIGNED DEBT, THIS AGREEMENT, OR ANY OTHER DEBTS OR OBLIGATIONS IN ANY WAY RELATING TO THE PURCHASE AGREEMENT. MOREOVER UPON DELIVERY OF EACH APPLICABLE PURCHASE PRICE HEREUNDER, THE FOREGOING RELEASE SHALL BE DEEMED AUTOMATICALLY RE-MADE AND EFFECTIVE FOR ALL CLAIMS, CAUSES OF ACTION AND LIABILITIES OF ANY NATURE OR KIND COVERED
HEREBY TO THE EXTENT ARISING ON OR PRIOR TO THE DATE OF SUCH PAYMENT.
8.
Default and Termination
.
(a)
Breach By Assignor
. In the event Assignor shall breach any of its covenants or agreements hereunder, and such breach is not cured within twenty (20) days after Assignor’s receipt of written notice
of such breach from Assignee, which notice shall specify the breach with specificity, then Assignee’s sole and exclusive remedy hereunder shall be to terminate this Agreement upon written notice to Assignor, whereupon this Agreement shall terminate and Assignor and Assignee shall have no further obligation, each to the other, under this Agreement. Assignor and Assignee agree that the foregoing exclusive remedy will be adequate and each of them agrees that Assignee shall not have any other remedies, at law
or in equity, for any breach by Assignor not cured within any applicable notice and cure period, other than termination of this Agreement as hereby provided.
(b)
Breach By Assignee
. In the event Assignee shall breach any of its covenants or agreements hereunder, and such breach is not cured within twenty (20) days after Assignee’s receipt of written notice
of such breach from Assignor, which notice shall specify the breach with specificity, then Assignor’s sole and exclusive remedy hereunder shall be to terminate this Agreement upon written notice to Assignee, whereupon this Agreement shall terminate and Assignor and Assignee shall have no further obligation, each to the other, under this Agreement. Assignor and Assignee agree that the foregoing exclusive remedy will be adequate and each of them agrees that Assignor shall not have any other remedies, at law
or in equity, for any breach by Assignee not cured within any applicable notice and cure period, other than termination of this Agreement as hereby provided.
(c)
Breach by Borrower
. Any breach by Borrower under this Agreement shall be deemed an event of default by Borrower under the Purchase Agreement, and any such breach may be enforced by Assignor or Assignee
through any remedies available to Assignor or Assignee, as applicable, at law or in equity, or under the Purchase Agreement. Borrower shall have no rights to enforce this Agreement as against Assignor or Assignee, nor shall any breach or default by Assignor or Assignee hereunder in any way abrogate, limit, or otherwise affect Borrower’s obligations under the Purchase Agreement and related Transaction Documents.
9.
No Waiver
. The parties recognize and acknowledge that by entering into this Agreement, Lender is not waiving any rights or remedies it may have under any of the Transaction Documents, any defaults or
Events of Default arising thereunder, or any judgments previously obtained by Lender in connection therewith. In addition, subject to Section 2(f) herein, the Lender shall have the right, at any time, to accept payments (whether in full or partial payments) of the then outstanding Remaining Debt, or any portion of the Assigned Debt not assigned at any Purchase Tranche Closing, whether such payments are made by the Borrower, any other Person purchasing all or any portion of the then outstanding Remaining Debt,
or any portion of the Assigned Debt not assigned at any Purchase Tranche Closing, or any other Person, and in such event, Lender shall have the absolute right to terminate this Agreement, without liability to Assignee or any other Person, with respect to any portion of the Assigned Debt not yet sold and assigned to Assignee as of such date.
10.
Governing Law
. This Agreement shall be governed by and construed in accordance with the laws governing the Fourth
Replacement Debenture B
.
11.
Waiver of Jury Trial
. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED
TO THIS AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.
12.
Successors and Assigns
. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
13.
Headings
. The headings of the paragraphs of this Agreement have been included only for convenience, and shall not be deemed in any manner to modify or limit any of the provisions of this Agreement or
used in any manner in the interpretation of this Agreement.
14.
Interpretation
. Whenever the context so requires in this Agreement, all words used in the singular shall be construed to have been used in the plural (and vice versa), each gender shall be construed
to include any other genders, and the word “
Person
” shall be construed to include a natural person, a corporation, a firm, a partnership, a joint venture, a trust, an estate or any other entity.
15.
Partial Invalidity
. Each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. If any provision of this Agreement or the application of such provision to
any person or circumstances shall, to any extent, be invalid or unenforceable, then the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected by such invalidity or unenforceability.
16.
Execution
. This Agreement may be executed in one or more counterparts, all of which taken together shall be deemed and considered one and the same Agreement. In the event that any signature is delivered
by facsimile transmission or by e-mail delivery of a “.pdf” format file or other similar format file, such signature shall be deemed an original for all purposes and shall create a valid and binding obligation of the party executing same with the same force and effect as if such facsimile or “.pdf” signature page was an original thereof.
17.
Effective Date
. For purposes of this Agreement, the “
Effective Date
” shall mean the date when this Agreement becomes fully
executed by all parties hereto.
18.
Legal Fees
. Borrower hereby agrees to pay to the Lender, or its counsel, a fee in the amount of $7,500, to reimburse Lender for fees incurred by Lender for the preparation, negotiation and execution
of this Agreement (and documents entered into between Borrower and Lender related hereto), and all other documents in connection herewith, which fees shall be paid simultaneously with the execution of this Agreement (unless previously paid). In the event of any action at law or in equity to enforce or interpret the terms of this Agreement, the parties agree that the prevailing party shall be entitled to an additional award of the full amount of the attorneys’ fees and expenses paid by such prevailing party
in connection with the litigation and/or dispute without reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses. Nothing herein shall restrict or impair a court’s power to award fees and expenses for frivolous or bad faith pleading.
[Signatures on the following page]
IN WITNESS WHEREOF, Assignor, Assignee, and Borrower have executed this Agreement as of the date above first written.
Assignor
:
TCA GLOBAL CREDIT MASTER FUND, LP
By:
TCA Global Credit Fund GP, Ltd.
Its:
General Partner
By: /s/ Robert Press
Robert Press, Director
Date: August 15, 2016
Assignee
:
CHICAGO VENTURE PARTNERS, L.P.
By: Chicago Venture Management, L.L.C.,
its General Partner
By:
CVM, Inc., its Manager
By: /s/ John M. Fife
John M. Fife, President
Date: August 15, 2016
IN WITNESS WHEREOF, Assignor, Assignee, and Borrower have executed this Agreement as of the date above first written.
Borrower
:
GROWLIFE, INC.
By: /s/ Marco Hegyi
Name: Marco Hegyi
Title: CEO
Date: August 15, 2016
EXHIBIT “A”
FORM OF REPLACEMENT DEBENTURE A
NEITHER THIS DEBENTURE NOR THE SECURITIES THAT ARE ISSUABLE TO THE HOLDER UPON CONVERSION HEREOF (COLLECTIVELY, THE “SECURITIES”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THE SECURITIES NOR ANY INTEREST OR PARTICIPATION
THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED: (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT OR APPLICABLE STATE SECURITIES LAWS; OR (II) IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR; (III) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 UNDER THE 1933 ACT.
BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SEC 6049(B)(4) OF THE INTERNAL REVENUE CODE AND REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SEC. 6049(B)(4) OF
THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).
$__________ Issuance and Effective Date: as of __________
FOR VALUE RECEIVED,
GROWLIFE, INC.
, a Delaware corporation (the “
Borrower
”), whose address is 5400 Carillon Point, Kirkland, WA 98033, promises to pay to the order of
TCA GLOBAL CREDIT MASTER FUND, LP
(hereinafter,
together with any holder hereof, “
Lender
”), whose address is
3960 Howard Hughes Parkway, Suite 500, Las Vegas, Nevada 89169
, _____________ ($___________), together with interest (computed on the actual number of days elapsed on the basis of a 360 day year) thereon and all other fees, charges and all other Obligations due and payable in accordance with the terms of that certain Securities Purchase
Agreement dated as of April 30, 2015, but made effective as of July 9, 2015, executed by and among Borrower and Lender (the “
Original Purchase Agreement
”), as supplemented by that certain Securities Purchase Agreement dated as of April 30, 2015, but made effective as of August 6, 2015 (the “
Supplemental Purchase Agreement
”), together with Amended and Restated
Purchase Agreement dated as of October 27, 2015 (the “
Restated Purchase Agreement
”), as further amended by that certain First Amendment to Amended and Restated Purchase Agreement dated as of April 30, 2016 (the “
First Amendment
”) (the Original Purchase Agreement, the Supplemental Purchase Agreement, the Restated Purchase Agreement, and the First Amendment,
together with all other renewals, extensions, future advances, amendments, modifications, substitutions, or replacements thereof, sometimes collectively referred to as the “
Purchase Agreement
”). Capitalized words and phrases not otherwise defined herein shall have the meanings assigned thereto in the Purchase Agreement.
This _______ Replacement Debenture A (“
Debenture
”), along with the ________ Replacement Debenture B being executed by Borrower simultaneously herewith (“
Debenture B
”), evidence the Debentures and other Obligations
incurred by the Borrower under and pursuant to the Purchase Agreement, to which reference is hereby made for a statement of the terms and conditions under which any payment hereon may be accelerated. The holder of this Debenture is entitled to all of the benefits and security provided for in the Purchase Agreement and all other Transaction Documents executed by and between Borrower and Lender.
This Debenture, along with Debenture B being executed and delivered simultaneously herewith, are being both executed in substitution for and to supersede the ______ Replacement Debenture B dated as of __________ (the “
Existing Note
”), in its entirety.
It is the
intention of the Borrower and Lender that while this Debenture and Debenture B replace and supersede the Existing Note, in its entirety, it is not in payment or satisfaction of the Existing Note, but rather is the substitute of one evidence of debt for another without any intent to extinguish the old.
Nothing contained in this Debenture or Debenture B shall be deemed to extinguish the indebtedness and obligations evidenced by the Existing Note or constitute a novation of the indebtedness evidenced by the
Existing Note.
Principal, interest and other fees and charges shall be paid to Lender as set forth in the Purchase Agreement, or at such other place as the holder of this Debenture shall designate in writing to Borrower. Each Debenture made
by Lender, and all payments on account of the principal and interest thereof shall be recorded on the
books and records of Lender and the principal balance as shown on such books and records, or any copy thereof certified by an officer of Lender, shall be rebuttably presumptive evidence of the principal amount owing hereunder.
Except for such notices as may be required under the terms of the Purchase Agreement, Borrower waives presentment, demand, notice, protest, and all other demands, or notices, in connection with the delivery, acceptance, performance, default, or enforcement of this Debenture, and assents to any extension or postponement of the time of payment or any other indulgence.
Borrower shall be solely responsible for the payment of any and all documentary stamps and other taxes applicable to the full face amount of this Debenture.
This Debenture shall be governed and construed in accordance with the laws of the State of Nevada, and shall be binding upon Borrower and their legal representatives, successors, and assigns. Wherever possible, each provision of the Purchase Agreement and this Debenture shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision
of the Purchase Agreement or this Debenture shall be prohibited by or be invalid under such law, such provision shall be severable, and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of the Purchase Agreement or this Debenture.
Nothing herein contained, nor in any instrument or transaction relating hereto, shall be construed or so operate as to require any Borrower, or any person liable for the payment of this Debenture, to pay interest in an amount or at a rate grater than the highest rate permissible under applicable law. By acceptance hereof, Lender
hereby warrants and represents to Borrower that Lender has no intention of charging a usurious rate of interest. Should any interest or other charges paid by Borrower, or any parties liable for the payments made pursuant to this Debenture, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, any and all such excess shall be and the same is hereby waived by the holder hereof. Lender shall make adjustments in the Debenture or Purchase Agreement, as applicable,
as necessary to ensure that Borrower will not be required to pay further interest in excess of the amount permitted by applicable law. All such excess shall be automatically credited against and in reduction of the outstanding principal balance. Any portion of such excess which exceeds the outstanding principal balance shall be paid by the holder hereof to the Lender and any parties liable for the payment of this Debenture, it being the intent of the parties hereto that under no circumstances shall Borrower,
or any party liable for the payments hereunder, be required to pay interest in excess of the highest rate permissible under applicable law.
THE HOLDER IS A NON-U.S. PERSON AS THAT TERM IS DEFINED IN THE UNITED STATES INTERNAL REVENUE CODE. IT IS HEREBY AGREED AND UNDERSTOOD THAT THE OBLIGATIONS HEREUNDER MAY BE SOLD OR RESOLD ONLY TO NON-U.S. PERSONS. THE INTEREST PAYABLE HEREUNDER IS PAYABLE ONLY OUTSIDE THE UNITED STATES. ANY U.S. PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS
UNDER THE UNITED STATES INCOME TAX LAW.
Conversion of Debenture
. At any time and from time to time while this Debenture is outstanding, but only upon the occurrence of an Event of Default under the Purchase Agreement or any other Transaction Documents, this Debenture may be, at the sole option of the Lender, convertible into shares of the common stock, par value
$0.0001 per share (the “
Common Stock
”) of Borrower, in accordance with the terms and conditions set forth below.
(a)
Voluntary Conversion
. At any time while this Debenture is outstanding, but only upon the occurrence of an Event of Default under the Purchase Agreement or any other Transaction Documents, the Lender may convert all or any portion of the outstanding principal,
accrued and unpaid interest, and any other sums due and payable hereunder or under the Purchase Agreement (such total amount, the “
Conversion Amount
”) into shares of Common Stock of the Borrower (the “
Conversion Shares
”) at a price equal to: (i) the Conversion Amount (the numerator);
divided by
(ii) eighty-five percent
(85%) of the lowest of the daily volume weighted average price of the Borrower’s Common Stock during the five (5) Business Days immediately prior to the Conversion Date, which price shall be indicated in the conversion notice (in the form attached hereto as
Exhibit “A”
, the “
Conversion Notice
”) (the denominator) (the “
Conversion
Price
”). The Lender shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered.
(b)
The Lender’s Conversion Limitations
. The Borrower shall not effect any conversion of this Debenture, and the Lender shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth
on the Conversion Notice submitted by the Lender, the Lender (together with the Lender’s Affiliates and any Persons acting as a group together with the Lender or any of the Lender’s Affiliates) would beneficially own shares of Common Stock in excess of the Beneficial Ownership Limitation (as defined herein). To ensure compliance with this restriction, prior to delivery of any Conversion Notice, the Lender shall have the right to request that the Borrower provide to the Lender a written statement of
the percentage ownership of the Borrower’s Common Stock that would be beneficially owned by the Lender and its Affiliates in the Borrower if the Lender converted such portion of this Debenture then intended to be converted by Lender. The Borrower shall, within two (2) Business Days of such request, provide Lender with the requested information in a written statement, and the Lender shall be entitled to rely on such written statement from the Borrower in its Conversion Notice and ensuring that its ownership
of the Borrower’s Common Stock is not in excess of the Beneficial Ownership Limitation. The restriction described in this Section may be waived by Lender, in whole or in part, upon notice not less than sixty-one (61) days prior written notice from the Lender to the Borrower to increase such percentage.
For purposes of this Debenture, the “
Beneficial Ownership Limitation
” shall be 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture. The limitations contained in this
Section shall apply to a successor holder of this Debenture. For purposes of this Debenture, “
Person
”
means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof.
(c)
Mechanics of Conversion
. The conversion of this Debenture shall be conducted in the following manner:
(1) To convert this Debenture into shares of Common Stock on any date set forth in the Conversion Notice by the Lender (the “
Conversion Date
”), the Lender shall transmit by facsimile or electronic mail (or otherwise deliver) a
copy of the fully executed Conversion Notice to the Borrower (or, under certain circumstances as set forth below, by delivery of the Conversion Notice to the Borrower’s transfer agent).
(2)
Borrower’s Response
. Upon receipt by the Borrower of a copy of a Conversion Notice, the Borrower shall as soon as
practicable, but in no event later than two (2) Business Days after receipt of such Conversion
Notice, send, via facsimile or electronic mail (or otherwise deliver) a confirmation of receipt of such Conversion Notice (the “
Conversion Confirmation
”)
to the Lender indicating that the Borrower will process such Conversion Notice in accordance with the terms herein. In the event the Borrower fails to issue its Conversion Confirmation within said two (2) Business Day time period, the Lender
shall have the absolute and irrevocable right and authority to deliver the fully executed Conversion Notice to the Borrower’s transfer agent, and pursuant to the terms of the Purchase Agreement, the Borrower’s transfer agent shall issue the applicable Conversion Shares to Lender as hereby provided. Within five (5) Business Days after the date of the Conversion Confirmation (or the date of the Conversion Notice, if the Borrower fails to issue the Conversion Confirmation), provided that the Borrower’s
transfer agent is participating in the Depository Trust Borrower (“
DTC
”) Fast Automated Securities Transfer (“
FAST
”) program, the Borrower shall cause the transfer agent to (or, if for any reason the Borrower fails to instruct or cause its transfer agent to so act, then pursuant to the Purchase Agreement, the Lender may request and require the Borrower’s
transfer agent to) electronically transmit the applicable Conversion Shares to which the Lender shall be entitled by crediting the account of the Lender’s prime broker with DTC through its Deposit Withdrawal Agent Commission (“
DWAC
”) system, and provide proof satisfactory to the Lender of such delivery. In the event that the Borrower’s transfer agent is not participating in the DTC FAST program and is not otherwise DWAC
eligible, within five (5) Business Days after the date of the Conversion Confirmation (or the date of the Conversion Notice, if the Borrower fails to issue the Conversion Confirmation), the Borrower shall instruct and cause its transfer agent to (or, if for any reason the Borrower fails to instruct or cause its transfer agent to so act, then pursuant to the Purchase Agreement, the Lender may request and require the Borrower’s transfer agent to) issue and surrender to a nationally recognized overnight courier
for delivery to the address specified in the Conversion Notice, a certificate, registered in the name of the Lender, or its designees, for the number of Conversion Shares to which the Lender shall be entitled. To effect conversions hereunder, the Lender shall not be required to physically surrender this Debenture to the Borrower unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Lender and the Borrower shall maintain records showing the principal amount(s) converted and the date of such conversion(s).
The Lender, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of
this Debenture may be less than the amount stated on the face hereof.
(3)
Record Lender
. The Person(s) entitled to receive the shares of Common Stock issuable upon a conversion of this Debenture shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the Conversion Date.
(4)
Failure to Deliver Certificates
. If in the case of any Conversion Notice, the certificate or certificates are not delivered to or as directed by the Lender by the date required hereby, the Lender shall be entitled to elect by written notice to the Borrower
at any time on or before its receipt of such certificate or certificates, to rescind such Conversion Notice, in which event the Borrower shall promptly return to the Lender any original Debenture delivered to the Borrower and the Lender shall promptly return to the Borrower the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Borrower.
(5)
Obligation Absolute; Partial Liquidated Damages
. The Borrower’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Lender to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or entity or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Lender or any other person or entity of any obligation to the Borrower or any violation or alleged violation of law by the Lender or any other person or entity, and irrespective of any other circumstance which
might otherwise limit such obligation of the Borrower to the Lender in connection with the issuance of such Conversion Shares;
provided
,
however
, that such delivery shall not operate as a waiver by the Borrower of any such action the Borrower may have against the Lender. In the event the Lender of this Debenture shall elect to convert any or all of the outstanding principal amount hereof and accrued but unpaid interest
thereon in accordance with the terms of this Debenture, the Borrower may not refuse conversion based on any claim that the Lender or anyone associated or affiliated with the Lender has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Lender, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Borrower posts a surety bond for the benefit of the Lender in the amount of 150% of
the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Lender to the extent it obtains judgment. In the absence of such injunction, the Borrower shall issue Conversion Shares upon a properly noticed conversion. If the Borrower fails for any reason to deliver to the Lender such certificate or certificates representing Conversion
Shares pursuant to timing and delivery requirements of this Debenture, the Borrower shall pay to such Lender, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $1.00 per day for each day after the date by which such certificates should have been delivered until such certificates are delivered. Nothing herein shall limit a Lender’s right to pursue actual damages or declare an Event of Default pursuant to the Purchase Agreement, this Debenture or any
agreement securing the indebtedness under this Debenture for the Borrower’s failure to deliver Conversion Shares within the period specified herein and such Lender shall have the right to pursue all remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Lender from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Nothing
herein shall prevent the Lender from having the Conversion Shares issued directly by the Borrower’s transfer agent in accordance with the Purchase Agreement, in the event for any reason the Borrower fails to issue or deliver, or cause its transfer agent to issue and deliver, the Conversion Shares to the Lender upon exercise of Lender’s conversion rights hereunder.
(6)
Transfer Taxes
. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Lender hereof for any documentary stamp or similar taxes, or any other issuance or transfer fees of any nature
or kind that may be payable in respect of the issue or delivery of such certificates, any such taxes or fees, if payable, to be paid by the Borrower.
(d)
Make-Whole Rights
. Upon liquidation by the Lender of Conversion Shares issued pursuant to a Conversion Notice,
provided
that
the Lender realizes a net amount
from such liquidation equal to less than the Conversion Amount specified in the relevant Conversion Notice (such net realized amount, the “
Realized Amount
”), the Borrower shall issue to the Lender additional shares of the Borrower’s Common Stock equal to: (i) the Conversion Amount specified in the relevant Conversion Notice;
minus
(ii) the Realized Amount, as evidenced by a reconciliation
statement from the Lender (a “
Sale Reconciliation
”) showing the Realized Amount from the sale of the Conversion Shares;
divided by
(iii) the average volume weighted average price of the Borrower’s Common Stock during the five (5) Business Days immediately prior to the date upon which the Lender delivers notice (the “
Make-Whole
Notice
”) to the Borrower that such additional shares are requested by the Lender (the “
Make-Whole Stock Price
”) (such number of additional shares to be issued, the “
Make-Whole Shares
”). Upon receiving the Make-Whole Notice and Sale Reconciliation evidencing the number of Make-Whole Shares requested, the Borrower shall instruct its transfer agent
to issue certificates representing the Make-Whole Shares, which Make whole Shares shall be issued and delivered in the same manner and within the same time frames as set forth in Subsection (c)(2) above. Subsections (c)(3), (c)(4), (c)(5) and (c)(6) above shall be applicable to the issuance of the Make-Whole Shares. The Make-Whole Shares, when issued, shall be deemed to be validly issued, fully paid, and non-assessable shares of the Borrower’s Common Stock. Following the sale of the Make-Whole Shares by
the Lender: (i) in the event that the Lender receives net proceeds from such sale which, when added to the Realized Amount from the prior relevant Conversion Notice, is less than the Conversion Amount specified in the relevant Conversion Notice, the Lender shall deliver an additional Make-Whole Notice to the Borrower following the procedures provided previously in this paragraph, and such procedures and the delivery of Make-Whole Notices shall continue until the Conversion Amount has been fully satisfied; (ii)
in the event that the Lender received net proceeds from the sale of Make-Whole Shares in excess of the Conversion Amount specified in the relevant Conversion Notice, such excess amount shall be applied to satisfy any and all amounts owed hereunder in excess of the Conversion Amount specified in the relevant Conversion Notice.
(e)
Adjustments to Conversion Price
.
(1)
Stock Dividends and Stock Splits
. If the Borrower, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on outstanding shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of Common Stock, any shares of capital stock of the Borrower, then the Conversion Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock (excluding any treasury shares of the Borrower)
outstanding immediately before such event, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, or re-classification.
(2)
Fundamental Transaction
. If, at any time while this Debenture is outstanding: (i) the Borrower effects any merger or consolidation of the Borrower with or into another Person, (ii) the Borrower effects any sale of all or substantially all of its assets
in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Borrower or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Borrower effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such
case, a “
Fundamental Transaction
”), then upon any subsequent conversion of this Debenture, the Lender shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if
it had been, immediately prior to such Fundamental Transaction, the holder of one (1) share of Common Stock (the “
Alternate Consideration
”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction,
and the Borrower shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Lender shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any successor to the Borrower or surviving entity in such Fundamental Transaction shall issue to the Lender a new debenture consistent with the foregoing provisions and evidencing the Lender’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section
and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
(3)
Adjustment to Conversion Price
. Whenever the Conversion Price is adjusted pursuant to any provision of this Debenture, the Borrower shall promptly deliver to Lender a notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(4)
Notice to Allow Conversion by Lender
. If: (A) the Borrower shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Borrower shall declare a special nonrecurring cash dividend on or a redemption of the
Common Stock, (C) the Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Borrower shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Borrower is a party, any sale or transfer of all or substantially all of the assets of the Borrower, of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property, or (E) the Borrower shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Borrower, then, in each case, the Borrower shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Lender at its last address as it shall appear upon the Borrower’s records, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating: (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected
to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The
Lender is entitled to convert this Debenture during the 10-day period commencing on the date of such notice through the effective date of the event triggering such notice.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Borrower has executed this Debenture as of the date set forth above.
BORROWER
:
GROWLIFE
,
INC.
, a Delaware corporation
By: _____________________________
Name: _____________________________
Title: _____________________________
EXHIBIT “A”
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal, interest, and other Obligations under the Revolving Debenture (the “
Debenture
”) of
GROWLIFE, INC.
, a Delaware corporation (the “
Borrower
”),
into shares of common stock, par value $0.0001 per share (the “
Common Shares
”), of the Borrower in accordance with the conditions of the Debenture, as of the date written below.
Based solely on information provided by the Borrower to Holder, the undersigned represents and warrants to the Borrower that its ownership of the Common Shares does not exceed the Beneficial Ownership Limitation determined in accordance with Section 13(d) of the Exchange Act of 1934, as amended, as specified under the Debenture.
Conversion calculations
Effective Date of Conversion: _______________________
Principal Amount and/or Interest to be Converted: _______________________
Number of Common Shares to be Issued: _______________________
[HOLDER]
By: _____________________________
Name: __________________________
Title: ____________________________
Address: _________________________
__________________________
__________________________
FORM DEBENTURE
FORM OF REPLACEMENT DEBENTURE B
NEITHER THIS DEBENTURE NOR THE SECURITIES THAT ARE ISSUABLE TO THE HOLDER UPON CONVERSION HEREOF (COLLECTIVELY, THE “SECURITIES”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THE SECURITIES NOR ANY INTEREST OR PARTICIPATION
THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED: (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT OR APPLICABLE STATE SECURITIES LAWS; OR (II) IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR; (III) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 UNDER THE 1933 ACT.
BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SEC 6049(B)(4) OF THE INTERNAL REVENUE CODE AND REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SEC. 6049(B)(4) OF
THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).
$_____________
Issuance and Effective Date: as of ________
FOR VALUE RECEIVED,
GROWLIFE, INC.
, a Delaware corporation (the “
Borrower
”), whose address is 5400 Carillon Point, Kirkland, WA 98033, promises to pay to the order of
TCA GLOBAL CREDIT MASTER FUND, LP
(hereinafter,
together with any holder hereof, “
Lender
”), whose address is
3960 Howard Hughes Parkway, Suite 500, Las Vegas, Nevada 89169
, _______________________________________________ ($___________), together with interest (computed on the actual number of days elapsed on the basis of a 360 day year) thereon and all other fees, charges and all other Obligations due and payable in accordance with the terms of
that certain Securities Purchase Agreement dated as of April 30, 2015, but made effective as of July 9, 2015, executed by and among Borrower and Lender (the “
Original Purchase Agreement
”), as supplemented by that certain Securities Purchase Agreement dated as of April 30, 2015, but made effective as of August 6, 2015 (the “
Supplemental Purchase Agreement
”),
together with Amended and Restated Purchase Agreement dated as of October 27, 2015 (the “
Restated Purchase Agreement
”), as further amended by that certain First Amendment to Amended and Restated Purchase Agreement dated as of April 30, 2016 (the “
First Amendment
”) (the Original Purchase Agreement, the Supplemental Purchase Agreement, the Restated Purchase
Agreement, and the First Amendment, together with all other renewals, extensions, future advances, amendments, modifications, substitutions, or replacements thereof, sometimes collectively referred to as the “
Purchase Agreement
”). Capitalized words and phrases not otherwise defined herein shall have the meanings assigned thereto in the Purchase Agreement.
This _______ Replacement Debenture B (“
Debenture
”), along with the Sixth Replacement Debenture A being executed by Borrower simultaneously herewith (“
Debenture A
”), evidence the Debentures and other Obligations incurred
by the Borrower under and pursuant to the Purchase Agreement, to which reference is hereby made for a statement of the terms and conditions under which any payment hereon may be accelerated. The holder of this Debenture is entitled to all of the benefits and security provided for in the Purchase Agreement and all other Transaction Documents executed by and between Borrower and Lender.
This Debenture, along with Debenture A being executed and delivered simultaneously herewith, are being both executed in substitution for and to supersede the _______ Replacement Debenture B dated as of ________ (the “
Existing Note
”), in its entirety.
It is the intention
of the Borrower and Lender that while this Debenture and Debenture A replace and supersede the Existing Note, in its entirety, it is not in payment or satisfaction of the Existing Note, but rather is the substitute of one evidence of debt for another without any intent to extinguish the old.
Nothing contained in this Debenture or Debenture A shall be deemed to extinguish the indebtedness and obligations evidenced by the Existing Note or constitute a novation of the indebtedness evidenced by the Existing
Note.
Principal, interest and other fees and charges shall be paid to Lender as set forth in the Purchase Agreement, or at such other place as the holder of this Debenture shall designate in writing to Borrower. Each Debenture made
by Lender, and all payments on account of the principal and interest thereof shall be recorded on the
books and records of Lender and the principal balance as shown on such books and records, or any copy thereof certified by an officer of Lender, shall be rebuttably presumptive evidence of the principal amount owing hereunder.
Except for such notices as may be required under the terms of the Purchase Agreement, Borrower waives presentment, demand, notice, protest, and all other demands, or notices, in connection with the delivery, acceptance, performance, default, or enforcement of this Debenture, and assents to any extension or postponement of the time of payment or any other indulgence.
Borrower shall be solely responsible for the payment of any and all documentary stamps and other taxes applicable to the full face amount of this Debenture.
This Debenture shall be governed and construed in accordance with the laws of the State of Nevada, and shall be binding upon Borrower and their legal representatives, successors, and assigns. Wherever possible, each provision of the Purchase Agreement and this Debenture shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision
of the Purchase Agreement or this Debenture shall be prohibited by or be invalid under such law, such provision shall be severable, and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of the Purchase Agreement or this Debenture.
Nothing herein contained, nor in any instrument or transaction relating hereto, shall be construed or so operate as to require any Borrower, or any person liable for the payment of this Debenture, to pay interest in an amount or at a rate grater than the highest rate permissible under applicable law. By acceptance hereof, Lender
hereby warrants and represents to Borrower that Lender has no intention of charging a usurious rate of interest. Should any interest or other charges paid by Borrower, or any parties liable for the payments made pursuant to this Debenture, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, any and all such excess shall be and the same is hereby waived by the holder hereof. Lender shall make adjustments in the Debenture or Purchase Agreement, as applicable,
as necessary to ensure that Borrower will not be required to pay further interest in excess of the amount permitted by applicable law. All such excess shall be automatically credited against and in reduction of the outstanding principal balance. Any portion of such excess which exceeds the outstanding principal balance shall be paid by the holder hereof to the Lender and any parties liable for the payment of this Debenture, it being the intent of the parties hereto that under no circumstances shall Borrower,
or any party liable for the payments hereunder, be required to pay interest in excess of the highest rate permissible under applicable law.
THE HOLDER IS A NON-U.S. PERSON AS THAT TERM IS DEFINED IN THE UNITED STATES INTERNAL REVENUE CODE. IT IS HEREBY AGREED AND UNDERSTOOD THAT THE OBLIGATIONS HEREUNDER MAY BE SOLD OR RESOLD ONLY TO NON-U.S. PERSONS. THE INTEREST PAYABLE HEREUNDER IS PAYABLE ONLY OUTSIDE THE UNITED STATES. ANY U.S. PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS
UNDER THE UNITED STATES INCOME TAX LAW.
Conversion of Debenture
. At any time and from time to time while this Debenture is outstanding, but only upon the occurrence of an Event of Default under the Purchase Agreement or any other Transaction Documents, this Debenture may be, at the sole option of the Lender, convertible into shares of the common stock, par value
$0.0001 per share (the “
Common Stock
”) of Borrower, in accordance with the terms and conditions set forth below.
(a)
Voluntary Conversion
. At any time while this Debenture is outstanding, but only upon the occurrence of an Event of Default under the Purchase Agreement or any other Transaction Documents, the Lender may convert all or any portion of the outstanding principal,
accrued and unpaid interest, and any other sums due and payable hereunder or under the Purchase Agreement (such total amount, the “
Conversion Amount
”) into shares of Common Stock of the Borrower (the “
Conversion Shares
”) at a price equal to: (i) the Conversion Amount (the numerator);
divided by
(ii) eighty-five percent
(85%) of the lowest of the daily volume weighted average price of the Borrower’s Common Stock during the five (5) Business Days immediately prior to the Conversion Date, which price shall be indicated in the conversion notice (in the form attached hereto as
Exhibit “A”
, the “
Conversion Notice
”) (the denominator) (the “
Conversion
Price
”). The Lender shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered.
(b)
The Lender’s Conversion Limitations
. The Borrower shall not effect any conversion of this Debenture, and the Lender shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth
on the Conversion Notice submitted by the Lender, the Lender (together with the Lender’s Affiliates and any Persons acting as a group together with the Lender or any of the Lender’s Affiliates) would beneficially own shares of Common Stock in excess of the Beneficial Ownership Limitation (as defined herein). To ensure compliance with this restriction, prior to delivery of any Conversion Notice, the Lender shall have the right to request that the Borrower provide to the Lender a written statement of
the percentage ownership of the Borrower’s Common Stock that would be beneficially owned by the Lender and its Affiliates in the Borrower if the Lender converted such portion of this Debenture then intended to be converted by Lender. The Borrower shall, within two (2) Business Days of such request, provide Lender with the requested information in a written statement, and the Lender shall be entitled to rely on such written statement from the Borrower in its Conversion Notice and ensuring that its ownership
of the Borrower’s Common Stock is not in excess of the Beneficial Ownership Limitation. The restriction described in this Section may be waived by Lender, in whole or in part, upon notice not less than sixty-one (61) days prior written notice from the Lender to the Borrower to increase such percentage.
For purposes of this Debenture, the “
Beneficial Ownership Limitation
” shall be 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture. The limitations contained in this
Section shall apply to a successor holder of this Debenture. For purposes of this Debenture, “
Person
”
means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof.
(c)
Mechanics of Conversion
. The conversion of this Debenture shall be conducted in the following manner:
(1) To convert this Debenture into shares of Common Stock on any date set forth in the Conversion Notice by the Lender (the “
Conversion Date
”), the Lender shall transmit by facsimile or electronic mail (or otherwise deliver) a
copy of the fully executed Conversion Notice to the Borrower (or, under certain circumstances as set forth below, by delivery of the Conversion Notice to the Borrower’s transfer agent).
(2)
Borrower’s Response
. Upon receipt by the Borrower of a copy of a Conversion Notice, the Borrower shall as soon as
practicable, but in no event later than two (2) Business Days after receipt of such Conversion
Notice, send, via facsimile or electronic mail (or otherwise deliver) a confirmation of receipt of such Conversion Notice (the “
Conversion Confirmation
”)
to the Lender indicating that the Borrower will process such Conversion Notice in accordance with the terms herein. In the event the Borrower fails to issue its Conversion Confirmation within said two (2) Business Day time period, the Lender
shall have the absolute and irrevocable right and authority to deliver the fully executed Conversion Notice to the Borrower’s transfer agent, and pursuant to the terms of the Purchase Agreement, the Borrower’s transfer agent shall issue the applicable Conversion Shares to Lender as hereby provided. Within five (5) Business Days after the date of the Conversion Confirmation (or the date of the Conversion Notice, if the Borrower fails to issue the Conversion Confirmation), provided that the Borrower’s
transfer agent is participating in the Depository Trust Borrower (“
DTC
”) Fast Automated Securities Transfer (“
FAST
”) program, the Borrower shall cause the transfer agent to (or, if for any reason the Borrower fails to instruct or cause its transfer agent to so act, then pursuant to the Purchase Agreement, the Lender may request and require the Borrower’s
transfer agent to) electronically transmit the applicable Conversion Shares to which the Lender shall be entitled by crediting the account of the Lender’s prime broker with DTC through its Deposit Withdrawal Agent Commission (“
DWAC
”) system, and provide proof satisfactory to the Lender of such delivery. In the event that the Borrower’s transfer agent is not participating in the DTC FAST program and is not otherwise DWAC
eligible, within five (5) Business Days after the date of the Conversion Confirmation (or the date of the Conversion Notice, if the Borrower fails to issue the Conversion Confirmation), the Borrower shall instruct and cause its transfer agent to (or, if for any reason the Borrower fails to instruct or cause its transfer agent to so act, then pursuant to the Purchase Agreement, the Lender may request and require the Borrower’s transfer agent to) issue and surrender to a nationally recognized overnight courier
for delivery to the address specified in the Conversion Notice, a certificate, registered in the name of the Lender, or its designees, for the number of Conversion Shares to which the Lender shall be entitled. To effect conversions hereunder, the Lender shall not be required to physically surrender this Debenture to the Borrower unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Lender and the Borrower shall maintain records showing the principal amount(s) converted and the date of such conversion(s).
The Lender, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of
this Debenture may be less than the amount stated on the face hereof.
(3)
Record Lender
. The Person(s) entitled to receive the shares of Common Stock issuable upon a conversion of this Debenture shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the Conversion Date.
(4)
Failure to Deliver Certificates
. If in the case of any Conversion Notice, the certificate or certificates are not delivered to or as directed by the Lender by the date required hereby, the Lender shall be entitled to elect by written notice to the Borrower
at any time on or before its receipt of such certificate or certificates, to rescind such Conversion Notice, in which event the Borrower shall promptly return to the Lender any original Debenture delivered to the Borrower and the Lender shall promptly return to the Borrower the Common Stock certificates representing the principal amount of this Debenture unsuccessfully tendered for conversion to the Borrower.
(5)
Obligation Absolute; Partial Liquidated Damages
. The Borrower’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Lender to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or entity or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Lender or any other person or entity of any obligation to the Borrower or any violation or alleged violation of law by the Lender or any other person or entity, and irrespective of any other circumstance which
might otherwise limit such obligation of the Borrower to the Lender in connection with the issuance of such Conversion Shares;
provided
,
however
, that such delivery shall not operate as a waiver by the Borrower of any such action the Borrower may have against the Lender. In the event the Lender of this Debenture shall elect to convert any or all of the outstanding principal amount hereof and accrued but unpaid interest
thereon in accordance with the terms of this Debenture, the Borrower may not refuse conversion based on any claim that the Lender or anyone associated or affiliated with the Lender has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Lender, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Borrower posts a surety bond for the benefit of the Lender in the amount of 150% of
the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Lender to the extent it obtains judgment. In the absence of such injunction, the Borrower shall issue Conversion Shares upon a properly noticed conversion. If the Borrower fails for any reason to deliver to the Lender such certificate or certificates representing Conversion
Shares pursuant to timing and delivery requirements of this Debenture, the Borrower shall pay to such Lender, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $1.00 per day for each day after the date by which such certificates should have been delivered until such certificates are delivered. Nothing herein shall limit a Lender’s right to pursue actual damages or declare an Event of Default pursuant to the Purchase Agreement, this Debenture or any
agreement securing the indebtedness under this Debenture for the Borrower’s failure to deliver Conversion Shares within the period specified herein and such Lender shall have the right to pursue all remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Lender from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Nothing
herein shall prevent the Lender from having the Conversion Shares issued directly by the Borrower’s transfer agent in accordance with the Purchase Agreement, in the event for any reason the Borrower fails to issue or deliver, or cause its transfer agent to issue and deliver, the Conversion Shares to the Lender upon exercise of Lender’s conversion rights hereunder.
(6)
Transfer Taxes
. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Lender hereof for any documentary stamp or similar taxes, or any other issuance or transfer fees of any nature
or kind that may be payable in respect of the issue or delivery of such certificates, any such taxes or fees, if payable, to be paid by the Borrower.
(d)
Make-Whole Rights
. Upon liquidation by the Lender of Conversion Shares issued pursuant to a Conversion Notice,
provided
that
the Lender realizes a net amount
from such liquidation equal to less than the Conversion Amount specified in the relevant Conversion Notice (such net realized amount, the “
Realized Amount
”), the Borrower shall issue to the Lender additional shares of the Borrower’s Common Stock equal to: (i) the Conversion Amount specified in the relevant Conversion Notice;
minus
(ii) the Realized Amount, as evidenced by a reconciliation
statement from the Lender (a “
Sale Reconciliation
”) showing the Realized Amount from the sale of the Conversion Shares;
divided by
(iii) the average volume weighted average price of the Borrower’s Common Stock during the five (5) Business Days immediately prior to the date upon which the Lender delivers notice (the “
Make-Whole
Notice
”) to the Borrower that such additional shares are requested by the Lender (the “
Make-Whole Stock Price
”) (such number of additional shares to be issued, the “
Make-Whole Shares
”). Upon receiving the Make-Whole Notice and Sale Reconciliation evidencing the number of Make-Whole Shares requested, the Borrower shall instruct its transfer agent
to issue certificates representing the Make-Whole Shares, which Make whole Shares shall be issued and delivered in the same manner and within the same time frames as set forth in Subsection (c)(2) above. Subsections (c)(3), (c)(4), (c)(5) and (c)(6) above shall be applicable to the issuance of the Make-Whole Shares. The Make-Whole Shares, when issued, shall be deemed to be validly issued, fully paid, and non-assessable shares of the Borrower’s Common Stock. Following the sale of the Make-Whole Shares by
the Lender: (i) in the event that the Lender receives net proceeds from such sale which, when added to the Realized Amount from the prior relevant Conversion Notice, is less than the Conversion Amount specified in the relevant Conversion Notice, the Lender shall deliver an additional Make-Whole Notice to the Borrower following the procedures provided previously in this paragraph, and such procedures and the delivery of Make-Whole Notices shall continue until the Conversion Amount has been fully satisfied; (ii)
in the event that the Lender received net proceeds from the sale of Make-Whole Shares in excess of the Conversion Amount specified in the relevant Conversion Notice, such excess amount shall be applied to satisfy any and all amounts owed hereunder in excess of the Conversion Amount specified in the relevant Conversion Notice.
(e)
Adjustments to Conversion Price
.
(1)
Stock Dividends and Stock Splits
. If the Borrower, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on outstanding shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of Common Stock, any shares of capital stock of the Borrower, then the Conversion Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock (excluding any treasury shares of the Borrower)
outstanding immediately before such event, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, or re-classification.
(2)
Fundamental Transaction
. If, at any time while this Debenture is outstanding: (i) the Borrower effects any merger or consolidation of the Borrower with or into another Person, (ii) the Borrower effects any sale of all or substantially all of its assets
in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Borrower or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Borrower effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such
case, a “
Fundamental Transaction
”), then upon any subsequent conversion of this Debenture, the Lender shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if
it had been, immediately prior to such Fundamental Transaction, the holder of one (1) share of Common Stock (the “
Alternate Consideration
”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction,
and the Borrower shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Lender shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any successor to the Borrower or surviving entity in such Fundamental Transaction shall issue to the Lender a new debenture consistent with the foregoing provisions and evidencing the Lender’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section
and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
(3)
Adjustment to Conversion Price
. Whenever the Conversion Price is adjusted pursuant to any provision of this Debenture, the Borrower shall promptly deliver to Lender a notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(4)
Notice to Allow Conversion by Lender
. If: (A) the Borrower shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Borrower shall declare a special nonrecurring cash dividend on or a redemption of the
Common Stock, (C) the Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Borrower shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Borrower is a party, any sale or transfer of all or substantially all of the assets of the Borrower, of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property, or (E) the Borrower shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Borrower, then, in each case, the Borrower shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Lender at its last address as it shall appear upon the Borrower’s records, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating: (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected
to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The
Lender is entitled to convert this Debenture during the 10-day period commencing on the date of such notice through the effective date of the event triggering such notice.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Borrower has executed this Debenture as of the date set forth above.
BORROWER
:
GROWLIFE
,
INC.
, a Delaware corporation
By: _____________________________
Name: _____________________________
Title: _____________________________
EXHIBIT “A”
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal, interest, and other Obligations under the Revolving Debenture (the “
Debenture
”) of
GROWLIFE, INC.
, a Delaware corporation (the “
Borrower
”),
into shares of common stock, par value $0.0001 per share (the “
Common Shares
”), of the Borrower in accordance with the conditions of the Debenture, as of the date written below.
Based solely on information provided by the Borrower to Holder, the undersigned represents and warrants to the Borrower that its ownership of the Common Shares does not exceed the Beneficial Ownership Limitation determined in accordance with Section 13(d) of the Exchange Act of 1934, as amended, as specified under the Debenture.
Conversion calculations
Effective Date of Conversion: _______________________
Principal Amount and/or Interest to be Converted: _______________________
Number of Common Shares to be Issued: _______________________
[HOLDER]
By: _____________________________
Name: __________________________
Title: ____________________________
Address: _________________________
__________________________
__________________________
EXHIBIT “B”
PURCHASE TRANCHES
|
Purchase Tranche Number
|
Applicable Purchase Price
|
Date for Purchase Tranche Closing
|
|
1
|
$80,000
|
Simultaneously with execution of this Agreement
|
|
All additional Purchase Tranches until Assignee has purchased the entire amount of the Assigned Debt
|
$80,000
|
Thirty (30) Days after prior Purchase Tranche Closing*
|
*
Subject to Assignee’s right to not effect up to two (2) separate Purchase Tranche Closings as described more fully in the last sentence of Section 2(a).
EXHIBIT “C”
FORM OF ASSIGNMENT
ASSIGNMENT OF NOTE
THIS ASSIGNMENT OF NOTE (this “
Assignment
”), is made and entered into as of the 15
th
day of August, 2016, by
TCA GLOBAL CREDIT MASTER FUND, LP
, a Cayman Islands limited partnership, with an address
of 3960 Howard Hughes Parkway, Suite 500, Las Vegas, NV 89169 (“
Assignor
” or “
Lender
”), in favor of
CHICAGO VENTURE PARTNERS, L.P.
, a Utah limited partnership
(“
Assignee
”).
W I T N E S S E T H
WHEREAS, the parties hereto have entered into a Debt Purchase Agreement dated as of August 15, 2016 (the “
DPA
”), pursuant to which Assignor has agreed to assign to Assignee, its successors and assigns, Assignor’s right, title and interest in and to a portion of the monetary obligations
evidenced by the Fourth Replacement Debenture B (the “
Assigned Debt
”), all subject to the terms and conditions set forth in the DPA and hereinafter set forth; and
WHEREAS, Assignor is the present legal and equitable owner and holder of that certain Fifth Replacement Debenture A dated and effective as of August 15, 2016, executed by Growlife, Inc. (the “
Borrower
”), and made payable to the order of Assignor, in the original principal amount of $80,000.00,
representing the first Purchase Tranche under the DPA (the “
Fifth Replacement Debenture A
”);
NOW, THEREFORE, in consideration of the sum of $80,000.00, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, Assignor, Assignee, and Borrower hereby covenant and agree as follows:
1.
Recitals
. The recitations set forth in the preamble of this Assignment are true and correct and incorporated herein by this reference. All capitalized terms used herein and not otherwise defined in this Assignment shall
have the same meaning ascribed to them in the DPA.
2.
Assignment
. Assignor does hereby transfer, assign, grant, and convey to Assignee, its successors and assigns, all of the right, title and interest of Assignor in and to the Assigned Debt only, it being acknowledged
by Assignee that the Remaining Debt is not being assigned hereby.
3.
No Security Rights
. Assignee hereby agrees and acknowledges that the sale, transfer and assignment of the Assigned Debt shall be a sale, transfer and assignment of the monetary obligations evidenced by such Assigned
Debt only, and shall not include, and such sale, transfer and assignment expressly excludes, the Remaining Debt, and any and all Security Rights.
4.
Reference to DPA
. The assignment contemplated hereby shall be subject to the representations, warranties, limitations, exclusions, releases, acknowledgments, and all other terms and provisions of the DPA.
5.
Governing Law
. This Assignment shall be governed by and construed in accordance with the laws governing the Fifth Replacement Debenture A.
6.
Successors and Assigns
. This Assignment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
7.
Headings
. The headings of the paragraphs of this Assignment have been included only for convenience, and shall not be deemed in any manner to modify or limit any of the provisions of this Agreement
or used in any manner in the interpretation of this Assignment.
8.
Interpretation
. Whenever the context so requires in this Assignment, all words used in the singular shall be construed to have been used in the plural (and vice versa), each gender shall be construed to include any
other genders, and the word “
Person
” shall be construed to include a natural person, a corporation, a firm, a partnership, a joint venture, a trust, an estate or any other entity.
9.
Partial Invalidity
. Each provision of this Assignment shall be valid and enforceable to the fullest extent permitted by law. If any provision of this Assignment or the application of such provision to any Person or
circumstances shall, to any extent, be invalid or unenforceable, then the remainder of this Assignment, or the application of such provision to Persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected by such invalidity or unenforceability.
10.
Execution
. In the event that any signature is delivered by facsimile transmission or by e- mail delivery of a “.pdf” format file or other similar format file, such signature shall be deemed an original
for all purposes and shall create a valid and binding obligation of the party executing same with the same force and effect as if such facsimile or “.pdf” signature page was an original thereof.
[Signatures on the following page]
IN WITNESS WHEREOF, Assignor has executed this Assignment as of the date above first
written.
Assignor
:
TCA GLOBAL CREDIT MASTER FUND, LP
By:
TCA Global Credit Fund GP, Ltd.
Its:
General Partner
By:
/s/ Robert Press
Robert Press, Director
