October 15, 2018

 

Mr. Marco Hegyi

5400 Carillon Point

Kirkland, WA 98033

 

RE: Employment Agreement

 

Dear Mr. Hegyi:

 

The purpose of this letter (“ Letter Agreement ”) is to memorialize the terms and conditions upon which we have agreed that you will extend your employment by GrowLife, Inc. (the “ Company ,” “ we ” or “ us ”).

 

1.   Title; Responsibilities . Commencing on October 15, 2018 (the “ Commencement Date ”), you will be employed as the Company’s Chief Executive Officer and will report to the Board of Directors (the “ Board ”) of the Company. You will report to and take direction from at least 75% of the Board. In addition, subject to this Agreement, you may be terminated by at least 75% of the Board. You agree to perform such duties and responsibilities commensurate with your position and as may be reasonably requested by the Board from time to time. Without limiting the generality of the foregoing, you will be involved in planning, developing, implementing and expanding the operations of the Company.

 

2.   Board Seat . The Company, together with the Board, hereby elects you, and vests you with the power and authority the same as all other members, as a member of the Board. You hereby agree to serve as a member of the Board effective as of the Commencement Date. We agree that the foregoing election to the Board and your role as a member of the Board is separate from your role as Chief Executive Officer of the Company. You may only be removed from the Board by a vote that equals at least 75% of the Board. This Section 2 shall survive the expiration or earlier termination of this Agreement and does not and shall not impact in any manner your Board seat.

 

3.   Term of Employment . Subject to the rights of termination by you and the Company set forth in this Letter Agreement, your employment will be extended on the Commencement Date and continue for a period of three (3) years thereafter (the “ Term ”), subject to renewal for an additional one-year period (the “ Renewal Term ”) upon approval by the Board, unless your employment has been terminated prior thereto by either you or the Company. If you desire to extend your employment for the Renewal Term, you will submit a written request for such renewal to the Board no sooner than twelve (12) months and no later than two (2) months prior to the expiration of the Term. Within thirty (30) days of receipt of such written request, the Board (in consultation with the Company’s Compensation Committee) will advise you whether such renewal has been approved.

 

 

 

 

 

 

 

 

 

 

 

 

(a)           You are convicted of or plead nolo contendere to any felony or gross misdemeanor involving fraud, dishonesty, or moral turpitude as a result of your commission of any act during the Term (or any Renewal Term), which conviction or plea prevents you from performing your duties or other obligations to the Company hereunder or has an adverse effect on the reputation or business activities of the Company.

 

 

 

 

 

 

 

(a)           If the Company terminates your employment at any time prior to the expiration of the Term (including any Renewal Term) without Cause, or if you terminate your employment at any time for “ Good Reason ” or due to a “ Disability ” (as such terms are defined below), you will be entitled to receive: (i) your base salary amount through the end of the Term (or the Renewal Term, as applicable); and (ii) your annual bonus amount for each year during the remainder of the Term (including the Renewal Term, as applicable), which bonus amount shall be equal to the greater of (A) the annual bonus amount for the immediately preceding year, or (B) the bonus amount that would have been earned for the year of termination, absent such termination; and (iii) your Hegyi Warrant 3 is fully and immediately available.

 

 

(c)           For purposes of this Letter Agreement, “ Good Reason ” means any one or more of the following:

 

(i)           a material breach by the Company of any provision of this Letter Agreement, including without limitation, the Company’s failure to pay you any salary, bonus or benefits, which breach is not cured within fifteen (15) days after receipt of written notice from you to the Board specifying the breach or, if notice and cure have previously taken place regarding the same or a substantially similar breach, if the breach recurs;

 

(ii)           a requirement by the Company that you change your primary work locations from Kirkland, Washington, without your consent to such change;

 

(iii)           the creation and continuation of a hostile work environment which continues without corrective action being taken by the Company for a period of more than fifteen (15) days following written notice by you to the Company identifying the nature and cause of such hostile work environment; or

 

(iv)           the Company, without your consent (A) changes your title or position, (B) makes any material change or reduction in your duties or responsibilities, (C) reduces your salary and/or benefits, or (D) assigns duties or responsibilities to you that are inconsistent with your position as Chief Executive Officer of the Company;

 

 

 

(a)            Termination at Time of Change in Control . If there has been a “ Change in Control ” (as defined below) and the Company (or its successor or the surviving entity) terminates your employment without Cause as part of or in connection with such Change in Control (including any such termination occurring within one (1) month prior to the effective date of such Change in Control), then in addition to the benefits set forth in Section 13(a) above, you will be entitled to the following: (i) an increase of $300,000 in your annual base salary amount (or an additional $25,000 per month) through the end of the Term (or the Renewal Term, as applicable); plus (ii) a gross-up in the annual base salary amount each year to account for and to offset any tax that may be due by you on any payments received or to be received by you under this Letter Agreement that would result in a “parachute payment” as described in Section 280G of the Internal Revenue Code of 1986, as amended (the “ Code ”); and (iii) the Hegyi Warrant 3 and additional warrants shall be fully and immediately available.

 

(b)            Termination After Change in Control . If the Company (or its successor or the surviving entity) terminates your employment without Cause within twelve (12) months after the effective date of any Change in Control, or if you terminate your employment for Good Reason within twelve (12) months after the effective date of any Change in Control, then in addition to the benefits set forth in Section 13(a), you will be entitled to the following: (i) an increase of $300,000 in your annual base salary amount (or an additional $25,000 per month), which increased annual base salary amount shall be paid for the remainder of the Term (or the Renewal Term, as applicable) or for two (2) years following the Change in Control, whichever is longer; (ii) a gross-up in the annual base salary amount each year to account for and to offset any tax that may be due by you on any payments received or to be received by you under this Letter Agreement that would result in a “parachute payment” as described in Section 280G of the Code; (iii) payment of your annual bonus amount as set forth in Section 13(a)(ii) for each year during the remainder of the Term (including the Renewal Term, as applicable) or for two (2) years following the Change in Control, whichever is longer; (iv) health insurance coverage provided for and paid by the Company for the remainder of the Term (including the Renewal Term, as applicable) or for two (2) years following the Change in Control, whichever is longer; and (v) the Hegyi Warrant 3 and additional warrants shall be fully and immediately available.

 

 

(c)            Change in Control Definition . For purposes of this Letter Agreement, “ Change in Control ” means any one of the following occurrences: (i) the Company is party to a merger or consolidation with or into another entity or group of entities (except a merger or consolidation in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold solely in respect of their interests in the Company’s capital stock immediately prior to such merger or consolidation) at least fifty percent (50%) of the voting power of the capital stock of the Company or the surviving or acquiring entity); (ii) the closing of the transfer (whether by merger, consolidation or otherwise), in one transaction or a series of related transactions, to a corporation, person or group of affiliated persons (other than either CANX USA, LLC, which is an existing affiliate of the Company, or an underwriter of the Company’s securities), of the Company’s securities if, after such closing, such person or group of affiliated persons would hold fifty percent (50%) or more of the outstanding voting stock of the Company; or (iii) a sale, lease, assignment, transfer or disposal of all or substantial majority of the assets of the Company (other than a pledge of such assets or grant of a security interest therein to a commercial lender in connection with a commercial lending or similar transaction);; provided , however, that an equity financing by the Company in which the Company issues warrants, shares of its common stock or preferred stock , shall not be considered a Change of Control.

 

 

 

 

 

 

 

 

 

 

 

 

(b)            Costs and Fees . The prevailing party (as determined by the arbitrator or other trier of fact) in any dispute resolved under Section 23(a) shall be entitled to be indemnified and held harmless by the other party thereto for all costs incurred in the arbitration or litigation, including but not limited to the cost of the record or transcripts thereof, arbitration or court fees, reasonable attorneys’ and expert witnesses’ costs and fees, and all other costs and fees incurred therein.

 

(c)            Equitable Remedies . You acknowledge that: (i) it would be difficult to calculate damages to the Company from any breach of your obligations under Sections 15 and 16 of this Letter Agreement, (ii) that injury to the Company from any such breach would be irreparable and impracticable to measure, and (iii) that the remedy at law for any breach or threatened breach of the provisions of Sections 15 and 16 of this Letter Agreement would therefore be an inadequate remedy and, accordingly, the Company shall, in addition to all other available remedies set forth herein, be entitled to specific performance, injunctive and other similar equitable remedies without posting bond or proving actual damages.

 

 

 

 

 

Please confirm your agreement with the foregoing by signing and returning to the undersigned a copy of this Letter Agreement.

 

Very truly yours,

 

GrowLife, Inc.

 

/s/Michael Fasci

By: Michael Fasci

Its: Director

 

Agreed to:

 

 

EXHIBIT “A”

WARRANT

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND, ACCORDINGLY, MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144, OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

PURSUANT TO THE TERMS OF SECTION 1 OF THIS WARRANT, ALL OR A PORTION OF THIS WARRANT MAY HAVE BEEN EXERCISED, AND THEREFORE THE ACTUAL NUMBER OF WARRANT SHARES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE AMOUNT SET FORTH ON THE FACE HEREOF.

 

GROWLIFE, INC.

 

FORM OF

Warrant To Purchase Common Stock

 

Warrant No.: _______________

Number of Shares of Common Stock per Warrant No.: 16,000,000

Date of Issuance: October 15, 2018 ( “Issuance Date” )

 

GrowLife, Inc., a Delaware corporation (the “Company” ), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Marco Hegyi, the registered holder hereof or its permitted assigns (the “Holder” ), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant” ), at any time or times on or after the date hereof (the “Exercisability Date” ), but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), October 15, 2023 fully paid nonassessable shares of Common Stock (as defined below)   (the “Warrant Shares” ). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 15 . Capitalized terms used but not otherwise defined in this Warrant shall have the meanings set forth in the Letter Agreement (as defined below). This Warrant is the Warrant to purchase Common Stock (this “Warrant” ) issued pursuant to (i) the Letter Agreement (the “Letter Agreement” ), dated as of October 15, 2018 (the “Subscription Date” ), by and among the Company and Marco Hegyi (“Hegyi”) or to a trust or other related or affiliated entity designated by Hegyi for estate planning purposes.

 

1.   EXERCISE OF WARRANT.

 

(a)   Mechanics of Exercise . Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder on any day on or after the Exercisability Date, in whole or in part (but not as to fractional shares), by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the “ Exercise Notice ”), of the Holder’s election to exercise this Warrant and (ii) if the Holder is not electing a Cashless Exercise (as defined below) pursuant to Section 1(d) of this Warrant, payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “ Aggregate Exercise Price ”) in cash or wire transfer of immediately available funds (a “ Cash Exercise ”) (the items under (i) and (ii) above, the “ Exercise Delivery Documents ”). The Holder shall not be required to surrender this Warrant in order to effect an exercise hereunder; provided, however, that in the event that this Warrant is exercised in full or for the remaining unexercised portion hereof, the Holder shall deliver this Warrant to the Company for cancellation within a reasonable time after such exercise. On or before the first Trading Day following the date on which the Company has received the Exercise Delivery Documents (the date upon which the Company has received all of the Exercise Delivery Documents, the “ Exercise Date ”), the Company shall transmit by facsimile or e-mail transmission an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company’s transfer agent for the Common Stock (the “ Transfer Agent ”). The Company shall deliver any objection to the Exercise Delivery Documents on or before the second Trading Day following the date on which the Company has received all of the Exercise Delivery Documents. On or before the second Trading Day following the date on which the Company has received all of the Exercise Delivery Documents (the “ Share Delivery Date ”), the Company shall, (X) provided that the Transfer Agent is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program (the “ FAST Program ”) and so long as the certificates therefor are not required to bear a legend regarding restriction on transferability, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, or (Y), if the Transfer Agent is not participating in the FAST Program or if the certificates are required to bear a legend regarding restriction on transferability, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Trading Days after any such submission and at its own expense, issue a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant has been and/or is exercised. The Company shall pay any and all taxes and other expenses of the Company (including overnight delivery charges) that may be payable with respect to the issuance and delivery of Warrant Shares and a replacement Warrant (if necessary) upon exercise of this Warrant; provided , however , that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an affiliate thereof. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

 

(b)   Exercise Price . For purposes of this Warrant, “Exercise Price” means $0.012, subject to adjustment as provided herein.

 

(c)   Company’s Failure to Timely Deliver Securities . If the Company shall fail for any reason or for no reason to issue to the Holder within three (3) Business Days of the Exercise Date a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant, and if on or after such Trading Day the Holder purchases, or another Person purchasers on the Holder’s behalf or for the Holder’s account (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “Buy-In” ), then the Company shall, within three (3) Business Days after the Holder’s written request and in the Holder’s discretion, either (i) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (ii) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

(d)   Cashless Exercise . Notwithstanding anything contained herein to the contrary, the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise” ):

 

Net Number = (A x B) - (A x C)

B

For purposes of the foregoing formula:

 

A= the total number of shares with respect to which this Warrant is then being exercised.

 

B= the arithmetic average of the Closing Sale Prices of the shares of Common Stock for the five (5) consecutive Trading Days ending on the date immediately preceding the date of the Exercise Notice.

 

C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

(e)   Rule 144 . For purposes of Rule 144(d) promulgated under the Securities Act of 1933, as amended, as in effect on the date hereof, assuming the Holder is not an affiliate of the Company, it is intended that the Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the Issuance Date.

 

(f)   Disputes . In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed.

 

(g)   Beneficial Ownership . Beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in the most recent of (1) the Company’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Business Days confirm to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.

 

 

(h)   No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

2.   ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES . The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

 

(a)   Adjustment upon Subdivision or Combination of Common Stock . If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Subscription Date combines (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(a) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(b)   Other Events . If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights or phantom stock rights), then the Company’s Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(b) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.

 

(c)   Voluntary Adjustment By Company . The Company may, in its sole discretion, at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

 

(d)   Calculations . All calculations under this Section 2 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 2, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

3.   RIGHTS UPON DISTRIBUTION OF ASSETS .

 

(a)   If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Weighted Average Price determined as of the record date mentioned above, and of which the numerator shall be such Weighted Average Price on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

4.   PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS .

 

(a)   Purchase Rights . In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to all of the record holders of any class of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the exercise of this Warrant and on the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

 

(b)   Fundamental Transactions . In the event of a Fundamental Transaction, the Warrants held by Holder, if not yet vested, shall vest immediately and shall be fully exercisable in accordance with the terms of this Warrant. The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing (unless the Company is the Successor Entity) all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section (4)(b) pursuant to written agreements in form and substance reasonably satisfactory to the Required Holders and approved by the Required Holders prior to such Fundamental Transaction, including agreements to deliver to each holder of the Warrants in exchange for such Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, an adjusted exercise price equal to the value for the shares of Common Stock reflected by the terms of such Fundamental Transaction, and exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and reasonably satisfactory to the Required Holders. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) issuable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of the publicly traded common stock or common shares (or its equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been converted immediately prior to such Fundamental Transaction, as adjusted in accordance with the provisions of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “ Corporate Event ”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the Corporate Event but prior to the Expiration Date, in lieu of shares of Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of this Warrant prior to such Corporate Event, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Corporate Event had this Warrant been exercised immediately prior to such Corporate Event. Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Required Holders. The provisions of this Section 4(b) shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied without regard to any limitations on the exercise of this Warrant.

 

(c)   Applicability to Successive Transactions . The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied without regard to any limitations on the exercise of this Warrant.

 

5.   NONCIRCUMVENTION . The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith comply with all the provisions of this Warrant and take all actions consistent with effectuating the purposes of this Warrant. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as this Warrant is outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of this Warrant, 100% of the number of shares of Common Stock issuable upon exercise of this Warrant then outstanding (without regard to any limitations on exercise).

 

6.   WARRANT HOLDER NOT DEEMED A STOCKHOLDER . Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

 

7.   REISSUANCE OF WARRANTS .

 

(a)   Transfer of Warrant . If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company and deliver the completed and executed Assignment Form, in the form attached hereto as Exhibit B , whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less then the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

 

(b)   Lost, Stolen or Mutilated Warrant . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

 

(c)   Exchangeable for Multiple Warrants . This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.

 

(d)   Issuance of New Warrants . Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

 

8.   NOTICES . Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance the employment agreement between the Company and Marco Hegyi dated October 15, 2018.

 

9.   AMENDMENT AND WAIVER . Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Required Holders. Any such amendment shall apply to all Warrants and be binding upon all registered holders of such Warrants.

 

10.   GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL . This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of Washington, without reference to the choice of law provisions thereof. The Company and, by accepting this Warrant, the Holder, each irrevocably submits to the exclusive jurisdiction of the United States District Court sitting in the state of Washington for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Holder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Warrant, the Holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE HOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

11.   CONSTRUCTION; HEADINGS . This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

 

12.   DISPUTE RESOLUTION . In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder, which approval shall not be unreasonably withheld, or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten Business Days from the time it receives the disputed determinations or calculations. The prevailing party in any dispute resolved pursuant to this Section 12 shall be entitled to the full amount of all reasonable expenses, including all costs and fees paid or incurred in good faith, in relation to the resolution of such dispute. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

13.   REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF . The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant.

 

14.   TRANSFER . Subject to applicable laws, this Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company

 

15.   CERTAIN DEFINITIONS . For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)   “Bloomberg” means Bloomberg, L.P.

 

 

(b)   “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(c)   “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the 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 the last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security 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 such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

(d)   “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.0001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

(e)   “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., The NYSE MKT, The NASDAQ Global Market, The NASDAQ Global Select Market, or The NASDAQ Capital Market.

 

(f)   “Expiration Date” means the fifth anniversary of the Exercisability Date or, if such date falls on a day other than a Trading Day or on which trading does not take place on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded (a “ Holiday ”), the next date that is not a Holiday.

 

(g)   “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person (but excluding a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company), or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or reclassify its Common Stock, or (vi) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.

 

(h)     “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Common Stock Equivalents.

 

(i)   “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(j)   “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

(k)   “Principal Market” means The OTC Market.

 

(l)   “Required Holders” means, as of any date, the holders of at least a majority of the Warrants outstanding as of such date.

 

(m)   “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

 

(n)   “Trading Day” means any day on which shares of Common Stock are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock are then traded; provided that “Trading Day” shall not include any day on which the Common Stock are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

 

(o)   “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets LLC. If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 12 with the term “Weighted Average Price” being substituted for the term “Exercise Price.” All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

[Signature Page Follows]

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

 

 

 

 

By: /s/ Michael Fasci

 

 

  EXHIBIT A

 

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

GROWLIFE, INC.

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ( “Warrant Shares” ) of GrowLife, Inc., a Delaware corporation (the “Company” ), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant” ). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1. Form of Exercise Price . The Holder intends that payment of the Exercise Price shall be made as:

 

 

 

2. Payment of Exercise Price . In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

 

3. Delivery of Warrant Shares . The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant and, after delivery of such Warrant Shares, _____________ Warrant Shares remain subject to the Warrant.

 

 

Date: _______________ __, ______	Name of Registered Holder     By:            Name:Title:
	Address:                                                            Tax I.D.#

 

 

  EXHIBIT B

 

ASSIGNMENT FORM

 

GROWLIFE, INC.

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:
	(Please Print)
Address:
	(Please Print)
Dated: _______________ __, ______
Holder’s Signature:
Holder’s Address:

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

Exhibit 5.2

EXECUTIVE EMPLOYMENT AGREEMENT

 

 

This Employment Agreement (" Agreement ") is effective on October 15, 2018 (the “ Effective Date ”) between GROWLIFE, Inc. , a Delaware corporation (" Company”) and MARK E. SCOTT (" Executive "). The Company and Executive are sometimes referred to herein individually as a “Party” and collectively as the “Parties.

 

WITNESSETH:

 

WHEREAS, the Company and Executive entered into any prior Agreement with the Company (“ Prior Agreement ”);

 

WHEREAS, the Parties hereby revoke, repeal, and replace the Prior Agreement in its entirety with this Agreement, which the Parties intend to supersede all agreements between the Parties entered into prior to the Effective Date; and

 

WHEREAS , the Company desires that Executive be employed by the Company, and render services to the Company, and Executive is willing to be so employed and to render such services to the Company, all upon the terms and subject to the conditions contained herein in consideration for, among other things, the Company’s agreement to provide Executive with Confidential Information pursuant to the terms of this agreement, and Executive’s receipt of Confidential Information pursuant to a relationship of trust and confidence and under conditions of confidentiality and non-use and non-disclosure.

 

AGREEMENT:

 

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

 

1.   EMPLOYMENT .  Subject to and upon the terms and conditions contained in this agreement, the Company hereby agrees to employ Executive and Executive agrees to be employed by the Company, for the period set forth in paragraph 2 hereof, to render to the Company, its affiliates and/or subsidiaries the services described in paragraph 3 hereof.

 

2.   TERM .  Executive’s employment under this Agreement shall commence as of the Effective Date hereof and shall continue for a period of three (3) years unless earlier terminated as set forth herein (the “ Employment Term ”).

 

3.   DUTIES .

 

(a)   Executive shall serve as the Chief Financial Officer (“ CFO ”) of the Company, reporting directly to the Chief Executive Officer of the Company (“ CEO ”).  Executive shall be responsible for the management and running of the day-to-day financial operations and merger and acquisition activities of the Company. Executive agrees to devote Executive’s full-time business time, attention, skills, and best efforts to the performance of the duties.

 

(b)   Executive shall perform all duties incident to the positions held by him. The Company retains the right, by decision of the CEO, to change Executive's title and duties, as may be determined to be in the best interests of the Company; provided, however, that any such change in Executive's duties shall be consistent with Executive's training, experience, and qualifications.

 

(c)   Executive agrees to abide by all bylaws and policies of the Company, promulgated from time to time by the Company, as well as all state and federal laws, statutes and regulations.

 

4.   BEST EFFORTS .   Executive agrees to devote his best efforts and attention in a timely manner, as well as his energies and skill, to the performance of the duties and the discharge of the duties and responsibilities attributable to his position.

 

5.   COMPENSATION . The Company will pay Executive the following compensation for his services under this Agreement:

 

(a)   Base Salary . For the duration of the Employment Term and as compensation for his services and covenants hereunder, in this position, you will earn a base salary of $165,000 on an annualized basis. Your compensation will be payable pursuant to the Company’s regular payroll schedule and policy. Each subsequent year, the Executive’s performance will be reviewed.

 

 

(b)   Equity Compensation . Any previously vested stock options, shares, or other equity compensation earned by Executive to date remains outstanding and unaffected by this Agreement. The Company grants to you an option to purchase twenty million (20,000,000) shares of the Company’s Common Stock (“Shares”) under the Company’s 2018 Stock Incentive Plan (“SIP”), with an exercise price per share of $0.012, and subject to the terms and conditions of the SIP. While engaged or employed, the Shares will vest in the following manner:

 

                      The Shares will vest quarterly over three years. All options will have a five-year life and cashless exercise, provided that you do not cease to be an employee of the Company prior to such date. The stock option grant shall be subject to the terms and conditions of the Company’s SIP, including vesting requirements. No right to any stock is earned or accrued until such time that these Shares have vested, nor does the grant confer any right to continue vesting or employment.

 

          In addition, notwithstanding the foregoing, in the event that your continuous status as an employee of the Company is terminated by the Company without Cause (as defined below) or you terminate your employment with the Company for Good Reason (as defined below), in either case upon or within twelve (12) months after a Change in Control (“CoC”) as defined in the Company’s Stock Plan then, subject to your execution of a standard release of claims in favor of the Company or its successor, 100% of the total number of Shares shall immediately become vested.

 

(c)   Issuance of Shares . Upon receipt of written notice from Executive, the Company shall issue to Executive the Equity Compensation to which the Executive is entitled to in accordance with the schedule above.

 

(d) Accrual of Shares . In the event Executive does not request in writing that the Equity Compensation be issued during the period in which it is earned, the un-issued shares shall accrue and the Executive may request the shares to be issued at any time.

 

(e)     Incentive Compensation . Upon employment you may be eligible to earn an annual incentive bonus equal to 2% percentage of the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) pro rated for the period that you are employed. 

 

6.   EXPENSES .   

 

(a)   Reimbursement . Executive shall be reimbursed for all business expenses incurred by him in connection with the performance of the duties under this agreement.  The reimbursement of any such expense that is includible in gross income for federal income tax purposes shall be paid no later than the end of the calendar month following the calendar month in which the expense was incurred.

 

7.   EXECUTIVE BENEFITS .

 

  (a)   Benefits . During the Employment Term, Executive shall be entitled to participate in such group term insurance, disability insurance, health and medical insurance benefits, life insurance and retirement plans or programs as are from time to time generally made available to executive employees of the Company pursuant to the policies of the Company; provided that Executive shall be required to comply with the conditions attendant to coverage by such plans and shall comply with and be entitled to benefits only to the extent former employees are eligible to participate in such arrangements pursuant to the terms of the arrangement, any insurance policy associated therewith and applicable law, and, further, shall be entitled to benefits only in accordance with the terms and conditions of such plans. The Company may withhold from any benefits payable to Executive all federal, state, local and other taxes and amounts as shall be permitted or required to be withheld pursuant to any applicable law, rule or regulation. As an officer of the Company, the Company will pay for term life insurance with a value of $2 million and pay for up to $1,000,000 in errors and omission insurance, if less than $2 million ($2,000,000) in Director & Officer insurance is not provided while employed.

 

  (b)   Vacation. Executive shall be entitled to 4 weeks paid vacation in accordance with the Company’s policies, as may be established from time to time by the Company for its executive staff, which shall be taken at such time or times as shall be mutually agreed upon by the Parties. Vacation time shall not accrue if unused after the fiscal year.

 

8.   DEATH AND DISABILITY .

 

(a)   Death . The Employment Term shall terminate on the date of Executive’s death, in which event the Company shall, within 30 days of the date of death, pay to his estate, Executive’s Base Salary, any unpaid  bonus awards (including any bonus award for a plan year that has ended prior to the time employment terminated where the award was scheduled to be paid after the date employment terminated), reimbursable expenses and benefits owing to Executive through the date of Executive’s death together with any benefits payable under any life insurance program in which Executive is a participant.  

 

(b)   Disability . The Employment Term shall terminate upon Executive’s Disability. For purposes of this Agreement, “Disability” shall mean that Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.  For purposes of determining Executive’s Disability, the CEO may rely on a determination by the Social Security Administration that Executive is totally disabled or a determination by the Company’s disability insurance carrier that Executive has satisfied the above definition of Disability.  In case of such termination, Executive shall be entitled to receive his Base Salary, any unpaid bonus awards (including any bonus award for a plan year that has ended prior to the time employment terminated where the award was scheduled to be paid after the date employment terminated), reimbursable expenses and benefits owing to Executive through the date of termination within 30 days of the date of the Company’s determination of Executive’s Disability, together with any benefits payable under any disability insurance program in which Executive is a participant.  Except as otherwise contemplated by this Agreement, Executive will not be entitled to any other compensation upon termination of his employment pursuant to this subparagraph 8(b).

 

 

9.   TERMINATION OF EMPLOYMENT .

 

(a)   Termination With Cause By Company . The Company may terminate this agreement at any time during the Employment Period for “Cause” upon written notice to Executive, upon which termination shall be effective immediately. For purposes of this agreement, “Cause” means any of the following:

i.   Conviction of felony, theft or embezzlement from the Company;

 

ii.   You have engaged in fraud, embezzlement, theft, or willful deception, or have engaged in other dishonest acts during the Term, which are detrimental to the business of the Company;

 

iii.   You have breached the non-solicitation or non-competition covenants of this agreement, have willfully engaged in the diversion of any corporate opportunity or other similar, serious conflict of interest or self-dealing inuring to your benefit and to the Company's detriment;

 

iv.   You have excessively used alcohol or have used illegal drugs, which substantially and materially interferes with the performance of your duties under this agreement after receipt of written notice from the Company demanding substantial performance, setting forth the nature of the failure, and your failure to remedy within a reasonable time thereafter, not to exceed thirty (30) days;

 

v.   You have violated state, federal or local laws and ordinances requiring equal employment opportunity and prohibiting discrimination and harassment based on race, creed, color, national origin, sex, honorably discharged veteran or military status, sexual orientation, or the presence of any sensory, mental, or physical disability, or any other category protected by law.

 

(b)   Termination Without Cause By Company . The Company’s current CEO, Marco Hegyi, may terminate this Agreement at any time during the Employment Period without “Cause” upon thirty (30) days written notice to Executive. In the event Marco Hegyi is no longer CEO of the Company, this Agreement may not be terminated at any time during the Employment Period without “Cause.”

 

(c)   Termination By Executive . Executive may terminate this Agreement at any time by providing the Company thirty (30) days’ written notice, with or without “Good Reason,” which means any one or more of the following:

 

i.   a material breach by the Company of any provision of this Agreement, including without limitation, the Company’s failure to pay Executive any Base salary, Equity Compensation, Incentive Compensation, or benefits, which breach is not cured within fifteen (15) days after receipt of written notice from you to the CEO specifying the breach or, if notice and cure have previously taken place regarding the same or a substantially similar breach, if the breach recurs;

 

ii.   a requirement by the Company that you change your primary work locations from Kirkland, Washington, without your consent to such change;

 

iii.   the creation and continuation of a hostile work environment which continues without corrective action being taken by the Company for a period of more than fifteen (15) days following written notice by you to the Company identifying the nature and cause of such hostile work environment; or

 

iv.   the Company, without your consent (A) changes your title or position, (B) makes any material change or reduction in your duties or responsibilities, (C) reduces your salary and/or benefits, or (D) assigns duties or responsibilities to you that are inconsistent with your position as CFO of the Company.

 

(d)   Compensation upon Termination . In the event that the Company terminates the Executive’s employment hereunder due to a Termination “for cause,” the Executive shall be entitled to any Base Salary, unpaid bonus, reimbursable expenses and benefits owing to Executive then all of the Company’s obligations hereunder shall cease immediately, and you will not be entitled to any further compensation beyond any pro-rated base salary due and bonus amounts earned through the effective date of termination. Except as otherwise contemplated by this agreement, Executive will not be entitled to any other compensation upon termination “for cause” of this agreement.  If Executive is terminated “without cause” or if this agreement is terminated by Executive, Executive is entitled any Base Salary, unpaid bonus, reimbursable expenses and benefits owing to Executive through the day on which Executive is terminated plus 90 days. (“ Full Compensation ”) shall mean all total executive compensation accruable under this Agreement, which shall include payment of all accruable Base Salary, Equity Compensation and Performance Bonuses that is payable to Executive under this agreement as if earned in full.

 

 

10.   DISCLOSURE OF TRADE SECRETS AND OTHER PROPRIETARY INFORMATION .

 

(a)   Executive acknowledges that he is prohibited from disclosing any confidential information about the Company, including but not limited trade secrets, formulas, and financial information, to any party who is not a director, officer or authorized agent of the Company or its subsidiaries and affiliates.  The Company will provide Executive with valuable confidential information belonging to the Company or its subsidiaries or its affiliates above and beyond any confidential information previously received by Executive and will associate Executive with the goodwill of the Company or its subsidiaries or its affiliates above and beyond any prior association of Executive with that goodwill.  In return, Executive promises never to disclose or misuse such confidential information and never to misuse such goodwill.  

 

(b)   Executive will not, during the Employment Term, directly or indirectly, as an Executive, employer, agent, manager or engage in or participate in any other business that is directly competitive with the Company’s business without written consent from the Board of Directors.

 

(c)   Executive will not, during the Employment Term and for a period of twelve (12) months thereafter, directly or indirectly, work in the United States as an employee, employer, consultant, agent, manager, officer, or in any other individual or representative capacity for any person or entity that is competitive with the business of the Company.  

 

(d)   Executive will not, during the Employment Term and for a period of twelve (12) months thereafter, on his behalf or on behalf of any other business enterprise, directly or indirectly, under any circumstance other than at the direction and for the benefit of the Company, (i) solicit for employment or hire any person employed by the Company or any of its subsidiaries, or (ii) call on, solicit, or take away any person or entity who was a customer of the Company or any of its subsidiaries or affiliates during Executive’s employment with the Company, in either case for a business that is competitive with the business of the Company.

 

(g) If Executive breaches any provision of Section 10 of this Agreement, the Company shall provide Notice to Executive, in accordance with Section 13, herein, and shall provide Executive with 60 days to cure (the “Cure Period”) any breach before proceeding with any and all remedies available at law or in equity.

 

(f) It is expressly agreed by Executive that the nature and scope of each of the provisions set forth above are reasonable and necessary. If, for any reason, any aspect of the above provisions as it applies to Executive is determined by a court of competent jurisdiction to be unreasonable or unenforceable under applicable law, the provisions shall be modified to the extent required to make the provisions enforceable.  Executive acknowledges and agrees that his services are of unique character and expressly grants to the Company or any subsidiary or affiliate of the Company or any successor of any of them, the right to enforce the above provisions through the use of all remedies available at law or in equity, including, but not limited to, injunctive relief.

 

11.   COMPANY PROPERTY .

 

(a)   Any patents, inventions, discoveries, applications, processes, models or financial statements designed, devised, planned, applied, created, discovered or invented by Executive during the Employment Term, regardless of when reduced to writing or practice, which pertain to any aspect of the Company’s or its subsidiaries’ or affiliates’ business as described above shall be the sole and absolute property of the Company, and Executive shall promptly report the same to the Company and promptly execute any and all documents that may from time to time reasonably be requested by the Company to assure the Company the full and complete ownership thereof.

 

(b)   All records, files, lists, including computer generated lists, drawings, documents, equipment and similar items relating to the Company’s business which Executive shall prepare or receive from the Company shall remain the Company’s sole and exclusive property. Upon termination of this Agreement, Executive shall promptly return to the Company all property of the Company in his possession. Executive further represents that he will not copy or cause to be copied, print out or cause to be printed out any software, documents or other materials originating with or belonging to the Company. Executive additionally represents that, upon termination of his employment with the Company, he will not retain in his possession any such software, documents or other materials.

  

12.   CONSENT TO JURISDICTION AND VENUE .   The Executive hereby consents and agrees that federal and state courts located in King County, Washington shall have personal jurisdiction and proper venue with respect to any dispute between the Executive and the Company. In any dispute with the Company, the Executive will not raise, and hereby expressly waives, any objection or defense to any such jurisdiction as an inconvenient forum.

 

13.   NOTICE .   Except as otherwise expressly provided, any notice, request, demand or other communication permitted or required to be given under this Agreement shall be in writing, shall be deemed conclusively to have been given: (a) on the first business day following the day timely deposited with Federal Express (or other equivalent national overnight courier) or United States Express Mail, with the cost of delivery prepaid or for the account of the sender; (b) on the fifth business day following the day duly sent by certified or registered United States mail, postage prepaid and return receipt requested; or (c) when otherwise actually received by the addressee on a business day (or on the next business day if received after the close of normal business hours or on any non-business day).

 

 

14.   INTERPRETATION; HEADINGS .   The parties acknowledge and agree that the terms and provisions of this Agreement have been negotiated, shall be construed fairly as to all parties hereto, and shall not be construed in favor of or against any party. The paragraph headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

15.   SUCCESSORS AND ASSIGNS; ASSIGNMENT; INTENDED BENEFICIARIES .    Executive’s rights, powers, duties or obligations hereunder may be assigned by Executive in Executive’s sole discretion. This Agreement shall be binding upon and inure to the benefit of Executive and his heirs and legal representatives and the Company and its successors. Successors of the Company shall include, without limitation, any corporation or corporations acquiring, directly or indirectly, all or substantially all of the assets of the Company, whether by merger, consolidation, purchase, lease or otherwise, and such successor shall thereafter be deemed “the Company” for the purpose hereof.

 

16.   NO WAIVER BY ACTION .   Any waiver or consent from the Company respecting any term or provision of this Agreement or any other aspect of the Executive’s conduct or employment shall be effective only in the specific instance and for the specific purpose for which given and shall not be deemed, regardless of frequency given, to be a further or continuing waiver or consent. The failure or delay of the Company at any time or times to require performance of, or to exercise any of its powers, rights or remedies with respect to, any term or provision of this Agreement or any other aspect of the Executive’s conduct or employment in no manner (except as otherwise expressly provided herein) shall affect the Company’s right at a later time to enforce any such term or provision.

 

17.   COUNTERPARTS; GOVERNING LAW; AMENDMENTS; ENTIRE AGREEMENT; SURVIVAL OF TERMS .   This Agreement may be executed in two counterpart copies, each of which may be executed by one of the parties hereto, but all of which, when taken together, shall constitute a single agreement binding upon all of the parties hereto. This Agreement and all other aspects of the Executive’s employment shall be governed by and construed in accordance with the applicable laws pertaining in the State of Washington (other than those that would defer to the substantive laws of another jurisdiction). Each and every modification and amendment of this Agreement shall be in writing and signed by the parties hereto, and any waiver of, or consent to any departure from, any term or provision of this Agreement shall be in writing and signed by each affected party hereto.  

 

18.   ENTIRE AGREEMENT .   The entire understanding and agreement between the Parties has been incorporated into this Agreement, and this Agreement supersedes all other agreements and understandings between Executive and the Company with respect to the relationship of Executive with the Company or its affiliates or subsidiaries.

 

 

 

[Signature page follows.]

 

 

IN WITNESS WHEREOF , the Parties hereto have executed this Agreement as of the date set forth above.

 

 

(“COMPANY”)			(“EXECUTIVE”)
GROWLIFE, INC.
/s/ Marco Hegyi			/s/  Mark E. Scott
By: Marco Hegyi			By: Mark E. Scott
Its: Chief Executive Officer

 

 

 

Exhibit 5.3

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This Employment Agreement (" Agreement ") is effective on October 15, 2018 (the “ Effective Date ”) between GROWLIFE, Inc. , a Delaware corporation (" Company”) and JOSEPH BARNES (" Executive "). The Company and Executive are sometimes referred to herein individually as a “Party” and collectively as the “Parties.

 

WITNESSETH:

 

WHEREAS, the Company and Executive entered into any prior Agreement with the Company (“ Prior Agreement ”);

 

WHEREAS, the Parties hereby revoke, repeal, and replace the Prior Agreement in its entirety with this Agreement, which the Parties intend to supersede all agreements between the Parties entered into prior to the Effective Date; and

 

WHEREAS , the Company desires that Executive be employed by the Company, and render services to the Company, and Executive is willing to be so employed and to render such services to the Company, all upon the terms and subject to the conditions contained herein in consideration for, among other things, the Company’s agreement to provide Executive with Confidential Information pursuant to the terms of this agreement, and Executive’s receipt of Confidential Information pursuant to a relationship of trust and confidence and under conditions of confidentiality and non-use and non-disclosure.

 

AGREEMENT:

 

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

 

1.   EMPLOYMENT .  Subject to and upon the terms and conditions contained in this agreement, the Company hereby agrees to employ Executive and Executive agrees to be employed by the Company, for the period set forth in paragraph 2 hereof, to render to the Company, its affiliates and/or subsidiaries the services described in paragraph 3 hereof.

 

2.   TERM .  Executive’s employment under this Agreement shall commence as of the Effective Date hereof and shall continue for a period of three (3) years unless earlier terminated as set forth herein (the “ Employment Term ”).

 

3.   DUTIES .

 

(a)   Executive shall serve as the President (“ Division President ”) of the GrowLife Hydroponics Company, a wholly-owned subsidiary of GrowLife, Inc., reporting directly to the Chief Executive Officer of the Company (“ CEO ”).  Executive shall be responsible for the management and running of the day-to-day commercial operations for hydroponics, flooring and GrowLife branded products sales activities of the Company. Executive agrees to devote Executive’s full-time business time, attention, skills, and best efforts to the performance of the duties.

 

(b)   Executive shall perform all duties incident to the positions held by him. The Company retains the right, by decision of the CEO, to change Executive's title and duties, as may be determined to be in the best interests of the Company; provided, however, that any such change in Executive's duties shall be consistent with Executive's training, experience, and qualifications.

 

(c)   Executive agrees to abide by all bylaws and policies of the Company, promulgated from time to time by the Company, as well as all state and federal laws, statutes and regulations.

 

4.   BEST EFFORTS .   Executive agrees to devote his best efforts and attention in a timely manner, as well as his energies and skill, to the performance of the duties and the discharge of the duties and responsibilities attributable to his position.

 

5.   COMPENSATION . The Company will pay Executive the following compensation for his services under this Agreement:

 

(a)   Base Salary . For the duration of the Employment Term and as compensation for his services and covenants hereunder, in this position, you will earn a base salary of $165,000 on an annualized basis. Your compensation will be payable pursuant to the Company’s regular payroll schedule and policy. Each subsequent year, the Executive’s performance will be reviewed.

 

 

(b)   Equity Compensation . Any previously vested stock options, shares, or other equity compensation earned by Executive to date remains outstanding and unaffected by this Agreement. The Company grants to you an option to purchase eighteen million (18,000,000) shares of the Company’s Common Stock (“Shares”) under the Company’s 2018 Stock Incentive Plan (“SIP”), with an exercise price per share of $0.012, and subject to the terms and conditions of the SIP. While engaged or employed, the Shares will vest in the following manner:

 

                      The Shares will vest quarterly over three years. All options will have a five-year life and cashless exercise, provided that you do not cease to be an employee of the Company prior to such date. The stock option grant shall be subject to the terms and conditions of the Company’s SIP, including vesting requirements. No right to any stock is earned or accrued until such time that these Shares have vested, nor does the grant confer any right to continue vesting or employment.

 

          In addition, notwithstanding the foregoing, in the event that your continuous status as an employee of the Company is terminated by the Company without Cause (as defined below) or you terminate your employment with the Company for Good Reason (as defined below), in either case upon or within twelve (12) months after a Change in Control (“CoC”) as defined in the Company’s Stock Plan then, subject to your execution of a standard release of claims in favor of the Company or its successor, 100% of the total number of Shares shall immediately become vested.

 

(c)   Issuance of Shares . Upon receipt of written notice from Executive, the Company shall issue to Executive the Equity Compensation to which the Executive is entitled to in accordance with the schedule above.

 

(d)   Accrual of Shares . In the event Executive does not request in writing that the Equity Compensation be issued during the period in which it is earned, the un-issued shares shall accrue and the Executive may request the shares to be issued at any time.

 

(e)      Incentive Compensation . Upon employment you may be eligible to earn an annual incentive bonus equal to 2% percentage of the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) pro rated for the period that you are employed. 

 

6.   EXPENSES .   

 

(a)   Reimbursement . Executive shall be reimbursed for all business expenses incurred by him in connection with the performance of the duties under this agreement.  The reimbursement of any such expense that is includible in gross income for federal income tax purposes shall be paid no later than the end of the calendar month following the calendar month in which the expense was incurred.

 

7.   EXECUTIVE BENEFITS .

 

(a)  Benefits . During the Employment Term, Executive shall be entitled to participate in such group term insurance, disability insurance, health and medical insurance benefits, life insurance and retirement plans or programs as are from time to time generally made available to executive employees of the Company pursuant to the policies of the Company; provided that Executive shall be required to comply with the conditions attendant to coverage by such plans and shall comply with and be entitled to benefits only to the extent former employees are eligible to participate in such arrangements pursuant to the terms of the arrangement, any insurance policy associated therewith and applicable law, and, further, shall be entitled to benefits only in accordance with the terms and conditions of such plans. The Company may withhold from any benefits payable to Executive all federal, state, local and other taxes and amounts as shall be permitted or required to be withheld pursuant to any applicable law, rule or regulation. As an officer of the Company, the Company will pay for term life insurance with a value of $2 million and pay for up to $1,000,000 in errors and omission insurance, if less than $2 million ($2,000,000) in Director & Officer insurance is not provided while employed.

 

(b)  Vacation. Executive shall be entitled to 4 weeks paid vacation in accordance with the Company’s policies, as may be established from time to time by the Company for its executive staff, which shall be taken at such time or times as shall be mutually agreed upon by the Parties. Vacation time shall not accrue if unused after the fiscal year.

 

 

8.   DEATH AND DISABILITY .

 

(a)   Death . The Employment Term shall terminate on the date of Executive’s death, in which event the Company shall, within 30 days of the date of death, pay to his estate, Executive’s Base Salary, any unpaid  bonus awards (including any bonus award for a plan year that has ended prior to the time employment terminated where the award was scheduled to be paid after the date employment terminated), reimbursable expenses and benefits owing to Executive through the date of Executive’s death together with any benefits payable under any life insurance program in which Executive is a participant.  

 

(b)   Disability . The Employment Term shall terminate upon Executive’s Disability. For purposes of this Agreement, “Disability” shall mean that Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.  For purposes of determining Executive’s Disability, the CEO may rely on a determination by the Social Security Administration that Executive is totally disabled or a determination by the Company’s disability insurance carrier that Executive has satisfied the above definition of Disability.  In case of such termination, Executive shall be entitled to receive his Base Salary, any unpaid bonus awards (including any bonus award for a plan year that has ended prior to the time employment terminated where the award was scheduled to be paid after the date employment terminated), reimbursable expenses and benefits owing to Executive through the date of termination within 30 days of the date of the Company’s determination of Executive’s Disability, together with any benefits payable under any disability insurance program in which Executive is a participant.  Except as otherwise contemplated by this Agreement, Executive will not be entitled to any other compensation upon termination of his employment pursuant to this subparagraph 8(b).

 

 

9.   TERMINATION OF EMPLOYMENT .

 

(a)   Termination With Cause By Company . The Company may terminate this agreement at any time during the Employment Period for “Cause” upon written notice to Executive, upon which termination shall be effective immediately. For purposes of this agreement, “Cause” means any of the following:

i.   Conviction of felony, theft or embezzlement from the Company;

 

ii.   You have engaged in fraud, embezzlement, theft, or willful deception, or have engaged in other dishonest acts during the Term, which are detrimental to the business of the Company;

 

iii.   You have breached the non-solicitation or non-competition covenants of this agreement, have willfully engaged in the diversion of any corporate opportunity or other similar, serious conflict of interest or self-dealing inuring to your benefit and to the Company's detriment;

 

iv.   You have excessively used alcohol or have used illegal drugs, which substantially and materially interferes with the performance of your duties under this agreement after receipt of written notice from the Company demanding substantial performance, setting forth the nature of the failure, and your failure to remedy within a reasonable time thereafter, not to exceed thirty (30) days;

 

v.   You have violated state, federal or local laws and ordinances requiring equal employment opportunity and prohibiting discrimination and harassment based on race, creed, color, national origin, sex, honorably discharged veteran or military status, sexual orientation, or the presence of any sensory, mental, or physical disability, or any other category protected by law.

 

(b)   Termination Without Cause By Company . The Company’s current CEO, Marco Hegyi, may terminate this Agreement at any time during the Employment Period without “Cause” upon thirty (30) days written notice to Executive. In the event Marco Hegyi is no longer CEO of the Company, this Agreement may not be terminated at any time during the Employment Period without “Cause.”

 

 

(c)   Termination By Executive . Executive may terminate this Agreement at any time by providing the Company thirty (30) days’ written notice, with or without “Good Reason,” which means any one or more of the following:

 

i.   a material breach by the Company of any provision of this Agreement, including without limitation, the Company’s failure to pay Executive any Base salary, Equity Compensation, Incentive Compensation, or benefits, which breach is not cured within fifteen (15) days after receipt of written notice from you to the CEO specifying the breach or, if notice and cure have previously taken place regarding the same or a substantially similar breach, if the breach recurs;

 

ii.   a requirement by the Company that you change your primary work locations from Vail, Colorado, without your consent to such change;

 

iii.   the creation and continuation of a hostile work environment which continues without corrective action being taken by the Company for a period of more than fifteen (15) days following written notice by you to the Company identifying the nature and cause of such hostile work environment; or

 

iv.   the Company, without your consent (A) changes your title or position, (B) makes any material change or reduction in your duties or responsibilities, (C) reduces your salary and/or benefits, or (D) assigns duties or responsibilities to you that are inconsistent with your position as Division President of the Company.

 

(d)   Compensation upon Termination . In the event that the Company terminates the Executive’s employment hereunder due to a Termination “for cause,” the Executive shall be entitled to any Base Salary, unpaid bonus, reimbursable expenses and benefits owing to Executive then all of the Company’s obligations hereunder shall cease immediately, and you will not be entitled to any further compensation beyond any pro-rated base salary due and bonus amounts earned through the effective date of termination. Except as otherwise contemplated by this agreement, Executive will not be entitled to any other compensation upon termination “for cause” of this agreement.  If Executive is terminated “without cause” or if this agreement is terminated by Executive, Executive is entitled any Base Salary, unpaid bonus, reimbursable expenses and benefits owing to Executive through the day on which Executive is terminated plus 90 days. (“ Full Compensation ”) shall mean all total executive compensation accruable under this Agreement, which shall include payment of all accruable Base Salary, Equity Compensation and Performance Bonuses that is payable to Executive under this agreement as if earned in full.

 

10.   DISCLOSURE OF TRADE SECRETS AND OTHER PROPRIETARY INFORMATION .

 

(a)   Executive acknowledges that he is prohibited from disclosing any confidential information about the Company, including but not limited trade secrets, formulas, and financial information, to any party who is not a director, officer or authorized agent of the Company or its subsidiaries and affiliates.  The Company will provide Executive with valuable confidential information belonging to the Company or its subsidiaries or its affiliates above and beyond any confidential information previously received by Executive and will associate Executive with the goodwill of the Company or its subsidiaries or its affiliates above and beyond any prior association of Executive with that goodwill.  In return, Executive promises never to disclose or misuse such confidential information and never to misuse such goodwill.  

 

(b)   Executive will not, during the Employment Term, directly or indirectly, as an Executive, employer, agent, manager or engage in or participate in any other business that is directly competitive with the Company’s business without written consent from the Board of Directors.

 

(c)   Executive will not, during the Employment Term and for a period of twelve (12) months thereafter, directly or indirectly, work in the United States as an employee, employer, consultant, agent, manager, officer, or in any other individual or representative capacity for any person or entity that is competitive with the business of the Company.  

 

(d)   Executive will not, during the Employment Term and for a period of twelve (12) months thereafter, on his behalf or on behalf of any other business enterprise, directly or indirectly, under any circumstance other than at the direction and for the benefit of the Company, (i) solicit for employment or hire any person employed by the Company or any of its subsidiaries, or (ii) call on, solicit, or take away any person or entity who was a customer of the Company or any of its subsidiaries or affiliates during Executive’s employment with the Company, in either case for a business that is competitive with the business of the Company.

 

(g) If Executive breaches any provision of Section 10 of this Agreement, the Company shall provide Notice to Executive, in accordance with Section 13, herein, and shall provide Executive with 60 days to cure (the “Cure Period”) any breach before proceeding with any and all remedies available at law or in equity.

 

 

(f) It is expressly agreed by Executive that the nature and scope of each of the provisions set forth above are reasonable and necessary. If, for any reason, any aspect of the above provisions as it applies to Executive is determined by a court of competent jurisdiction to be unreasonable or unenforceable under applicable law, the provisions shall be modified to the extent required to make the provisions enforceable.  Executive acknowledges and agrees that his services are of unique character and expressly grants to the Company or any subsidiary or affiliate of the Company or any successor of any of them, the right to enforce the above provisions through the use of all remedies available at law or in equity, including, but not limited to, injunctive relief.

 

11.   COMPANY PROPERTY .

 

(a)   Any patents, inventions, discoveries, applications, processes, models or financial statements designed, devised, planned, applied, created, discovered or invented by Executive during the Employment Term, regardless of when reduced to writing or practice, which pertain to any aspect of the Company’s or its subsidiaries’ or affiliates’ business as described above shall be the sole and absolute property of the Company, and Executive shall promptly report the same to the Company and promptly execute any and all documents that may from time to time reasonably be requested by the Company to assure the Company the full and complete ownership thereof.

 

(b)   All records, files, lists, including computer generated lists, drawings, documents, equipment and similar items relating to the Company’s business which Executive shall prepare or receive from the Company shall remain the Company’s sole and exclusive property. Upon termination of this Agreement, Executive shall promptly return to the Company all property of the Company in his possession. Executive further represents that he will not copy or cause to be copied, print out or cause to be printed out any software, documents or other materials originating with or belonging to the Company. Executive additionally represents that, upon termination of his employment with the Company, he will not retain in his possession any such software, documents or other materials.

  

12.   CONSENT TO JURISDICTION AND VENUE .   The Executive hereby consents and agrees that federal and state courts located in King County, Washington shall have personal jurisdiction and proper venue with respect to any dispute between the Executive and the Company. In any dispute with the Company, the Executive will not raise, and hereby expressly waives, any objection or defense to any such jurisdiction as an inconvenient forum.

 

13.   NOTICE .   Except as otherwise expressly provided, any notice, request, demand or other communication permitted or required to be given under this Agreement shall be in writing, shall be deemed conclusively to have been given: (a) on the first business day following the day timely deposited with Federal Express (or other equivalent national overnight courier) or United States Express Mail, with the cost of delivery prepaid or for the account of the sender; (b) on the fifth business day following the day duly sent by certified or registered United States mail, postage prepaid and return receipt requested; or (c) when otherwise actually received by the addressee on a business day (or on the next business day if received after the close of normal business hours or on any non-business day).

 

14.   INTERPRETATION; HEADINGS .   The parties acknowledge and agree that the terms and provisions of this Agreement have been negotiated, shall be construed fairly as to all parties hereto, and shall not be construed in favor of or against any party. The paragraph headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

15.   SUCCESSORS AND ASSIGNS; ASSIGNMENT; INTENDED BENEFICIARIES .    Executive’s rights, powers, duties or obligations hereunder may be assigned by Executive in Executive’s sole discretion. This Agreement shall be binding upon and inure to the benefit of Executive and his heirs and legal representatives and the Company and its successors. Successors of the Company shall include, without limitation, any corporation or corporations acquiring, directly or indirectly, all or substantially all of the assets of the Company, whether by merger, consolidation, purchase, lease or otherwise, and such successor shall thereafter be deemed “the Company” for the purpose hereof.

 

16.   NO WAIVER BY ACTION .   Any waiver or consent from the Company respecting any term or provision of this Agreement or any other aspect of the Executive’s conduct or employment shall be effective only in the specific instance and for the specific purpose for which given and shall not be deemed, regardless of frequency given, to be a further or continuing waiver or consent. The failure or delay of the Company at any time or times to require performance of, or to exercise any of its powers, rights or remedies with respect to, any term or provision of this Agreement or any other aspect of the Executive’s conduct or employment in no manner (except as otherwise expressly provided herein) shall affect the Company’s right at a later time to enforce any such term or provision.

 

17.   COUNTERPARTS; GOVERNING LAW; AMENDMENTS; ENTIRE AGREEMENT; SURVIVAL OF TERMS .   This Agreement may be executed in two counterpart copies, each of which may be executed by one of the parties hereto, but all of which, when taken together, shall constitute a single agreement binding upon all of the parties hereto. This Agreement and all other aspects of the Executive’s employment shall be governed by and construed in accordance with the applicable laws pertaining in the State of Washington (other than those that would defer to the substantive laws of another jurisdiction). Each and every modification and amendment of this Agreement shall be in writing and signed by the parties hereto, and any waiver of, or consent to any departure from, any term or provision of this Agreement shall be in writing and signed by each affected party hereto.  

 

18.   ENTIRE AGREEMENT .   The entire understanding and agreement between the Parties has been incorporated into this Agreement, and this Agreement supersedes all other agreements and understandings between Executive and the Company with respect to the relationship of Executive with the Company or its affiliates or subsidiaries.

 

[Signature page follows.]

 

 

IN WITNESS WHEREOF , the Parties hereto have executed this Agreement as of the date set forth above.