Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This
Securities Purchase
Agreement
(this “
Agreement
”) is made and entered
into as of February 9, 2018 by and between Growlife,
Inc.
,
a
Delaware corporation (the “
Company
”), and St. George
Investments LLC, a Utah limited liability company (the
“
Purchaser
”).
Recitals
Whereas
,
the Company desires to issue and sell to the Purchaser: (a) shares
of Common Stock (the “
Shares
”) of the Company, par value
$0.0001 per share (the “
Common Stock
”); and (b) a Warrant
to Purchase Shares of Common Stock in substantially the form
attached hereto as
Exhibit
A
(the “
Warrant
,” and together with the
Shares, the “
Securities
”); and
Whereas
, the
Purchaser desires to purchase such Securities from the Company on
the terms and conditions set forth herein.
Agreement
Now,
Therefore
, in consideration of the foregoing recitals and
the mutual promises, representations, warranties, and covenants
hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1.
Agreement To Sell And Purchase
.
The
Purchaser hereby agrees to purchase, and the Company hereby agrees
to sell and issue to the Purchaser for an aggregate purchase price
of $1,000,000.00 (the “
Purchase Price
”): (a) 48,687,862
Shares of newly issued restricted Common Stock of the Company; and
(b) the Warrant. In the event of any stock split, stock
combination, recapitalization, stock dividend, or similar
transaction that occurs prior to the Company’s delivery of
any Shares pursuant to the terms hereof, the number of Shares shall
be adjusted accordingly based on such stock split, stock
combination, recapitalization, stock dividend, or similar
transaction.
2.
Closing, Delivery And Payment
.
The closing of the
sale and purchase of the Securities under this Agreement (the
“
Closing
”) will
take place simultaneously with the execution of this Agreement or
at such other time as the parties may otherwise agree. The Closing
shall occur by means of the exchange by email of signed .pdf
documents, but shall be deemed for all purposes to have occurred at
the offices of Hansen Black Anderson Ashcraft PLLC in Lehi, Utah.
At the Closing, the Purchaser will pay the entire Purchase Price
for the Securities by wire transfer of immediately available funds
to such account as may be designated by the Company; provided,
however, that the Company may designate that all or a portion of
the Purchase Price shall be paid to the Company in one or more
tranches (each, a “
Tranche
”) at and/or following the
Closing, in which event the Purchaser agrees to deliver the
Purchase Price in separate Tranches as and when requested by the
Company. In the event the Purchase Price is paid in Tranches, the
Company and the Purchaser agree to allocate the Shares pro rata to
each Tranche, such that each time the Purchaser delivers a Tranche
of the Purchase Price to the Company, the Purchase Price for the
number of Shares allocated to such Tranche (based on the Purchase
Price per Share the Purchaser is paying hereunder) will be deemed
to have been paid in full when such Tranche is paid; provided,
however, that the Company acknowledges and agrees that the Warrant
shall be deemed to have been paid in full upon the
Purchaser’s delivery of the initial Tranche of the Purchase
Price to the Company. Upon Purchaser’s payment of each
Tranche of the Purchase Price, the Company will deliver the
applicable Shares within three (3) days of the Closing. Upon
execution of this Agreement, the Company will cause to be executed
and delivered to the Purchaser: (a) the Warrant; (b) an Irrevocable
Letter of Instructions to Transfer Agent substantially in the form
attached hereto as
Exhibit
B
(the “
TA
Letter
”)
executed by the Company and the
Company’s transfer agent (the “
Transfer Agent
”); (c) a fully
executed Secretary’s Certificate substantially in the form
attached hereto as
Exhibit
C
(the “
Secretary’s Certificate
”)
evidencing the Company’s approval of this Agreement and the
other Transaction Documents (as defined below); (d) the
Officer’s Certificate (as defined below); and (e) a fully
executed Share Issuance Resolution substantially in the form
attached hereto as
Exhibit
D
(the “
Share Issuance
Resolution
”, and together with this Agreement, the
Warrant, the TA Letter, the Officer’s Certificate, and the
Secretary’s Certificate, the “
Transaction
Documents
”).
3.
Representations, Warranties and Covenants of the
Company
.
The
Company hereby represents, warrants and covenants to the Purchaser
that as of the Closing and each date Shares are delivered to the
Purchaser pursuant to the terms hereof:
(a) The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
necessary corporate power and authority to (i) own, operate and
occupy its properties and to carry on its business as presently
conducted, and (ii) enter into this Agreement and the other
agreements, instruments and documents contemplated hereby, and to
consummate the transactions contemplated hereby and thereby. The
Company is qualified to do business and is in good standing in each
jurisdiction in which the failure to so qualify would have a
material adverse effect.
(b) All
necessary corporate proceedings, votes, resolutions and approvals
relating to the issuance and sale of the Shares will have been
completed by the Company. Upon execution, this Agreement will
constitute a valid and legally binding obligation of the Company,
enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of
creditors’ rights generally, and (ii) as limited by laws
relating to the availability of specific performance, injunctive
relief or other equitable remedies.
(c) The
Shares purchased pursuant to this Agreement and all shares of
Common Stock issued pursuant to the Warrant (the
“
Warrant
Shares
”) will be, upon issuance and payment by the
Purchaser of the initial Tranche of the Purchase Price in
accordance with this Agreement, duly authorized, validly issued,
fully paid, non-assessable, and free of all liens, claims and
encumbrances.
(d)
There is no action, suit, investigation or proceeding pending
against or, to the knowledge of the Company, threatened against or
affecting, the Company as of the date hereof which in any manner
challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
(e)
No insolvency or bankruptcy
proceedings of any nature are pending against or with respect to
the Company under the laws of the United States or any state or any
foreign jurisdiction
.
(f) The
Company has sufficient authorized and unissued shares of Common
Stock available to sell and deliver the Shares within the
applicable time period and to issue the Warrant Shares pursuant to
the terms of the Warrant.
(g) No
further authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization,
or stock exchange or market or the stockholders or any lender of
the Company is required to be obtained by the Company for the
issuance of the Securities to the Purchaser or the entering into of
the Transaction Documents.
(h)
None of the Company’s filings 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.
(i) The
Company has filed all reports, schedules, forms, statements and
other documents required to be filed by the Company with the SEC
under the 1934 Act (as defined below) on a timely basis or has
received a valid extension of such time of filing and has filed any
such report, schedule, form, statement or other document prior to
the expiration of any such extension.
(j)
There is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the
Company before or by any governmental authority or non-governmental
department, commission, board, bureau, agency or instrumentality or
any other person, wherein an unfavorable decision, ruling or
finding would have a material adverse effect on the Company or
which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations
under, any of the Transaction Documents.
(k) The
Company has not consummated any financing transaction that has not
been disclosed in a periodic filing or current report with the SEC
under the 1934 Act.
(l) The
Company is not, nor has it been at any time in the previous twelve
(12) months, a “Shell Company,” as such type of
“issuer” is described in Rule 144(i)(1) under the 1933
Act (as defined below).
(m)
Neither the Purchaser nor any of its officers, directors,
stockholders, members, managers, employees, agents or
representatives has made any representations or warranties to the
Company or any of its officers, directors, employees, agents or
representatives except as expressly set forth in the Transaction
Documents and, in making its decision to enter into the
transactions contemplated by the Transaction Documents, the Company
is not relying on any representation, warranty, covenant or promise
of the Purchaser or its officers, directors, members, managers,
employees, agents or representatives other than as set forth in the
Transaction Documents.
(n) The
Company acknowledges that the State of Utah has a reasonable
relationship and sufficient contacts to the transactions
contemplated by the Transaction Documents and any dispute that may
arise related thereto such that the laws and venue of the State of
Utah, as set forth more specifically in Section 6.2 below, shall be
applicable to the Transaction Documents and the transactions
contemplated therein.
(o) On
the date hereof, the Company will reserve 70,000,000 shares of
Common Stock from its authorized and unissued Common Stock to
provide for all issuances of Common Stock under the Warrant (the
“
Share
Reserve
”). The Company further agrees to add
additional shares of Common Stock to the Share Reserve in
increments of 5,000,000 shares as and when requested by the
Purchaser if as of the date of any such request the number of
shares being held in the Share Reserve is less than three (3) times
the number of Delivery Shares (as defined in the Warrant) that
would be required to be delivered to the Purchaser in order to
effect a complete exercise of the Warrant pursuant to the terms
thereof. The Company shall further require the Transfer Agent to
hold the shares of Common Stock reserved pursuant to the Share
Reserve exclusively for the benefit of the Purchaser and to issue
such shares to the Purchaser promptly upon the Purchaser’s
delivery of an exercise notice. Finally, the Company shall require
the Transfer Agent to issue shares of Common Stock pursuant to the
Warrant to the Purchaser out of its authorized and unissued shares,
and not the Share Reserve, to the extent shares of Common Stock
have been authorized, but not issued, and are not included in the
Share Reserve. The Transfer Agent shall only issue shares out of
the Share Reserve to the extent there are no other authorized
shares available for issuance and then only with the
Purchaser’s written consent.
(p) So
long as the Purchaser beneficially owns any of the Securities and
for at least twenty (20) Trading Days (as defined below)
thereafter, the Company will timely file on the applicable deadline
all reports required to be filed with the Securities Exchange Act
of 1934, as amended (the “
1934 Act
”), pursuant to
Sections 13 or 15(d) of the 1934 Act, and will 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 of 1933 Act, as
amended (the “
1933
Act
”), is publicly available, and will not terminate
its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would
permit such termination. For purposes hereof, the term
“
Trading Day
”
means any day on which the New York Stock Exchange is open for
trading.
(q) The
Common Stock shall be listed or quoted for trading on any of (i)
NYSE, (ii) NASDAQ, (iii) OTCQX, (iv) OTCQB, or (v)
OTCPink.
(r)
When issued, the Shares and the Warrant Shares will be duly
authorized, validly issued, fully paid for and non-assessable, free
and clear of all liens, claims, charges and
encumbrances.
(s)
Trading in the Company’s Common Stock will not be suspended,
halted, chilled, frozen, reach zero bid or otherwise cease on the
Company’s principal trading market.
(t) The
Company will not issue any warrant which permits cashless exercise
thereof, other than the Warrant, without first granting the
Purchaser a period of at least two (2) Trading Days to review such
warrant prior to its issuance.
(u) For
so long as the Warrant remains outstanding, the Company will not
make any Variable Security Issuance (as defined below) without the
Purchaser’s prior written consent, which consent shall not be
unreasonably withheld (for the avoidance of doubt, and without
limitation, it shall not be unreasonable for Purchaser to withhold
its consent if any Variable Security Issuance would have a dilutive
effect on Purchaser’s ownership of Common Stock). For
purposes hereof, the term “
Variable Security Issuance
” means
any issuance of any Company securities that (i) 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 (ii) 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. 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.
(v) At
the Closing and on the first day of each calendar quarter for so
long as the Warrant remains outstanding or on any other date during
which the Warrant is outstanding, as may be requested by the
Purchaser, the Company shall cause its Chief Executive Officer to
provide to the Purchaser a certificate in substantially the form
attached hereto as
Exhibit
E
(the “
Officer’s Certificate
”)
certifying in his capacity as Chief Executive Officer that the
Company has not issued any warrant with a cashless exercise
provision and that the Company has not made any Variable Security
Issuance since the Closing.
4.
Representations and Warranties of the Purchaser.
The
Purchaser hereby represents and warrants to the Company that as of
the Closing hereunder:
(a) The
Purchaser has full power and authority to enter into this
Agreement. Upon execution, this Agreement will constitute a valid
and legally binding obligation of the Purchaser, enforceable in
accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws
of general application affecting enforcement of creditors’
rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other
equitable remedies.
(b) The
Shares will be acquired for investment for the Purchaser’s
own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and the Purchaser has
no present intention of selling, granting any participation in or
otherwise distributing the same except in compliance with
applicable U.S. securities laws.
(c) The
Purchaser is an “accredited investor” within the
meaning of Rule 501 of Regulation D promulgated under the 1933
Act.
(d) The
Purchaser represents and warrants that Purchaser is solely
responsible for and shall file all beneficial ownership reporting
forms timely with the SEC as required by Section 16 (Form 3, Form 4
and Form 5) and Schedule 13D or 13G, as applicable.
5.
Ownership
Limitation.
Notwithstanding
anything to the contrary contained in this Agreement, if at any
time the Purchaser shall or would be issued shares of Common Stock
hereunder, but such issuance would cause the Purchaser (together
with its affiliates) to own a number of shares exceeding the
Maximum Percentage (as defined in the Warrant), the Company must
not issue to the Purchaser shares of the Common Stock which would
exceed the Maximum Percentage. The shares of Common Stock issuable
to the Purchaser that would cause the Maximum Percentage to be
exceeded are referred to herein as the “
Ownership
Limitation
Shares
”. The Company will reserve
the Ownership Limitation Shares for the exclusive benefit of the
Purchaser. From time to time, the Purchaser may notify the Company
in writing of the number of the Ownership Limitation Shares that
may be issued to the Purchaser without causing the Purchaser to
exceed the Maximum Percentage. Upon receipt of such notice, the
Company shall be unconditionally obligated to immediately issue
such designated shares to the Purchaser, with a corresponding
reduction in the number of the Ownership Limitation Shares. For
purposes of this Section, beneficial ownership of Common Stock will
be determined under Section 13(d) of the 1934 Act, as amended. By
written notice to the Company, the Purchaser 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 the Purchaser.
6.1
Arbitration
.
By its execution of this Agreement, each party agrees to be bound
by the Arbitration Provisions set forth as
Exhibit F
to this Agreement
(the “
Arbitration
Provisions
”) and the parties agree to submit all
Claims (as defined in the Arbitration Provisions) arising under
this Agreement or any of the other Transaction Documents or other
agreement between the parties and their affiliates to binding
arbitration pursuant to the Arbitration Provisions.
6.2
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 any Transaction Document 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 or under any Transaction Document 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 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.
6.3
Entire
Agreement; Amendments
. This Agreement constitutes the full
and entire understanding and agreement between the parties with
regard to the subjects hereof and thereof. Except as otherwise
expressly provided herein, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated, except by
a written instrument signed by the Company and the
Purchaser.
6.4
Notices
.
Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in
writing and will be deemed to be effective upon delivery when
delivered (a) personally; (b) by facsimile, provided a positive
transmission report is received and a copy is mailed no later than
the next business day through a nationally recognized overnight
delivery service; (c) by overnight delivery with a nationally
recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and
facsimile numbers for such communications will be,
in the
case of the Purchaser:
St.
George Investments LLC
Attn:
John Fife
303
East Wacker Drive, Suite 1040
Chicago, Illinois
60601
jfife@chicagoventure.com
with a
copy to (which copy shall not constitute notice):
Hansen
Black Anderson Ashcraft PLLC
Attn:
Jon Hansen
3051
West Maple Loop Drive
Suite
325
Lehi,
Utah 84043
jhansen@hbaalaw.com
and in
the case of the Company:
Growlife,
Inc.
Attn:
Marco Hegyi
5400
Carillon Point
Kirkland,
Washington 98033
or at
such other address and facsimile number as the receiving party will
have furnished to the sending party in writing.
6.5
Survival
.
The representations, warranties, covenants and agreements made and
incorporated by reference herein will survive any investigation
made by or on behalf of the Purchaser or the Company, and will
survive until the date that is two (2) years following the date of
the final Closing that occurs hereunder.
6.6
Successors
and Assigns
. Except as otherwise expressly provided herein,
the provisions hereof will inure to the benefit of, and be binding
upon, the respective successors, assigns, heirs, executors and
administrators of the parties hereto. The Purchaser may transfer or
assign all or any portion of its rights under this Agreement to any
person or entity permitted under applicable securities laws, so
long as Purchaser has obtained the express written consent of the
Company, which consent shall not be unreasonably
withheld.
6.7
Interpretations
.
All pronouns and any variations thereof will be deemed to refer to
the masculine, feminine, neuter, singular or plural, as the
identity of the person or persons or entity or entities may
require. All references to “$” or dollars herein will
be construed to refer to United States dollars. The titles of the
Sections and subsections of this Agreement are for convenience or
reference only and are not to be considered in construing this
Agreement. All references to “including” shall be
deemed to mean “including, without
limitation.”
6.8
Severability
.
In case any provision of this Agreement is determined to be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be
affected or impaired thereby.
6.9
Attorneys’
Fees
. In the event of any action at law or in equity to
enforce or interpret the terms of this Agreement or collect any
amounts owed hereunder, the parties agree that the party who is
awarded the most money 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, collection
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.
6.10
Counterparts
.
This Agreement may be executed in counterparts, each of which when
so executed and delivered will constitute a complete and original
instrument but all of which together will constitute one and the
same agreement, and it will not be necessary when making proof of
this Agreement or any counterpart thereof to account for any
counterpart other than the counterpart of the party against whom
enforcement is sought.
6.11
No
Reliance
. The Company acknowledges and agrees that neither
the Purchaser nor any of its officers, directors, members,
managers, representatives or agents has made any representations or
warranties to the Company or any of its officers, directors,
representatives, agents or employees except as expressly set forth
in this Agreement and, in making its decision to enter into the
transactions contemplated by this Agreement, the Company is not
relying on any representation, warranty, covenant or promise of the
Purchaser or its officers, directors, members, managers, agents or
representatives other than as set forth in this
Agreement.
6.12
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.
6.13
Voluntary
Agreement
. The
Company has
carefully read this Agreement and has asked any questions needed
for the Company to understand the terms, consequences and binding
effect of this Agreement. The Company has had the opportunity to
seek the advice of an attorney of the Company’s choosing and
is executing this Agreement voluntarily and without any duress or
undue influence by the Purchaser or anyone
else
.
6.14
Specific
Performance
. The
Company
acknowledges and agrees that irreparable damage would occur to the
Purchaser in the event that the Company fails to perform any
provision of this Agreement in accordance with its specific terms.
It is accordingly agreed that the Purchaser shall be entitled to an
injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms
and provisions hereof, this being in addition to any other remedy
to which the Purchaser may be entitled hereunder, by law or at
equity. For the avoidance of doubt, in the event the Purchaser
seeks to obtain an injunction against the Company or specific
performance of any provision of this Agreement, such action shall
not be a waiver of any right of the Purchaser under this Agreement,
at law, or in equity
.
6.15
No
Changes; Signature Pages
. The Company, as well as the person
signing each Transaction Document on behalf of the Company,
represents and warrants to the Purchaser that it has not made any
changes to this Agreement or any other Transaction Document except
those that have been conspicuously disclosed to the Purchaser in a
“redline” or similar draft of the applicable
Transaction Document, which clearly marks all changes the Company
has made to the applicable Transaction Document. Moreover, the
versions of the Transaction Documents signed by the Company are the
same versions the Purchaser delivered to the Company as being the
“final” versions of the Transaction Documents and the
Company represents and warrants that it has not made any changes to
such “final” versions of the Transaction Documents and
that the versions the Company signed are the same versions the
Purchaser delivered to it. In the event the Company has made any
changes to any Transaction Document that are not conspicuously
disclosed to the Purchaser in a “redline” or similar
draft of the applicable Transaction Document and that have not been
explicitly accepted and agreed upon by the Purchaser, the Company
acknowledges and agrees that any such changes shall not be
considered part of the final document set. Finally, and in
furtherance of the foregoing, the Company agrees and authorizes the
Purchaser to compile the “final” versions of the
Transaction Documents, which shall consist of the Company’s
executed signature pages for all Transaction Documents being
applied to the last set of the Transaction Documents that the
Purchaser delivered to the Company, and the Company agrees that
such versions of the Transaction Documents that have been collated
by the Purchaser shall be deemed to be the final versions of the
Transaction Documents for all purposes.
6.16
Calculation
Disputes
. Notwithstanding the Arbitration Provisions, in the
case of a dispute as to any determination or arithmetic calculation
under the Transaction Documents, including without limitation,
calculating the Warrant Shares, Exercise Shares (as defined in the
Warrant), Delivery Shares (as defined in the Warrant), Market Price
(as defined in the Warrant), or VWAP (as defined in the Warrant)
(each, a “
Calculation
”), the Company or the
Purchaser (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 the Purchaser (as the
case may be) or (ii) if no notice gave rise to such dispute, at any
time after the Purchaser learned of the circumstances giving rise
to such dispute. If the Purchaser 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 the
Purchaser (as the case may be), then the Purchaser will promptly
submit via email or facsimile the disputed Calculation to Unkar
Systems Inc. (“
Unkar
Systems
”). The Purchaser shall cause Unkar Systems to
perform the Calculation and notify the Company and the Purchaser 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 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 Company is the losing party, no extension of
the Delivery Date (as defined in the Warrant) 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
Transaction Documents. Notwithstanding the foregoing, the Purchaser
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 the Purchaser.
[signatures on following page]
In Witness
Whereof
,
the parties
hereto have executed this Securities Purchase Agreement as of the
date set forth in the first paragraph hereof.
|
COMPANY:
GROWLIFE, INC.
By: /s/
Marco Hegyi
Marco
Hegyi, CEO
|
|
PURCHASER:
ST.
GEORGE INVESTMENTS LLC
By:
Fife Trading, Inc., its Manager
By:
/s/ John M. Fife
John
M. Fife, President
|
*************
Exhibits
Exhibit
B
Transfer Agent
Letter
Exhibit
C
Secretary’s
Certificate
Exhibit
D
Share Issuance
Resolution
Exhibit
E
Officer’s
Certificate
Exhibit
F
Arbitration
Provisions
Exhibit
A
THIS
WARRANT AND THE COMMON STOCK ISSUABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
WARRANT AND THE COMMON STOCK ISSUABLE HEREUNDER MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR ANY SHARES
ISSUABLE HEREUNDER UNDER SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
GROWLIFE, INC. OR ITS TRANSFER AGENT THAT SUCH REGISTRATION IS NOT
REQUIRED.
GROWLIFE,
INC.
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
1.
Issuance
. For good and valuable
consideration as set forth in the Purchase Agreement (as defined
below), including without limitation the initial Tranche (as
defined in the Purchase Agreement) of the Purchase Price (as
defined in the Purchase Agreement), the receipt and sufficiency of
which are hereby acknowledged by
Growlife, Inc.
, a Delaware
corporation (“
Company
”);
St. George Investments LLC
, a
Utah limited liability company, its successors and/or registered
assigns (“
Investor
”), is hereby granted the
right to purchase at any time on or after the Issue Date (as
defined below) until the date which is the last calendar day of the
month in which the fifth anniversary of the Issue Date occurs (the
“
Expiration
Date
”), 48,687,862 fully paid and non-assessable
shares (the “
Warrant
Shares
”) of Company’s common stock, par value
$0.0001 per share (the “
Common Stock
”), as such number may
be adjusted from time to time pursuant to the terms and conditions
of this Warrant to Purchase Shares of Common Stock (this
“
Warrant
”).
This
Warrant is being issued pursuant to the terms of that certain
Securities Purchase Agreement dated February 9, 2018, to which
Company and Investor are parties (as the same may be amended from
time to time, the “
Purchase
Agreement
”). Certain capitalized terms used herein are
defined in
Attachment
1
attached hereto and incorporated herein by this reference.
Moreover, to the extent any defined terms herein are defined in any
other Transaction Document (as so noted herein), such defined term
shall remain applicable in this Warrant even if the other
Transaction Document has been released, satisfied, or is otherwise
cancelled. This Warrant was issued to Investor on February 9, 2018
(the “
Issue
Date
”).
2.
Exercise of
Warrant
.
General
.
This
Warrant is exercisable in whole or in part at any time and from
time to time commencing on the Issue Date and ending on the
Expiration Date. Such exercise shall be effectuated by submitting
to Company (either by delivery to Company or by email or facsimile
transmission) a completed and signed Notice of Exercise
substantially in the form attached to this Warrant as
Exhibit A
(the
“
Notice of
Exercise
”). The date a Notice of Exercise is either
faxed, emailed or delivered to Company shall be the
“
Exercise Date
,”
provided that, if such exercise represents the full exercise of the
outstanding balance of this Warrant, Investor shall tender this
Warrant to Company within five (5) Trading Days thereafter, but
only if the Delivery Shares to be delivered pursuant to the Notice
of Exercise have been delivered to Investor as of such date. The
Notice of Exercise shall be executed by Investor and shall indicate
(i) the number of Delivery Shares to be issued pursuant to such
exercise, and (ii) if applicable (as provided below), whether the
exercise is a cashless exercise.
Notwithstanding any
other provision contained herein or in any other Transaction
Document to the contrary, at any time prior to the Expiration Date,
Investor may elect a “cashless” exercise of this
Warrant for any Warrant Shares whereby Investor shall be entitled
to receive a number of shares of Common Stock equal to (i) the
excess of the Current Market Value over the aggregate Exercise
Price of the Exercise Shares, divided by (ii) the Adjusted
Price.
If the
Notice of Exercise form elects a “cash” exercise, the
Exercise Price per share of Common Stock for the Delivery Shares
shall be payable, at the election of Investor, in cash or by
certified or official bank check or by wire transfer in accordance
with instructions provided by Company at the request of
Investor.
Upon the appropriate payment to
Company, if any, of the Exercise Price for the Delivery Shares,
Company shall promptly, but in no case later than the date that is
three (3) Trading Days following the date the Exercise Price is
paid to Company (or with respect to a “cashless
exercise,” the date that is three (3) Trading Days following
the Exercise Date) (the “
Delivery Date
”), deliver or cause
Company’s Transfer Agent to deliver the applicable Delivery
Shares electronically via the DWAC system to the account designated
by Investor on the Notice of Exercise. If for any reason Company is
not able to so deliver the Delivery Shares via the DWAC system,
notwithstanding its best efforts to do so, Company shall instead,
on or before the applicable date set forth above in this
subsection, issue and deliver to Investor or its broker (as
designated in the Notice of Exercise), via reputable overnight
courier, a certificate, registered in the name of Investor or its
designee, representing the applicable number of Delivery Shares.
For the avoidance of doubt, Company has not met its obligation to
deliver Delivery Shares within the required timeframe set forth
above unless Investor or its broker, as applicable, has actually
received the Delivery Shares (whether electronically or in
certificated form) no later than the close of business on the
latest possible delivery date pursuant to the terms set forth
above. Moreover, and notwithstanding anything to the contrary
herein or in any other Transaction Document, in the event Company
or its Transfer Agent refuses to deliver any Delivery Shares to
Investor on grounds that such issuance is in violation of Rule 144
under the 1933 Act (as defined below) (“
Rule 144
”), Company shall deliver
or cause its Transfer Agent to deliver the applicable Delivery
Shares to Investor with a restricted securities legend, but
otherwise in accordance with the provisions of this Section
0
. In conjunction therewith, Company
will also deliver to Investor a written opinion from its counsel or
its Transfer Agent’s counsel opining as to why the issuance
of the applicable Delivery Shares violates Rule 144.
If
Delivery Shares are delivered later than as required under
subsection (d) immediately above, Company agrees to pay, in
addition to all other remedies available to Investor in the
Transaction Documents, a late charge equal to the greater of (i)
$500.00 or (ii) 2% of the product of (1) the number of shares of
Common Stock not issued to Investor on a timely basis and to which
Investor is entitled multiplied by (2) the VWAP of the Common
Stock on the Trading Day immediately preceding the last possible
date which Company could have issued such shares of Common Stock to
Investor without violating this Warrant, rounded to the nearest
multiple of $100.00 (such resulting amount, the “
Warrant Share Value
”) (but in any
event the cumulative amount of such late fees for each exercise
shall not exceed 200% of the Warrant Share Value), per Trading Day
until such Warrant Shares are delivered (the “
Late Fees
”). Company acknowledges
and agrees that the failure to timely deliver Delivery Shares
hereunder is a material breach of this Warrant and that the Late
Fees are properly charged as liquidated damages to compensate
Investor for such breach. Company shall pay any Late Fees incurred
under this subsection in immediately available funds upon demand.
Furthermore, in the event that Company fails for any reason to
effect delivery of the Delivery Shares as required under subsection
(d) immediately above, Investor may revoke all or part of the
relevant Warrant exercise by delivery of a notice to such effect to
Company, whereupon Company and Investor shall each be restored to
their respective positions immediately prior to the exercise of the
relevant portion of this Warrant, except that the Late Fees
described above shall be payable through the date notice of
revocation or rescission is given to Company. Finally, in the event
Company fails to deliver any Delivery Shares to Investor for a
period of ninety (90) days from the Delivery Date, Investor may
elect, in its sole discretion, to stop the accumulation of the Late
Fees as of such date and require Company to pay to Investor a cash
amount equal to (i) the total amount of all Late Fees that have
accumulated prior to the date of Investor’s election, plus
(ii) the product of the number of Delivery Shares deliverable to
Investor on such date if it were to exercise this Warrant with
respect to the remaining number of Exercise Shares as of such date
multiplied by the Closing Trade Price of the Common Stock on the
Delivery Date (the “
Cash
Settlement Amount
”). At such time as Investor makes an
election to require Company to pay to it the Cash Settlement
Amount, such obligation of Company shall be a valid and binding
obligation of Company and shall for all purposes be deemed to be a
debt obligation of Company owed to Investor as of the date it makes
such election. Upon Company’s payment of the Cash Settlement
Amount to Investor, this Warrant shall be deemed to have been
satisfied. In addition, and for the avoidance of doubt, even if
Company could not deliver the number of Delivery Shares deliverable
to Investor if it were to exercise this Warrant with respect to the
remaining number of Exercise Shares on the date of repayment due to
the provisions of Section
0
, the
provisions of Section
0
will not apply
with respect to Company’s payment of the Cash Settlement
Amount.
Investor shall be
deemed to be the holder of the Delivery Shares (not including any
Ownership Limitation Shares (as defined below)) issuable to it in
accordance with the provisions of this Section 2.1 on the Exercise
Date.
Ownership Limitation
.
Notwithstanding anything to the contrary contained in this Warrant
or the other Transaction Documents, if at any time Investor shall
or would be issued shares of Common Stock, but such issuance would
cause Investor (together with its affiliates) to own a number of
shares exceeding 4.99% of the number of shares of Common Stock
outstanding on such date (the “
Maximum Percentage
”), Company must
not issue to Investor shares of Common Stock which would exceed the
Maximum Percentage. The shares of Common Stock issuable to Investor
that would cause the Maximum Percentage to be exceeded are referred
to herein as the “
Ownership
Limitation
Shares
”. In such event, Company
shall reserve the Ownership Limitation Shares for the exclusive
benefit of Investor. From time to time, Investor may notify Company
in writing of the number of the Ownership Limitation Shares that
may be issued to Investor without causing Investor to exceed the
Maximum Percentage. Upon receipt of such notice, Company shall be
unconditionally obligated to immediately issue such designated
shares to Investor, with a corresponding reduction in the number of
the Ownership Limitation Shares. Notwithstanding the foregoing, 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 change
to “9.99%” shall be permanent. By written notice to
Company, Investor 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 Investor. In the
event the Maximum Percentage is increased to 9.99% and Investor
becomes more than a 4.99% owner at any time, the Investor shall be
solely responsible for abiding by Section 16 and Schedule 13D or
13G filing requirements with the SEC, as applicable.
3.
Mutilation or Loss of Warrant
.
Upon receipt by Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) receipt of reasonably satisfactory
indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, Company will execute and deliver to
Investor a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become
void.
4.
Rights of Investor
. Investor
shall not, by virtue of this Warrant alone, be entitled to any
rights of a stockholder in Company, either at law or in equity, and
the rights of Investor with respect to or arising under this
Warrant are limited to those expressed in this Warrant and are not
enforceable against Company except to the extent set forth
herein.
5.
Protection Against Dilution and Other
Adjustments
.
Capital Adjustments
. If Company
shall at any time prior to the expiration of this Warrant subdivide
the Common Stock, by split-up or stock split, or otherwise, or
combine its Common Stock, or issue additional shares of its Common
Stock as a dividend, the number of Warrant Shares issuable upon the
exercise of this Warrant shall forthwith be automatically increased
proportionately in the case of a subdivision, split or stock
dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the
Exercise Price and other applicable amounts, but the aggregate
purchase price payable for the total number of Warrant Shares
purchasable under this Warrant (as adjusted) shall remain the same.
Any adjustment under this Section 5.1 shall become effective
automatically at the close of business on the date the subdivision
or combination becomes effective, or as of the record date of such
dividend, or in the event that no record date is fixed, upon the
making of such dividend.
Reclassification, Reorganization and
Consolidation
. In case of any reclassification, capital
reorganization, or change in the capital stock of Company (other
than as a result of a subdivision, combination, or stock dividend
provided for in Section 5.1 above), then Company shall make
appropriate provision so that Investor shall have the right at any
time prior to the expiration of this Warrant to purchase, at a
total price equal to that payable upon the exercise of this
Warrant, the kind and amount of shares of stock and other
securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same
number of shares of Common Stock as were purchasable by Investor
immediately prior to such reclassification, reorganization, or
change. In any such case appropriate provisions shall be made with
respect to the rights and interest of Investor so that the
provisions hereof shall thereafter be applicable with respect to
any shares of stock or other securities and property deliverable
upon exercise hereof, and appropriate adjustments shall be made to
the purchase price per Warrant Share payable hereunder, provided
the aggregate purchase price shall remain the same.
Subsequent Equity Sales
. If
Company or any subsidiary thereof, as applicable, at any time and
from time to time while this Warrant is outstanding, shall sell or
grant any option to purchase, or sell or grant any right to
reprice, or otherwise dispose of, sell or issue (or announce any
offer, sale, grant or any option to purchase or other disposition
of) any Common Stock (including any Deemed Issuance), debt,
warrants, options, preferred shares or other instruments or
securities which are convertible into or exercisable for shares of
Common Stock (together herein referred to as “
Equity Securities
”), at an
effective price per share less than the Exercise Price (such lower
price, the “
Base Share
Price
”, and any such issuance, a “
Dilutive Issuance
”) (if the holder
of the Common Stock or 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 issuance, be entitled to receive
shares of Common Stock at an effective price per share that is less
than the Exercise Price, such issuance shall be deemed to have
occurred for less than the Exercise Price on such date of the
Dilutive Issuance), then (a) the Exercise Price shall be reduced
and only reduced to equal the Base Share Price, and (b) the number
of Warrant Shares issuable upon the exercise of this Warrant shall
be increased to an amount equal to the number of Warrant Shares
Investor could purchase hereunder for an aggregate Exercise Price,
as reduced pursuant to subsection (a) above, equal to the aggregate
Exercise Price payable immediately prior to such reduction in
Exercise Price, provided that the increase in the number of
Exercise Shares issuable under this Warrant made pursuant to this
Section
0
shall not at any time exceed
a number equal to five (5) times the number of Exercise Shares
issuable under this Warrant as of the Issue Date (for the avoidance
of doubt, the foregoing cap on the number of Exercise Shares
issuable hereunder shall only apply to adjustments made pursuant to
this Section
0
and shall not apply to
adjustments made pursuant to Sections
0
,
0
or any other
section of this Warrant). Such adjustments shall be made whenever
such Common Stock or Equity Securities are issued. Company shall
notify Investor, in writing, no later than the Trading Day
following the issuance of any Common Stock or Equity Securities
subject to this Section 5.3, indicating therein the applicable
issuance price, or applicable reset price, exchange price,
conversion price, or other pricing terms (such notice, the
“
Dilutive
Issuance Notice
”). Dilutive
Issuance Notices shall be in the form set forth in Section
6
below. For purposes of clarification,
whether or not Company provides a Dilutive Issuance Notice pursuant
to this Section 5.3, upon the occurrence of any Dilutive Issuance,
after the date of such Dilutive Issuance, Investor is entitled to
receive the increased number of Warrant Shares provided for in
subsection (b) above at an Exercise Price equal to the Base Share
Price regardless of whether Investor accurately refers to the Base
Share Price in the Notice of Exercise. Additionally, following the
occurrence of a Dilutive Issuance, all references in this Warrant
to “Warrant Shares” shall be a reference to the Warrant
Shares as increased pursuant to subsection (b) above, and all
references in this Warrant to “Exercise Price” shall be
a reference to the Exercise Price as reduced pursuant to subsection
(a) above, as the same may occur from time to time
hereunder.
Exceptions to Adjustment
.
Notwithstanding the provisions of Section
0
, no adjustment to the Exercise Price shall
be effected as a result of an Excepted Issuance.
6.
Certificate as to Adjustments
.
In each case of any adjustment or readjustment in the number or
kind of shares issuable on the exercise of this Warrant, or in the
Exercise Price, pursuant to the terms hereof, Company at its
expense will promptly cause its Chief Financial Officer or other
appropriate designee to compute such adjustment or readjustment in
accordance with the terms of this Warrant and prepare a certificate
setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or
receivable by Company for any additional shares of Common Stock
issued or sold or deemed to have been issued or sold, (b) the
number of shares of Common Stock outstanding or deemed to be
outstanding, and (c) the Exercise Price and the number of shares of
Common Stock to be received upon exercise of this Warrant, in
effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. Nothing in this
Section 6 shall be deemed to limit any other provision contained
herein.
7.
Transfer to Comply with the Securities
Act
. This Warrant and the Warrant Shares have not been
registered under the Securities Act of 1933, as amended (the
“
1933 Act
”).
Neither this Warrant nor the Warrant Shares may be sold,
transferred, pledged or hypothecated without (a) an effective
registration statement under the 1933 Act relating to such security
or (b) an opinion of counsel reasonably satisfactory to Company
that registration is not required under the 1933 Act;
provided, however
, that the foregoing
restrictions on transfer shall not apply to the transfer of the
Warrant to an affiliate of Investor. Until such time as
registration has occurred under the 1933 Act, each certificate for
this Warrant and any Warrant Shares shall contain a legend, in form
and substance satisfactory to counsel for Company, setting forth
the restrictions on transfer contained in this Section
7
;
provided,
however
, that Company acknowledges and agrees that any such
legend shall be removed from all certificates for DTC Eligible
Common Stock delivered hereunder as such Common Stock is cleared
and converted into electronic shares by the DTC, and nothing
contained herein shall be interpreted to the contrary. Upon receipt
of a duly executed assignment of this Warrant, Company shall
register the transferee thereon as the new holder on the books and
records of Company and such transferee shall be deemed a
“registered holder” or “registered assign”
for all purposes hereunder, and shall have all the rights of
Investor under this Warrant. Until this Warrant is transferred on
the books of Company, Company may treat Investor as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary.
8.
Notices
. Any notice required or
permitted hereunder shall be given in the manner provided in the
subsection titled “Notices” in the Purchase Agreement,
the terms of which are incorporated herein by
reference.
9.
Supplements and Amendments; Whole
Agreement
. This Warrant may be amended or supplemented only
by an instrument in writing signed by the parties hereto. This
Warrant, together with the Purchase Agreement, contains the full
understanding of the parties hereto with respect to the subject
matter hereof and thereof and there are no representations,
warranties, agreements or understandings with respect to the
subject matter hereof and thereof other than as expressly contained
herein and therein.
10.
Purchase Agreement; Arbitration of
Disputes; Calculation Disputes
. This Warrant is subject to
the terms, conditions and general provisions of the Purchase
Agreement, including without limitation the Arbitration Provisions
(as defined in the Purchase Agreement) set forth as an exhibit to
the Purchase Agreement. In addition, notwithstanding the
Arbitration Provisions, i
n the case of
a dispute as to any Calculation (as defined in the
Purchase
Agreement), such dispute will be resolved in the manner set forth
in the Purchase Agreement.
11.
Governing Law; Venue
. This
Warrant shall be construed and enforced in accordance with, and all
questions concerning the construction, validity, interpretation and
performance of this Warrant 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 jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Utah. The
provisions set forth in the Purchase Agreement to determine the
proper venue for any disputes are incorporated herein by this
reference.
12.
Waiver of Jury
Trial
. COMPANY 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 WARRANT 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, COMPANY ACKNOWLEDGES THAT IT IS
KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY
JURY.
13.
Remedies
. The remedies at law
of Investor under this Warrant in the event of any default or
threatened default by Company in the performance of or compliance
with any of the terms of this Warrant are not and will not be
adequate and, without limiting any other remedies available to
Investor in the Transaction Documents, at law or equity, to the
fullest extent permitted by law, such terms may be specifically
enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of
the terms hereof or otherwise without the obligation to post a
bond.
14.
Liquidated Damages
. Company and
Investor agree that in the event Company fails to comply with any
of the terms or provisions of this Warrant, Investor’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, Investor and
Company agree that any fees or other charges assessed under this
Warrant are not penalties but instead are intended by the parties
to be, and shall be deemed, liquidated damages (under
Investor’s expectations that any such liquidated damages will
tack back to the Issue Date for purposes of determining the holding
period under Rule 144).
15.
Counterparts
. This Warrant may
be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the
same instrument. Signatures delivered via facsimile or email shall
be considered original signatures for all purposes
hereof.
16.
Attorneys’ Fees
. In the
event of any arbitration, litigation or dispute arising from this
Warrant, 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 said prevailing party in connection with
arbitration or litigation without reduction or apportionment based
upon the individual claims or defenses giving rise to the fees
and expenses. Nothing herein shall restrict or impair an
arbitrator’s or a court’s power to award fees and
expenses for frivolous or bad faith pleading.
17.
Severability
. Whenever
possible, each provision of this Warrant shall be interpreted in
such a manner as to be effective and valid under applicable law,
but if any provision of this Warrant 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 Warrant or
the validity or enforceability of this Warrant in any other
jurisdiction.
18.
Time is of the Essence
. Time is
expressly made of the essence with respect to each and every
provision of this Warrant.
19.
Descriptive Headings
.
Descriptive headings of the sections of this Warrant are inserted
for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
[
Remainder
of page intentionally left blank; signature page
follows
]
IN
WITNESS WHEREOF, Company has caused this Warrant to be duly
executed by an officer thereunto duly authorized as of the Issue
Date.
COMPANY:
Growlife, Inc.
Printed
Name: Marco Hegyi
Title:
CEO
[
Signature
Page to Warrant
]
19
ATTACHMENT 1
DEFINITIONS
For
purposes of this Warrant, the following terms shall have the
following meanings:
“
Adjusted
Price
” means the lower of
(i) the Exercise Price (as such Exercise Price may be adjusted from
time to time pursuant to the terms of this Warrant), and (ii) the
Market Price.
“
Approved Stock
Plan
” means any stock
option plan which has been approved by the board of directors of
Company and is in effect as of the Issue Date, pursuant to which
Company’s securities may be issued to any employee, officer
or director for services provided to Company.
“
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 Investor and reasonably satisfactory to
Company).
“
Closing Bid
Price
” and
“
Closing Trade
Price
” means the last
closing bid price and last closing trade price, respectively, for
the Common Stock on its principal market, as reported by Bloomberg,
or, if its principal market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing
trade price (as the case may be) then the last bid price or last
trade price, respectively, of the Common Stock prior to
4:00:00 p.m., New York time, as reported by Bloomberg, or, if
its principal market is not the principal securities exchange or
trading market for the Common Stock, the last closing bid price or
last trade price, respectively, of the Common Stock on the
principal securities exchange or trading market where the Common
Stock is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price or last trade
price, respectively, of the Common Stock in the over-the-counter
market on the electronic bulletin board for the Common Stock as
reported by Bloomberg, or, if no closing bid price or last trade
price, respectively, is reported for the Common Stock by Bloomberg,
the average of the bid prices, or the ask prices, respectively, of
any market makers for the Common Stock as reported by OTC Markets
Group, Inc., and any successor thereto. If the Closing Bid Price or
the Closing Trade Price cannot be calculated for the Common Stock
on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Trade Price (as the case may be) of the Common
Stock on such date shall be the fair market value as mutually
determined by Investor and Company. If Investor and Company are
unable to agree upon the fair market value of the Common Stock,
then such dispute shall be resolved in accordance with the
procedures in the Purchase Agreement governing Calculations. All
such determinations shall be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar
transaction during such period.
“
Current Market
Value
” means an amount
equal to the Trade Price multiplied by the number of Exercise
Shares specified in the applicable Notice of
Exercise.
“
Deemed
Issuance
” means an
issuance of Common Stock that is deemed to have occurred on the
first day of each month following the Issue Date regardless of
whether any Common Stock was actually issued or not. The price that
such Deemed Issuance will be deemed to have occurred at is the VWAP
for the five (5) Trading Days immediately preceding the applicable
Deemed Issuance date.
“
Delivery
Shares
” means those
shares of Common Stock issuable and deliverable upon the exercise
or partial exercise, as the case may be, of this
Warrant.
“
DTC
” means the Depository Trust Company or any
successor thereto.
“
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
Investor’s brokerage firm for the benefit of
Investor.
“
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)
Company’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) Company
has been approved (without revocation) by the DTC’s
underwriting department, (c) Company’s transfer agent is
approved as an agent in the DTC/FAST Program, (d) the Delivery
Shares are otherwise eligible for delivery via DWAC; (e) Company
has previously delivered all Delivery Shares to Investor via DWAC;
and (f) Company’s transfer agent does not have a policy
prohibiting or limiting delivery of the Delivery Shares via
DWAC.
“
Excepted
Issuances
” 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 issuance pursuant to such
Approved Stock Plan are not amended, modified or changed on or
after the Issue Date.
“
Exercise
Price
” means $0.05 per
share of Common Stock, as the same may be adjusted from time to
time pursuant to the terms and conditions of this
Warrant.
“
Exercise
Shares
” means those
Warrant Shares subject to an exercise of this Warrant by Investor.
By way of illustration only and without limiting the foregoing, if
(i) this Warrant is initially exercisable for 4,180,000 Warrant
Shares and Investor has not previously exercised this Warrant, and
(ii) Investor were to make a cashless exercise with respect to
5,000 Warrant Shares pursuant to which 6,000 Delivery Shares would
be issuable to Investor, then (1) this Warrant shall be deemed to
have been exercised with respect to 5,000 Exercise Shares, (2) this
Warrant would remain exercisable for 4,175,000 Warrant Shares, and
(3) this Warrant shall be deemed to have been exercised with
respect to 6,000 Delivery Shares.
“
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 Company’s most recently filed Form 10-Q or Form
10-K.
“
Market Price
” means 70% of the VWAP for the five (5)
Trading Days immediately preceding the applicable date of
exercise.
“
Trade Price
” means the higher of: (i) the highest
Closing Trade Price of the Common Stock during the ninety (90) days
immediately preceding the Issue Date; and (ii) the VWAP of the
Common Stock for the Trading Day that is two (2) Trading Days prior
to the Exercise Date.
“
Trading Day
” means any day the New York Stock Exchange
is open for trading.
“
Transaction
Documents
” means the
Purchase Agreement, this Warrant, and all other documents,
certificates, instruments and agreements entered into or delivered
in conjunction therewith, as the same may be amended from time to
time.
“
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
NOTICE
OF EXERCISE OF WARRANT
ATTN:
VIA FAX
TO:
The
undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant to Purchase Shares of Common Stock dated
as of February 9, 2018 (the “
Warrant
”), to purchase shares of
the common stock, $0.001 par value (“
Common Stock
”), of Growlife, Inc.,
and tenders herewith payment in accordance with Section 2 of the
Warrant, as follows:
_______
CASH:
$__________________________ = (Exercise Price x Delivery
Shares)
_______
Payment is being
made by:
_______
CASHLESS
EXERCISE:
Net
number of Delivery Shares to be issued to Investor:
______*
* based
on:
Current Market Value - (Exercise Price x Exercise
Shares)
Adjusted
Price
Where:
Trade Price
[“
TP
”]
=
$____________
Exercise
Shares
=
_____________
Current Market
Value [TP x Exercise Shares]
=
$____________
Exercise
Price
=
$____________
Adjusted
Price
=
$____________
Capitalized terms
used but not otherwise defined herein shall have the meanings
ascribed to them in the Warrant.
It is
the intention of Investor to comply with the provisions of Section
2.2 of the Warrant regarding certain limits on Investor’s
right to receive shares thereunder. Investor believes this exercise
complies with the provisions of such Section 2.2. Nonetheless, to
the extent that, pursuant to the exercise effected hereby, Investor
would receive more shares of Common Stock than permitted under
Section 2.2, Company shall not be obligated and shall not issue to
Investor such excess shares until such time, if ever, that Investor
could receive such excess shares without violating, and in full
compliance with, Section 2.2 of the Warrant.
As
contemplated by the Warrant, this Notice of Exercise is being sent
by email or by facsimile to the fax number and officer indicated
above.
If this
Notice of Exercise represents the full exercise of the outstanding
balance of the Warrant, Investor will surrender (or cause to be
surrendered) the Warrant to Company at the address indicated above
by express courier within five (5) Trading Days after the Warrant
Shares to be delivered pursuant to this Notice of Exercise have
been delivered to Investor.
To the
extent the Delivery Shares are not able to be delivered to Investor
via the DWAC system, please deliver certificates representing the
Delivery Shares to Investor via reputable overnight courier after
receipt of this Notice of Exercise (by facsimile transmission or
otherwise) to:
_____________________________________
_____________________________________
_____________________________________
Dated:
_____________________
___________________________
[Name
of Investor]
By:________________________
Exhibit
B
IRREVOCABLE
LETTER OF INSTRUCTIONS TO TRANSFER AGENT
Date:
February 9, 2018
To the
transfer agent of Growlife, Inc.
Re:
Instructions to Reserve and Issue Shares
Ladies
and Gentlemen:
1.
Reference is made
to that certain Securities Purchase Agreement dated as of February
9, 2018 (the “
Purchase
Agreement
”), entered into by and between Growlife,
Inc., a Delaware corporation (“
Company
”), and St. George
Investments LLC, a Utah limited liability company, its successors
and/or assigns (“
Investor
”), pursuant to which
Company sold 48,687,862 shares of common stock, par value $0.0001
per share, of Company (the “
Common Stock
”, and such shares of
Common Stock, the “
Purchased
Shares
”) and issued a certain Warrant to Purchase
Shares of Common Stock (the “
Warrant
”, and together with the
Purchase Agreement, and all other documents entered into in
conjunction therewith, including any amendments thereto, the
“
Transaction
Documents
”). All shares of Common Stock that may be
purchased under the Warrant or that Company is otherwise required
to issue to Investor or its broker upon any exercise of the Warrant
are hereinafter referred to as the “
Warrant Shares
”. The Purchased
Shares, together with the Warrant Shares, are hereinafter referred
to as the “
Shares
”.
2.
Pursuant to the
terms of the Purchase Agreement, Company has agreed to establish a
reserve of shares of authorized but unissued Common Stock for
Investor’s sole and exclusive benefit in an amount not less
than 70,000,000 shares (the “
Share Reserve
”). Company further
agreed to add additional shares of Common Stock to the Share
Reserve in increments of 5,000,000 shares, as and when requested by
Investor, if the number of shares being held in the Share Reserve
is less than the amount calculated as follows: three (3) times the
number of Delivery Shares (as defined in the Warrant) that would be
required to be delivered to Investor in order to effect a complete
exercise of the Warrant pursuant to the terms thereof.
3.
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 any exercise of the Warrant, as
follows:
From
and after the date hereof and until all of Company’s
obligations under the Purchase Agreement are satisfied and the
Warrant is exercised in full (or otherwise expired), (a) you shall
establish a reserve of shares of authorized but unissued Common
Stock in an amount not less than the Share Reserve, (b) you shall
maintain and hold the Share Reserve for the exclusive benefit of
Investor, (c) you shall issue the shares of Common Stock held in
the Share 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 Warrant 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
Share Reserve unless and until there are no authorized shares of
Common Stock available for issuance other than those held in the
Share 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 Warrant from the
Share Reserve, (e) you shall not otherwise reduce the Share 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 Share Reserve in increments of
100,000 shares as and when requested by Company or Investor in
writing from time to time.
You shall issue the Warrant
Shares to Investor or its broker in accordance with Paragraph
0
upon exercise of all or any portion
of the Warrant, upon delivery to you of a duly executed Notice of
Exercise substantially in the form attached hereto as
Exhibit
A
(the “
Notice of
Exercise
”).
In connection with a Notice of
Exercise delivered to you pursuant to Paragraph
0
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 Notice of Exercise, 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 Securities Act of 1933, as amended
(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 Notice of Exercise
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 Notice of Exercise), via reputable
overnight courier, to the address specified in the Notice of
Exercise, 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
Notice of Exercise, as applicable. 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 Notice of Exercise, 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
.
You are
hereby authorized and instructed to immediately issue the Purchased
Shares to Investor with the restricted securities legend set forth
in Section
0
above.
Please
note that a share issuance resolution is not required for each
exercise of the Warrant and issuance of Warrant Shares since this
Letter and the Transaction 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 Warrant 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 Purchased
Shares and Warrant 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 Notice of Exercise provided by
Investor. Any Notice of Exercise 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 Purchase 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 Notice of Exercise.
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
Share 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.
Notwithstanding
anything to the contrary herein or in any previous Irrevocable
Letter of Instructions to Transfer Agent with Investor and Company,
Company hereby agrees that the Share Reserve set forth in this
Letter may, at Investor’s election, be used to satisfy any
prior obligations owed by Company to Investor or any obligations
owed by Company to Investor that may arise in the future. Company
further agrees that any prior or future share reserves established
for the benefit of Investor may also be used to satisfy
Company’s obligations under the Warrant.
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 purchase the Purchased Shares
and Warrant. Company further acknowledges that without such
representations and covenants of Company, Investor would not have
purchased the Purchased Shares or the Warrant.
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. By your signature
below, you agree to honor any injunction issued by any arbitrator
or court of competent jurisdiction that requires Company (i) to
issue shares of Common Stock to Investor, or (ii) to refrain from
issuing shares of Common Stock to any person or entity other than
Investor. You further agree to honor such injunction even if it
does not name you as a party or has not been domesticated in the
state in which your principal office is located.
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 Transaction 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 Transaction 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
Purchase Agreement) set forth as an exhibit to the Purchase
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, 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.
[
Remainder
of page intentionally left blank; signature page
follows
]
Very
truly yours,
Growlife, Inc.
By: /s/
Marco Hegyi
Name:
Marco Hegyi
Title:
CEO
ACKNOWLEDGED
AND AGREED:
INVESTOR:
St. George Investments LLC
By: Fife Trading, 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
A
Form of Notice
of Exercise
Exhibit C
GROWLIFE, INC.
SECRETARY’S CERTIFICATE
I, Mark
Scott, 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 Securities Purchase Agreement dated February 9,
2018 (the “
Purchase
Agreement
”), by and
between Company and St. George Investments LLC, a Utah limited
liability company. All capitalized terms used but not defined in
this Certificate shall have the meanings set forth in the Purchase
Agreement.
Solely
in my capacity as Secretary, I certify that
Schedule 1
attached hereto 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 Purchase
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
as of February 9, 2018.
Growlife,
Inc.
/s/
Mark Scott
Printed
Name: Mark Scott
Title:
Secretary
Schedule 1
BOARD RESOLUTIONS
[attached]
Exhibit
D
GROWLIFE, INC.
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS
________________________
Effective
February 9, 2018
________________________
APPROVAL
OF SECURITIES PURCHASE AGREEMENT
WHEREAS, the Board
of Directors (the “
Board
”) of Growlife, Inc., a
Delaware corporation (“
Company
”), has determined that it
is in the best interests of Company to seek financing in the amount
of $1,000,000.00 through the sale to St. George Investments LLC, a
Utah limited liability company (the “
Investor
”), of 48,687,862 shares
(the “
Shares
”)
of common stock, par value $0.0001 per share, of Company (the
“
Common Stock
”)
and a Warrant to Purchase Shares of Common Stock
(the “
Financing
”);
WHEREAS, the terms
of the Financing are reflected in that certain Securities Purchase
Agreement in substantially the form attached hereto as
Exhibit A
(the
“
Purchase
Agreement
”), a Warrant to Purchase Shares of Common
Stock in substantially the form attached hereto as
Exhibit B
(the
“
Warrant
”), an
Irrevocable Letter of Instructions to Transfer Agent in
substantially the form attached hereto as
Exhibit C
, a Share Issuance
Resolution substantially in the form attached hereto as
Exhibit D
(the
“
Share Issuance
Resolution
”), and all other agreements, certificates,
instruments and documents being or to be executed and delivered
under or in connection with the Financing (collectively, the
“
Financing
Documents
”); and
WHEREAS, the Board,
having received and reviewed the Financing Documents, believes that
it is in the best interests of Company and the stockholders to
approve the Financing and the Financing Documents and authorize the
officers of Company to execute such documents.
NOW,
THEREFORE, BE IT:
RESOLVED, that the
Financing 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 Financing Documents are hereby
ratified, confirmed and approved (including all exhibits, schedules
and other attachments thereto);
RESOLVED, that the
Warrant shall be duly and validly issued upon the issuance and
delivery thereof in accordance with the Purchase
Agreement;
RESOLVED, that upon
the issuance and delivery thereof in accordance with the Purchase
Agreement and the Warrant, the Shares and the Warrant Shares (as
defined in the Warrant) shall be duly and validly issued, fully
paid 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
Warrant such number of shares of Company’s common stock
required under the Purchase Agreement (the “
Share Reserve
”);
RESOLVED, that the
fixed number of shares of common stock set forth in the Share
Issuance Resolution to be reserved by the transfer agent 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 Purchase Agreement, as required from time to
time;
RESOLVED, that each
of the officers of Company be, and each of them hereby is,
authorized to instruct the transfer agent to increase the Share
Reserve, from time to time, in the incremental amount set forth in
the Share Issuance Resolution;
provided, however
, that any decrease in
the Share Reserve held by the transfer agent will require the prior
written consent of Investor;
RESOLVED, that in
the event of any conflict between these resolutions and the Share
Issuance Resolution, these resolutions shall control;
RESOLVED, that with
respect to each exercise under the Warrant, the Purchase Price (as
defined in the Purchase Agreement), the Exercise Price (as defined
in the Warrant), and Investor’s willingness to finance
Company only on the terms set forth in the Financing Documents
shall constitute fair and adequate consideration to Company for the
issuance of the applicable Warrant Shares, regardless of the
Exercise Price used to determine the number of Delivery Shares (as
defined in the Warrant) deliverable with respect to any exercise of
the Warrant;
RESOLVED, that each
of the officers of Company be, and each of them hereby is,
authorized to (i) execute and deliver in the name of and on behalf
of Company, the Purchase Agreement 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), (ii) cause Company to
issue the Shares to the Investor in accordance with the provisions
of the Purchase Agreement, (iii) conform Company’s minute
books and other records to the matters set forth in these
resolutions, and (iv) 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 directors 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
SECURITIES PURCHASE
AGREEMENT
Exhibit
D
TRANSFER AGENT
LETTER
Exhibit
E
SHARE ISSUANCE
RESOLUTION
[
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of page intentionally left blank
]
Share Issuance Resolution
Authorizing The Issuance Of New Shares Of Common Stock
In
Growlife, Inc.
___________________________
Effective
February 9, 2018
___________________________
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 (i) the purchase and sale of
48,687,862 shares (the “
Shares
”) of Company’s common
stock, $0.0001 par value per share (“
Common Stock
”) to St. George
Investments LLC, a Utah limited liability company, its successors
and/or assigns (“
Investor
”), and (ii) that certain
Warrant to Purchase Shares of Common Stock issued by Company to
Investor (the “
Warrant
”), all pursuant to that
certain Securities Purchase Agreement dated February 9, 2018, by
and between Company and Investor (the “
Purchase Agreement
”).
RESOLVED, that
Direct Transfer, LLC, as transfer agent (including any successor
transfer agent, the “
Transfer
Agent
”) of shares of Company’s Common Stock, is
authorized to rely upon a Notice of Exercise of Warrant
substantially in the form of
Exhibit A
attached hereto,
whether an original or a copy (the “
Notice of Exercise
”), 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)
“Delivery
Shares” (representing shares of Common Stock) set forth in
each Notice of Exercise 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 Warrant,
with
such shares to be issued in the name of Investor, or its
successors, transferees, or designees, free of any restricted
security legend, if applicable, as permitted by the
Warrant.
RESOLVED FURTHER,
that the Transfer Agent is hereby authorized and instructed to
immediately issue the Shares to Investor with any necessary
restricted securities legend.
RESOLVED FURTHER,
that consistent with the terms of the Purchase Agreement, the
Transfer Agent is authorized and directed to immediately create a
share reserve equal to 70,000,000 shares of Company’s Common
Stock for the benefit of Investor (the “
Share Reserve
”);
provided that
the Share Reserve may
increase in increments of 5,000,000 shares from time to time by
written instructions provided to the Transfer Agent by Company or
Investor as required by the Purchase 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 Share
Reserve held by the transfer agent;
provided, however,
that upon (i)
delivery of the Shares; and (ii) the complete exercise (or
expiration) of the Warrant, the Share 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 increasing the Share Reserve from time
to time required by the Purchase 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
February 9,
2018
Officer’s
Signature Date
Marco
Hegyi, CEO
Printed
Name and Title
EXHIBITS
ATTACHED TO SHARE ISSUANCE RESOLUTION:
Exhibit
A
Notice of
Exercise
Exhibit E
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 Warrant to Purchase Shares of Common Stock
issued by Company on February 9, 2018 (the “
Warrant
”) to St. George
Investments LLC, a Utah limited liability company
(“
Investor
”),
pursuant to that certain Securities Purchase Agreement dated
February 9, 2018 between Investor and Company (the
“
Purchase
Agreement
”), personally and 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 not made any Variable Security Issuance (as
defined in the Purchase Agreement) or issued any warrant with a
cashless exercise provision to any third party other than Investor
since the Closing (as defined in the Purchase
Agreement).
3.
He agrees to cause
Company to comply with the covenants found in Sections 3(t), (u)
and (v) of the Purchase Agreement.
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 the Warrant on the terms set forth in the Purchase
Agreement and that but for his execution and issuance of this
Officer’s Certificate, Investor would not have purchased the
Warrant from Company.
IN
WITNESS WHEREOF, the undersigned, personally and in his capacity as
an officer of Company, has executed this Officer’s
Certificate as of February 9, 2018.
/s/
Marco Hegyi
Marco
Hegyi
EXHIBIT
F
ARBITRATION PROVISIONS
1.
Dispute Resolution
. For
purposes of this
Exhibit
F
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 Transaction 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)) or any
of the other Transaction Documents. 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 F
(“
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) or any other
Transaction 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, 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 Note
(“
Default
Interest
”)) (with respect to monetary awards) at the
rate specified in the 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 6.4 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 6.4 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 6.4 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, the Purchaser
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 the
Purchaser has submitted to the Company the names of the Proposed
Arbitrators, the Company must select, by written notice to the
Purchaser, 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 the Purchaser may select the
arbitrator from the Proposed Arbitrators by providing written
notice of such selection to the Company.
(b) If
the Purchaser 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 the Purchaser 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 the Purchaser. The Purchaser
may then, within five (5) calendar days after the Company has
submitted notice of its Proposed Arbitrators to the Purchaser,
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 the Purchaser 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 the
Purchaser.
(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.
4.11
Subsequent
Arbitration
. In the event an Arbitration is commenced
between the parties and an Arbitration Award is entered and then a
subsequent dispute arises between the parties, then such subsequent
dispute shall be heard by the Arbitrator chosen to conduct the
initial Arbitration and the the subsequent Arbitration shall be
deemed a continuance of the original Arbitration.
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.
(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 the 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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