Exhibit 10.1
 
THE EXCHANGE CONTEMPLATED HEREIN IS INTENDED TO COMPORT WITH THE REQUIREMENTS OF
SECTION 3(a)(9) OF THE SECURITIES ACT OF 1933, AS AMENDED.
 
Exchange Agreement
 
This Exchange Agreement (this “Agreement”) is executed as of August 17, 2016 by
and between GrowLife, Inc., a Delaware corporation (the “Company”), and Chicago
Venture Partners, L.P., a Utah limited partnership, its successors and/or
assigns (“Holder”). Capitalized terms not defined herein shall have the same
meaning as set forth in the Initial Exchange Note (as defined below).
A. The Company previously sold and issued to TCA Global Credit Master Fund, LP,
a Cayman Islands limited partnership (“TCA”), that certain Amended, Restated and
Consolidated Senior Secured Convertible Redeemable Debenture dated and made
effective as of October 27, 2015 in the original principal amount of
$1,050,000.00 (the “Original Debenture”).
 
B. Pursuant to that certain Debt Purchase Agreement dated August 17, 2016
between Holder and TCA (the “Purchase Agreement”), Holder agreed to purchase the
Original Debenture from TCA in multiple tranches (each, a “Tranche”).
 
C. In connection with the first Tranche purchased by Holder, TCA severed an
$80,000.00 portion of the Original Debenture and the Company reissued such
$80,000.00 portion as that certain First Replacement Amended, Restated and
Consolidated Senior Secured Convertible Redeemable Debenture A in the original
principal amount of $80,000.00 dated and made effective as of August 17, 2016
but having an original issuance date of October 27, 2015 (the “Initial
Debenture”).
 
D. Pursuant to the Purchase Agreement and with respect to each subsequent
Tranche, TCA will sever additional portions of the Original Debenture and the
Company will reissue such severed portions as additional First Replacement
Amended, Restated and Consolidated Senior Secured Convertible Redeemable
Debentures (each, a “Subsequent Debenture”, and together with the Initial
Debenture, the “Purchased Debentures”).
 
E. Subject to the terms of this Agreement, Holder and the Company desire to
exchange (such exchange is referred to as the “Note Exchange”) (i) the Initial
Debenture for a new Convertible Promissory Note in the original principal amount
of $128,000.00 substantially in the form attached hereto as Exhibit A (the
“Initial Exchange Note”); and (ii) all other Purchased Debentures for new
Convertible Promissory Notes each in substantially the form attached hereto as
Exhibit B (each, a “Subsequent Exchange Note”, and together with the Initial
Exchange Note, the “Exchange Notes”). The Note Exchange will consist of Holder
surrendering the Initial Debenture in return for the Initial Exchange Note and,
from time to time upon the closing of additional Tranches, the surrender of
Subsequent Debentures for Subsequent Exchange Notes. Other than the surrender of
the Purchased Debentures, no consideration of any kind whatsoever shall be given
by Holder to the Company in connection with this Agreement.
 
F. This Agreement, the Initial Exchange Note, each Subsequent Exchange Note, the
Transfer Agent Letter (as defined below), the Secretary’s Certificate (as
defined below), the Share Issuance Resolution (as defined below), the Officer’s
Certificate (as defined below) and any other documents, agreements, or
instruments entered into or delivered in connection with this Agreement, or any
amendments to any of the foregoing, are collectively referred to as the
“Exchange Documents”.
G. For purposes of this Agreement: “Conversion Shares” means all shares of
Common Stock issuable upon conversion of all or any portion of any Exchange
Note; and “Securities” means the Initial Exchange Note, all Subsequent Exchange
Notes, and the Conversion Shares.
 
 

 
 
H. Pursuant to the terms and conditions hereof, Holder and the Company agree to
exchange the Purchased Debentures for the Exchange Notes.
 
NOW, THEREFORE, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties and covenants
herein contained, the parties hereto agree as follows:
1. Issuance of Exchange Notes; Exchange Fees.
1.1. Upon execution of this Agreement, Holder will surrender the Initial
Debenture to the Company and the Company will issue to Holder the Initial
Exchange Note. In conjunction therewith, the Company hereby confirms that the
Initial Debenture represents the Company’s unconditional obligation to pay the
outstanding balance pursuant to the terms of the Original Debenture. The Company
and Holder agree that upon surrender, the Initial Debenture will be cancelled
and the remaining amount owed to Holder pursuant to the Initial Debenture shall
hereafter be evidenced solely by the Initial Exchange Note.
1.2. Upon each subsequent purchase of a Subsequent Debenture, Holder will
surrender such Subsequent Debenture to the Company and the Company will issue to
Holder a Subsequent Exchange Note. In conjunction therewith, the Company hereby
confirms that each Subsequent Debenture represents the Company’s unconditional
obligation to pay the outstanding balance pursuant to the terms of the Original
Debenture. The Company and Holder agree that upon surrender, the applicable
Subsequent Debenture will be cancelled and the remaining amount owed to Holder
pursuant to such Subsequent Debenture shall hereafter be evidenced solely by the
applicable Subsequent Exchange Note.
1.3.  The Company acknowledges that the outstanding balance of the Initial
Exchange Note includes an exchange fee in the amount of $48,000.00 (the
“Exchange Fee”), which sum was added to the outstanding balance of the Initial
Exchange Note in consideration of the accommodations granted to the Company and
the legal and other fees incurred by Holder in connection with the Note
Exchange. The Company further acknowledges and agrees that an additional
Exchange Fee shall be added to the outstanding balance of each Subsequent
Exchange Note that is issued hereafter in an amount bearing the same ratio to
the outstanding balance of the Subsequent Debenture being exchanged as the
initial Exchange Fee bears to the outstanding balance of the Initial Debenture.
For illustration purposes only, if the outstanding balance of a Subsequent
Debenture being exchanged is equal to $150,000.00, then the Exchange Fee
included in the balance of the Subsequent Exchange Note being issued in exchange
for such Subsequent Debenture shall be equal to $90,000.00.
2. Closings.
2.1. Subject to the satisfaction (or written waiver) of the conditions set forth
in Section 3 and Section 4 below, The initial closing of the transaction
contemplated hereby (the “Initial Closing”) along with the delivery of the
Initial Exchange Note and the other Exchange Documents (as defined below) shall
occur on the date that is mutually agreed to by the Company and Holder (the
“Initial Closing Date”) by means of the exchange by express courier and email of
.pdf documents, but shall be deemed to have occurred at the offices of Hansen
Black Anderson Ashcraft PLLC in Lehi, Utah.
2.2. Subject to the satisfaction (or written waiver) of the conditions set forth
in Section 3 and Section 4 below, the closing of the exchange of each Subsequent
Debenture (the “Subsequent Closing”, and together with the Initial Closing, the
“Closings”) and issuance of each Subsequent Exchange Note shall occur on a date
that is mutually agreed upon by the Company and Holder, but in any event is not
more than two (2) business days following the date on which Holder gives the
Company notice that it has acquired a Subsequent Debenture and desires to
exchange it for a Subsequent Exchange Note pursuant to this Agreement (the
“Subsequent Closing Date”, and together with the Initial Closing Date, the
“Closing Dates”) by means of the exchange by express courier and email of .pdf
documents, but shall be deemed to have occurred at the offices of Hansen Black
Anderson Ashcraft PLLC in Lehi, Utah.
 

 
 
3. Conditions to Company s Obligation to Exchange. The obligation of Company
hereunder to exchange the Purchased Debentures for the Exchange Notes at the
Closings is subject to the satisfaction, on or before the applicable Closing
Date, of each of the following conditions:
3.1. With respect to the Initial Closing, Holder shall have executed and
delivered this Agreement to the Company.
3.2. With respect to each Closing, Holder shall have delivered applicable
Purchased Debenture for cancellation or a lost note affidavit.
4. Conditions to Company s Obligation to Exchange. The obligation of Holder
hereunder to Exchange the Purchased Debentures at the Closings is subject to the
satisfaction, on or before the applicable Closing Date, of each of the following
conditions, provided that these conditions are for Holder’s sole benefit and may
be waived by Holder at any time in its sole discretion:
4.1. With respect to the Initial Closing, the Company shall have executed and
delivered this Agreement.
4.2. With respect to each Closing, the Company shall have executed and delivered
the applicable Exchange Note.
4.3. With respect to the Initial Closing, the Company shall deliver to Holder a
fully executed Letter of Instructions to Transfer Agent (“Transfer Agent
Letter”) substantially in the form attached hereto as Exhibit C acknowledged and
agreed to in writing by Company’s transfer agent (the “Transfer Agent”).
4.4. With respect to the Initial Closing, the Company shall deliver to Holder a
fully executed Secretary’s Certificate substantially in the form attached hereto
as Exhibit D (the “Secretary’s Certificate”) evidencing the Company’s approval
of the Note Exchange and the Exchange Documents.
4.5. With respect to the Initial Closing, the Company shall deliver to Holder a
fully executed Share Issuance Resolution substantially in the form attached
hereto as Exhibit E (the “Share Issuance Resolution”) to be delivered to the
Transfer Agent.
4.6. With respect to each Closing, Company’s Chief Executive Officer shall have
executed and delivered a certificate in substantially the form attached hereto
as Exhibit F (the “Officer’s Certificate”)
4.7. With respect to each Closing, delivery of all other Exchange Documents.
5. Holding Period, Tacking and Legal Opinion. The Company represents, warrants
and agrees that for the purposes of Rule 144 (“Rule 144”) of the Securities Act
of 1933, as amended (the “Securities Act”), the holding period of each Exchange
Note will include TCA’s holding period of the Original Debenture from October
27, 2015, which date is the date that the Original Debenture was issued. The
Company agrees not to take a position contrary to this Section 5 in any
document, statement, setting, or situation and further acknowledges that the
Original Debenture has not been amended or altered since such date. The Company
represents that it is not subject to Rule 144(i). Each Exchange Notes is being
issued in substitution of and exchange for and not in satisfaction of the
applicable Purchased Debenture. The Exchange Notes shall not constitute a
novation or satisfaction and accord of the applicable Purchased Debenture. The
Company acknowledges and understands that the representations and agreements of
the Company in this Section 5 are a material inducement to Holder’s decision to
consummate the transactions contemplated herein.
 

 
 
6. Representations, Warranties and Covenants of Holder. Holder represents,
warrants, and covenants to the Company that:
6.1. Investment Purpose. Holder is acquiring the Securities for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the Securities Act; provided, however, that by
making the representations herein, Holder reserves the right to dispose of the
Conversion Shares at any time in accordance with or pursuant to an effective
registration statement covering such Conversion Shares or an available exemption
under the Securities Act.
6.2. Accredited Investor Status. Holder is an “Accredited Investor” as that term
is defined in Rule 501(a)(3) of Regulation D of the Securities Act.
6.3. Authorization, Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of Holder and is a valid and
binding agreement of Holder enforceable in accordance with its terms.
6.4. Brokers. There are no brokerage commissions, finder’s fees or similar fees
or commissions payable by Holder in connection with the transactions
contemplated hereby based on any agreement, arrangement or understanding with
Holder or any action taken by Holder.
7. Representations, Warranties, and Covenants of the Company. The Company hereby
makes the representations set forth below and covenants and agrees as follows to
Holder (in addition to those set forth elsewhere herein):
7.1. Organization and Qualification. The Company has been duly organized,
validly exists and is in good standing under the laws of the State of Delaware.
The Company has full corporate power and authority to enter into this Agreement
and this Agreement has been duly and validly authorized, executed and delivered
by the Company and is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such enforcement may
be limited by the United States Bankruptcy Code and laws effecting creditors’
rights, generally.
 

 
 
7.2. Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Exchange Notes, and each of
the other Exchange Documents and to issue the Securities in accordance with the
terms hereof, (ii) the execution and delivery of the Exchange Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby, including, without limitation, the issuance of the Securities, have been
duly authorized by the Company’s Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) the Exchange Documents have been duly executed and delivered
by the Company, (iv) the Exchange Documents constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, and (v) the Company’s signatory has full corporate or other
requisite authority to execute the Exchange Documents and to bind the Company.
The Company’s Board of Directors has duly adopted a resolution authorizing this
Agreement and the other Exchange Documents and ratifying their terms, as
indicated by the Secretary’s Certificate.
7.3. Issuance of Securities. The issuance of the Securities is duly authorized
and the Securities are and will be, upon issuance, free and clear of all taxes,
liens, claims, pledges, mortgages, restrictions, obligations, security interests
and encumbrances of any kind, nature and description other than liens in favor
of Holder, and when issued will be validly issued, fully paid and
non-assessable.
7.4. No Conflicts. The execution and delivery by the Company of, and the
performance by the Company of its obligations under this Agreement in accordance
with the terms of this Agreement will not contravene any provision of applicable
law or the charter documents of the Company or any agreement or other instrument
binding upon the Company, or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its obligations
under this Agreement in accordance with the terms of this Agreement.
7.5. SEC Documents: Financial Statements. None of the Company’s filings (“SEC
Documents”) filed with the United States Securities and Exchange Commission (the
“SEC”) contained, at the time they were filed, any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Since October 27,
2015, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by the Company with the SEC under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).
7.6. Brokers. The Company has taken no action which would give rise to any claim
by any person for a brokerage commission, placement agent or finder’s fees or
similar payments by Holder relating to this Agreement or the transactions
contemplated hereby. The Company shall indemnify and hold harmless each of
Holder, its employees, officers, directors, stockholders, managers, agents,
attorneys, and partners, and their respective affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorneys’ fees) and expenses suffered in respect of any such claimed or
existing fees.
7.7. Authorization and Issuance. The Original Debenture and each Purchased
Debenture was (or, upon issuance, will have been) authorized by all necessary
company action and validly issued and executed, and the Company’s signatory had
(or will have) full corporate or other requisite authority to execute such
agreements and to bind the Company.
7.8. Holding Period. After due inquiry, the Company represents and warrants that
at all times, the Company has complied in all material respects with all
applicable securities and other applicable laws in relation with the issuance,
holding and transfers of the Original Debenture and each Purchased Debenture. To
the Company’s knowledge, no violation of securities and other applicable laws
occurred in connection with the acquisition, issuance, or holding of the
Original Debenture or any Purchased Debenture.
7.9. No Modifications. No written document, agreement, instrument, contract,
amendment or modification to the Original Debenture exists that supplements,
modifies, or amends the Initial Debenture or any Subsequent Debenture.
 

 
 
7.10. Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending against or affecting the Company,
the Common Stock of the Company, $0.0001 par value per share (“Common Stock”),
or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or
finding would have a material adverse effect on the Company or its operations.
7.11. No Additional Consideration. The Company has not received any cash or
property consideration in any form whatsoever for entering into this Agreement,
other than the surrender of the Purchased Debentures.
7.12. Recitals. All of the information, facts and representations set forth in
the Recitals section of this Agreement are in all respects true and accurate as
of the date hereof and are incorporated as representations and warranties of the
Company as if set forth in this Section 7.
7.13. Acknowledgement of Obligations. The Company hereby acknowledges, confirms
and agrees that the obligations of the Company to Holder under the Exchange
Notes are unconditionally owed by the Company to Holder without offset, defense
or counterclaim of any kind, nature or description whatsoever.
8. Company Covenants. Until all of the Company’s obligations under all of the
Exchange Documents are paid and performed in full, or within the timeframes
otherwise specifically set forth below, the Company shall comply with the
following covenants: (i) so long as Holder beneficially owns any of the
Securities and for at least twenty (20) Trading Days thereafter, the Company
shall timely file on the applicable deadline all reports required to be filed
with the SEC pursuant to Sections 13 or 15(d) of the Exchange Act, and shall
take all reasonable action under its control to ensure that adequate current
public information with respect to the Company, as required in accordance with
Rule 144 of the Securities Act, is publicly available, and shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination; (ii) the Common Stock shall be listed or quoted for trading on any
of (a) NYSE, (b) NASDAQ, (c) OTCQX, (d) OTCQB, or (e) OTC Pink Current
Information; (iii) when issued, the Conversion Shares shall be duly authorized,
validly issued, fully paid for and non-assessable, free and clear of all liens,
claims, charges and encumbrances; (iv) trading in the Company’s Common Stock
shall not be suspended, halted, chilled, frozen, reach zero bid or otherwise
cease on the Company’s principal trading market; (v) the Company shall not at
any given time have any Variable Security Holders (as defined below), excluding
Holder and any existing rights granted prior to the date hereof, without
Holder’s prior written consent, which consent may be granted or withheld in
Holder’s sole and absolute discretion; (vi) at each Closing and on the first day
of each calendar quarter for so long as any Exchange Note remains outstanding or
on any other date during which any Exchange Note is outstanding, as may be
requested by Holder, the Chief Executive Officer of the Company shall provide to
Holder an Officer’s Certificate certifying in his capacity as Chief Executive
Officer of the Company the number of Variable Security Holders of the Company as
of the date the applicable Officer’s Certificate is executed; (vii) upon the
purchase by Holder of each Subsequent Debenture, the Company will immediately
exchange such Subsequent Debenture for a Subsequent Exchange Note that includes
an Exchange Fee in the original outstanding balance in accordance with Section
1.3 above; and (viii) if at any time the Common Stock trades below $0.0005, the
Company shall, as soon as practicable but in no event longer than sixty (60)
days thereafter, reduce the par value of its Common Stock to $0.00001 or below.
For purposes hereof, the term “Variable Security Holder” means any holder of any
the Company securities that (A) have or may have conversion rights of any kind,
contingent, conditional or otherwise, in which the number of shares that may be
issued pursuant to such conversion right varies with the market price of the
Common Stock, or (B) are or may become convertible into Common Stock (including
without limitation convertible debt, warrants or convertible preferred stock),
with a conversion price that varies with the market price of the Common Stock,
even if such security only becomes convertible following an event of default,
the passage of time, or another trigger event or condition (each a “Variable
Security Issuance”). For avoidance of doubt, the issuance of shares of Common
Stock under, pursuant to, in exchange for or in connection with any contract or
instrument, whether convertible or not, is deemed a Variable Security Issuance
for purposes hereof if the number of shares of Common Stock to be issued is
based upon or related in any way to the market price of the Common Stock,
including, but not limited to, Common Stock issued in connection with a Section
3(a)(9) exchange, a Section 3(a)(10) settlement, or any other similar settlement
or exchange.
 

 
 
9. Releases and Waivers.
9.1. Upon the full repayment of the Initial Exchange Note, Holder releases and
forever discharges the Company of and from any and all manner of actions, suits,
debts, sums of money, contracts, agreements, claims and demands at law or in
equity, that Holder had, or may have arising from the Initial Debenture.
9.2. Upon the full repayment of each Subsequent Exchange Note, Holder releases
and forever discharges the Company of and from any and all manner of actions,
suits, debts, sums of money, contracts, agreements, claims and demands at law or
in equity, that Holder had, or may have arising from the applicable Subsequent
Debenture.
9.3. The Company hereby affirms that the obligations under the Exchange Notes
and as set forth herein are valid and binding obligations of the Company, and
hereby waives, to the fullest extent allowable under law, any and all defenses
that may be available to a debtor under applicable state and federal law
including, without limiting the foregoing, any and all defenses available to a
debtor or maker under the provisions of the Uniform Commercial Code pertaining
to negotiable instruments.
9.4. Upon execution of this Agreement, the Company releases and forever
discharges Holder of and from any and all manner of actions, suits, debts, sums
of money, contracts, agreements, claims and demands at law or in equity, that
the Company had, or may have arising from the Purchased Debentures.
10. Reservation of Shares. At all times during which any Exchange Note is
convertible, the Company will reserve from its authorized and unissued Common
Stock to provide for all issuances of Common Stock under the Exchange Notes at
least three (3) times the number of shares of Common Stock obtained by dividing
the aggregate Outstanding Balance of all potential Exchange Notes by the
Conversion Price (as defined in the Exchange Notes) (the “Share Reserve”), but
in any event not less than 215,000,000 shares of Common Stock shall be reserved
at all times for such purpose (the “Transfer Agent Reserve”). The Company
further agrees that it will cause the Transfer Agent to immediately add shares
of Common Stock to the Transfer Agent Reserve in increments of 20,000,000 shares
as and when requested by Holder in writing from time to time, provided that such
incremental increases do not cause the Transfer Agent Reserve to exceed the
Share Reserve. In furtherance thereof, from and after the date hereof and until
such time that all of the Exchange Notes have been paid in full, the Company
shall require the Transfer Agent to reserve for the purpose of issuance of
Conversion Shares under the Exchange Notes, a number of shares of Common Stock
equal to the Transfer Agent Reserve. The Company shall further require the
Transfer Agent to hold such shares of Common Stock exclusively for the benefit
of Holder and to issue such shares to Holder promptly upon Holder’s delivery of
a conversion notice under the Exchange Note. Finally, the Company shall require
the Transfer Agent to issue shares of Common Stock pursuant to the Exchange Note
to Holder out of its authorized and unissued shares, and not the Transfer Agent
Reserve, to the extent shares of Common Stock have been authorized, but not
issued, and are not included in the Transfer Agent Reserve. The Transfer Agent
shall only issue shares out of the Transfer Agent Reserve to the extent there
are no other authorized shares available for issuance and then only with
Holder’s written consent.
11. Miscellaneous. The provisions set forth in this Section 11 shall apply to
this Agreement, as well as all other Exchange Documents as if these terms were
fully set forth therein.
 

 
 
11.1. To the extent any capitalized term used in any Exchange Document is
defined in any other Exchange Document (as noted therein), such capitalized term
shall remain applicable in the Exchange Document in which it is so used even if
the other Exchange Document (wherein such term is defined) has been released,
satisfied, or is otherwise cancelled.
11.2. Arbitration of Claims. The parties shall submit all Claims (as defined in
Exhibit G) arising under this Agreement, any other Exchange Document, or any
other agreement between the parties and their affiliates to binding arbitration
pursuant to the arbitration provisions set forth in Exhibit G attached hereto
(the “Arbitration Provisions”). The parties hereby acknowledge and agree that
the Arbitration Provisions are unconditionally binding on the parties hereto and
are severable from all other provisions of this Agreement. By executing this
Agreement, the Company represents, warrants and covenants that the Company has
reviewed the Arbitration Provisions carefully, consulted with legal counsel
about such provisions (or waived its right to do so), understands that the
Arbitration Provisions are intended to allow for the expeditious and efficient
resolution of any dispute hereunder, agrees to the terms and limitations set
forth in the Arbitration Provisions, and that the Company will not take a
position contrary to the foregoing representations. The Company acknowledges and
agrees that Holder may rely upon the foregoing representations and covenants of
the Company regarding the Arbitration Provisions.
11.3. Governing Law; Venue. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Utah without regard to the
principles of conflict of laws. Each party consents to and expressly agrees that
the exclusive venue for arbitration of any dispute arising out of or relating to
this Agreement or the relationship of the parties or their affiliates shall be
in Salt Lake County, Utah. Without modifying the parties’ obligations to resolve
disputes hereunder pursuant to the Arbitration Provisions, each party hereto
submits to the exclusive jurisdiction of any state or federal court sitting in
Salt Lake County, Utah in any proceeding arising out of or relating to this
Agreement and agrees that all Claims (as defined in the Arbitration Provisions)
in respect of the proceeding may only be heard and determined in any such court
and hereby expressly submits to the exclusive personal jurisdiction and venue of
such court for the purposes hereof and expressly waives any claim of improper
venue and any claim that such courts are an inconvenient forum. Each party
hereto hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to its address as set forth in
the Purchase Agreement, such service to become effective ten (10) days after
such mailing.
11.4. Calculation Disputes. Notwithstanding the Arbitration Provisions, in the
case of a dispute as to any determination or arithmetic calculation under the
Exchange Documents, including without limitation, calculating the Outstanding
Balance, Conversion Price (as defined in the Exchange Notes), Conversion Shares,
Conversion Factor (as defined in the Exchange Notes), or VWAP (as defined in the
Exchange Notes) (each, a “Calculation”), the Company or Holder (as the case may
be) shall submit any disputed Calculation via email or facsimile with
confirmation of receipt (i) within two (2) Trading Days after receipt of the
applicable notice giving rise to such dispute to the Company or Holder (as the
case may be) or (ii) if no notice gave rise to such dispute, at any time after
Holder learned of the circumstances giving rise to such dispute. If Holder and
the Company are unable to agree upon such Calculation within two (2) Trading
Days of such disputed Calculation being submitted to the Company or Holder (as
the case may be), then Holder will promptly submit via email or facsimile the
disputed Calculation to Unkar Systems Inc. (“Unkar Systems”). The Company shall
cause Unkar Systems to perform the Calculation and notify the Company and Holder
of the results no later than ten (10) Trading Days from the time it receives
such disputed Calculation. Unkar Systems’ determination of the disputed
Calculation shall be binding upon all parties absent demonstrable and manifest
error. Unkar Systems’ fee for performing such Calculation shall be paid by the
incorrect party, or if both parties are incorrect, by the party whose
Calculation is furthest from the correct Calculation as determined by Unkar
Systems. In the event the Company is the losing party, no extension of the
Delivery Date (as defined in the Note) shall be granted and the Company shall
incur all effects for failing to deliver the applicable shares in a timely
manner as set forth in the Exchange Documents. Notwithstanding the foregoing,
Holder may, in its sole discretion, designate an independent, reputable
investment bank or accounting firm other than Unkar Systems to resolve any such
dispute and in such event, all references to “Unkar Systems” herein will be
replaced with references to such independent, reputable investment bank or
accounting firm so designated by Holder.
 

 
 
11.5. Successors and Assigns; Third Party Beneficiaries. This Agreement shall
inure to the benefit of and be binding upon the successors and permitted assigns
of the parties hereto. Except as otherwise expressly provided herein, no person
other than the parties hereto and their successors and permitted assigns is
intended to be a beneficiary of this Agreement.
11.6. Pronouns. All pronouns and any variations thereof in this Agreement refer
to the masculine, feminine or neuter, singular or plural, as the context may
permit or require.
11.7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument. The parties hereto confirm that any
electronic copy of another party’s executed counterpart of this Agreement (or
its signature page thereof) will be deemed to be an executed original thereof.
11.8. Document Imaging. Holder shall be entitled, in its sole discretion, to
image or make copies of all or any selection of the agreements, instruments,
documents, and items and records governing, arising from or relating to any of
the Company’s loans, including, without limitation, this Agreement and the other
Exchange Documents, and Holder may destroy or archive the paper originals. The
parties hereto (a) waive any right to insist or require that Holder produce
paper originals, (b) agree that such images shall be accorded the same force and
effect as the paper originals, (c) agree that Holder is entitled to use such
images in lieu of destroyed or archived originals for any purpose, including as
admissible evidence in any demand, presentment or other proceedings, and (d)
further agree that any executed facsimile (faxed), scanned, emailed, or other
imaged copy of this Agreement or any other Exchange Document shall be deemed to
be of the same force and effect as the original manually executed document.
11.9. Headings. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
11.10. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such provision shall be modified to achieve the objective of
the parties to the fullest extent permitted and such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
11.11. Entire Agreement. This Agreement, together with the Exchange Notes, and
the other Exchange Documents, constitutes and contains the entire agreement
between the parties hereto, and supersedes all prior oral or written agreements
and understandings between Holder, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor
Holder makes any representation, warranty, covenant or undertaking with respect
to such matters.
 

 
 
11.12. No Reliance. The Company acknowledges and agrees that neither Holder nor
any of its officers, directors, members, managers, partners, representatives or
agents has made any representations or warranties to the Company or any of its
officers, directors, stockholders, agents, representatives, or employees except
as expressly set forth in the Exchange Documents and, in making its decision to
enter into the transactions contemplated by the Exchange Documents, the Company
is not relying on any representation, warranty, covenant or promise of Holder or
its officers, directors, members, managers, agents or representatives other than
as set forth in the Exchange Documents.
11.13. Amendment. Any amendment, supplement or modification of or to any
provision of this Agreement, shall be effective only if it is made or given by
an instrument in writing (excluding any email message) and signed by the Company
and Holder.
11.14. No Waiver. No forbearance, failure or delay on the part of a party hereto
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver of any provision of this Agreement
shall be effective (a) only if it is made or given in writing (including an
email message) and (b) only in the specific instance and for the specific
purpose for which made or given.
11.15. Assignment. Notwithstanding anything to the contrary herein, the rights,
interests or obligations of the Company hereunder may not be assigned, by
operation of law or otherwise, in whole or in part, by the Company without the
prior written consent of Holder, which consent may be withheld at the sole
discretion of Holder; provided, however, that in the case of a merger, sale of
substantially all of the Company’s assets or other corporate reorganization,
Holder shall not unreasonably withhold, condition or delay such consent. This
Agreement or any of the severable rights and obligations inuring to the benefit
of or to be performed by Holder hereunder may be assigned by Holder to a third
party, including its financing sources, in whole or in part.
11.16. Advice of Counsel. In connection with the preparation of this Agreement
and all other Exchange Documents, each of the Company, its stockholders,
officers, agents, and representatives acknowledges and agrees that the attorney
that prepared this Agreement and all of the other Exchange Documents acted as
legal counsel to Holder only. Each of the Company, its stockholders, officers,
agents, and representatives (a) hereby acknowledges that he/she/it has been, and
hereby is, advised to seek legal counsel and to review this Agreement and all of
the other Exchange Documents with legal counsel of his/her/its choice, and (b)
either has sought such legal counsel or hereby waives the right to do so.
11.17. No Strict Construction. The language used in this Agreement is the
language chosen mutually by the parties hereto and no doctrine of construction
shall be applied for or against any party.
11.18. Attorneys’ Fees. In the event of any action at law or in equity to
enforce or interpret the terms of this Agreement or any of the other Exchange
Documents, the parties agree that the party who is awarded the most money
(which, for the avoidance of doubt, shall be determined without regard to any
statutory fines, penalties, fees, or other charges awarded to any party) shall
be deemed the prevailing party for all purposes and shall therefore be entitled
to an additional award of the full amount of the attorneys’ fees and expenses
paid by such prevailing party in connection with the litigation and/or dispute
without reduction or apportionment based upon the individual claims or defenses
giving rise to the fees and expenses. Nothing herein shall restrict or impair a
court’s power to award fees and expenses for frivolous or bad faith pleading.
11.19. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY
AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER EXCHANGE
DOCUMENT, OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS
WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER
COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH
PARTY HERETO ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT
TO DEMAND TRIAL BY JURY.
 

 
 
11.20. Further Assurances. Each party shall do and perform or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
11.21. Notices. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of: (i) the date delivered, if delivered by personal
delivery as against written receipt therefor or by email to an executive
officer, or by facsimile (with successful transmission confirmation), (ii) the
earlier of the date delivered or the third Trading Day after deposit, postage
prepaid, in the United States Postal Service by certified mail, or (iii) the
earlier of the date delivered or the third Trading Day after mailing by express
courier, with delivery costs and fees prepaid, in each case, addressed to each
of the other parties thereunto entitled at the following addresses (or at such
other addresses as such party may designate by five (5) calendar days’ advance
written notice similarly given to each of the other parties hereto):
If to the Company:
 
GrowLife, Inc.
Attn: Marco Hegyi
5400 Carillon Point
Kirkland, Washington 98033
 
If to Holder:
 
Chicago Venture Partners, L.P.
Attn: John Fife
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
 
With a copy to (which copy shall not constitute notice):
 
Hansen Black Anderson Ashcraft PLLC
Attn: Jonathan Hansen
3051 West Maple Loop Drive, Suite 325
Lehi, Utah 84043
 
11.22. Certain Transactions. During the period beginning on the Initial Closing
Date and ending on the date that Holder no longer owns any of the Securities,
Holder will not directly or through an affiliate engage in any open market Short
Sales (as defined below) of the Common Stock; provided; however, that unless and
until Company has affirmatively demonstrated by the use of specific evidence
that Holder is engaging in open market Short Sales, Holder shall be assumed to
be in compliance with the provisions of this Section and Company shall remain
fully obligated to fulfill all of its obligations under the Exchange Documents;
and provided, further, that (i) Company shall under no circumstances be entitled
to request or demand that Holder either (A) provide trading or other records of
Holder or of any party or (B) affirmatively demonstrate that Holder or any other
party has not engaged in any such Short Sales in breach of these provisions as a
condition to Company’s fulfillment of its obligations under any of the Exchange
Documents, (ii) Company shall not assert Holder’s or any other party’s failure
to demonstrate such absence of such Short Sales or provide any trading or other
records of Holder or any other party as all or part of a defense to any breach
of Company’s obligations under any of the Exchange Documents, and (iii) Company
shall have no setoff right with respect to any such Short Sales. As used herein,
“Short Sale” has the meaning provided in Rule 3b-3 under the Exchange Act.
 

 
 
11.23. Survival of Representations and Warranties. All of the representations
and warranties made herein shall survive the execution and delivery of this
Agreement for the maximum time allowable by applicable law.
11.24. Transaction Fees. Each party shall be responsible for its own attorneys’
fees and other costs and expenses associated with documenting and closing the
transaction contemplated by this Agreement.
11.25. Specific Performance. The Company and Holder acknowledge and agree that
irreparable damage would occur in the event that any provision of this Agreement
or any of the other Exchange Documents were not performed in accordance with its
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions, without (except as
specified in the Arbitration Provisions) the necessity to post a bond, to
prevent or cure breaches of the provisions of this Agreement or such other
Exchange Document and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
11.26. Time is of the Essence. Time is expressly made of the essence of each and
every provision of this Agreement and the Exchange Documents.
11.27. Voluntary Agreement. The Company has carefully read this Agreement and
each of the other Exchange Documents and has asked any questions needed for the
Company to understand the terms, consequences and binding effect of this
Agreement and each of the other Exchange Documents and fully understand them.
The Company has had the opportunity to seek the advice of an attorney of the
Company’s choosing, or has waived the right to do so, and is executing this
Agreement and each of the other Exchange Documents voluntarily and without any
duress or undue influence by Holder or anyone else.
[Remainder of the page intentionally left blank; signature page to follow]
 

 
 
IN WITNESS WHEREOF, each of the undersigned represents that the foregoing
statements made by it above are true and correct and that it has caused this
Exchange Agreement to be duly executed on its behalf (if an entity, by one of
its officers thereunto duly authorized) as of the date first above written.
HOLDER:
 
Chicago Venture Partners, L.P.
 
By: Chicago Venture Management, L.L.C., its General Partner
 
     By: CVM, Inc., its Manager
 
    By:/s/ John M. Fife
   John M. Fife, President
 
 
COMPANY:
 
GrowLife, Inc.
 
 
By: /s/ Marco Hegyi
Name: Marco Hegyi
Title: CEO
 
 
ATTACHMENTS:
 
Exhibit A Initial Exchange Note
Exhibit B Form of Subsequent Exchange Note
Exhibit C Transfer Agent Letter
Exhibit D Secretary’s Certificate
Exhibit E Share Issuance Resolution
Exhibit F Officer’s Certificate
Exhibit G Arbitration Provisions
 

 
EXHIBIT G
 
ARBITRATION PROVISIONS
 
1.       Dispute Resolution. For purposes of this Exhibit G, the term “Claims”
means any disputes, claims, demands, causes of action, requests for injunctive
relief, requests for specific performance, liabilities, damages, losses, or
controversies whatsoever arising from, related to, or connected with the
transactions contemplated in the Exchange Documents, and any communications
between the parties related thereto, including without limitation any claims of
mutual mistake, mistake, fraud, misrepresentation, failure of formation, failure
of consideration, promissory estoppel, unconscionability, failure of condition
precedent, rescission, and any statutory claims, tort claims, contract claims,
or claims to void, invalidate or terminate the Agreement (or these Arbitration
Provisions (defined below)), any of the other Exchange Documents, if applicable.
The term “Claims” specifically excludes a dispute over Calculations. The parties
to the Agreement (the “parties”) hereby agree that the arbitration provisions
set forth in this Exhibit G (“Arbitration Provisions”) are binding on each of
them. As a result, any attempt to rescind the Agreement (or these Arbitration
Provisions) or declare the Agreement (or these Arbitration Provisions), any
other Exchange Document, invalid or unenforceable for any reason is subject to
these Arbitration Provisions. These Arbitration Provisions shall also survive
any termination or expiration of the Agreement. Any capitalized term not defined
in these Arbitration Provisions shall have the meaning set forth in the
Agreement.
2.       Arbitration. Except as otherwise provided herein, all Claims must be
submitted to arbitration (“Arbitration”) to be conducted exclusively in Salt
Lake County or Utah County, Utah and pursuant to the terms set forth in these
Arbitration Provisions. Subject to the arbitration appeal right provided for in
Paragraph 5 below (the “Appeal Right”), the parties agree that the award of the
arbitrator rendered pursuant to Paragraph 4 below (the “Arbitration Award”)
shall be (a) final and binding upon the parties, (b) the sole and exclusive
remedy between them regarding any Claims, counterclaims, issues, or accountings
presented or pleaded to the arbitrator, and (c) promptly payable in United
States dollars free of any tax, deduction or offset (with respect to monetary
awards). Subject to the Appeal Right, any costs or fees, including without
limitation attorneys’ fees, incurred in connection with or incident to enforcing
the Arbitration Award shall, to the maximum extent permitted by law, be charged
against the party resisting such enforcement. The Arbitration Award shall
include default interest (as defined or otherwise provided for in the applicable
Note (“Default Interest”)) (with respect to monetary awards) at the rate
specified in the applicable Note for Default Interest both before and after the
Arbitration Award. Judgment upon the Arbitration Award will be entered and
enforced by any state or federal court sitting in Salt Lake County, Utah.
3.       The Arbitration Act. The parties hereby incorporate herein the
provisions and procedures set forth in the Utah Uniform Arbitration Act, U.C.A.
§ 78B-11-101 et seq. (as amended or superseded from time to time, the
“Arbitration Act”). Notwithstanding the foregoing, pursuant to, and to the
maximum extent permitted by, Section 105 of the Arbitration Act, in the event of
conflict or variation between the terms of these Arbitration Provisions and the
provisions of the Arbitration Act, the terms of these Arbitration Provisions
shall control and the parties hereby waive or otherwise agree to vary the effect
of all requirements of the Arbitration Act that may conflict with or vary from
these Arbitration Provisions.
4.       Arbitration Proceedings. Arbitration between the parties will be
subject to the following:
4.1         Initiation of Arbitration. Pursuant to Section 110 of the
Arbitration Act, the parties agree that a party may initiate Arbitration by
giving written notice to the other party (“Arbitration Notice”) in the same
manner that notice is permitted under Section 11.21 of the Agreement; provided,
however, that the Arbitration Notice may not be given by email or fax.
Arbitration will be deemed initiated as of the date that the Arbitration Notice
is deemed delivered to such other party under Section 11.21 of the Agreement
(the “Service Date”). After the Service Date, information may be delivered, and
notices may be given, by email or fax pursuant to Section 11.21 of the Agreement
or any other method permitted thereunder. The Arbitration Notice must describe
the nature of the controversy, the remedies sought, and the election to commence
Arbitration proceedings. All Claims in the Arbitration Notice must be pleaded
consistent with the Utah Rules of Civil Procedure.
 

 
 
4.2         Selection and Payment of Arbitrator.
(a) Within ten (10) calendar days after the Service Date, Holder shall select
and submit to the Company the names of three (3) arbitrators that are designated
as “neutrals” or qualified arbitrators by Utah ADR Services
(http://www.utahadrservices.com) (such three (3) designated persons hereunder
are referred to herein as the “Proposed Arbitrators”). For the avoidance of
doubt, each Proposed Arbitrator must be qualified as a “neutral” with Utah ADR
Services. Within five (5) calendar days after Holder has submitted to the
Company the names of the Proposed Arbitrators, the Company must select, by
written notice to Holder, one (1) of the Proposed Arbitrators to act as the
arbitrator for the parties under these Arbitration Provisions. If the Company
fails to select one of the Proposed Arbitrators in writing within such 5-day
period, then Holder may select the arbitrator from the Proposed Arbitrators by
providing written notice of such selection to the Company.
(b) If Holder fails to submit to the Company the Proposed Arbitrators within ten
(10) calendar days after the Service Date pursuant to subparagraph (a) above,
then the Company may at any time prior to Holder so designating the Proposed
Arbitrators, identify the names of three (3) arbitrators that are designated as
“neutrals” or qualified arbitrators by Utah ADR Service by written notice to
Holder. Holder may then, within five (5) calendar days after the Company has
submitted notice of its Proposed Arbitrators to Holder, select, by written
notice to the Company, one (1) of the Proposed Arbitrators to act as the
arbitrator for the parties under these Arbitration Provisions. If Holder fails
to select in writing and within such 5-day period one (1) of the three (3)
Proposed Arbitrators selected by the Company, then the Company may select the
arbitrator from its three (3) previously selected Proposed Arbitrators by
providing written notice of such selection to Holder.
(c) If a Proposed Arbitrator chosen to serve as arbitrator declines or is
otherwise unable to serve as arbitrator, then the party that selected such
Proposed Arbitrator may select one (1) of the other three (3) Proposed
Arbitrators within three (3) calendar days of the date the chosen Proposed
Arbitrator declines or notifies the parties he or she is unable to serve as
arbitrator. If all three (3) Proposed Arbitrators decline or are otherwise
unable to serve as arbitrator, then the arbitrator selection process shall begin
again in accordance with this Paragraph 4.2.
(d) The date that the Proposed Arbitrator selected pursuant to this Paragraph
4.2 agrees in writing (including via email) delivered to both parties to serve
as the arbitrator hereunder is referred to herein as the “Arbitration
Commencement Date”. If an arbitrator resigns or is unable to act during the
Arbitration, a replacement arbitrator shall be chosen in accordance with this
Paragraph 4.2 to continue the Arbitration. If Utah ADR Services ceases to exist
or to provide a list of neutrals, then the arbitrator shall be selected under
the then prevailing rules of the American Arbitration Association.
(e) Subject to Paragraph 4.10 below, the cost of the arbitrator must be paid
equally by both parties. Subject to Paragraph 4.10 below, if one party refuses
or fails to pay its portion of the arbitrator fee, then the other party can
advance such unpaid amount (subject to the accrual of Default Interest
thereupon), with such amount being added to or subtracted from, as applicable,
the Arbitration Award.
4.3         Applicability of Certain Utah Rules. The parties agree that the
Arbitration shall be conducted generally in accordance with the Utah Rules of
Civil Procedure and the Utah Rules of Evidence. More specifically, the Utah
Rules of Civil Procedure shall apply, without limitation, to the filing of any
pleadings, motions or memoranda, the conducting of discovery, and the taking of
any depositions. The Utah Rules of Evidence shall apply to any hearings, whether
telephonic or in person, held by the arbitrator. Notwithstanding the foregoing,
it is the parties’ intent that the incorporation of such rules will in no event
supersede these Arbitration Provisions. In the event of any conflict between the
Utah Rules of Civil Procedure or the Utah Rules of Evidence and these
Arbitration Provisions, these Arbitration Provisions shall control.
 

 
 
4.4         Answer and Default. An answer and any counterclaims to the
Arbitration Notice shall be required to be delivered to the party initiating the
Arbitration within twenty (20) calendar days after the Arbitration Commencement
Date. If an answer is not delivered by the required deadline, the arbitrator
must provide written notice to the defaulting party stating that the arbitrator
will enter a default award against such party if such party does not file an
answer within five (5) calendar days of receipt of such notice. If an answer is
not filed within the five (5) day extension period, the arbitrator must render a
default award, consistent with the relief requested in the Arbitration Notice,
against a party that fails to submit an answer within such time period.
4.5         Related Litigation. The party that delivers the Arbitration Notice
to the other party shall have the option to also commence concurrent legal
proceedings with any state or federal court sitting in Salt Lake County, Utah
(“Litigation Proceedings”), subject to the following: (a) the complaint in the
Litigation Proceedings is to be substantially similar to the claims set forth in
the Arbitration Notice, provided that an additional cause of action to compel
arbitration will also be included therein, (b) so long as the other party files
an answer to the complaint in the Litigation Proceedings and an answer to the
Arbitration Notice, the Litigation Proceedings will be stayed pending an
Arbitration Award (or Appeal Panel Award (defined below), as applicable)
hereunder, (c) if the other party fails to file an answer in the Litigation
Proceedings or an answer in the Arbitration proceedings, then the party
initiating Arbitration shall be entitled to a default judgment consistent with
the relief requested, to be entered in the Litigation Proceedings, and (d) any
legal or procedural issue arising under the Arbitration Act that requires a
decision of a court of competent jurisdiction may be determined in the
Litigation Proceedings. Any award of the arbitrator (or of the Appeal Panel
(defined below)) may be entered in such Litigation Proceedings pursuant to the
Arbitration Act.
4.6         Discovery. Pursuant to Section 118(8) of the Arbitration Act, the
parties agree that discovery shall be conducted as follows:
(a) Written discovery will only be allowed if the likely benefits of the
proposed written discovery outweigh the burden or expense thereof, and the
written discovery sought is likely to reveal information that will satisfy a
specific element of a claim or defense already pleaded in the Arbitration. The
party seeking written discovery shall always have the burden of showing that all
of the standards and limitations set forth in these Arbitration Provisions are
satisfied. The scope of discovery in the Arbitration proceedings shall also be
limited as follows:
(i)                 To facts directly connected with the transactions
contemplated by the Agreement.
(ii)                 To facts and information that cannot be obtained from
another source or in another manner that is more convenient, less burdensome or
less expensive than in the manner requested.
(b) No party shall be allowed (i) more than fifteen (15) interrogatories
(including discrete subparts), (ii) more than fifteen (15) requests for
admission (including discrete subparts), (iii) more than ten (10) document
requests (including discrete subparts), or (iv) more than three (3) depositions
(excluding expert depositions) for a maximum of seven (7) hours per deposition.
The costs associated with depositions will be borne by the party taking the
deposition. The party defending the deposition will submit a notice to the party
taking the deposition of the estimated attorneys’ fees that such party expects
to incur in connection with defending the deposition. If the party defending the
deposition fails to submit an estimate of attorneys’ fees within five (5)
calendar days of its receipt of a deposition notice, then such party shall be
deemed to have waived its right to the estimated attorneys’ fees. The party
taking the deposition must pay the party defending the deposition the estimated
attorneys’ fees prior to taking the deposition, unless such obligation is deemed
to be waived as set forth in the immediately preceding sentence. If the party
taking the deposition believes that the estimated attorneys’ fees are
unreasonable, such party may submit the issue to the arbitrator for a decision.
All depositions will be taken in Utah.
(c) All discovery requests (including document production requests included in
deposition notices) must be submitted in writing to the arbitrator and the other
party. The party submitting the written discovery requests must include with
such discovery requests a detailed explanation of how the proposed discovery
requests satisfy the requirements of these Arbitration Provisions and the Utah
Rules of Civil Procedure. The receiving party will then be allowed, within five
(5) calendar days of receiving the proposed discovery requests, to submit to the
arbitrator an estimate of the attorneys’ fees and costs associated with
responding to such written discovery requests and a written challenge to each
applicable discovery request. After receipt of an estimate of attorneys’ fees
and costs and/or challenge(s) to one or more discovery requests, consistent with
subparagraph (c) above, the arbitrator will within three (3) calendar days make
a finding as to the likely attorneys’ fees and costs associated with responding
to the discovery requests and issue an order that (i) requires the requesting
party to prepay the attorneys’ fees and costs associated with responding to the
discovery requests, and (ii) requires the responding party to respond to the
discovery requests as limited by the arbitrator within twenty-five (25) calendar
days of the arbitrator’s finding with respect to such discovery requests. If a
party entitled to submit an estimate of attorneys’ fees and costs and/or a
challenge to discovery requests fails to do so within such 5-day period, the
arbitrator will make a finding that (A) there are no attorneys’ fees or costs
associated with responding to such discovery requests, and (B) the responding
party must respond to such discovery requests (as may be limited by the
arbitrator) within twenty-five (25) calendar days of the arbitrator’s finding
with respect to such discovery requests. Any party submitting any written
discovery requests, including without limitation interrogatories, requests for
production subpoenas to a party or a third party, or requests for admissions,
must prepay the estimated attorneys’ fees and costs, before the responding party
has any obligation to produce or respond to the same, unless such obligation is
deemed waived as set forth above.
 

 
 
(d) In order to allow a written discovery request, the arbitrator must find that
the discovery request satisfies the standards set forth in these Arbitration
Provisions and the Utah Rules of Civil Procedure. The arbitrator must strictly
enforce these standards. If a discovery request does not satisfy any of the
standards set forth in these Arbitration Provisions or the Utah Rules of Civil
Procedure, the arbitrator may modify such discovery request to satisfy the
applicable standards, or strike such discovery request in whole or in part.
(e) Each party may submit expert reports (and rebuttals thereto), provided that
such reports must be submitted within sixty (60) days of the Arbitration
Commencement Date. Each party will be allowed a maximum of two (2) experts.
Expert reports must contain the following: (i) a complete statement of all
opinions the expert will offer at trial and the basis and reasons for them; (ii)
the expert’s name and qualifications, including a list of all the expert’s
publications within the preceding ten (10) years, and a list of any other cases
in which the expert has testified at trial or in a deposition or prepared a
report within the preceding ten (10) years; and (iii) the compensation to be
paid for the expert’s report and testimony. The parties are entitled to depose
any other party’s expert witness one (1) time for no more than four (4) hours.
An expert may not testify in a party’s case-in-chief concerning any matter not
fairly disclosed in the expert report.
4.6         Dispositive Motions. Each party shall have the right to submit
dispositive motions pursuant Rule 12 or Rule 56 of the Utah Rules of Civil
Procedure (a “Dispositive Motion”). The party submitting the Dispositive Motion
may, but is not required to, deliver to the arbitrator and to the other party a
memorandum in support (the “Memorandum in Support”) of the Dispositive Motion.
Within seven (7) calendar days of delivery of the Memorandum in Support, the
other party shall deliver to the arbitrator and to the other party a memorandum
in opposition to the Memorandum in Support (the “Memorandum in Opposition”).
Within seven (7) calendar days of delivery of the Memorandum in Opposition, as
applicable, the party that submitted the Memorandum in Support shall deliver to
the arbitrator and to the other party a reply memorandum to the Memorandum in
Opposition (“Reply Memorandum”). If the applicable party shall fail to deliver
the Memorandum in Opposition as required above, or if the other party fails to
deliver the Reply Memorandum as required above, then the applicable party shall
lose its right to so deliver the same, and the Dispositive Motion shall proceed
regardless.
4.7         Confidentiality. All information disclosed by either party (or such
party’s agents) during the Arbitration process (including without limitation
information disclosed during the discovery process or any Appeal (defined
below)) shall be considered confidential in nature. Each party agrees not to
disclose any confidential information received from the other party (or its
agents) during the Arbitration process (including without limitation during the
discovery process or any Appeal) unless (a) prior to or after the time of
disclosure such information becomes public knowledge or part of the public
domain, not as a result of any inaction or action of the receiving party or its
agents, (b) such information is required by a court order, subpoena or similar
legal duress to be disclosed if such receiving party has notified the other
party thereof in writing and given it a reasonable opportunity to obtain a
protective order from a court of competent jurisdiction prior to disclosure, or
(c) such information is disclosed to the receiving party’s agents,
representatives and legal counsel on a need to know basis who each agree in
writing not to disclose such information to any third party. Pursuant to Section
118(5) of the Arbitration Act, the arbitrator is hereby authorized and directed
to issue a protective order to prevent the disclosure of privileged information
and confidential information upon the written request of either party.
4.8         Authorization; Timing; Scheduling Order. Subject to all other
portions of these Arbitration Provisions, the parties hereby authorize and
direct the arbitrator to take such actions and make such rulings as may be
necessary to carry out the parties’ intent for the Arbitration proceedings to be
efficient and expeditious. Pursuant to Section 120 of the Arbitration Act, the
parties hereby agree that an Arbitration Award must be made within one hundred
twenty (120) calendar days after the Arbitration Commencement Date. The
arbitrator is hereby authorized and directed to hold a scheduling conference
within ten (10) calendar days after the Arbitration Commencement Date in order
to establish a scheduling order with various binding deadlines for discovery,
expert testimony, and the submission of documents by the parties to enable the
arbitrator to render a decision prior to the end of such 120-day period.
 

 
 
4.9         Relief. The arbitrator shall have the right to award or include in
the Arbitration Award (or in a preliminary ruling) any relief which the
arbitrator deems proper under the circumstances, including, without limitation,
specific performance and injunctive relief, provided that the arbitrator may not
award exemplary or punitive damages.
4.10                 Fees and Costs. As part of the Arbitration Award, the
arbitrator is hereby directed to require the losing party (the party being
awarded the least amount of money by the arbitrator, which, for the avoidance of
doubt, shall be determined without regard to any statutory fines, penalties,
fees, or other charges awarded to any party) to (a) pay the full amount of any
unpaid costs and fees of the Arbitration, and (b) reimburse the prevailing party
for all reasonable attorneys’ fees, arbitrator costs and fees, deposition costs,
other discovery costs, and other expenses, costs or fees paid or otherwise
incurred by the prevailing party in connection with the Arbitration.
5.       Arbitration Appeal.
5.1         Initiation of Appeal. Following the entry of the Arbitration Award,
either party (the “Appellant”) shall have a period of thirty (30) calendar days
in which to notify the other party (the “Appellee”), in writing, that the
Appellant elects to appeal (the “Appeal”) the Arbitration Award (such notice, an
“Appeal Notice”) to a panel of arbitrators as provided in Paragraph 5.2 below.
The date the Appellant delivers an Appeal Notice to the Appellee is referred to
herein as the “Appeal Date”. The Appeal Notice must be delivered to the Appellee
in accordance with the provisions of Paragraph 4.1 above with respect to
delivery of an Arbitration Notice. In addition, together with delivery of the
Appeal Notice to the Appellee, the Appellant must also pay for (and provide
proof of such payment to the Appellee together with delivery of the Appeal
Notice) a bond in the amount of 110% of the sum the Appellant owes to the
Appellee as a result of the Arbitration Award the Appellant is appealing. In the
event an Appellant delivers an Appeal Notice to the Appellee (together with
proof of payment of the applicable bond) in compliance with the provisions of
this Paragraph 5.1, the Appeal will occur as a matter of right and, except as
specifically set forth herein, will not be further conditioned. In the event a
party does not deliver an Appeal Notice (along with proof of payment of the
applicable bond) to the other party within the deadline prescribed in this
Paragraph 5.1, such party shall lose its right to appeal the Arbitration Award.
If no party delivers an Appeal Notice (along with proof of payment of the
applicable bond) to the other party within the deadline described in this
Paragraph 5.1, the Arbitration Award shall be final. The parties acknowledge and
agree that any Appeal shall be deemed part of the parties’ agreement to
arbitrate for purposes of these Arbitration Provisions and the Arbitration Act.
5.2         Selection and Payment of Appeal Panel. In the event an Appellant
delivers an Appeal Notice to the Appellee (together with proof of payment of the
applicable bond) in compliance with the provisions of Paragraph 5.1 above, the
Appeal will be heard by a three (3) person arbitration panel (the “Appeal
Panel”).
(a)         Within ten (10) calendar days after the Appeal Date, the Appellee
shall select and submit to the Appellant the names of five (5) arbitrators that
are designated as “neutrals” or qualified arbitrators by Utah ADR Services
(http://www.utahadrservices.com) (such five (5) designated persons hereunder are
referred to herein as the “Proposed Appeal Arbitrators”). For the avoidance of
doubt, each Proposed Appeal Arbitrator must be qualified as a “neutral” with
Utah ADR Services, and shall not be the arbitrator who rendered the Arbitration
Award being appealed (the “Original Arbitrator”). Within five (5) calendar days
after the Appellee has submitted to the Appellant the names of the Proposed
Appeal Arbitrators, the Appellant must select, by written notice to the
Appellee, three (3) of the Proposed Appeal Arbitrators to act as the members of
the Appeal Panel. If the Appellant fails to select three (3) of the Proposed
Appeal Arbitrators in writing within such 5-day period, then the Appellee may
select such three (3) arbitrators from the Proposed Appeal Arbitrators by
providing written notice of such selection to the Appellant.
(b)         If the Appellee fails to submit to the Appellant the names of the
Proposed Appeal Arbitrators within ten (10) calendar days after the Appeal Date
pursuant to subparagraph (a) above, then the Appellant may at any time prior to
the Appellee so designating the Proposed Appeal Arbitrators, identify the names
of five (5) arbitrators that are designated as “neutrals” or qualified
arbitrators by Utah ADR Service (none of whom may be the Original Arbitrator) by
written notice to the Appellee. The Appellee may then, within five (5) calendar
days after the Appellant has submitted notice of its selected arbitrators to the
Appellee, select, by written notice to the Appellant, three (3) of such selected
arbitrators to serve on the Appeal Panel. If the Appellee fails to select in
writing within such 5-day period three (3) of the arbitrators selected by the
Appellant to serve as the members of the Appeal Panel, then the Appellant may
select the three (3) members of the Appeal Panel from the Appellant’s list of
five (5) arbitrators by providing written notice of such selection to the
Appellee.
 

 
 
(c)         If a selected Proposed Appeal Arbitrator declines or is otherwise
unable to serve, then the party that selected such Proposed Appeal Arbitrator
may select one (1) of the other five (5) designated Proposed Appeal Arbitrators
within three (3) calendar days of the date a chosen Proposed Appeal Arbitrator
declines or notifies the parties he or she is unable to serve as an arbitrator.
If at least three (3) of the five (5) designated Proposed Appeal Arbitrators
decline or are otherwise unable to serve, then the Proposed Appeal Arbitrator
selection process shall begin again in accordance with this Paragraph 5.2;
provided, however, that any Proposed Appeal Arbitrators who have already agreed
to serve shall remain on the Appeal Panel.
(d)         The date that all three (3) Proposed Appeal Arbitrators selected
pursuant to this Paragraph 5.2 agree in writing (including via email) delivered
to both the Appellant and the Appellee to serve as members of the Appeal Panel
hereunder is referred to herein as the “Appeal Commencement Date”. No later than
five (5) calendar days after the Appeal Commencement Date, the Appellee shall
designate in writing (including via email) to the Appellant and the Appeal Panel
the name of one (1) of the three (3) members of the Appeal Panel to serve as the
lead arbitrator in the Appeal proceedings. Each member of the Appeal Panel shall
be deemed an arbitrator for purposes of these Arbitration Provisions and the
Arbitration Act, provided that, in conducting the Appeal, the Appeal Panel may
only act or make determinations upon the approval or vote of no less than the
majority vote of its members, as announced or communicated by the lead
arbitrator on the Appeal Panel. If an arbitrator on the Appeal Panel ceases or
is unable to act during the Appeal proceedings, a replacement arbitrator shall
be chosen in accordance with Paragraph 5.2 above to continue the Appeal as a
member of the Appeal Panel. If Utah ADR Services ceases to exist or to provide a
list of neutrals, then the arbitrators for the Appeal Panel shall be selected
under the then prevailing rules of the American Arbitration Association.
(d)         Subject to Paragraph 5.7 below, the cost of the Appeal Panel must be
paid entirely by the Appellant.
5.3         Appeal Procedure. The Appeal will be deemed an appeal of the entire
Arbitration Award. In conducting the Appeal, the Appeal Panel shall conduct a de
novo review of all Claims described or otherwise set forth in the Arbitration
Notice. Subject to the foregoing and all other provisions of this Paragraph 5,
the Appeal Panel shall conduct the Appeal in a manner the Appeal Panel considers
appropriate for a fair and expeditious disposition of the Appeal, may hold one
or more hearings and permit oral argument, and may review all previous evidence
and discovery, together with all briefs, pleadings and other documents filed
with the Original Arbitrator (as well as any documents filed with the Appeal
Panel pursuant to Paragraph 5.4(a) below). Notwithstanding the foregoing, in
connection with the Appeal, the Appeal Panel shall not permit the parties to
conduct any additional discovery or raise any new Claims to be arbitrated, shall
not permit new witnesses or affidavits, and shall not base any of its findings
or determinations on the Original Arbitrator’s findings or the Arbitration
Award.
5.4         Timing.
 (a)         Within seven (7) calendar days of the Appeal Commencement Date, the
Appellant (i) shall deliver or cause to be delivered to the Appeal Panel copies
of the Appeal Notice, all discovery conducted in connection with the
Arbitration, and all briefs, pleadings and other documents filed with the
Original Arbitrator (which material Appellee shall have the right to review and
supplement if necessary), and (ii) may, but is not required to, deliver to the
Appeal Panel and to the Appellee a Memorandum in Support of the Appellant’s
arguments concerning or position with respect to all Claims, counterclaims,
issues, or accountings presented or pleaded in the Arbitration. Within seven (7)
calendar days of the Appellant’s delivery of the Memorandum in Support, as
applicable, the Appellee shall deliver to the Appeal Panel and to the Appellant
a Memorandum in Opposition to the Memorandum in Support. Within seven (7)
calendar days of the Appellee’s delivery of the Memorandum in Opposition, as
applicable, the Appellant shall deliver to the Appeal Panel and to the Appellee
a Reply Memorandum to the Memorandum in Opposition. If the Appellant shall fail
to substantially comply with the requirements of clause (i) of this subparagraph
(a), the Appellant shall lose its right to appeal the Arbitration Award, and the
Arbitration Award shall be final. If the Appellee shall fail to deliver the
Memorandum in Opposition as required above, or if the Appellant shall fail to
deliver the Reply Memorandum as required above, then the Appellee or the
Appellant, as the case may be, shall lose its right to so deliver the same, and
the Appeal shall proceed regardless.
 

 
 
(b)         Subject to subparagraph (a) above, the parties hereby agree that the
Appeal must be heard by the Appeal Panel within thirty (30) calendar days of the
Appeal Commencement Date, and that the Appeal Panel must render its decision
within thirty (30) calendar days after the Appeal is heard (and in no event
later than sixty (60) calendar days after the Appeal Commencement Date).
5.5         Appeal Panel Award. The Appeal Panel shall issue its decision (the
“Appeal Panel Award”) through the lead arbitrator on the Appeal Panel.
Notwithstanding any other provision contained herein, the Appeal Panel Award
shall (a) supersede in its entirety and make of no further force or effect the
Arbitration Award (provided that any protective orders issued by the Original
Arbitrator shall remain in full force and effect), (b) be final and binding upon
the parties, with no further rights of appeal, (c) be the sole and exclusive
remedy between the parties regarding any Claims, counterclaims, issues, or
accountings presented or pleaded in the Arbitration, and (d) be promptly payable
in United States dollars free of any tax, deduction or offset (with respect to
monetary awards). Any costs or fees, including without limitation attorneys’
fees, incurred in connection with or incident to enforcing the Appeal Panel
Award shall, to the maximum extent permitted by law, be charged against the
party resisting such enforcement. The Appeal Panel Award shall include Default
Interest (with respect to monetary awards) at the rate specified in applicable
Note for Default Interest both before and after the Arbitration Award. Judgment
upon the Appeal Panel Award will be entered and enforced by a state or federal
court sitting in Salt Lake County, Utah.
5.6         Relief. The Appeal Panel shall have the right to award or include in
the Appeal Panel Award any relief which the Appeal Panel deems proper under the
circumstances, including, without limitation, specific performance and
injunctive relief, provided that the Appeal Panel may not award exemplary or
punitive damages.
5.7         Fees and Costs. As part of the Appeal Panel Award, the Appeal Panel
is hereby directed to require the losing party (the party being awarded the
least amount of money by the arbitrator, which, for the avoidance of doubt,
shall be determined without regard to any statutory fines, penalties, fees, or
other charges awarded to any party) to (a) pay the full amount of any unpaid
costs and fees of the Arbitration and the Appeal Panel, and (b) reimburse the
prevailing party (the party being awarded the most amount of money by the Appeal
Panel, which, for the avoidance of doubt, shall be determined without regard to
any statutory fines, penalties, fees, or other charges awarded to any part) the
reasonable attorneys’ fees, arbitrator and Appeal Panel costs and fees,
deposition costs, other discovery costs, and other expenses, costs or fees paid
or otherwise incurred by the prevailing party in connection with the Arbitration
(including without limitation in connection with the Appeal).
6.           Miscellaneous.
6.1         Severability. If any part of these Arbitration Provisions is found
to violate or be illegal under applicable law, then such provision shall be
modified to the minimum extent necessary to make such provision enforceable
under applicable law, and the remainder of the Arbitration Provisions shall
remain unaffected and in full force and effect.
6.2         Governing Law. These Arbitration Provisions shall be governed by the
laws of the State of Utah without regard to the conflict of laws principles
therein.
6.3         Interpretation. The headings of these Arbitration Provisions are for
convenience of reference only and shall not form part of, or affect the
interpretation of, these Arbitration Provisions.
6.4         Waiver. No waiver of any provision of these Arbitration Provisions
shall be effective unless it is in the form of a writing signed by the party
granting the waiver.
6.5         Time is of the Essence. Time is expressly made of the essence with
respect to each and every provision of these Arbitration Provisions.
 
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EXHIBIT A
THIS NOTE (AS DEFINED BELOW) IS ISSUED IN EXCHANGE FOR (WITHOUT ANY ADDITIONAL
CONSIDERATION) THAT CERTAIN FIRST REPLACEMENT AMENDED, RESTATED AND CONSOLIDATED
SENIOR SECURED CONVERTIBLE REDEEMABLE DEBENTURE A IN THE ORIGINAL PRINCIPAL
AMOUNT OF $80,000.00 HAVING AN ORIGINAL ISSUE DATE OF OCTOBER 27, 2015. FOR
PURPOSES OF RULE 144 (AS DEFINED BELOW), THIS NOTE SHALL BE DEEMED TO HAVE BEEN
ISSUED ON OCTOBER 27, 2015.
CONVERTIBLE PROMISSORY NOTE
“Original Issue Date”: October 27, 2015  U.S. $128,000.00
 
FOR VALUE RECEIVED, GrowLife, Inc., a Delaware corporation (“Borrower”),
promises to pay to Chicago Venture Partners, L.P., a Utah limited partnership,
or its successors or assigns (“Lender”), $128,000.00 and any interest, fees,
charges, and late fees on or before the date that is six (6) months from the
Exchange Date (as defined below) (the “Maturity Date”) in accordance with the
terms set forth herein. This Convertible Promissory Note (this “Note”) is issued
and made effective pursuant to that certain Exchange Agreement dated as of
August 17, 2016 (the “Exchange Date”), as the same may be amended from time to
time (the “Exchange Agreement”), by and between Borrower and Lender, pursuant to
which Lender exchanged the Initial Debenture (as defined in the Exchange
Agreement) for this Note, pursuant to Section 3(a)(9) of the Securities Act of
1933, as amended. Certain capitalized terms used herein are defined in
Attachment 1 attached hereto and incorporated herein by this reference.
As set forth in the Exchange Agreement, Borrower agreed to pay an Exchange Fee
(as defined in the Exchange Agreement) in the amount of $48,000.00, all of which
Exchange Fee is included in the initial principal balance of this Note and all
of which amount is fully earned and payable as of the date hereof.
Payment; Prepayment. All payments owing hereunder shall be in lawful money of
the United States of America or Conversion Shares (as defined below), as
provided for herein, and delivered to Lender at the address furnished to
Borrower for that purpose. All payments shall be applied first to (a) costs of
collection, if any, then to (b) fees and charges, if any, then to (c) accrued
and unpaid interest, and thereafter, to (d) principal. Notwithstanding the
foregoing, so long as Borrower has not received a Conversion Notice (as defined
below) from Lender where the applicable Conversion Shares have not yet been
delivered and so long as no Event of Default has occurred since the Exchange
Date (whether declared by Lender or undeclared), then Borrower shall have the
right, exercisable on not less than five (5) Trading Days prior written notice
to Lender to prepay the Outstanding Balance of this Note, in full, in accordance
with this Section 1. Any notice of prepayment hereunder (an “Optional Prepayment
Notice”) shall be delivered to Lender at its registered address and shall state:
(i) that Borrower is exercising its right to prepay this Note, and (ii) the date
of prepayment, which shall be not less than five (5) Trading Days from the date
of the Optional Prepayment Notice. On the date fixed for prepayment (the
“Optional Prepayment Date”), Borrower shall make payment of the Optional
Prepayment Amount (as defined below) to or upon the order of Lender as may be
specified by Lender in writing to Borrower. If Borrower exercises its right to
prepay this Note, Borrower shall make payment to Lender of an amount in cash
equal to 125% multiplied by the then Outstanding Balance of this Note (the
“Optional Prepayment Amount”). In the event Borrower delivers the Optional
Prepayment Amount to Lender prior to the Optional Prepayment Date or without
delivering an Optional Prepayment Notice to Lender as set forth herein without
Lender’s prior written consent, the Optional Prepayment Amount shall not be
deemed to have been paid to Lender until the Optional Prepayment Date. Moreover,
in such event the Optional Prepayment Liquidated Damages Amount will
automatically be added to the Outstanding Balance of this Note on the day
Borrower delivers the Optional Prepayment Amount to Lender. In the event
Borrower delivers the Optional Prepayment Amount without an Optional Prepayment
Notice, then the Optional Prepayment Date will be deemed to be the date that is
five (5) Trading Days from the date that the Optional Prepayment Amount was
delivered to Lender. In addition, if Borrower delivers an Optional Prepayment
Notice and fails to pay the Optional Prepayment Amount due to Lender within two
(2) Trading Days following the Optional Prepayment Date, Borrower shall forever
forfeit its right to prepay this Note.
 

 
 
Security. This Note is unsecured.
Conversion.
Conversion Price. Subject to the adjustments set forth herein, the conversion
price (the “Conversion Price”) for each Conversion (as defined below) shall be
equal to the product of 65% (the “Conversion Factor”) multiplied by the average
for the three (3) lowest daily VWAPs for the Common Stock (as defined below) in
the twenty (20) Trading Days immediately preceding the applicable Conversion.
Additionally, if at any time after the Exchange Date, the Conversion Shares are
not DTC Eligible, then the then-current Conversion Factor will automatically be
reduced by 5% for all future Conversions. Finally, in addition to the Default
Effect, if any Major Default occurs after the Exchange Date, the Conversion
Factor shall automatically be reduced for all future Conversions by an
additional 5% for each of the first three (3) Major Defaults that occur after
the Exchange Date (for the avoidance of doubt, each occurrence of any Major
Default shall be deemed to be a separate occurrence for purposes of the
foregoing reductions in Conversion Factor, even if the same Major Default occurs
three (3) separate times). For example, the first time Borrower is not DTC
Eligible, the Conversion Factor for future Conversions thereafter will be
reduced from 65% to 60% for purposes of this example. If, thereafter, there are
three (3) separate occurrences of a Major Default pursuant to Section 4.1(a),
then for purposes of this example the Conversion Factor would be reduced by 5%
for the first such occurrence, and so on for each of the second and third
occurrences of such Major Default.
Conversions. Lender has the right at any time after the Exchange Date until the
Outstanding Balance has been paid in full, including without limitation until
any Optional Prepayment Date (even if Lender has received an Optional Prepayment
Notice), at its election, to convert (each instance of conversion is referred to
herein as a “Conversion”) all or any part of the Outstanding Balance into shares
(“Conversion Shares”) of fully paid and non-assessable common stock, $0.0001 par
value per share (“Common Stock”), of Borrower as per the following conversion
formula: the number of Conversion Shares equals the amount being converted (the
“Conversion Amount”) divided by the Conversion Price. Conversion notices in the
form attached hereto as Exhibit A (each, a “Conversion Notice”) may be
effectively delivered to Borrower by any method of Lender’s choice (including
but not limited to facsimile, email, mail, overnight courier, or personal
delivery), and all Conversions shall be cashless and not require further payment
from Lender. Borrower shall deliver the Conversion Shares from any Conversion to
Lender in accordance with Section 8 below.
Defaults and Remedies.
Defaults. The following are events of default under this Note (each, an “Event
of Default”): Exhibit H Borrower shall fail to pay any principal, interest,
fees, charges, or any other amount when due and payable hereunder; or Exhibit I
Borrower shall fail to deliver any Conversion Shares in accordance with the
terms hereof; or Exhibit J a receiver, trustee or other similar official shall
be appointed over Borrower or a material part of its assets and such appointment
shall remain uncontested for twenty (20) days or shall not be dismissed or
discharged within sixty (60) days; or Exhibit K Borrower shall become insolvent
or generally fails to pay, or admits in writing its inability to pay, its debts
as they become due, subject to applicable grace periods, if any; or Exhibit L
Borrower shall make a general assignment for the benefit of creditors; or
Exhibit M Borrower shall file a petition for relief under any bankruptcy,
insolvency or similar law (domestic or foreign); or Exhibit N an involuntary
proceeding shall be commenced or filed against Borrower; or Exhibit O Borrower
shall default or otherwise fail to observe or perform any covenant, obligation,
condition or agreement of Borrower contained herein or in any other Exchange
Document (as defined in the Exchange Agreement), other than those specifically
set forth in this Section 4.1 and Section 8 of the Exchange Agreement; or
Exhibit P any representation, warranty or other statement made or furnished by
or on behalf of Borrower to Lender herein, in any Exchange Document, or
otherwise in connection with the issuance of this Note shall be false,
incorrect, incomplete or misleading in any material respect when made or
furnished; or Exhibit Q the occurrence of a Fundamental Transaction without
Lender’s prior written consent; or Exhibit R Borrower shall fail to maintain the
Share Reserve as required under the Exchange Agreement; or Exhibit S Borrower
effectuates a reverse split of its Common Stock without twenty (20) Trading Days
prior written notice to Lender; or Exhibit T any money judgment, writ or similar
process shall be entered or filed against Borrower or any subsidiary of Borrower
or any of its property or other assets for more than $100,000.00, and shall
remain unvacated, unbonded or unstayed for a period of twenty (20) calendar days
unless otherwise consented to by Lender; or Exhibit U Borrower shall fail to be
DTC Eligible; or Exhibit V Borrower shall fail to observe or perform any
covenant set forth in Section 8 of the Exchange Agreement.
 

 
 
 Remedies. Upon the occurrence of any Event of Default, Borrower shall within
three (3) Trading Days deliver written notice thereof via facsimile, email or
reputable overnight courier (with next day delivery specified) (an “Event of
Default Notice”) to Lender. At any time and from time to time after the earlier
of Lender’s receipt of an Event of Default Notice and Lender becoming aware of
the occurrence of any Event of Default, Lender may accelerate this Note by
written notice to Borrower, with the Outstanding Balance becoming immediately
due and payable in cash at the Mandatory Default Amount. Notwithstanding the
foregoing, at any time following the occurrence of any Event of Default, Lender
may, at its option, elect to increase the Outstanding Balance by applying the
Default Effect (subject to the limitation set forth below) via written notice to
Borrower without accelerating the Outstanding Balance, in which event the
Outstanding Balance shall be increased as of the date of the occurrence of the
applicable Event of Default pursuant to the Default Effect, but the Outstanding
Balance shall not be immediately due and payable unless so declared by Lender
(for the avoidance of doubt, if Lender elects to apply the Default Effect
pursuant to this sentence, it shall reserve the right to declare the Outstanding
Balance immediately due and payable at any time and no such election by Lender
shall be deemed to be a waiver of its right to declare the Outstanding Balance
immediately due and payable as set forth herein unless otherwise agreed to by
Lender in writing). Notwithstanding the foregoing, upon the occurrence of any
Event of Default described in clauses (c), (d), (e), (f) or (g) of Section 4.1,
the Outstanding Balance as of the date of acceleration shall become immediately
and automatically due and payable in cash at the Mandatory Default Amount,
without any written notice required by Lender. At any time following the
occurrence of any Event of Default, upon written notice given by Lender to
Borrower, interest shall accrue on the Outstanding Balance beginning on the date
the applicable Event of Default occurred at an interest rate equal to the lesser
of 22% per annum or the maximum rate permitted under applicable law (“Default
Interest”). Additionally, following the occurrence of any Event of Default,
Borrower may, at its option, pay any Conversion in cash instead of Conversion
Shares by paying to Lender on or before the applicable Delivery Date (as defined
below) a cash amount equal to the number of Conversion Shares set forth in the
applicable Conversion Notice multiplied by the highest intra-day trading price
of the Common Stock that occurs during the period beginning on the date the
applicable Event of Default occurred and ending on the date of the applicable
Conversion Notice. In connection with acceleration described herein, Lender need
not provide, and Borrower hereby waives, any presentment, demand, protest or
other notice of any kind, and Lender may immediately and without expiration of
any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such acceleration may
be rescinded and annulled by Lender at any time prior to payment hereunder and
Lender shall have all rights as a holder of the Note until such time, if any, as
Lender receives full payment pursuant to this Section 4.2. No such rescission or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon. Nothing herein shall limit Lender’s right to pursue any
other remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to Borrower’s failure to timely deliver Conversion Shares upon
Conversion of the Notes as required pursuant to the terms hereof.
Cross Default. A breach or default by Borrower of any covenant or other term or
condition contained in any Other Agreements shall, at the option of Lender, be
considered an Event of Default under this Note, in which event Lender shall be
entitled (but in no event required) to apply all rights and remedies of Lender
under the terms of this Note.
Unconditional Obligation; No Offset. Borrower acknowledges that this Note is an
unconditional, valid, binding and enforceable obligation of Borrower not subject
to offset, deduction or counterclaim of any kind. Borrower hereby waives any
rights of offset it now has or may have hereafter against Lender, its successors
and assigns, and agrees to make the payments or Conversions called for herein in
accordance with the terms of this Note.
Waiver. No waiver of any provision of this Note shall be effective unless it is
in the form of a writing signed by the party granting the waiver. No waiver of
any provision or consent to any prohibited action shall constitute a waiver of
any other provision or consent to any other prohibited action, whether or not
similar. No waiver or consent shall constitute a continuing waiver or consent or
commit a party to provide a waiver or consent in the future except to the extent
specifically set forth in writing.
Rights Upon Issuance of Securities.
Subsequent Equity Sales. Except with respect to Excluded Securities, if Borrower
or any subsidiary thereof, as applicable, at any time this Note is outstanding,
shall sell, issue or grant any Common Stock, option to purchase Common Stock,
right to reprice, preferred shares convertible into Common Stock, or debt,
warrants, options or other instruments or securities to Lender or any third
party which are convertible into or exercisable for shares of Common Stock
(collectively, the “Equity Securities”), at an effective price per share less
than the then effective Conversion Price (such issuance is referred to herein as
a “Dilutive Issuance”), then, the Conversion Price shall be automatically
reduced and only reduced to equal such lower effective price per share. If the
holder of any Equity Securities so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options, or rights
per share which are issued in connection with such Dilutive Issuance, be
entitled to receive shares of Common Stock at an effective price per share that
is less than the Conversion Price, such issuance shall be deemed to have
occurred for less than the Conversion Price on the date of such Dilutive
Issuance, and the then effective Conversion Price shall be reduced and only
reduced to equal such lower effective price per share. Such adjustments
described above to the Conversion Price shall be permanent (subject to
additional adjustments under this section), and shall be made whenever such
Equity Securities are issued. Borrower shall notify Lender, in writing, no later
than the Trading Day following the issuance of any Equity Securities subject to
this Section 7.1, indicating therein the applicable issuance price, or
applicable reset price, exchange price, conversion price, or other pricing terms
(such notice, the “Dilutive Issuance Notice”). For purposes of clarification,
whether or not Borrower provides a Dilutive Issuance Notice pursuant to this
Section 7.1, upon the occurrence of any Dilutive Issuance, on the date of such
Dilutive Issuance the Conversion Price shall be lowered to equal the applicable
effective price per share regardless of whether Borrower or Lender accurately
refers to such lower effective price per share in any Conversion Notice.
Adjustment of Conversion Price upon Subdivision or Combination of Common Stock.
Without limiting any provision hereof, if Borrower at any time on or after the
Exchange Date subdivides (by any stock split, stock dividend, recapitalization
or otherwise) one or more classes of its outstanding shares of Common Stock into
a greater number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced. Without limiting any provision
hereof, if Borrower at any time on or after the Exchange Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment pursuant to this Section 7.2 shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this Section 7.2 occurs
during the period that a Conversion Price is calculated hereunder, then the
calculation of such Conversion Price shall be adjusted appropriately to reflect
such event.
 

 
 
Other Events. In the event that Borrower (or any subsidiary) shall take any
action to which the provisions hereof are not strictly applicable, or, if
applicable, would not operate to protect Lender from dilution or if any event
occurs of the type contemplated by the provisions of this Section 7 but not
expressly provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then Borrower’s board of directors shall in good faith
determine and implement an appropriate adjustment in the Conversion Price so as
to protect the rights of Lender, provided that no such adjustment pursuant to
this Section 7.3 will increase the Conversion Price as otherwise determined
pursuant to this Section 7, provided further that if Lender does not accept such
adjustments as appropriately protecting its interests hereunder against such
dilution, then Borrower’s board of directors and Lender shall agree, in good
faith, upon an independent investment bank of nationally recognized standing to
make such appropriate adjustments, whose determination shall be final and
binding and whose fees and expenses shall be borne by Borrower.
Method of Conversion Share Delivery. On or before the close of business on the
third (3rd) Trading Day following the date of delivery of a Conversion Notice
(the “Delivery Date”), Borrower shall, provided it is DWAC Eligible at such
time, deliver or cause its transfer agent to deliver the applicable Conversion
Shares electronically via DWAC to the account designated by Lender in the
applicable Conversion Notice. If Borrower is not DWAC Eligible, it shall deliver
to Lender or its broker (as designated in the Conversion Notice), via reputable
overnight courier, a certificate representing the number of shares of Common
Stock equal to the number of Conversion Shares to which Lender shall be
entitled, registered in the name of Lender or its designee. For the avoidance of
doubt, Borrower has not met its obligation to deliver Conversion Shares by the
Delivery Date unless Lender or its broker, as applicable, has actually received
the certificate representing the applicable Conversion Shares no later than the
close of business on the relevant Delivery Date pursuant to the terms set forth
above. Moreover, and notwithstanding anything to the contrary herein or in any
other Exchange Document, in the event Borrower or its transfer agent refuses to
deliver any Conversion Shares to Lender on grounds that such issuance is in
violation of Rule 144 under the Securities Act of 1933, as amended (“Rule 144”),
Borrower shall deliver or cause its transfer agent to deliver the applicable
Conversion Shares to Lender with a restricted securities legend, but otherwise
in accordance with the provisions of this Section 8. In conjunction therewith,
Borrower will also deliver to Lender a written opinion from its counsel or its
transfer agent’s counsel opining as to why the issuance of the applicable
Conversion Shares violates Rule 144.
Conversion Delays. If Borrower fails to deliver Conversion Shares in accordance
with the timeframe stated in Section 8, Lender, at any time prior to selling all
of those Conversion Shares, may rescind in whole or in part that particular
Conversion attributable to the unsold Conversion Shares, with a corresponding
increase to the Outstanding Balance (any returned amount will tack back to the
Original Issue Date for purposes of determining the holding period under Rule
144. In addition, for each Conversion, in the event that Conversion Shares are
not delivered by the fourth Trading Day (inclusive of the day of the
Conversion), a late fee equal to the greater of (a) $500.00 and (b) 2% of the
applicable Conversion Share Value rounded to the nearest multiple of $100.00
(but in any event the cumulative amount of such late fees for each Conversion
shall not exceed 200% of the applicable Conversion Share Value) will be assessed
for each day after the third Trading Day (inclusive of the day of the
Conversion) until Conversion Share delivery is made; and such late fee will be
added to the Outstanding Balance (such fees, the “Conversion Delay Late Fees”).
For illustration purposes only, if Lender delivers a Conversion Notice to
Borrower pursuant to which Borrower is required to deliver 100,000 Conversion
Shares to Lender and on the Delivery Date such Conversion Shares have a
Conversion Share Value of $20,000.00 (assuming a Closing Trade Price on the
Delivery Date of $0.20 per share of Common Stock), then in such event a
Conversion Delay Late Fee in the amount of $500.00 per day (the greater of
$500.00 per day and $20,000.00 multiplied by 2%, which is $400.00) would be
added to the Outstanding Balance of the Note until such Conversion Shares are
delivered to Lender. For purposes of this example, if the Conversion Shares are
delivered to Lender twenty (20) days after the applicable Delivery Date, the
total Conversion Delay Late Fees that would be added to the Outstanding Balance
would be $10,000.00 (20 days multiplied by $500.00 per day). If the Conversion
Shares are delivered to Lender one hundred (100) days after the applicable
Delivery Date, the total Conversion Delay Late Fees that would be added to the
Outstanding Balance would be $40,000.00 (100 days multiplied by $500.00 per day,
but capped at 200% of the Conversion Share Value).
 

 
 
Ownership Limitation. Notwithstanding anything to the contrary contained in this
Note or the other Exchange Documents, if at any time Lender shall or would be
issued shares of Common Stock under any of the Exchange Documents, but such
issuance would cause Lender (together with its affiliates) to beneficially own a
number of shares exceeding 4.99% of the number of shares of Common Stock
outstanding on such date (including for such purpose the shares of Common Stock
issuable upon such issuance) (the “Maximum Percentage”), then Borrower must not
issue to Lender shares of Common Stock which would exceed the Maximum
Percentage. For purposes of this section, beneficial ownership of Common Stock
will be determined pursuant to Section 13(d) of the 1934 Act. The shares of
Common Stock issuable to Lender that would cause the Maximum Percentage to be
exceeded are referred to herein as the “Ownership Limitation Shares”. Borrower
will reserve the Ownership Limitation Shares for the exclusive benefit of
Lender. From time to time, Lender may notify Borrower in writing of the number
of the Ownership Limitation Shares that may be issued to Lender without causing
Lender to exceed the Maximum Percentage. Upon receipt of such notice, Borrower
shall be unconditionally obligated to immediately issue such designated shares
to Lender, with a corresponding reduction in the number of the Ownership
Limitation Shares. Notwithstanding the forgoing, the term “4.99%” above shall be
replaced with “9.99%” at such time as the Market Capitalization is less than
$10,000,000.00. Notwithstanding any other provision contained herein, if the
term “4.99%” is replaced with “9.99%” pursuant to the preceding sentence, such
increase to “9.99%” shall remain at 9.99% until increased, decreased or waived
by Lender as set forth below. By written notice to Borrower, Lender may
increase, decrease or waive the Maximum Percentage as to itself but any such
waiver will not be effective until the 61st day after delivery thereof. The
foregoing 61-day notice requirement is enforceable, unconditional and
non-waivable and shall apply to all affiliates and assigns of Lender.
Payment of Collection Costs. If this Note is placed in the hands of an attorney
for collection or enforcement prior to commencing arbitration or legal
proceedings, or is collected or enforced through any arbitration or legal
proceeding, or Lender otherwise takes action to collect amounts due under this
Note or to enforce the provisions of this Note, then Borrower shall pay the
costs incurred by Lender for such collection, enforcement or action including,
without limitation, attorneys’ fees and disbursements. Borrower also agrees to
pay for any costs, fees or charges of its transfer agent that are charged to
Lender pursuant to any Conversion or issuance of shares pursuant to this Note.
Opinion of Counsel. In the event that an opinion of counsel is needed for any
matter related to this Note, Lender has the right to have any such opinion
provided by its counsel. Lender also has the right to have any such opinion
provided by Borrower’s counsel.
Governing Law. This Note shall be construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation and
performance of this Note shall be governed by, the internal laws of the State of
Utah, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of Utah or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of Utah.
The provisions set forth in the Exchange Agreement to determine the proper venue
for any disputes are incorporated herein by this reference.
 

 
 
Resolution of Disputes.
Arbitration of Disputes. By its acceptance of this Note, each party agrees to be
bound by the Arbitration Provisions (as defined in the Exchange Agreement) set
forth as an exhibit to the Exchange Agreement.
Calculation Disputes. Notwithstanding the Arbitration Provisions, in the case of
a dispute as to any Calculation (as defined in the Exchange Agreement), such
dispute will be resolved in the manner set forth in the Exchange Agreement.
Cancellation. After repayment or conversion of the entire Outstanding Balance,
this Note shall be deemed paid in full, shall automatically be deemed canceled,
and shall not be reissued.
Amendments. The prior written consent of both parties hereto shall be required
for any change or amendment to this Note.
Assignments. Borrower may not assign this Note without the prior written consent
of Lender. This Note and any shares of Common Stock issued upon conversion of
this Note may be offered, sold, assigned or transferred by Lender without the
consent of Borrower.
Time is of the Essence. Time is expressly made of the essence with respect to
each and every provision of this Note and the documents and instruments entered
into in connection herewith.
Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with the
subsection of the Exchange Agreement titled “Notices.”
Liquidated Damages. Lender and Borrower agree that in the event Borrower fails
to comply with any of the terms or provisions of this Note, Lender’s damages
would be uncertain and difficult (if not impossible) to accurately estimate
because of the parties’ inability to predict future interest rates, future share
prices, future trading volumes and other relevant factors. Accordingly, Lender
and Borrower agree that any fees, balance adjustments, Default Interest or other
charges assessed under this Note are not penalties but instead are intended by
the parties to be, and shall be deemed, liquidated damages (under Lender’s and
Borrower’s expectations that any such liquidated damages will tack back to the
Original Issue Date for purposes of determining the holding period under Rule
144).
Waiver of Jury Trial. EACH OF LENDER AND BORROWER IRREVOCABLY WAIVES ANY AND ALL
RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR THE RELATIONSHIPS OF THE
PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO
DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW,
RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS
KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.
Voluntary Agreement. Borrower has carefully read this Note and has asked any
questions needed for Borrower to understand the terms, consequences and binding
effect of this Note and fully understand them. Borrower has had the opportunity
to seek the advice of an attorney of Borrower’s choosing, or has waived the
right to do so, and is executing this Note voluntarily and without any duress or
undue influence by Lender or anyone else.
 

 
 
Severability. If any part of this Note is construed to be in violation of any
law, such part shall be modified to achieve the objective of Borrower and Lender
to the fullest extent permitted by law and the balance of this Note shall remain
in full force and effect.
Par Value Adjustments. If at any time Lender delivers a Conversion Notice to
Borrower and as of such date the Conversion Price would be less than the Par
Value, then, as liquidated damages, Company must pay to Lender the Par Value
Adjustment Amount in cash within one (1) Trading Day of delivery of the
applicable Conversion Notice (a “Par Value Adjustment”). If Borrower does not
deliver the Par Value Adjustment Amount as required, then such amount shall
automatically be added to the Outstanding Balance. The number of Conversion
Shares deliverable pursuant to any relevant Conversion Notice following a Par
Value Adjustment shall be equal to (a) the Conversion Amount, divided by (b) the
Par Value. In the event of a Par Value Adjustment, Lender will use a Conversion
Notice in substantially the form attached hereto as Exhibit B.
[Remainder of page intentionally left blank; signature page follows]
 

 
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the
Exchange Date.
BORROWER:
GrowLife, Inc.
 
By: /s/ Marco Hegyi
Name: Marco Hegyi
Title: CEO
 
ACKNOWLEDGED, ACCEPTED AND AGREED:
 
LENDER:
Chicago Venture Partners, L.P.
 
By: Chicago Venture Management, L.L.C.,
its General Partner
 
By: CVM, Inc., its Manager
 
 
By: /s/ John M. Fife
   John M. Fife, President
 
 
 

 
 
ATTACHMENT 1
DEFINITIONS
 
For purposes of this Note, the following terms shall have the following
meanings:
“Approved Stock Plan” means any stock option plan which has been approved by the
board of directors of Borrower and is in effect as of the Exchange Date,
pursuant to which Borrower’s securities may be issued to any employee, officer
or director for services provided to Borrower.
“Bloomberg” means Bloomberg L.P. (or if that service is not then reporting the
relevant information regarding the Common Stock, a comparable reporting service
of national reputation selected by Lender and reasonably satisfactory to
Borrower).
“Deemed Issuance” means an issuance of Common Stock that shall be deemed to have
occurred on the latest possible permitted date pursuant to the terms hereof in
the event Borrower fails to deliver Conversion Shares as and when required
pursuant to Section 8.
“Default Effect” means multiplying the Outstanding Balance as of the date the
applicable Event of Default occurred by (a) 15% for each occurrence of any Major
Default, or (b) 5% for each occurrence of any Minor Default, and then adding the
resulting product to the Outstanding Balance as of the date the applicable Event
of Default occurred, with the sum of the foregoing then becoming the Outstanding
Balance under this Note as of the date the applicable Event of Default occurred;
provided that the Default Effect may only be applied three (3) times hereunder
with respect to Major Defaults and three (3) times hereunder with respect to
Minor Defaults; and provided further that the Default Effect shall not apply to
any Event of Default pursuant to Section 4.1(b) hereof.
“DTC” means the Depository Trust Company.
“DTC Eligible” means, with respect to the Common Stock, that such Common Stock
is eligible to be deposited in certificate form at the DTC, cleared and
converted into electronic shares by the DTC and held in the name of the clearing
firm servicing Lender’s brokerage firm for the benefit of Lender.
“DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer program.
“DWAC” means the DTC’s Deposit/Withdrawal at Custodian system.
“DWAC Eligible” means that (a) Borrower’s Common Stock is eligible at DTC for
full services pursuant to DTC’s operational arrangements, including without
limitation transfer through DTC’s DWAC system, (b) Borrower has been approved
(without revocation) by the DTC’s underwriting department, (c) Borrower’s
transfer agent is approved as an agent in the DTC/FAST Program, (d) the
Conversion Shares are otherwise eligible for delivery via DWAC; (e) Borrower has
previously delivered all Conversion Shares to Lender via DWAC; and (f)
Borrower’s transfer agent does not have a policy prohibiting or limiting
delivery of the Conversion Shares via DWAC.
“Excluded Securities” means any shares of Common Stock, options, or convertible
securities issued or issuable in connection with any Approved Stock Plan;
provided that the option term, exercise price or similar provisions of any
issuances pursuant to such Approved Stock Plan are not amended, modified or
changed on or after the Exchange Date.
“Fundamental Transaction” means that (a) (i) Borrower or any of its subsidiaries
shall, directly or indirectly, in one or more related transactions, consolidate
or merge with or into (whether or not Borrower or any of its subsidiaries is the
surviving corporation) any other person or entity, or (ii) Borrower or any of
its subsidiaries shall, directly or indirectly, in one or more related
transactions, sell, lease, license, assign, transfer, convey or otherwise
dispose of all or substantially all of its respective properties or assets to
any other person or entity, or (iii) Borrower or any of its subsidiaries shall,
directly or indirectly, in one or more related transactions, allow any other
person or entity to make a purchase, tender or exchange offer that is accepted
by the holders of more than 50% of the outstanding shares of voting stock of
Borrower (not including any shares of voting stock of Borrower held by the
person or persons making or party to, or associated or affiliated with the
persons or entities making or party to, such purchase, tender or exchange
offer), or (iv) Borrower or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, consummate a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with any
other person or entity whereby such other person or entity acquires more than
50% of the outstanding shares of voting stock of Borrower (not including any
shares of voting stock of Borrower held by the other persons or entities making
or party to, or associated or affiliated with the other persons or entities
making or party to, such stock or share purchase agreement or other business
combination), or (v) Borrower or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, reorganize, recapitalize or
reclassify the Common Stock, other than an increase in the number of authorized
shares of Borrower’s Common Stock, or (b) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the
rules and regulations promulgated thereunder) is or shall become the “beneficial
owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding
voting stock of Borrower.
 

 
 
“Major Default” means any Event of Default occurring under Sections 4.1(a),
4.1(k), or 4.1(o) of this Note.
“Mandatory Default Amount” means the greater of (a) the Outstanding Balance
divided by the Conversion Price on the date the Mandatory Default Amount is
demanded, multiplied by the VWAP on the date the Mandatory Default Amount is
demanded, or (b) the Outstanding Balance following the application of the
Default Effect.
“Market Capitalization” means the product equal to (a) the average VWAP of the
Common Stock for the immediately preceding fifteen (15) Trading Days, multiplied
by (b) the aggregate number of outstanding shares of Common Stock as reported on
Borrower’s most recently filed Form 10-Q or Form 10-K.
“Minor Default” means any Event of Default that is not a Major Default.
“Optional Prepayment Liquidated Damages Amount” means an amount equal to the
difference between (a) the product of (i) the number of shares of Common Stock
obtained by dividing (1) the applicable Optional Prepayment Amount by (2) the
Conversion Price as of the date Borrower delivered the applicable Optional
Prepayment Amount to Lender, multiplied by (ii) the Closing Trade Price of the
Common Stock on the date Borrower delivered the applicable Optional Prepayment
Amount to Lender, and (b) the applicable Optional Prepayment Amount paid by
Borrower to Lender. For illustration purposes only, if the applicable Optional
Prepayment Amount were $50,000.00, the Conversion Price as of the date the
Optional Prepayment Amount was paid to Lender was equal to $0.75 per share of
Common Stock, and the Closing Trade Price of a share of Common Stock as of such
date was equal to $1.00, then the Optional Prepayment Liquidated Damages Amount
would equal $16,666.67 computed as follows: (a) $66,666.67 (calculated as (i)
(1) $50,000.00 divided by (2) $0.75 multiplied by (ii) $1.00) minus (b)
$50,000.00.
“Other Agreements” means, collectively, (a) all existing and future agreements
and instruments between, among or by Borrower (or an affiliate), on the one
hand, and Lender (or an affiliate), on the other hand, and (b) any financing
agreement or a material agreement that affects Borrower’s ongoing business
operations.
“Outstanding Balance” means as of any date of determination, the Purchase Price,
as reduced or increased, as the case may be, pursuant to the terms hereof for
payment, Conversion, offset, or otherwise, plus the Exchange Fee, accrued but
unpaid interest, collection and enforcements costs (including attorneys’ fees)
incurred by Lender, transfer, stamp, issuance and similar taxes and fees related
to Conversions, and any other fees or charges (including without limitation
Conversion Delay Late Fees) incurred under this Note.
Par Value” means the par value of the Common Stock on any relevant date of
determination. The Par Value as of the Exchange Date is $0.0001.
“Par Value Adjustment Amount” means an amount calculated as follows: (a) the
number of Conversion Shares deliverable under a particular Conversion Notice
(prior to any Par Value Adjustment) multiplied by the Par Value, less (b) the
Conversion Amount (prior to any Par Value Adjustment), plus (c) $500.00. For
illustration purposes only, if for a given Conversion, the Conversion Amount was
$20,000.00, the Conversion Price was $0.0008 and the Par Value was $0.001 then
the Par Value Adjustment Amount would be $5,500.00 (25,000,000 Conversion Shares
($20,000.00/$0.0008) multiplied by the Par Value of $0.001 ($25,000.00) minus
the Conversion Amount of $20,000.00 plus $500.00 equals $5,500.00).
“Trading Day” means any day on which the New York Stock Exchange is open for
trading.
“VWAP” means the volume weighted average price of the Common stock on the
principal market for a particular Trading Day or set of Trading Days, as the
case may be, as reported by Bloomberg.
 

 
EXHIBIT A
Chicago Venture Partners, L.P.
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
 
GrowLife,
Inc.                                                                                                                                           Date:
__________________
Attn: Marco Hegyi, CEO
5400 Carillon Point
Kirkland, Washington 98033
 
CONVERSION NOTICE
 
The above-captioned Lender hereby gives notice to GrowLife, Inc., a Delaware
corporation (the “Borrower”), pursuant to that certain Convertible Promissory
Note made by Borrower in favor of Lender on August 17, 2016 (the “Note”), that
Lender elects to convert the portion of the Note balance set forth below into
fully paid and non-assessable shares of Common Stock of Borrower as of the date
of conversion specified below. Said conversion shall be based on the Conversion
Price set forth below. In the event of a conflict between this Conversion Notice
and the Note, the Note shall govern, or, in the alternative, at the election of
Lender in its sole discretion, Lender may provide a new form of Conversion
Notice to conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the Note.
 
A. Date of Conversion: ____________
B. Conversion #:  ____________
C. Conversion Amount:  ____________
D. Conversion Price: _______________
E. Conversion Shares: _______________ (C divided by D)
F. Remaining Outstanding Balance of Note: ____________*
 
* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Exchange Documents (as defined in the Exchange
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Conversion Notice and such Exchange Documents.
 
So that DTC processing can begin, please deliver, via reputable overnight
courier, a certificate representing DTC Eligible Lender Conversion Shares to:
 
Name:        _____________________________________
Address:    _____________________________________
_____________________________________
 
To the extent the Lender Conversion Shares are not DTC Eligible, please deliver,
via reputable overnight courier, a certificate representing the non-DTC Eligible
Lender Conversion Shares to the party at the address set forth above.
 
 
[Remainder of page intentionally left blank]
 

 
 
Sincerely,
 
Lender:
 
Chicago Venture Partners, L.P.
 
By: Chicago Venture Management, L.L.C.,
its General Partner
 
By: CVM, Inc., its Manager
 
 
By:                                                     

      John M. Fife, President
 

 
EXHIBIT B
Chicago Venture Partners, L.P.
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
 
GrowLife,
Inc.                                                                                                                                           Date:
__________________
Attn: Marco Hegyi, CEO
5400 Carillon Point
Kirkland, Washington 98033
 
CONVERSION NOTICE
 
The above-captioned Lender hereby gives notice to GrowLife, Inc., a Delaware
corporation (the “Borrower”), pursuant to that certain Convertible Promissory
Note made by Borrower in favor of Lender on August 17, 2016 (the “Note”), that
Lender elects to convert the portion of the Note balance set forth below into
fully paid and non-assessable shares of Common Stock of Borrower as of the date
of conversion specified below. Said conversion shall be based on the Conversion
Price set forth below. In the event of a conflict between this Conversion Notice
and the Note, the Note shall govern, or, in the alternative, at the election of
Lender in its sole discretion, Lender may provide a new form of Conversion
Notice to conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the Note.
 
A. Date of Conversion: ____________
B. Conversion #:  ____________
C. Conversion Amount:  ____________
D. Par Value Adjustment Amount: _______________
E. Conversion Price: _______________ (Par Value)
F. Conversion Shares: _______________ (C divided by E)
F. Remaining Outstanding Balance of Note: ____________*
 
* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Exchange Documents (as defined in the Exchange
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Conversion Notice and such Exchange Documents.
 
So that DTC processing can begin, please deliver, via reputable overnight
courier, a certificate representing DTC Eligible Lender Conversion Shares to:
 
Name:        _____________________________________
Address:     _____________________________________
_____________________________________
 
To the extent the Lender Conversion Shares are not DTC Eligible, please deliver,
via reputable overnight courier, a certificate representing the non-DTC Eligible
Lender Conversion Shares to the party at the address set forth above.
 
The Par Value Adjustment Amount must be paid in cash within one (1) Trading Day
of your receipt of this Conversion Notice.
 
 
[Remainder of page intentionally left blank]
 

 
Sincerely,
 
Lender:
 
Chicago Venture Partners, L.P.
 
By: Chicago Venture Management, L.L.C.,
its General Partner
 
By: CVM, Inc., its Manager
 
 
By:                                                     

      John M. Fife, President
 
 
 
 
 

 
EXHIBIT B
THIS NOTE (AS DEFINED BELOW) IS ISSUED IN EXCHANGE FOR (WITHOUT ANY ADDITIONAL
CONSIDERATION) THAT CERTAIN FIRST REPLACEMENT AMENDED, RESTATED AND CONSOLIDATED
SENIOR SECURED CONVERTIBLE REDEEMABLE DEBENTURE A IN THE ORIGINAL PRINCIPAL
AMOUNT OF $________ HAVING AN ORIGINAL ISSUE DATE OF OCTOBER 27, 2015. FOR
PURPOSES OF RULE 144 (AS DEFINED BELOW), THIS NOTE SHALL BE DEEMED TO HAVE BEEN
ISSUED ON OCTOBER 27, 2015.
FORM OF CONVERTIBLE PROMISSORY NOTE
“Original Issue Date”: October 27, 2015  U.S. $_________
 
FOR VALUE RECEIVED, GrowLife, Inc., a Delaware corporation (“Borrower”),
promises to pay to Chicago Venture Partners, L.P., a Utah limited partnership,
or its successors or assigns (“Lender”), $________ and any interest, fees,
charges, and late fees on or before the date that is six (6) months from the
Exchange Date (as defined below) (the “Maturity Date”) in accordance with the
terms set forth herein. This Convertible Promissory Note (this “Note”) is issued
and made effective pursuant to that certain Exchange Agreement dated as of
August 17, 2016 (the “Exchange Date”), as the same may be amended from time to
time (the “Exchange Agreement”), by and between Borrower and Lender, pursuant to
which Lender exchanged the First Replacement Amended, Restated and Consolidated
Senior Secured Convertible Redeemable Debenture B dated and made effective as of
________ but with an original issuance date of October 27, 2015 for this Note,
pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended. Certain
capitalized terms used herein are defined in Attachment 1 attached hereto and
incorporated herein by this reference.
As set forth in the Exchange Agreement, Borrower agreed to pay an Exchange Fee
(as defined in the Exchange Agreement) in the amount of $_________, all of which
Exchange Fee is included in the initial principal balance of this Note and all
of which amount is fully earned and payable as of the date hereof.
Payment; Prepayment. All payments owing hereunder shall be in lawful money of
the United States of America or Conversion Shares (as defined below), as
provided for herein, and delivered to Lender at the address furnished to
Borrower for that purpose. All payments shall be applied first to (a) costs of
collection, if any, then to (b) fees and charges, if any, then to (c) accrued
and unpaid interest, and thereafter, to (d) principal. Notwithstanding the
foregoing, so long as Borrower has not received a Conversion Notice (as defined
below) from Lender where the applicable Conversion Shares have not yet been
delivered and so long as no Event of Default has occurred since the Exchange
Date (whether declared by Lender or undeclared), then Borrower shall have the
right, exercisable on not less than five (5) Trading Days prior written notice
to Lender to prepay the Outstanding Balance of this Note, in full, in accordance
with this Section 1. Any notice of prepayment hereunder (an “Optional Prepayment
Notice”) shall be delivered to Lender at its registered address and shall state:
(i) that Borrower is exercising its right to prepay this Note, and (ii) the date
of prepayment, which shall be not less than five (5) Trading Days from the date
of the Optional Prepayment Notice. On the date fixed for prepayment (the
“Optional Prepayment Date”), Borrower shall make payment of the Optional
Prepayment Amount (as defined below) to or upon the order of Lender as may be
specified by Lender in writing to Borrower. If Borrower exercises its right to
prepay this Note, Borrower shall make payment to Lender of an amount in cash
equal to 125% multiplied by the then Outstanding Balance of this Note (the
“Optional Prepayment Amount”). In the event Borrower delivers the Optional
Prepayment Amount to Lender prior to the Optional Prepayment Date or without
delivering an Optional Prepayment Notice to Lender as set forth herein without
Lender’s prior written consent, the Optional Prepayment Amount shall not be
deemed to have been paid to Lender until the Optional Prepayment Date. Moreover,
in such event the Optional Prepayment Liquidated Damages Amount will
automatically be added to the Outstanding Balance of this Note on the day
Borrower delivers the Optional Prepayment Amount to Lender. In the event
Borrower delivers the Optional Prepayment Amount without an Optional Prepayment
Notice, then the Optional Prepayment Date will be deemed to be the date that is
five (5) Trading Days from the date that the Optional Prepayment Amount was
delivered to Lender. In addition, if Borrower delivers an Optional Prepayment
Notice and fails to pay the Optional Prepayment Amount due to Lender within two
(2) Trading Days following the Optional Prepayment Date, Borrower shall forever
forfeit its right to prepay this Note.
 

 
 
Security. This Note is unsecured.
Conversion.
Conversion Price. Subject to the adjustments set forth herein, the conversion
price (the “Conversion Price”) for each Conversion (as defined below) shall be
equal to the product of 65% (the “Conversion Factor”) multiplied by the average
for the three (3) lowest daily VWAPs for the Common Stock (as defined below) in
the twenty (20) Trading Days immediately preceding the applicable Conversion.
Additionally, if at any time after the Exchange Date, the Conversion Shares are
not DTC Eligible, then the then-current Conversion Factor will automatically be
reduced by 5% for all future Conversions. Finally, in addition to the Default
Effect, if any Major Default occurs after the Exchange Date, the Conversion
Factor shall automatically be reduced for all future Conversions by an
additional 5% for each of the first three (3) Major Defaults that occur after
the Exchange Date (for the avoidance of doubt, each occurrence of any Major
Default shall be deemed to be a separate occurrence for purposes of the
foregoing reductions in Conversion Factor, even if the same Major Default occurs
three (3) separate times). For example, the first time Borrower is not DTC
Eligible, the Conversion Factor for future Conversions thereafter will be
reduced from 65% to 60% for purposes of this example. If, thereafter, there are
three (3) separate occurrences of a Major Default pursuant to Section 4.1(a),
then for purposes of this example the Conversion Factor would be reduced by 5%
for the first such occurrence, and so on for each of the second and third
occurrences of such Major Default.
Conversions. Lender has the right at any time after the Exchange Date until the
Outstanding Balance has been paid in full, including without limitation until
any Optional Prepayment Date (even if Lender has received an Optional Prepayment
Notice), at its election, to convert (each instance of conversion is referred to
herein as a “Conversion”) all or any part of the Outstanding Balance into shares
(“Conversion Shares”) of fully paid and non-assessable common stock, $0.0001 par
value per share (“Common Stock”), of Borrower as per the following conversion
formula: the number of Conversion Shares equals the amount being converted (the
“Conversion Amount”) divided by the Conversion Price. Conversion notices in the
form attached hereto as Exhibit A (each, a “Conversion Notice”) may be
effectively delivered to Borrower by any method of Lender’s choice (including
but not limited to facsimile, email, mail, overnight courier, or personal
delivery), and all Conversions shall be cashless and not require further payment
from Lender. Borrower shall deliver the Conversion Shares from any Conversion to
Lender in accordance with Section 8 below.
Defaults and Remedies.
Defaults. The following are events of default under this Note (each, an “Event
of Default”): Exhibit W Borrower shall fail to pay any principal, interest,
fees, charges, or any other amount when due and payable hereunder; or Exhibit X
Borrower shall fail to deliver any Conversion Shares in accordance with the
terms hereof; or Exhibit Y a receiver, trustee or other similar official shall
be appointed over Borrower or a material part of its assets and such appointment
shall remain uncontested for twenty (20) days or shall not be dismissed or
discharged within sixty (60) days; or Exhibit Z Borrower shall become insolvent
or generally fails to pay, or admits in writing its inability to pay, its debts
as they become due, subject to applicable grace periods, if any; or Exhibit AA
Borrower shall make a general assignment for the benefit of creditors; or
Exhibit BB Borrower shall file a petition for relief under any bankruptcy,
insolvency or similar law (domestic or foreign); or Exhibit CC an involuntary
proceeding shall be commenced or filed against Borrower; or Exhibit DD Borrower
shall default or otherwise fail to observe or perform any covenant, obligation,
condition or agreement of Borrower contained herein or in any other Exchange
Document (as defined in the Exchange Agreement), other than those specifically
set forth in this Section 4.1 and Section 8 of the Exchange Agreement; or
Exhibit EE any representation, warranty or other statement made or furnished by
or on behalf of Borrower to Lender herein, in any Exchange Document, or
otherwise in connection with the issuance of this Note shall be false,
incorrect, incomplete or misleading in any material respect when made or
furnished; or Exhibit FF the occurrence of a Fundamental Transaction without
Lender’s prior written consent; or Exhibit GG Borrower shall fail to maintain
the Share Reserve as required under the Exchange Agreement; or Exhibit HH
Borrower effectuates a reverse split of its Common Stock without twenty (20)
Trading Days prior written notice to Lender; or Exhibit II any money judgment,
writ or similar process shall be entered or filed against Borrower or any
subsidiary of Borrower or any of its property or other assets for more than
$100,000.00, and shall remain unvacated, unbonded or unstayed for a period of
twenty (20) calendar days unless otherwise consented to by Lender; or Exhibit JJ
Borrower shall fail to be DTC Eligible; or Exhibit KK Borrower shall fail to
observe or perform any covenant set forth in Section 8 of the Exchange
Agreement.
 

 
 
Remedies. Upon the occurrence of any Event of Default, Borrower shall within
three (3) Trading Days deliver written notice thereof via facsimile, email or
reputable overnight courier (with next day delivery specified) (an “Event of
Default Notice”) to Lender. At any time and from time to time after the earlier
of Lender’s receipt of an Event of Default Notice and Lender becoming aware of
the occurrence of any Event of Default, Lender may accelerate this Note by
written notice to Borrower, with the Outstanding Balance becoming immediately
due and payable in cash at the Mandatory Default Amount. Notwithstanding the
foregoing, at any time following the occurrence of any Event of Default, Lender
may, at its option, elect to increase the Outstanding Balance by applying the
Default Effect (subject to the limitation set forth below) via written notice to
Borrower without accelerating the Outstanding Balance, in which event the
Outstanding Balance shall be increased as of the date of the occurrence of the
applicable Event of Default pursuant to the Default Effect, but the Outstanding
Balance shall not be immediately due and payable unless so declared by Lender
(for the avoidance of doubt, if Lender elects to apply the Default Effect
pursuant to this sentence, it shall reserve the right to declare the Outstanding
Balance immediately due and payable at any time and no such election by Lender
shall be deemed to be a waiver of its right to declare the Outstanding Balance
immediately due and payable as set forth herein unless otherwise agreed to by
Lender in writing). Notwithstanding the foregoing, upon the occurrence of any
Event of Default described in clauses (c), (d), (e), (f) or (g) of Section 4.1,
the Outstanding Balance as of the date of acceleration shall become immediately
and automatically due and payable in cash at the Mandatory Default Amount,
without any written notice required by Lender. At any time following the
occurrence of any Event of Default, upon written notice given by Lender to
Borrower, interest shall accrue on the Outstanding Balance beginning on the date
the applicable Event of Default occurred at an interest rate equal to the lesser
of 22% per annum or the maximum rate permitted under applicable law (“Default
Interest”). Additionally, following the occurrence of any Event of Default,
Borrower may, at its option, pay any Conversion in cash instead of Conversion
Shares by paying to Lender on or before the applicable Delivery Date (as defined
below) a cash amount equal to the number of Conversion Shares set forth in the
applicable Conversion Notice multiplied by the highest intra-day trading price
of the Common Stock that occurs during the period beginning on the date the
applicable Event of Default occurred and ending on the date of the applicable
Conversion Notice. In connection with acceleration described herein, Lender need
not provide, and Borrower hereby waives, any presentment, demand, protest or
other notice of any kind, and Lender may immediately and without expiration of
any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such acceleration may
be rescinded and annulled by Lender at any time prior to payment hereunder and
Lender shall have all rights as a holder of the Note until such time, if any, as
Lender receives full payment pursuant to this Section 4.2. No such rescission or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon. Nothing herein shall limit Lender’s right to pursue any
other remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to Borrower’s failure to timely deliver Conversion Shares upon
Conversion of the Notes as required pursuant to the terms hereof.
 

 
 
Cross Default. A breach or default by Borrower of any covenant or other term or
condition contained in any Other Agreements shall, at the option of Lender, be
considered an Event of Default under this Note, in which event Lender shall be
entitled (but in no event required) to apply all rights and remedies of Lender
under the terms of this Note.
Unconditional Obligation; No Offset. Borrower acknowledges that this Note is an
unconditional, valid, binding and enforceable obligation of Borrower not subject
to offset, deduction or counterclaim of any kind. Borrower hereby waives any
rights of offset it now has or may have hereafter against Lender, its successors
and assigns, and agrees to make the payments or Conversions called for herein in
accordance with the terms of this Note.
Waiver. No waiver of any provision of this Note shall be effective unless it is
in the form of a writing signed by the party granting the waiver. No waiver of
any provision or consent to any prohibited action shall constitute a waiver of
any other provision or consent to any other prohibited action, whether or not
similar. No waiver or consent shall constitute a continuing waiver or consent or
commit a party to provide a waiver or consent in the future except to the extent
specifically set forth in writing.
Rights Upon Issuance of Securities.
Subsequent Equity Sales. Except with respect to Excluded Securities, if Borrower
or any subsidiary thereof, as applicable, at any time this Note is outstanding,
shall sell, issue or grant any Common Stock, option to purchase Common Stock,
right to reprice, preferred shares convertible into Common Stock, or debt,
warrants, options or other instruments or securities to Lender or any third
party which are convertible into or exercisable for shares of Common Stock
(collectively, the “Equity Securities”), at an effective price per share less
than the then effective Conversion Price (such issuance is referred to herein as
a “Dilutive Issuance”), then, the Conversion Price shall be automatically
reduced and only reduced to equal such lower effective price per share. If the
holder of any Equity Securities so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options, or rights
per share which are issued in connection with such Dilutive Issuance, be
entitled to receive shares of Common Stock at an effective price per share that
is less than the Conversion Price, such issuance shall be deemed to have
occurred for less than the Conversion Price on the date of such Dilutive
Issuance, and the then effective Conversion Price shall be reduced and only
reduced to equal such lower effective price per share. Such adjustments
described above to the Conversion Price shall be permanent (subject to
additional adjustments under this section), and shall be made whenever such
Equity Securities are issued. Borrower shall notify Lender, in writing, no later
than the Trading Day following the issuance of any Equity Securities subject to
this Section 7.1, indicating therein the applicable issuance price, or
applicable reset price, exchange price, conversion price, or other pricing terms
(such notice, the “Dilutive Issuance Notice”). For purposes of clarification,
whether or not Borrower provides a Dilutive Issuance Notice pursuant to this
Section 7.1, upon the occurrence of any Dilutive Issuance, on the date of such
Dilutive Issuance the Conversion Price shall be lowered to equal the applicable
effective price per share regardless of whether Borrower or Lender accurately
refers to such lower effective price per share in any Conversion Notice.
Adjustment of Conversion Price upon Subdivision or Combination of Common Stock.
Without limiting any provision hereof, if Borrower at any time on or after the
Exchange Date subdivides (by any stock split, stock dividend, recapitalization
or otherwise) one or more classes of its outstanding shares of Common Stock into
a greater number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced. Without limiting any provision
hereof, if Borrower at any time on or after the Exchange Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment pursuant to this Section 7.2 shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this Section 7.2 occurs
during the period that a Conversion Price is calculated hereunder, then the
calculation of such Conversion Price shall be adjusted appropriately to reflect
such event.
 

 
 
Other Events. In the event that Borrower (or any subsidiary) shall take any
action to which the provisions hereof are not strictly applicable, or, if
applicable, would not operate to protect Lender from dilution or if any event
occurs of the type contemplated by the provisions of this Section 7 but not
expressly provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then Borrower’s board of directors shall in good faith
determine and implement an appropriate adjustment in the Conversion Price so as
to protect the rights of Lender, provided that no such adjustment pursuant to
this Section 7.3 will increase the Conversion Price as otherwise determined
pursuant to this Section 7, provided further that if Lender does not accept such
adjustments as appropriately protecting its interests hereunder against such
dilution, then Borrower’s board of directors and Lender shall agree, in good
faith, upon an independent investment bank of nationally recognized standing to
make such appropriate adjustments, whose determination shall be final and
binding and whose fees and expenses shall be borne by Borrower.
Method of Conversion Share Delivery. On or before the close of business on the
third (3rd) Trading Day following the date of delivery of a Conversion Notice
(the “Delivery Date”), Borrower shall, provided it is DWAC Eligible at such
time, deliver or cause its transfer agent to deliver the applicable Conversion
Shares electronically via DWAC to the account designated by Lender in the
applicable Conversion Notice. If Borrower is not DWAC Eligible, it shall deliver
to Lender or its broker (as designated in the Conversion Notice), via reputable
overnight courier, a certificate representing the number of shares of Common
Stock equal to the number of Conversion Shares to which Lender shall be
entitled, registered in the name of Lender or its designee. For the avoidance of
doubt, Borrower has not met its obligation to deliver Conversion Shares by the
Delivery Date unless Lender or its broker, as applicable, has actually received
the certificate representing the applicable Conversion Shares no later than the
close of business on the relevant Delivery Date pursuant to the terms set forth
above. Moreover, and notwithstanding anything to the contrary herein or in any
other Exchange Document, in the event Borrower or its transfer agent refuses to
deliver any Conversion Shares to Lender on grounds that such issuance is in
violation of Rule 144 under the Securities Act of 1933, as amended (“Rule 144”),
Borrower shall deliver or cause its transfer agent to deliver the applicable
Conversion Shares to Lender with a restricted securities legend, but otherwise
in accordance with the provisions of this Section 8. In conjunction therewith,
Borrower will also deliver to Lender a written opinion from its counsel or its
transfer agent’s counsel opining as to why the issuance of the applicable
Conversion Shares violates Rule 144.
Conversion Delays. If Borrower fails to deliver Conversion Shares in accordance
with the timeframe stated in Section 8, Lender, at any time prior to selling all
of those Conversion Shares, may rescind in whole or in part that particular
Conversion attributable to the unsold Conversion Shares, with a corresponding
increase to the Outstanding Balance (any returned amount will tack back to the
Original Issue Date for purposes of determining the holding period under Rule
144. In addition, for each Conversion, in the event that Conversion Shares are
not delivered by the fourth Trading Day (inclusive of the day of the
Conversion), a late fee equal to the greater of (a) $500.00 and (b) 2% of the
applicable Conversion Share Value rounded to the nearest multiple of $100.00
(but in any event the cumulative amount of such late fees for each Conversion
shall not exceed 200% of the applicable Conversion Share Value) will be assessed
for each day after the third Trading Day (inclusive of the day of the
Conversion) until Conversion Share delivery is made; and such late fee will be
added to the Outstanding Balance (such fees, the “Conversion Delay Late Fees”).
For illustration purposes only, if Lender delivers a Conversion Notice to
Borrower pursuant to which Borrower is required to deliver 100,000 Conversion
Shares to Lender and on the Delivery Date such Conversion Shares have a
Conversion Share Value of $20,000.00 (assuming a Closing Trade Price on the
Delivery Date of $0.20 per share of Common Stock), then in such event a
Conversion Delay Late Fee in the amount of $500.00 per day (the greater of
$500.00 per day and $20,000.00 multiplied by 2%, which is $400.00) would be
added to the Outstanding Balance of the Note until such Conversion Shares are
delivered to Lender. For purposes of this example, if the Conversion Shares are
delivered to Lender twenty (20) days after the applicable Delivery Date, the
total Conversion Delay Late Fees that would be added to the Outstanding Balance
would be $10,000.00 (20 days multiplied by $500.00 per day). If the Conversion
Shares are delivered to Lender one hundred (100) days after the applicable
Delivery Date, the total Conversion Delay Late Fees that would be added to the
Outstanding Balance would be $40,000.00 (100 days multiplied by $500.00 per day,
but capped at 200% of the Conversion Share Value).
 

 
 
Ownership Limitation. Notwithstanding anything to the contrary contained in this
Note or the other Exchange Documents, if at any time Lender shall or would be
issued shares of Common Stock under any of the Exchange Documents, but such
issuance would cause Lender (together with its affiliates) to beneficially own a
number of shares exceeding 4.99% of the number of shares of Common Stock
outstanding on such date (including for such purpose the shares of Common Stock
issuable upon such issuance) (the “Maximum Percentage”), then Borrower must not
issue to Lender shares of Common Stock which would exceed the Maximum
Percentage. For purposes of this section, beneficial ownership of Common Stock
will be determined pursuant to Section 13(d) of the 1934 Act. The shares of
Common Stock issuable to Lender that would cause the Maximum Percentage to be
exceeded are referred to herein as the “Ownership Limitation Shares”. Borrower
will reserve the Ownership Limitation Shares for the exclusive benefit of
Lender. From time to time, Lender may notify Borrower in writing of the number
of the Ownership Limitation Shares that may be issued to Lender without causing
Lender to exceed the Maximum Percentage. Upon receipt of such notice, Borrower
shall be unconditionally obligated to immediately issue such designated shares
to Lender, with a corresponding reduction in the number of the Ownership
Limitation Shares. Notwithstanding the forgoing, the term “4.99%” above shall be
replaced with “9.99%” at such time as the Market Capitalization is less than
$10,000,000.00. Notwithstanding any other provision contained herein, if the
term “4.99%” is replaced with “9.99%” pursuant to the preceding sentence, such
increase to “9.99%” shall remain at 9.99% until increased, decreased or waived
by Lender as set forth below. By written notice to Borrower, Lender may
increase, decrease or waive the Maximum Percentage as to itself but any such
waiver will not be effective until the 61st day after delivery thereof. The
foregoing 61-day notice requirement is enforceable, unconditional and
non-waivable and shall apply to all affiliates and assigns of Lender.
Payment of Collection Costs. If this Note is placed in the hands of an attorney
for collection or enforcement prior to commencing arbitration or legal
proceedings, or is collected or enforced through any arbitration or legal
proceeding, or Lender otherwise takes action to collect amounts due under this
Note or to enforce the provisions of this Note, then Borrower shall pay the
costs incurred by Lender for such collection, enforcement or action including,
without limitation, attorneys’ fees and disbursements. Borrower also agrees to
pay for any costs, fees or charges of its transfer agent that are charged to
Lender pursuant to any Conversion or issuance of shares pursuant to this Note.
Opinion of Counsel. In the event that an opinion of counsel is needed for any
matter related to this Note, Lender has the right to have any such opinion
provided by its counsel. Lender also has the right to have any such opinion
provided by Borrower’s counsel.
Governing Law. This Note shall be construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation and
performance of this Note shall be governed by, the internal laws of the State of
Utah, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of Utah or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of Utah.
The provisions set forth in the Exchange Agreement to determine the proper venue
for any disputes are incorporated herein by this reference.
 

 
 
Resolution of Disputes.
Arbitration of Disputes. By its acceptance of this Note, each party agrees to be
bound by the Arbitration Provisions (as defined in the Exchange Agreement) set
forth as an exhibit to the Exchange Agreement.
Calculation Disputes. Notwithstanding the Arbitration Provisions, in the case of
a dispute as to any Calculation (as defined in the Exchange Agreement), such
dispute will be resolved in the manner set forth in the Exchange Agreement.
Cancellation. After repayment or conversion of the entire Outstanding Balance,
this Note shall be deemed paid in full, shall automatically be deemed canceled,
and shall not be reissued.
Amendments. The prior written consent of both parties hereto shall be required
for any change or amendment to this Note.
Assignments. Borrower may not assign this Note without the prior written consent
of Lender. This Note and any shares of Common Stock issued upon conversion of
this Note may be offered, sold, assigned or transferred by Lender without the
consent of Borrower.
Time is of the Essence. Time is expressly made of the essence with respect to
each and every provision of this Note and the documents and instruments entered
into in connection herewith.
Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with the
subsection of the Exchange Agreement titled “Notices.”
Liquidated Damages. Lender and Borrower agree that in the event Borrower fails
to comply with any of the terms or provisions of this Note, Lender’s damages
would be uncertain and difficult (if not impossible) to accurately estimate
because of the parties’ inability to predict future interest rates, future share
prices, future trading volumes and other relevant factors. Accordingly, Lender
and Borrower agree that any fees, balance adjustments, Default Interest or other
charges assessed under this Note are not penalties but instead are intended by
the parties to be, and shall be deemed, liquidated damages (under Lender’s and
Borrower’s expectations that any such liquidated damages will tack back to the
Original Issue Date for purposes of determining the holding period under Rule
144).
Waiver of Jury Trial. EACH OF LENDER AND BORROWER IRREVOCABLY WAIVES ANY AND ALL
RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR THE RELATIONSHIPS OF THE
PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO
DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW,
RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS
KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.
Voluntary Agreement. Borrower has carefully read this Note and has asked any
questions needed for Borrower to understand the terms, consequences and binding
effect of this Note and fully understand them. Borrower has had the opportunity
to seek the advice of an attorney of Borrower’s choosing, or has waived the
right to do so, and is executing this Note voluntarily and without any duress or
undue influence by Lender or anyone else.
 

 
 
Severability. If any part of this Note is construed to be in violation of any
law, such part shall be modified to achieve the objective of Borrower and Lender
to the fullest extent permitted by law and the balance of this Note shall remain
in full force and effect.
Par Value Adjustments. If at any time Lender delivers a Conversion Notice to
Borrower and as of such date the Conversion Price would be less than the Par
Value, then, as liquidated damages, Company must pay to Lender the Par Value
Adjustment Amount in cash within one (1) Trading Day of delivery of the
applicable Conversion Notice (a “Par Value Adjustment”). If Borrower does not
deliver the Par Value Adjustment Amount as required, then such amount shall
automatically be added to the Outstanding Balance. The number of Conversion
Shares deliverable pursuant to any relevant Conversion Notice following a Par
Value Adjustment shall be equal to (a) the Conversion Amount, divided by (b) the
Par Value. In the event of a Par Value Adjustment, Lender will use a Conversion
Notice in substantially the form attached hereto as Exhibit B.
[Remainder of page intentionally left blank; signature page follows]
 

 
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the
Exchange Date.
BORROWER:
GrowLife, Inc.
 
By:                                                      

Name:                                                                

Title:                                                                

 
ACKNOWLEDGED, ACCEPTED AND AGREED:
 
LENDER:
Chicago Venture Partners, L.P.
 
By: Chicago Venture Management, L.L.C.,
its General Partner
 
By: CVM, Inc., its Manager
 
 
By:                                                     

      John M. Fife, President
 
 
 
 
 

 
ATTACHMENT 1
DEFINITIONS
 
For purposes of this Note, the following terms shall have the following
meanings:
“Approved Stock Plan” means any stock option plan which has been approved by the
board of directors of Borrower and is in effect as of the Exchange Date,
pursuant to which Borrower’s securities may be issued to any employee, officer
or director for services provided to Borrower.
“Bloomberg” means Bloomberg L.P. (or if that service is not then reporting the
relevant information regarding the Common Stock, a comparable reporting service
of national reputation selected by Lender and reasonably satisfactory to
Borrower).
“Deemed Issuance” means an issuance of Common Stock that shall be deemed to have
occurred on the latest possible permitted date pursuant to the terms hereof in
the event Borrower fails to deliver Conversion Shares as and when required
pursuant to Section 8.
“Default Effect” means multiplying the Outstanding Balance as of the date the
applicable Event of Default occurred by (a) 15% for each occurrence of any Major
Default, or (b) 5% for each occurrence of any Minor Default, and then adding the
resulting product to the Outstanding Balance as of the date the applicable Event
of Default occurred, with the sum of the foregoing then becoming the Outstanding
Balance under this Note as of the date the applicable Event of Default occurred;
provided that the Default Effect may only be applied three (3) times hereunder
with respect to Major Defaults and three (3) times hereunder with respect to
Minor Defaults; and provided further that the Default Effect shall not apply to
any Event of Default pursuant to Section 4.1(b) hereof.
“DTC” means the Depository Trust Company.
“DTC Eligible” means, with respect to the Common Stock, that such Common Stock
is eligible to be deposited in certificate form at the DTC, cleared and
converted into electronic shares by the DTC and held in the name of the clearing
firm servicing Lender’s brokerage firm for the benefit of Lender.
“DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer program.
“DWAC” means the DTC’s Deposit/Withdrawal at Custodian system.
“DWAC Eligible” means that (a) Borrower’s Common Stock is eligible at DTC for
full services pursuant to DTC’s operational arrangements, including without
limitation transfer through DTC’s DWAC system, (b) Borrower has been approved
(without revocation) by the DTC’s underwriting department, (c) Borrower’s
transfer agent is approved as an agent in the DTC/FAST Program, (d) the
Conversion Shares are otherwise eligible for delivery via DWAC; (e) Borrower has
previously delivered all Conversion Shares to Lender via DWAC; and (f)
Borrower’s transfer agent does not have a policy prohibiting or limiting
delivery of the Conversion Shares via DWAC.
“Excluded Securities” means any shares of Common Stock, options, or convertible
securities issued or issuable in connection with any Approved Stock Plan;
provided that the option term, exercise price or similar provisions of any
issuances pursuant to such Approved Stock Plan are not amended, modified or
changed on or after the Exchange Date.
“Fundamental Transaction” means that (a) (i) Borrower or any of its subsidiaries
shall, directly or indirectly, in one or more related transactions, consolidate
or merge with or into (whether or not Borrower or any of its subsidiaries is the
surviving corporation) any other person or entity, or (ii) Borrower or any of
its subsidiaries shall, directly or indirectly, in one or more related
transactions, sell, lease, license, assign, transfer, convey or otherwise
dispose of all or substantially all of its respective properties or assets to
any other person or entity, or (iii) Borrower or any of its subsidiaries shall,
directly or indirectly, in one or more related transactions, allow any other
person or entity to make a purchase, tender or exchange offer that is accepted
by the holders of more than 50% of the outstanding shares of voting stock of
Borrower (not including any shares of voting stock of Borrower held by the
person or persons making or party to, or associated or affiliated with the
persons or entities making or party to, such purchase, tender or exchange
offer), or (iv) Borrower or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, consummate a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with any
other person or entity whereby such other person or entity acquires more than
50% of the outstanding shares of voting stock of Borrower (not including any
shares of voting stock of Borrower held by the other persons or entities making
or party to, or associated or affiliated with the other persons or entities
making or party to, such stock or share purchase agreement or other business
combination), or (v) Borrower or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, reorganize, recapitalize or
reclassify the Common Stock, other than an increase in the number of authorized
shares of Borrower’s Common Stock, or (b) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the
rules and regulations promulgated thereunder) is or shall become the “beneficial
owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding
voting stock of Borrower.
“Major Default” means any Event of Default occurring under Sections 4.1(a),
4.1(k), or 4.1(o) of this Note.
 

 
 
“Mandatory Default Amount” means the greater of (a) the Outstanding Balance
divided by the Conversion Price on the date the Mandatory Default Amount is
demanded, multiplied by the VWAP on the date the Mandatory Default Amount is
demanded, or (b) the Outstanding Balance following the application of the
Default Effect.
“Market Capitalization” means the product equal to (a) the average VWAP of the
Common Stock for the immediately preceding fifteen (15) Trading Days, multiplied
by (b) the aggregate number of outstanding shares of Common Stock as reported on
Borrower’s most recently filed Form 10-Q or Form 10-K.
“Minor Default” means any Event of Default that is not a Major Default.
“Optional Prepayment Liquidated Damages Amount” means an amount equal to the
difference between (a) the product of (i) the number of shares of Common Stock
obtained by dividing (1) the applicable Optional Prepayment Amount by (2) the
Conversion Price as of the date Borrower delivered the applicable Optional
Prepayment Amount to Lender, multiplied by (ii) the Closing Trade Price of the
Common Stock on the date Borrower delivered the applicable Optional Prepayment
Amount to Lender, and (b) the applicable Optional Prepayment Amount paid by
Borrower to Lender. For illustration purposes only, if the applicable Optional
Prepayment Amount were $50,000.00, the Conversion Price as of the date the
Optional Prepayment Amount was paid to Lender was equal to $0.75 per share of
Common Stock, and the Closing Trade Price of a share of Common Stock as of such
date was equal to $1.00, then the Optional Prepayment Liquidated Damages Amount
would equal $16,666.67 computed as follows: (a) $66,666.67 (calculated as (i)
(1) $50,000.00 divided by (2) $0.75 multiplied by (ii) $1.00) minus (b)
$50,000.00.
“Other Agreements” means, collectively, (a) all existing and future agreements
and instruments between, among or by Borrower (or an affiliate), on the one
hand, and Lender (or an affiliate), on the other hand, and (b) any financing
agreement or a material agreement that affects Borrower’s ongoing business
operations.
“Outstanding Balance” means as of any date of determination, the Purchase Price,
as reduced or increased, as the case may be, pursuant to the terms hereof for
payment, Conversion, offset, or otherwise, plus the Exchange Fee, accrued but
unpaid interest, collection and enforcements costs (including attorneys’ fees)
incurred by Lender, transfer, stamp, issuance and similar taxes and fees related
to Conversions, and any other fees or charges (including without limitation
Conversion Delay Late Fees) incurred under this Note.
Par Value” means the par value of the Common Stock on any relevant date of
determination. The Par Value as of the Exchange Date is $0.0001.
“Par Value Adjustment Amount” means an amount calculated as follows: (a) the
number of Conversion Shares deliverable under a particular Conversion Notice
(prior to any Par Value Adjustment) multiplied by the Par Value, less (b) the
Conversion Amount (prior to any Par Value Adjustment), plus (c) $500.00. For
illustration purposes only, if for a given Conversion, the Conversion Amount was
$20,000.00, the Conversion Price was $0.0008 and the Par Value was $0.001 then
the Par Value Adjustment Amount would be $5,500.00 (25,000,000 Conversion Shares
($20,000.00/$0.0008) multiplied by the Par Value of $0.001 ($25,000.00) minus
the Conversion Amount of $20,000.00 plus $500.00 equals $5,500.00).
“Trading Day” means any day on which the New York Stock Exchange is open for
trading.
“VWAP” means the volume weighted average price of the Common stock on the
principal market for a particular Trading Day or set of Trading Days, as the
case may be, as reported by Bloomberg.
 

 
EXHIBIT A
Chicago Venture Partners, L.P.
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
 
GrowLife,
Inc.                                                                                                                                           Date:
__________________
Attn: Marco Hegyi, CEO
5400 Carillon Point
Kirkland, Washington 98033
 
CONVERSION NOTICE
 
The above-captioned Lender hereby gives notice to GrowLife, Inc., a Delaware
corporation (the “Borrower”), pursuant to that certain Convertible Promissory
Note made by Borrower in favor of Lender on August 17, 2016 (the “Note”), that
Lender elects to convert the portion of the Note balance set forth below into
fully paid and non-assessable shares of Common Stock of Borrower as of the date
of conversion specified below. Said conversion shall be based on the Conversion
Price set forth below. In the event of a conflict between this Conversion Notice
and the Note, the Note shall govern, or, in the alternative, at the election of
Lender in its sole discretion, Lender may provide a new form of Conversion
Notice to conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the Note.
 
A. Date of Conversion: ____________
B. Conversion #:  ____________
C. Conversion Amount:  ____________
D. Conversion Price: _______________
E. Conversion Shares: _______________ (C divided by D)
F. Remaining Outstanding Balance of Note: ____________*
 
* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Exchange Documents (as defined in the Exchange
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Conversion Notice and such Exchange Documents.
 
So that DTC processing can begin, please deliver, via reputable overnight
courier, a certificate representing DTC Eligible Lender Conversion Shares to:
 
Name:         _____________________________________
Address:     _____________________________________
_____________________________________
 
To the extent the Lender Conversion Shares are not DTC Eligible, please deliver,
via reputable overnight courier, a certificate representing the non-DTC Eligible
Lender Conversion Shares to the party at the address set forth above.
 
 
[Remainder of page intentionally left blank]
 

 
 
Sincerely,
 
Lender:
 
Chicago Venture Partners, L.P.
 
By: Chicago Venture Management, L.L.C.,
its General Partner
 
By: CVM, Inc., its Manager
 
 
By:                                                      

      John M. Fife, President
 

 
EXHIBIT B
Chicago Venture Partners, L.P.
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
 
GrowLife,
Inc.                                                                                                                                           Date:
__________________
Attn: Marco Hegyi, CEO
5400 Carillon Point
Kirkland, Washington 98033
 
CONVERSION NOTICE
 
The above-captioned Lender hereby gives notice to GrowLife, Inc., a Delaware
corporation (the “Borrower”), pursuant to that certain Convertible Promissory
Note made by Borrower in favor of Lender on August 17, 2016 (the “Note”), that
Lender elects to convert the portion of the Note balance set forth below into
fully paid and non-assessable shares of Common Stock of Borrower as of the date
of conversion specified below. Said conversion shall be based on the Conversion
Price set forth below. In the event of a conflict between this Conversion Notice
and the Note, the Note shall govern, or, in the alternative, at the election of
Lender in its sole discretion, Lender may provide a new form of Conversion
Notice to conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the Note.
 
A. Date of Conversion: ____________
B. Conversion #:  ____________
C. Conversion Amount:  ____________
D. Par Value Adjustment Amount: _______________
E. Conversion Price: _______________ (Par Value)
F. Conversion Shares: _______________ (C divided by E)
F. Remaining Outstanding Balance of Note: ____________*
 
* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Exchange Documents (as defined in the Exchange
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Conversion Notice and such Exchange Documents.
 
So that DTC processing can begin, please deliver, via reputable overnight
courier, a certificate representing DTC Eligible Lender Conversion Shares to:
 
Name:        _____________________________________
Address:     _____________________________________
_____________________________________
 
To the extent the Lender Conversion Shares are not DTC Eligible, please deliver,
via reputable overnight courier, a certificate representing the non-DTC Eligible
Lender Conversion Shares to the party at the address set forth above.
 
The Par Value Adjustment Amount must be paid in cash within one (1) Trading Day
of your receipt of this Conversion Notice.
 
 
[Remainder of page intentionally left blank]
 

 
Sincerely,
 
Lender:
 
Chicago Venture Partners, L.P.
 
By: Chicago Venture Management, L.L.C.,
its General Partner
 
By: CVM, Inc., its Manager
 
 
By:                                                     

      John M. Fife, President
 
 
 
 

 
Exhibit C
 
           IRREVOCABLE LETTER OF INSTRUCTIONS TO TRANSFER AGENT
 
Date: August 17, 2016
 
To the transfer agent of GrowLife, Inc.
 
Re:           Instructions to Reserve and Issue Shares
 
Ladies and Gentlemen:
 
Reference is made to that certain Convertible Promissory Note having an original
issue date of October 27, 2015 made by GrowLife, Inc., a Delaware corporation
(“Company”), pursuant to which Company agreed to pay to Chicago Venture
Partners, L.P., a Utah limited partnership, its successors and/or assigns
(“Investor”), the aggregate sum of $128,000.00, plus interest, fees, and
collection costs (as the same may be amended or exchanged from time to time, the
“Note”). The Note was issued in an exchange transaction comporting with Section
3(a)(9) of the Securities Act of 1933, as amended (the “1933 Act”), pursuant to
that certain Exchange Agreement dated August 17, 2016, by and between Company
and Investor (the “Exchange Agreement”, and together with the Note, the
Subsequent Exchange Notes (as defined below) and all other documents entered
into in conjunction therewith, including any amendments thereto, the “Exchange
Documents”). In addition, as set forth in the Exchange Agreement, Investor may,
from time to time, purchase certain additional Convertible Promissory Notes
(each, a “Subsequent Exchange Note”, and together with the Note, the “Notes”).
Pursuant to the terms of the Notes, the Outstanding Balance (as defined in the
Notes) of the Notes may be converted into shares of the common stock, par value
$0.0001 per share, of Company (the “Common Stock”, and the shares of Common
Stock issuable upon any conversion or otherwise under the Notes, the “Shares”).
Pursuant to the terms of the Exchange Agreement, until all of Company’s
obligations under the Exchange Agreement and the Notes are paid and performed in
full, Company has agreed to at all times establish and maintain a reserve of
shares of authorized but unissued Common Stock equal to the amount calculated as
follows (such calculated amount is referred to herein as the “Share Reserve”):
three (3) times the number of Shares obtained by dividing the Outstanding
Balance by the Conversion Price (as defined in the Notes).
This irrevocable letter of instructions (this “Letter”) shall serve as the
authorization and direction of Company to Direct Transfer, LLC, or its
successors, as Company’s transfer agent (hereinafter, “you” or “your”), to
reserve shares of Common Stock and to issue (or where relevant, to reissue in
the name of Investor) shares of Common Stock to Investor or its broker, upon
conversion of the Notes, as follows:
From and after the date hereof and until all of Company’s obligations under the
Exchange Agreement and the Notes are paid and performed in full, (a) you shall
establish a reserve of shares of authorized but unissued Common Stock in an
amount not less than 215,000,000 shares (the “Transfer Agent Reserve”), (b) you
shall maintain and hold the Transfer Agent Reserve for the exclusive benefit of
Investor, (c) you shall issue the shares of Common Stock held in the Transfer
Agent Reserve to Investor or its broker only (subject to the immediately
following clause (d)), (d) when you issue shares of Common Stock to Investor or
its broker under the Notes pursuant to the other instructions in this Letter,
you shall issue such shares from Company’s authorized and unissued shares of
Common Stock to the extent the same are available and not from the Transfer
Agent Reserve unless and until there are no authorized shares of Common Stock
available for issuance other than those held in the Transfer Agent Reserve, at
which point, and upon your receipt of written authorization from Investor, you
shall then issue any shares of Common Stock deliverable to Investor under the
Notes from the Transfer Agent Reserve, (e) you shall not otherwise reduce the
Transfer Agent Reserve under any circumstances, unless Investor delivers to you
written pre-approval of such reduction, and (f) you shall immediately add shares
of Common Stock to the Transfer Agent Reserve in increments of 20,000,000 shares
as and when requested by Company or Investor in writing from time to time,
provided that such incremental increases do not cause the Transfer Agent Reserve
to exceed the Share Reserve.
 

 
 
You shall issue the Shares to Investor or its broker in accordance with
Paragraph 3 upon a conversion of all or any portion of the Notes, upon delivery
to you of a duly executed Conversion Notice substantially in the form attached
hereto as Exhibit A (a “Conversion Notice”).
In connection with a Conversion Notice delivered to you pursuant to Paragraph 2
above, you will receive a legal opinion as to the free transferability of the
Shares, dated within ninety (90) days from the date of the Conversion Notice,
from either Investor’s or Company’s legal counsel, indicating that the Shares to
be issued are registered pursuant to an effective registration statement under
the 1933 Act, or pursuant to Rule 144 promulgated under the 1933 Act (“Rule
144”), or any other available exemption under the 1933 Act, the issuance of the
applicable Shares to Investor is exempt from registration under the 1933 Act,
and thus the Shares may be issued or delivered without restrictive legend (the
“Opinion Letter”). Upon your receipt of a Conversion Notice and an Opinion
Letter, you shall, within three (3) Trading Days (as defined below) thereafter,
(i) if you are eligible to participate in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer program, and the Common Stock is eligible to
be transferred electronically with DTC through the Deposit/Withdrawal at
Custodian system (“DWAC Eligible”), credit such aggregate number of DWAC
Eligible shares of Common Stock to Investor’s or its designee’s balance account
with DTC, provided Investor identifies its bank or broker (by providing its name
and DTC participant number) and causes its bank or broker to initiate such DWAC
Eligible transaction, or (ii) if the Common Stock is not then DWAC Eligible,
issue and deliver to Investor or its broker (as specified in the applicable
Conversion Notice), via reputable overnight courier, to the address specified in
the Conversion Notice, a certificate, registered in the name of Investor or its
designee, representing such aggregate number of shares of Common Stock as have
been requested by Investor to be transferred in the Conversion Notice. Such
Shares (A) shall not bear any legend restricting transfer, (B) shall not be
subject to any stop-transfer restrictions, and (C) shall otherwise be freely
transferable on the books and records of Company. For purposes hereof, “Trading
Day” shall mean any day on which the New York Stock Exchange is open for
trading.
If you receive a Conversion Notice, but you do not also receive an Opinion
Letter, and you are required to issue the Shares in certificated form, then any
certificates for the applicable Shares shall bear a restrictive legend
substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS OR OTHER EVIDENCE ACCEPTABLE TO COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT.
 

 
 
Please note that a share issuance resolution is not required for each conversion
since this Letter and the Exchange Documents have been approved by resolution of
Company’s board of directors (the “Share Issuance Resolution”). Pursuant to the
Share Issuance Resolution, all of the Shares are authorized to be issued to
Investor. For the avoidance of doubt, this Letter is your authorization and
instruction by Company to issue the Shares pursuant to this Letter without any
further authorization or direction from Company. You shall rely exclusively on
the instructions in this Letter and shall have no liability for relying on any
Conversion Notice provided by Investor. Any Conversion Notice delivered
hereunder shall constitute an irrevocable instruction to you to process such
notice or notices in accordance with the terms thereof, without any further
direction or inquiry. Such notice or notices may be transmitted to you by fax,
email, or any commercially reasonable method.
Notwithstanding any other provision hereof, Company and Investor understand that
you shall not be required to perform any issuance or transfer of Shares if (a)
such an issuance or transfer of Shares is in violation of any state or federal
securities laws or regulations; provided, however, that if you refuse to issue
Shares to Investor based on an assertion (whether by you, Company, or any other
third party) that such issuance would be in violation of Rule 144, you are
hereby instructed and agree to issue the applicable Shares to Investor with a
restricted legend and to further provide a written opinion to Investor from an
attorney explaining why such issuance is considered to be in violation of Rule
144, or (b) the issuance or transfer of Shares is prohibited or stopped as
required or directed by a court order from the court or arbitrator authorized by
the Exchange Agreement to resolve disputes between Company and Investor.
Additionally, Company and Investor understand that you shall not be required to
perform any issuance or transfer of Shares if Company is in default of its
payment obligations under its agreement with you; provided, however, that in
such case Investor shall have the right to pay the applicable issuance or
transfer fee on behalf of Company and upon payment of the issuance or transfer
fee by Investor, you shall be obligated to make the requested issuance or
transfer.
You understand that a delay in the delivery of Shares hereunder could result in
economic loss to Investor and that time is of the essence in your processing of
each Conversion Notice.
You are hereby authorized and directed to promptly disclose to Investor, after
Investor’s request from time to time, the total number of shares of Common Stock
issued and outstanding and the total number of shares that are authorized but
unissued and unreserved.
Company hereby confirms to you and to Investor that no instruction other than as
contemplated herein (including instructions to increase the Transfer Agent
Reserve as necessary pursuant to Paragraph 1(f) above) will be given to you by
Company with respect to the matters referenced herein. Company hereby authorizes
you, and you shall be obligated, to disregard any contrary instruction received
by or on behalf of Company or any other person purporting to represent Company.
Company hereby agrees not to change you as its transfer agent without first (a)
providing Investor with at least 30-days’ written notice of such proposed
change, and (b) obtaining Investor’s written consent to such proposed change.
Any such consent is conditioned upon the new transfer agent executing an
irrevocable letter of instructions substantially similar to this Letter so that
such transfer agent is bound by the same terms set forth herein. You agree not
to help facilitate any change to Company’s transfer agent without first
receiving such written consent to such change from Investor.
Company acknowledges that Investor is relying on the representations and
covenants made by Company in this Letter and that the representations and
covenants contained in this Letter constitute a material inducement to Investor
to make the loan evidenced by the Notes. Company further acknowledges that
without such representations and covenants of Company, Investor would not have
made the loan to Company evidenced by the Notes.
Company shall indemnify you and your officers, directors, members, managers,
principals, partners, agents and representatives, and hold each of them harmless
from and against any and all loss, liability, damage, claim or expense
(including the reasonable fees and disbursements of its attorneys) incurred by
or asserted against you or any of them arising out of or in connection with the
instructions set forth herein, the performance of your duties hereunder and
otherwise in respect hereof, including the costs and expenses of defending
yourself or themselves against any claim or liability hereunder, except that
Company shall not be liable hereunder as to matters in respect of which it is
determined that you have acted with gross negligence or in bad faith.
 

 
 
Investor is an intended third-party beneficiary of this Letter. The parties
hereto specifically acknowledge and agree that in the event of a breach or
threatened breach by a party hereto of any provision hereof, Investor will be
irreparably damaged, and that damages at law would be an inadequate remedy if
this Letter were not specifically enforced. Therefore, in the event of a breach
or threatened breach of this Letter, Investor shall be entitled, in addition to
all other rights or remedies, to an injunction restraining such breach, without
being required to show any actual damage or to post any bond or other security,
and/or to a decree for a specific performance of the provisions of this Letter.
This Letter shall be fully binding and enforceable against Company even if it is
not signed by you. If Company takes (or fails to take) any action contrary to
this Letter, then such action or inaction will constitute a default under the
Exchange Documents. Although no additional direction is required by Company, any
refusal by Company to immediately confirm this Letter and the instructions
contemplated herein to you will constitute a default hereunder and under the
Exchange Documents.
Whenever possible, each provision of this Letter shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
of this Letter shall be invalid or unenforceable in any jurisdiction, such
provision shall be modified to achieve the objective of the parties to the
fullest extent permitted and such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Letter or the
validity or enforceability of this Letter in any other jurisdiction.
By signing below, (a) each individual executing this Letter on behalf of an
entity represents and warrants that he or she has authority to so execute this
Letter on behalf of such entity and thereby bind such entity to the terms and
conditions hereof, and (b) each party to this Letter represents and warrants
that such party has received good and valuable consideration in exchange for
executing this Letter.
This Letter is governed by Utah law.
This Letter is subject to the Arbitration Provisions (as defined in the Exchange
Agreement) set forth as an exhibit to the Exchange Agreement (as defined in the
Exchange Agreement), which you acknowledge having received and reviewed by your
signature below. Each party consents to and expressly agrees that exclusive
venue for arbitration of any dispute arising out of or relating to this Letter
or the relationship of the parties or their affiliates shall be in Salt Lake
County or Utah County, Utah and, notwithstanding the terms (specifically
including any governing law and venue terms) of any transfer agent services
agreement or other agreement between you and Company (which agreement, if any,
is hereby amended to the extent necessary in order to be consistent with the
terms of this Letter and, for the avoidance of doubt, you and Company hereby
agree that in the event of any conflict between the terms of this Letter and any
agreement between you and Company, the terms of this Letter shall govern), each
party further agrees to not participate in any action, suit, proceeding or
arbitration (including without limitation any action or proceeding seeking an
injunction or temporary restraining order against your issuance of Shares to
Investor) of any dispute arising out of or relating to this Letter or the
relationship of the parties or their affiliates that takes place outside of Salt
Lake County, Utah.
Company hereby authorizes and directs you to provide to Investor a copy of any
process, stop order, notice or other instructions delivered to you in
furtherance of any attempt to prohibit or prevent you from issuing Shares to
Investor. By your signature below, you covenant and agree to promptly and as
soon as reasonably practicable provide to Investor, upon a request from
Investor, a copy of any such process, stop order, notice or other instructions.
Exhibit A [Remainder of page intentionally left blank; signature page follows]
 

 
Very truly yours,
 
GrowLife, Inc.
 
 
By: /s/ Marco Hegyi
Name: Marco Hegyi
Title: CEO
 
 
ACKNOWLEDGED AND AGREED:
 
INVESTOR:
 
Chicago Venture Partners, L.P.
 
By: Chicago Venture Management, L.L.C.,
 its General Partner
 
By: CVM, Inc., its Manager
 
 
By: /s/ John. M. Fife
      John M. Fife, President
 
 
TRANSFER AGENT:
 
Direct Transfer, LLC
 
 
By: /s/ Eddie Tobler
Name: Eddie Tobler
Title: VP Stock Transfer
 
 
Attachments:
 
Exhibit B   Form of Conversion Notice

 
 

 
EXHIBIT D
 
GROWLIFE, INC.
SECRETARY’S CERTIFICATE
 
I, Michael Fasci, hereby certify that I am the duly elected, qualified and
acting Secretary of GrowLife, Inc., a Delaware corporation (“Company”), and am
authorized to execute this Secretary’s Certificate (this “Certificate”) on
behalf of Company. This Certificate is delivered in connection with that certain
Exchange Agreement dated August 17, 2016 (the “Exchange Agreement”), by and
between Company and Chicago Venture Partners, L.P., a Utah limited partnership.
Solely in my capacity as Secretary, I certify that attached hereto as Schedule 1
is a true, accurate and complete copy of all of the resolutions adopted by the
Board of Directors of Company (the “Resolutions”) approving and authorizing the
execution, delivery and performance of the Exchange Agreement and related
documents to which Company is a party on the date hereof, and the transactions
contemplated thereby. Such Resolutions have not been amended, rescinded or
modified since their adoption and remain in effect as of the date hereof.
IN WITNESS WHEREOF, I have executed this Secretary’s Certificate effective as of
August 17, 2016.
GrowLife, Inc.
 
 
/s/ Michael Fasci
Printed Name: Michael Fasci
Title: Secretary
 
 

 
 
Schedule 1
 
BOARD RESOLUTIONS
 
[attached]
 
 
 

 
GROWLIFE, INC.
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS
________________________
 
Effective August 17, 2016
________________________
 
APPROVAL OF EXCHANGE
 
WHEREAS, the Board of Directors (the “Board”) of GrowLife, Inc., a Delaware
corporation (“Company”), hereby ratifies and confirms that certain Amended,
Restated and Consolidated Senior Convertible Redeemable Debenture in the
original principal amount of $1,050,000.00 having an original issuance date of
October 27, 2015 (the “Prior Note”), issued by Company to Chicago Venture
Partners, L.P., a Utah limited partnership (“Investor”);
WHEREAS, Investor desires to exchange (the “Exchange”) (i) that certain First
Replacement Amended, Restated and Consolidated Senior Secured Convertible
Redeemable Debenture A in the original principal amount of $80,000.00 dated and
made effective as of August 17, 2016 but having an original issuance date of
October 27, 2015 pursuant to the terms and conditions of that certain Exchange
Agreement of even date herewith, substantially in the form attached hereto as
Exhibit A (the “Exchange Agreement”), for an Exchange Note, substantially in the
form attached hereto as Exhibit B (the “Initial Exchange Note”) and (ii) certain
additional Debentures that may be severed from the Prior Note and purchased by
Investor from time to time pursuant to the Exchange Agreement, and exchange such
Debentures for additional Convertible Promissory Notes, substantially in the
form attached hereto as Exhibit C (each, a “Subsequent Exchange Note”, and
together with the Initial Exchange Note, the “Exchange Notes”);
WHEREAS, the terms of the Exchange are further reflected in an Irrevocable
Letter of Instructions to Transfer Agent substantially in the form attached
hereto as Exhibit D, a Share Issuance Resolution substantially in the form
attached hereto as Exhibit E (“Share Issuance Resolution”), and all other
agreements, certificates, instruments and documents being or to be executed and
delivered under or in connection with the Exchange (collectively with the
Exchange Agreement and the Exchange Notes, the “Exchange Documents”);
WHEREAS, the Board, having received and reviewed the Exchange Documents,
believes that it is in the best interests of Company and its stockholders to
approve the Exchange and the Exchange Documents and authorize the officers of
Company to execute the Exchange Documents and issue the Exchange Notes to
Investor.
NOW, THEREFORE, BE IT:
RESOLVED, that the Exchange is hereby approved and determined to be in the best
interests of Company and its stockholders;
RESOLVED, that the form, terms and provisions of the Exchange Documents are
hereby ratified, confirmed and approved (including all exhibits, schedules and
other attachments thereto);
RESOLVED, that the Exchange Notes shall be duly and validly issued upon the
issuance and delivery thereof in accordance with the Exchange Agreement;
 

 
 
RESOLVED, that upon the issuance and delivery thereof in accordance with the
Exchange Notes, the Conversion Shares (as defined in the Exchange Notes) shall
be duly and validly issued, fully paid for, and non-assessable;
RESOLVED, that Company shall take all action necessary to at all times have
authorized and reserved for the purpose of issuance under the Exchange Notes
such number of shares of Company’s Common Stock required under the Exchange
Agreement (the “Share Reserve”);
RESOLVED FURTHER, that the fixed number of shares of common stock set forth in
the Share Issuance Resolution to be reserved by the transfer agent (the
“Transfer Agent Reserve”) is not meant to limit or restrict in any way the
resolutions contained herein, including without limitation the calculation of
the Share Reserve under the Exchange Agreement, as required from time to time;
RESOLVED FURTHER, that each of the officers of Company be, and each of them
hereby is, authorized to instruct the transfer agent to increase the Transfer
Agent Reserve in the incremental amount set forth in the Share Issuance
Resolution, from time to time, to correspond to the Share Reserve; provided,
however, that any decrease in the Transfer Agent Reserve will require the prior
written consent of Investor;
RESOLVED FURTHER, that with respect to each Conversion (as defined in the
Exchange Notes) under the Exchange Notes, the reduction in the Outstanding
Balance (as defined in the Exchange Notes and as the same may increase or
decrease pursuant to the terms of the Exchange Notes) in an amount equal to the
applicable Conversion Amount (as defined in the Exchange Notes) being converted
into Conversion Shares shall constitute fair and adequate consideration to
Company for the issuance of the applicable Conversion Shares, regardless of the
conversion price used to determine the number of Conversion Shares deliverable
with respect to any Conversion;
RESOLVED, that each of the officers of Company be, and each of them hereby is,
authorized to execute and deliver in the name of and on behalf of Company, the
Exchange Documents and any other related agreements (with such additions to,
modifications to, or deletions from such documents as the officer approves, such
approval to be conclusively evidenced by such execution and delivery), to
conform Company’s minute books and other records to the matters set forth in
these resolutions, and to take all other actions on behalf of Company as any of
them deem necessary, required, or advisable with respect to the matters set
forth in these resolutions;
RESOLVED, that the Board hereby determines that all acts and deeds previously
performed by the Board and other officers of Company relating to the foregoing
matters prior to the date of these resolutions are ratified, confirmed and
approved in all respects as the authorized acts and deeds of Company; and
RESOLVED, that all prior actions or resolutions of the Board that are
inconsistent with the foregoing are hereby amended, corrected and restated to
the extent required to be consistent herewith.
******************
 
EXHIBITS ATTACHED TO BOARD RESOLUTIONS:
 
Exhibit B
EXCHANGE AGREEMENT
Exhibit C
INITIAL EXCHANGE NOTE
Exhibit D
FORM OF SUBSEQUENT EXCHANGE NOTE
Exhibit E
TRANSFER AGENT LETTER
Exhibit F
SHARE ISSUANCE RESOLUTION

 
 

 
 
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Exhibit E
 
Share Issuance Resolution
Authorizing The Issuance Of New Shares Of Common Stock In
 
GrowLife, Inc.
___________________________
 
Effective August 17, 2016
___________________________
 
The undersigned, as a qualified officer of GrowLife, Inc., a Delaware
corporation (“Company”), hereby certifies that this Share Issuance Resolution is
authorized by and consistent with the resolutions of Company’s board of
directors (“Board Resolutions”) regarding that certain Convertible Promissory
Note in the face amount of $128,000.00 dated and made effective as of August 17,
2016 but having an original issuance date of October 27, 2015 (the “Note,” and
together with all other Convertible Promissory Notes issued under the Exchange
Agreement (as defined below), the “Notes”), made by Company in favor of Chicago
Venture Partners, L.P., a Utah limited partnership, its successors and/or
assigns (“Investor”), pursuant to that certain Exchange Agreement dated August
17, 2016, by and between Company and Investor (the “Exchange Agreement”).
RESOLVED, that Direct Transfer, LLC as transfer agent (including any successor
transfer agent, the “Transfer Agent”) of shares of Company’s common stock,
$0.0001 par value per share (“Common Stock”), is authorized to rely upon a
Conversion Notice substantially in the form of Exhibit A attached hereto,
whether an original or a copy (the “Conversion Notice”), without any further
inquiry, to be delivered to the Transfer Agent from time to time either by
Company or Investor.
RESOLVED FURTHER, that the Transfer Agent is authorized to issue the number of:
(i)
“Conversion Shares” (representing shares of Common Stock) set forth in each
Conversion Notice delivered to the Transfer Agent, and
(ii)
all additional shares of Common Stock Company may subsequently instruct the
Transfer Agent to issue in connection with any of the foregoing or otherwise
under the Notes,
in each case with such shares to be issued in the name of Investor, or its
successors, transferees, or designees, free of any restricted security legend,
as permitted by the Notes.
RESOLVED FURTHER, that consistent with the terms of the Exchange Agreement, the
Transfer Agent is authorized and directed to immediately create a transfer agent
share reserve equal to 215,000,000 shares of Company’s Common Stock for the
benefit of Investor (the “Transfer Agent Reserve”); provided that the Transfer
Agent Reserve may increase in increments of 20,000,000 shares from time to time
by written instructions provided to the Transfer Agent by Company or Investor as
required by the Exchange Agreement and as contemplated by the Board Resolutions.
RESOLVED FURTHER, that Investor and the Transfer Agent may rely upon the more
general approvals and authorizations set forth in the Board Resolutions, and the
Transfer Agent is hereby authorized and directed to take those further actions
approved under the Board Resolutions.
 

 
 
RESOLVED FURTHER, that Investor must consent in writing to any reduction of the
Transfer Agent Reserve; provided, however, that upon full conversion and/or full
repayment of all Notes, the Transfer Agent Reserve will terminate thirty (30)
days thereafter.
RESOLVED FURTHER, that Company shall indemnify the Transfer Agent and its
employees against any and all loss, liability, damage, claim or expenses
incurred by or asserted against the Transfer Agent arising from any action taken
by the Transfer Agent in reliance upon this Share Issuance Resolution.
Nothing in this Share Issuance Resolution shall limit or restrict those
resolutions and authorizations set forth in the Board Resolutions, including
without limitation, the calculation from time to time of the Share Reserve (as
defined in the Exchange Agreement).
The undersigned officer of Company hereby certifies that this is a true copy of
Company’s Share Issuance Resolution, effective as of the date set forth below,
and that said resolution has not been in any way rescinded, annulled, or
revoked, but the same is still in full force and effect.
 
/s/ Marco Hegyi                                                       August 17,
2016
Officer’s Signature                                                   Date
 
Marco Hegyi
Printed Name and Title
 
 
EXHIBITS ATTACHED TO SHARE ISSUANCE RESOLUTION:
 
Exhibit A                       Conversion Notice
 
 
 

 
EXHIBIT F
 
GROWLIFE, INC.
OFFICER’S CERTIFICATE
 
 
The undersigned, Marco Hegyi, Chief Executive Officer of GrowLife, Inc., a
Delaware corporation (“Company”), in connection with the issuance of that
certain Convertible Promissory Note in favor of Chicago Venture Partners, L.P.,
a Utah limited partnership (“Investor”) in the original principal amount of
$128,000.00 dated and made effective on August 17, 2016 but having an original
issuance date of October 27, 2016 (the “Note,” and together with all other
Convertible Promissory Notes issued under the Exchange Agreement (as defined
below), the “Notes”), pursuant to that certain Exchange Agreement dated August
17, 2016 between Investor and Company (the “Exchange Agreement”), in his
capacity as an officer of Company, hereby represents, warrants and certifies
that:
 
1. He is the duly appointed Chief Executive Officer of Company.
 
2. As of the date hereof, Company has one (1) Variable Security Holder (as
defined in the Exchange Agreement).
 
3. He agrees to cause Company to comply with the covenants found in Sections
8(v), 8(vi) and (vii) of the Exchange Agreement.
12. 
4. He acknowledges that his execution and issuance of this Officer’s Certificate
to Investor is a material inducement to Investor’s agreement to purchase and
exchange the Notes on the terms set forth in the Exchange Agreement and that but
for his execution and issuance of this Officer’s Certificate, Investor would not
have purchased the Notes from Company.
 
IN WITNESS WHEREOF, the undersigned, in his capacity as an officer of Company,
has executed this Officer’s Certificate as of August 17, 2016.
 
 
/s/ Marco Hegyi
Marco Hegyi