Exhibit 10.1

 

Securities Purchase Agreement

 

This Securities Purchase Agreement (this “Agreement”), dated as of August 7,
2018, is entered into by and between Growlife, Inc., a Delaware corporation
(“Company”), and Iliad Research and Trading, L.P., a Utah limited partnership,
its successors and/or assigns (“Investor”).

 

A.            Company and Investor are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
Securities Act of 1933, as amended (the “1933 Act”), and the rules and
regulations promulgated thereunder by the United States Securities and Exchange
Commission (the “SEC”).

 

B.             Investor desires to purchase and Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, a Secured
Convertible Promissory Note, in the form attached hereto as Exhibit A, in the
original principal amount of $1,655,000.00 (the “Note”), convertible into shares
of common stock, $0.0001 par value per share, of Company (the “Common Stock”),
upon the terms and subject to the limitations and conditions set forth in such
Note.

 

C.            This Agreement, the Note, the Investor Notes (as defined below),
the Security Agreement (as defined below), and all other certificates,
documents, agreements, resolutions and instruments delivered to any party under
or in connection with this Agreement, as the same may be amended from time to
time, are collectively referred to herein as the “Transaction Documents”.

 

D.            For purposes of this Agreement: “Conversion Shares” means all
shares of Common Stock issuable upon conversion of all or any portion of the
Note; and “Securities” means the Note and the Conversion Shares.

 

NOW, THEREFORE, in consideration of the above recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Company and Investor hereby agree as follows:

 

1.             Purchase and Sale of Securities.

 

1.1.          Purchase of Securities. Company shall issue and sell to Investor
and Investor agrees to purchase from Company the Note. In consideration thereof,
Investor shall pay (i) the amount designated as the initial cash purchase price
on the signature page to this Agreement (the “Initial Cash Purchase Price”), and
(ii) issue to Company the Investor Notes (the sum of the initial principal
amounts of the Investor Notes, together with the Initial Cash Purchase Price,
the “Purchase Price”). The Investor Notes will not be secured as of the Closing
Date (as defined below) but may become secured subsequent to the Closing Date by
such collateral and at such time as determined by Company and Investor. The
Purchase Price, the OID (as defined below), and the Transaction Expense Amount
(as defined below) are allocated to the Tranches (as defined in the Note) of the
Note as set forth in the table attached hereto as Exhibit B.

 

1.2.          Form of Payment. On the Closing Date, (i) Investor shall pay the
Purchase Price to Company by delivering the following at the Closing (as defined
below) (or on such other date as shall be set forth herein): (A) the Initial
Cash Purchase Price, which shall be delivered by wire transfer of immediately
available funds to Company, in accordance with

 

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Company’s written wiring instructions; (B) Investor Note #1 in the principal
amount of $250,000.00 duly executed and substantially in the form attached
hereto as Exhibit C (“Investor Note #1”); (C) Investor Note #2 in the principal
amount of $200,000.00 duly executed and substantially in the form attached
hereto as Exhibit C (“Investor Note #2”); (D) Investor Note #3 in the principal
amount of $200,000.00 duly executed and substantially in the form attached
hereto as Exhibit C (“Investor Note #3”); (E) Investor Note #4 in the principal
amount of $200,000.00 duly executed and substantially in the form attached
hereto as Exhibit C (“Investor Note #4”); (F) Investor Note #5 in the principal
amount of $200,000.00 duly executed and substantially in the form attached
hereto as Exhibit C (“Investor Note #5”); (G) Investor Note #6 in the principal
amount of $200,000.00 duly executed and substantially in the form attached
hereto as Exhibit C (“Investor Note #6”); and (H) Investor Note #7 in the
principal amount of $200,000.00 duly executed and substantially in the form
attached hereto as Exhibit C (““Investor Note #7”, and together with Investor
Note #1, Investor Note #2, Investor Note #3, Investor Note #4, Investor Note #5,
and Investor Note #6, the “Investor Notes”); and (ii) Company shall deliver the
duly executed Note on behalf of Company, to Investor, against delivery of such
Purchase Price.

 

1.3.          Closing Date. Subject to the satisfaction (or written waiver) of
the conditions set forth in Section 5 and Section 6 below, the date of the
issuance and sale of the Securities pursuant to this Agreement (the “Closing
Date”) shall be August 7, 2018, or such other mutually agreed upon date. The
closing of the transactions contemplated by this Agreement (the “Closing”) shall
occur on the Closing Date by means of the exchange by email of signed .pdf
documents, but shall be deemed for all purposes to have occurred at the offices
of Hansen Black Anderson Ashcraft PLLC in Lehi, Utah.

 

1.4.          Collateral for the Note. The Note shall be secured by the
collateral set forth in that certain Security Agreement attached hereto as
Exhibit D listing all of Company’s assets as security for Company’s obligations
under the Transaction Documents (the “Security Agreement”).

 

1.5.          Original Issue Discount; Transaction Expense Amount. The Note
carries an original issue discount of $150,000.00 (the “OID”). In addition,
Company agrees to pay $5,000.00 to Investor to cover Investor’s legal fees,
accounting costs, due diligence, monitoring and other transaction costs incurred
in connection with the purchase and sale of the Securities (the “Transaction
Expense Amount”), all of which amount is included in the initial principal
balance of the Note. The Purchase Price, therefore, shall be $1,500,000.00,
computed as follows: $1,655,000.00 initial principal balance, less the OID, less
the Transaction Expense Amount. The Initial Cash Purchase Price shall be the
Purchase Price less the sum of the initial principal amounts of the Investor
Notes. The portions of the OID and the Transaction Expense Amount allocated to
the Initial Cash Purchase Price are set forth on Exhibit B.

 

2.             Investor’s Representations and Warranties. Investor represents
and warrants to Company that as of the Effective Date: (i) this Agreement has
been duly and validly authorized; (ii) this Agreement constitutes a valid and
binding agreement of Investor enforceable in accordance with its terms; (iii)
Investor is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D of the 1933 Act; and (iv) this Agreement and the Investor Notes
have been duly executed and delivered on behalf of Investor.

 

3.             Company’s Representations and Warranties. Company represents and
warrants to Investor that as of the Effective Date: (i) Company is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation and has the requisite

 

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corporate power to own its properties and to carry on its business as now being
conducted; (ii) except as disclosed, Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary; (iii) Company has registered its Common Stock under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the “1934
Act”), and is obligated to file reports pursuant to Section 13 or Section 15(d)
of the 1934 Act; (iv) each of the Transaction Documents and the transactions
contemplated hereby and thereby, have been duly and validly authorized by
Company and all necessary actions have been taken; (v) this Agreement, the Note,
and the other Transaction Documents have been duly executed and delivered by
Company and constitute the valid and binding obligations of Company enforceable
in accordance with their terms; (vi) the execution and delivery of the
Transaction Documents by Company, the issuance of Securities in accordance with
the terms hereof, and the consummation by Company of the other transactions
contemplated by the Transaction Documents do not and will not conflict with or
result in a breach by Company of any of the terms or provisions of, or
constitute a default under (a) Company’s formation documents or bylaws, each as
currently in effect, (b) any indenture, mortgage, deed of trust, or other
material agreement or instrument to which Company is a party or by which it or
any of its properties or assets are bound, including, without limitation, any
listing agreement for the Common Stock, or (c) any existing applicable law,
rule, or regulation or any applicable decree, judgment, or order of any court,
United States federal, state or foreign regulatory body, administrative agency,
or other governmental body having jurisdiction over Company or any of Company’s
properties or assets; (vii) no further authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders or any lender of Company is
required to be obtained by Company for the issuance of the Securities to
Investor or the entering into of the Transaction Documents; (viii) none of
Company’s filings with 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; (ix)
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by Company with the SEC under the 1934 Act on a timely
basis or has received a valid extension of such time of filing and has filed any
such report, schedule, form, statement or other document prior to the expiration
of any such extension; (x) except as disclosed, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of Company, threatened against or affecting
Company before or by any governmental authority or non-governmental department,
commission, board, bureau, agency or instrumentality or any other person,
wherein an unfavorable decision, ruling or finding would have a material adverse
effect on Company or which would adversely affect the validity or enforceability
of, or the authority or ability of Company to perform its obligations under, any
of the Transaction Documents; (xi) Company has not consummated any financing
transaction that has not been disclosed in a periodic filing or current report
with the SEC under the 1934 Act; (xii) Company is not, nor has it been at any
time in the previous twelve (12) months, a “Shell Company,” as such type of
“issuer” is described in Rule 144(i)(1) under the 1933 Act; (xiii) with respect
to any commissions, placement agent or finder’s fees or similar payments that
will or would become due and owing by Company to any person or entity as a
result of this Agreement or the transactions contemplated hereby (“Broker
Fees”), any such Broker Fees will be made in full compliance with all applicable
laws and regulations and only to a person or entity that is a registered
investment adviser or registered broker-dealer; (xiv) Investor shall have no
obligation with respect to any Broker Fees or with respect to any claims made by
or on behalf of other persons for fees of a type contemplated in this subsection
that may be due in connection with the transactions contemplated hereby and
Company shall indemnify and hold harmless each of Investor, Investor’s
employees, officers, directors, stockholders, members, managers, agents, and

 

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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 Broker Fees; (xv) when issued,
the Conversion Shares will be duly authorized, validly issued, fully paid for
and non-assessable, free and clear of all liens, claims, charges and
encumbrances; (xvi) neither Investor nor any of its officers, directors,
stockholders, members, managers, employees, agents or representatives has made
any representations or warranties to Company or any of its officers, directors,
employees, agents or representatives except as expressly set forth in the
Transaction Documents and, in making its decision to enter into the transactions
contemplated by the Transaction Documents, Company is not relying on any
representation, warranty, covenant or promise of Investor or its officers,
directors, members, managers, employees, agents or representatives other than as
set forth in the Transaction Documents; (xvii) Company acknowledges that the
State of Utah has a reasonable relationship and sufficient contacts to the
transactions contemplated by the Transaction Documents and any dispute that may
arise related thereto such that the laws and venue of the State of Utah, as set
forth more specifically in Section 9.3 below, shall be applicable to the
Transaction Documents and the transactions contemplated therein; and (xviii)
Company has performed due diligence and background research on Investor and its
affiliates including, without limitation, John M. Fife, and, to its
satisfaction, has made inquiries with respect to all matters Company may
consider relevant to the undertakings and relationships contemplated by the
Transaction Documents including, among other things, the following:
http://investing.businessweek.com/research/stocks/people/person.asp?personId=7505107&ticker=UAHC;
SEC Civil Case No. 07-C-0347 (N.D. Ill.); SEC Civil Action No. 07-CV-347 (N.D.
Ill.); and FINRA Case #2011029203701. Company, being aware of the matters
described in subsection (xviii) above, acknowledges and agrees that such
matters, or any similar matters, have no bearing on the transactions
contemplated by the Transaction Documents and covenants and agrees it will not
use any such information as a defense to performance of its obligations under
the Transaction Documents or in any attempt to avoid, modify or reduce such
obligations.

 

4.             Company Covenants. Until all of Company’s obligations under all
of the Transaction Documents are paid and performed in full, or within the
timeframes otherwise specifically set forth below, Company will at all times
comply with the following covenants: (i) so long as Investor beneficially owns
any of the Securities and for at least twenty (20) Trading Days thereafter,
Company will timely file on the applicable deadline all reports required to be
filed with the SEC pursuant to Sections 13 or 15(d) of the 1934 Act, and will
take all reasonable action under its control to ensure that adequate current
public information with respect to Company, as required in accordance with Rule
144 of the 1933 Act, is publicly available, and will not terminate its status as
an issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would permit such termination; (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 will be duly authorized, validly issued, fully
paid for and non-assessable, free and clear of all liens, claims, charges and
encumbrances; (iv) trading in Company’s Common Stock will not be suspended,
halted, chilled, frozen, reach zero bid or otherwise cease on Company’s
principal trading market; (v) Company will not transfer, assign, sell, pledge,
hypothecate or otherwise alienate or encumber the Investor Notes in any way
without the prior written consent of Investor, which consent may be given or
withheld in Investor’s sole and absolute discretion; (vi) after the Closing
Date, Company will not make any Variable Security Issuances (as defined below)
without Investor’s prior written consent, which consent may be granted or
withheld in Investor’s sole and absolute discretion; (vii) at Closing and on the
first day of each calendar quarter for so long as the Note remains outstanding
or on any other date during which the Note is outstanding, as may be requested
by Investor, Company shall cause its Chief Executive Officer to provide to

 

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Investor a certificate in substantially the form attached hereto as Exhibit E
(the “Officer’s Certificate”) certifying in his personal capacity and in his
capacity as Chief Executive Officer of Company that Company has not made any
Variable Security Issuances following the Closing Date; (viii) if at any time
the Common Stock trades below $0.0005, Company shall, as soon as practicable but
in no event longer than one hundred eighty days (180) days thereafter, reduce
the par value of its Common Stock to $0.00001 or below; and (ix) Company will
not sell or issue any Common Stock pursuant to a Regulation A or Regulation A+
offering. For purposes hereof, the term “Variable Security Issuance” means any
issuance of 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.
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.

 

5.             Conditions to Company’s Obligation to Sell. The obligation of
Company hereunder to issue and sell the Securities to Investor at the Closing is
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions:

 

5.1.          Investor shall have executed this Agreement and the Investor Notes
and delivered the same to Company.

 

5.2.          Investor shall have delivered the Initial Cash Purchase Price to
Company in accordance with Section 1.2 above.

 

6.             Conditions to Investor’s Obligation to Purchase. The obligation
of Investor hereunder to purchase the Securities at the Closing is subject to
the satisfaction, on or before the Closing Date, of each of the following
conditions, provided that these conditions are for Investor’s sole benefit and
may be waived by Investor at any time in its sole discretion:

 

6.1.          Company shall have executed this Agreement, the Note, and the
Security Agreement and delivered the same to Investor.

 

6.2.          Company’s Chief Executive Officer shall have executed the
Officer’s Certificate and delivered the same to Investor.

 

6.3.          Company shall have delivered to Investor a fully executed
Irrevocable Letter of Instructions to Transfer Agent (the “TA Letter”)
substantially in the form attached hereto as Exhibit F acknowledged and agreed
to in writing by Company’s transfer agent (the “Transfer Agent”).

 

6.4.          Company shall have delivered to Investor a fully executed
Secretary’s Certificate substantially in the form attached hereto as Exhibit G
evidencing Company’s approval of the Transaction Documents.

 

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6.5.          Company shall have delivered to Investor a fully executed Share
Issuance Resolution substantially in the form attached hereto as Exhibit H to be
delivered to the Transfer Agent.

 

6.6.          Company shall have delivered to Investor fully executed copies of
all other Transaction Documents required to be executed by Company herein or
therein.

 

7.             Reservation of Shares. At all times during which the Note is
convertible, Company will reserve from its authorized and unissued Common Stock
to provide for the issuance of Common Stock upon the full conversion of the Note
at least three (3) times the number of shares of Common Stock obtained by
dividing the Outstanding Balance (as defined in the Note) by the Redemption
Conversion Price (as defined in the Note) (the “Share Reserve”), but in any
event not less than 150,000,000 shares of Common Stock shall be reserved at all
times for such purpose (the “Transfer Agent Reserve”). 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 5,000,000 shares as and when
requested by Investor 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 the Note has been paid in full, Company shall require the
Transfer Agent to reserve for the purpose of issuance of Conversion Shares under
the Note, a number of shares of Common Stock equal to the Transfer Agent
Reserve. Company shall further require the Transfer Agent to hold such shares of
Common Stock exclusively for the benefit of Investor and to issue such shares to
Investor promptly upon Investor’s delivery of a conversion notice under the
Note. Finally, Company shall require the Transfer Agent to issue shares of
Common Stock pursuant to the Note to Investor 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 Investor’s written consent.

 

8.             Terms of Future Financings. So long as the Note is outstanding,
upon any issuance by Company of any security with any term or condition more
favorable to the holder of such security or with a term in favor of the holder
of such security that was not similarly provided to Investor in the Transaction
Documents, then Company shall notify Investor of such additional or more
favorable term and such term, at Investor’s option, shall become a part of the
Transaction Documents for the benefit of Investor. Additionally, if Company
fails to notify Investor of any such additional or more favorable term, but
Investor becomes aware that Company has granted such a term to any third party,
Investor may notify Company of such additional or more favorable term and such
term shall become a part of the Transaction Documents retroactive to the date on
which such term was granted to the applicable third party. The types of terms
contained in another security that may be more favorable to the holder of such
security include, but are not limited to, terms addressing conversion discounts,
conversion lookback periods, interest rates, original issue discounts, stock
sale price, conversion price per share, warrant coverage, warrant exercise
price, and anti-dilution/conversion and exercise price resets.

 

9.             Miscellaneous. The provisions set forth in this Section 9 shall
apply to this Agreement, as well as all other Transaction Documents as if these
terms were fully set forth therein; provided, however, that in the event there
is a conflict between any provision set forth in this Section 9 and any
provision in any other Transaction Document, the provision in such other
Transaction Document shall govern.

 

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9.1.          Certain Capitalized Terms. To the extent any capitalized term used
in any Transaction Document is defined in any other Transaction Document (as
noted therein), such capitalized term shall remain applicable in the Transaction
Document in which it is so used even if the other Transaction Document (wherein
such term is defined) has been released, satisfied, or is otherwise cancelled or
terminated.

 

9.2.          Arbitration of Claims. The parties shall submit all Claims (as
defined in Exhibit I) arising under this Agreement or any other Transaction
Document or any other agreement between the parties and their affiliates or any
Claim relating to the relationship of the parties to binding arbitration
pursuant to the arbitration provisions set forth in Exhibit I 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, Company represents, warrants and covenants that 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 Company will not take a position contrary to
the foregoing representations. Company acknowledges and agrees that Investor may
rely upon the foregoing representations and covenants of Company regarding the
Arbitration Provisions.

 

9.3.          Governing Law; Venue. This Agreement shall be construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Agreement shall be governed by,
the internal laws of the State of Utah, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Utah or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Utah. Each party consents to and expressly
agrees that exclusive venue for arbitration of any dispute arising out of or
relating to any Transaction Document or the relationship of the parties or their
affiliates shall be in Salt Lake County, Utah. Without modifying the parties
obligations to resolve disputes hereunder pursuant to the Arbitration
Provisions, for any litigation arising in connection with any of the Transaction
Documents (and notwithstanding the terms (specifically including any governing
law and venue terms) of any transfer agent services agreement or other agreement
between the Transfer Agent and Company, such litigation specifically includes,
without limitation any action between or involving Company and the Transfer
Agent under the TA Letter or otherwise related to Investor in any way
(specifically including, without limitation, any action where Company seeks to
obtain an injunction, temporary restraining order, or otherwise prohibit the
Transfer Agent from issuing shares of Common Stock to Investor for any reason)),
each party hereto hereby (i) consents to and expressly submits to the exclusive
personal jurisdiction of any state or federal court sitting in Salt Lake County,
Utah, (ii) expressly submits to the exclusive venue of any such court for the
purposes hereof, (iii) agrees to not bring any such action (specifically
including, without limitation, any action where Company seeks to obtain an
injunction, temporary restraining order, or otherwise prohibit the Transfer
Agent from issuing shares of Common Stock to Investor for any reason) outside of
any state or federal court sitting in Salt Lake County, Utah, and (iv) waives
any claim of improper venue and any claim or objection that such courts are an
inconvenient forum or any other claim, defense or objection to the bringing of
any such proceeding in such jurisdiction or to any claim that such venue of the
suit, action or proceeding is improper. Finally, Company covenants and agrees to
name Investor as a party in interest in, and provide written notice to Investor
in accordance with Section 9.13 below prior to bringing or filing, any action
(including without limitation any filing or action against any person or entity
that is not a party to this Agreement, including without limitation the Transfer
Agent) that is related in any way to the

 

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Transaction Documents or any transaction contemplated herein or therein,
including without limitation any action brought by Company to enjoin or prevent
the issuance of any shares of Common Stock to Investor by the Transfer Agent,
and further agrees to timely name Investor as a party to any such action.
Company acknowledges that the governing law and venue provisions set forth in
this Section 9.3 are material terms to induce Investor to enter into the
Transaction Documents and that but for Company’s agreements set forth in this
Section 9.3 Investor would not have entered into the Transaction Documents.

 

9.4.          Specific Performance. Company acknowledges and agrees that
irreparable damage may occur to Investor in the event that Company fails to
perform any material provision of this Agreement or any of the other Transaction
Documents in accordance with its specific terms. It is accordingly agreed that
Investor shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or such other Transaction Document
and to enforce specifically the terms and provisions hereof or thereof, this
being in addition to any other remedy to which the Investor may be entitled
under the Transaction Documents, at law or in equity. For the avoidance of
doubt, in the event Investor seeks to obtain an injunction against Company or
specific performance of any provision of any Transaction Document, such action
shall not be a waiver of any right of Investor under any Transaction Document,
at law, or in equity, including without limitation its rights to arbitrate any
Claim pursuant to the terms of the Transaction Documents.

 

9.5.          Calculation Disputes. Notwithstanding the Arbitration Provisions,
in the case of a dispute as to any determination or arithmetic calculation under
the Transaction Documents, including without limitation, calculating the
Outstanding Balance, Lender Conversion Price (as defined in the Note), Lender
Conversion Shares (as defined in the Note), Redemption Conversion Price,
Redemption Conversion Shares (as defined in the Note), Conversion Factor (as
defined in the Note), Market Price (as defined in the Note), or VWAP (as defined
in the Note) (each, a “Calculation”), Company or Investor (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 Company or Investor (as the case may be)
or (ii) if no notice gave rise to such dispute, at any time after Investor
learned of the circumstances giving rise to such dispute. If Investor and
Company are unable to agree upon such Calculation within two (2) Trading Days of
such disputed Calculation being submitted to Company or Investor (as the case
may be), then Investor will promptly submit via email or facsimile the disputed
Calculation to Unkar Systems Inc. (“Unkar Systems”). Investor shall cause Unkar
Systems to perform the Calculation and notify Company and Investor of the
results no later than ten (10) Trading Days from the time it receives such
disputed Calculation. Unkar Systems’ determination of the disputed Calculation
shall be binding upon all parties absent demonstrable error. Unkar Systems’ fee
for performing such Calculation shall be paid by the incorrect party, or if both
parties are incorrect, by the party whose Calculation is furthest from the
correct Calculation as determined by Unkar Systems. In the event Company is the
losing party, no extension of the Delivery Date (as defined in the Note) shall
be granted and Company shall incur all effects for failing to deliver the
applicable shares in a timely manner as set forth in the Transaction Documents.
Notwithstanding the foregoing, Investor 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 Investor.

 

9.6.          Counterparts. Each Transaction Document may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall

 

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constitute one instrument. The parties hereto confirm that any electronic copy
of another party’s executed counterpart of a Transaction Document (or such
party’s signature page thereof) will be deemed to be an executed original
thereof.

 

9.7.          Document Imaging. Investor 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 Company’s loans, including, without limitation, this
Agreement and the other Transaction Documents, and Investor may destroy or
archive the paper originals. The parties hereto (i) waive any right to insist or
require that Investor produce paper originals, (ii) agree that such images shall
be accorded the same force and effect as the paper originals, (iii) agree that
Investor 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 (iv) further agree that any executed
facsimile (faxed), scanned, emailed, or other imaged copy of this Agreement or
any other Transaction Document shall be deemed to be of the same force and
effect as the original manually executed document.

 

9.8.          Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.

 

9.9.          Severability. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform to such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.

 

9.10.        Entire Agreement. This Agreement, together with the other
Transaction Documents, contains 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 Company nor Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
For the avoidance of doubt, all prior term sheets or other documents between
Company and Investor, or any affiliate thereof, related to the transactions
contemplated by the Transaction Documents (collectively, “Prior Agreements”),
that may have been entered into between Company and Investor, or any affiliate
thereof, are hereby null and void and deemed to be replaced in their entirety by
the Transaction Documents. To the extent there is a conflict between any term
set forth in any Prior Agreement and the term(s) of the Transaction Documents,
the Transaction Documents shall govern.

 

9.11.        No Reliance. Company acknowledges and agrees that neither Investor
nor any of its officers, directors, members, managers, representatives or agents
has made any representations or warranties to Company or any of its officers,
directors, representatives, agents or employees except as expressly set forth in
the Transaction Documents and, in making its decision to enter into the
transactions contemplated by the Transaction Documents, Company is not relying
on any representation, warranty, covenant or promise of Investor or its
officers, directors, members, managers, agents or representatives other than as
set forth in the Transaction Documents.

 

9.12.        Amendments. No provision of this Agreement may be waived or amended
other than by an instrument in writing signed by both parties hereto.

 

9.13.        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

 

 9

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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 Company:

 

Growlife, Inc. 

Attn: Marco Hegyi 

5400 Carillon Point 

Kirkland, Washington 98033

 

If to Investor:

 

Iliad Research and Trading, 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

 

9.14.        Successors and Assigns. This Agreement or any of the severable
rights and obligations inuring to the benefit of or to be performed by Investor
hereunder may be assigned by Investor to a third party, including its
affiliates, in whole or in part, without the need to obtain Company’s consent
thereto. Company may not assign its rights or obligations under this Agreement
or delegate its duties hereunder without the prior written consent of Investor.

 

9.15.        Survival. The representations and warranties of Company and the
agreements and covenants set forth in this Agreement shall survive the Closing
hereunder notwithstanding any due diligence investigation conducted by or on
behalf of Investor. Company agrees to indemnify and hold harmless Investor and
all its officers, directors, employees, attorneys, and agents for loss or damage
arising as a result of or related to any breach or alleged breach by Company of
any of its representations, warranties and covenants set forth in this Agreement
or any of its covenants and obligations under this Agreement, including
advancement of expenses as they are incurred.

 

9.16.        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.

 

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9.17.        Investor’s Rights and Remedies Cumulative; Liquidated Damages. All
rights, remedies, and powers conferred in this Agreement and the Transaction
Documents are cumulative and not exclusive of any other rights or remedies, and
shall be in addition to every other right, power, and remedy that Investor may
have, whether specifically granted in this Agreement or any other Transaction
Document, or existing at law, in equity, or by statute, and any and all such
rights and remedies may be exercised from time to time and as often and in such
order as Investor may deem expedient. The parties acknowledge and agree that
upon Company’s failure to comply with the provisions of the Transaction
Documents, Investor’s damages would be uncertain and difficult (if not
impossible) to accurately estimate because of the parties’ inability to predict
future interest rates and future share prices, Investor’s increased risk, and
the uncertainty of the availability of a suitable substitute investment
opportunity for Investor, among other reasons. Accordingly, any fees, charges,
and default interest due under the Note and the other Transaction Documents are
intended by the parties to be, and shall be deemed, liquidated damages (under
Company’s and Investor’s expectations that any such liquidated damages will tack
back to the Closing Date for purposes of determining the holding period under
Rule 144 under the 1933 Act). The parties agree that such liquidated damages are
a reasonable estimate of Investor’s actual damages and not a penalty, and shall
not be deemed in any way to limit any other right or remedy Investor may have
hereunder, at law or in equity. The parties acknowledge and agree that under the
circumstances existing at the time this Agreement is entered into, such
liquidated damages are fair and reasonable and are not penalties. All fees,
charges, and default interest provided for in the Transaction Documents are
agreed to by the parties to be based upon the obligations and the risks assumed
by the parties as of the Closing Date and are consistent with investments of
this type. The liquidated damages provisions of the Transaction Documents shall
not limit or preclude a party from pursuing any other remedy available at law or
in equity; provided, however, that the liquidated damages provided for in the
Transaction Documents are intended to be in lieu of actual damages.

 

9.18.        Ownership Limitation. Notwithstanding anything to the contrary
contained in this Agreement or the other Transaction Documents, if at any time
Investor would be issued shares of Common Stock under any of the Transaction
Documents, but such issuance would cause Investor (together with its affiliates)
to beneficially own a number of shares exceeding the Maximum Percentage (as
defined in the Note), then Company must not issue to Investor the shares that
would cause Investor to exceed the Maximum Percentage. The shares of Common
Stock issuable to Investor that would cause the Maximum Percentage to be
exceeded are referred to herein as the “Ownership Limitation Shares”. Company
shall reserve the Ownership Limitation Shares for the exclusive benefit of
Investor. From time to time, Investor may notify Company in writing of the
number of the Ownership Limitation Shares that may be issued to Investor without
causing Investor to exceed the Maximum Percentage. Upon receipt of such notice,
Company shall be unconditionally obligated to immediately issue such designated
shares to Investor, with a corresponding reduction in the number of the
Ownership Limitation Shares. For purposes of this Section, beneficial ownership
of Common Stock will be determined under Section 13(d) of the 1934 Act.

 

9.19.        Attorneys’ Fees and Cost of Collection. In the event of any
arbitration or action at law or in equity to enforce or interpret the terms of
this Agreement or any of the other Transaction 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, deposition costs, and expenses paid by such
prevailing party in connection with arbitration or litigation without reduction
or apportionment based upon the individual claims or defenses giving

 

 11

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rise to the fees and expenses. Nothing herein shall restrict or impair an
arbitrator’s or a court’s power to award fees and expenses for frivolous or bad
faith pleading. If (i) the 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
Investor otherwise takes action to collect amounts due under the Note or to
enforce the provisions of the Note, or (ii) there occurs any bankruptcy,
reorganization, receivership of Company or other proceedings affecting Company’s
creditors’ rights and involving a claim under the Note; then Company shall pay
the costs incurred by Investor for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or other
proceeding, including, without limitation, attorneys’ fees, expenses, deposition
costs, and disbursements.

 

9.20.        Waiver. No waiver of any provision of this Agreement 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.

 

9.21.        Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY
WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT, ANY OTHER TRANSACTION 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 SUCH PARTY IS KNOWINGLY
AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.

 

9.22.        Time is of the Essence. Time is expressly made of the essence with
respect to each and every provision of this Agreement and the other Transaction
Documents.

 

9.23.        Voluntary Agreement. Company has carefully read this Agreement and
each of the other Transaction Documents and has asked any questions needed for
Company to understand the terms, consequences and binding effect of this
Agreement and each of the other Transaction Documents and fully understand them.
Company has had the opportunity to seek the advice of an attorney of Company’s
choosing, or has waived the right to do so, and is executing this Agreement and
each of the other Transaction Documents voluntarily and without any duress or
undue influence by Investor or anyone else.

 

[Remainder of page intentionally left blank; signature page follows]

 

 12

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

 

SUBSCRIPTION AMOUNT:

 

Principal Amount of Note: $1,655,000.00     Initial Cash Purchase Price:
$50,000.00

            INVESTOR:           Iliad Research and Trading, L.P.           By:
Iliad Management, LLC, its General Partner             By: Fife Trading, Inc.,
its Manager               By: /s/ John Fife         John M. Fife, President    
        COMPANY:       Growlife, Inc.             By: /s/ Marco Hegyi

Printed Name:  Marco Hegyi

Title:  Chief Executive Officer

 

[Signature Page to Securities Purchase Agreement]   

 

 

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ATTACHED EXHIBITS:

 

Exhibit ANote

Exhibit BAllocation of Purchase Price

Exhibit CForm of Investor Note

Exhibit DSecurity Agreement

Exhibit EOfficer’s Certificate

Exhibit FIrrevocable Transfer Agent Instructions

Exhibit GSecretary’s Certificate

Exhibit HShare Issuance Resolution

Exhibit IArbitration Provisions

 

 

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Exhibit I

 

ARBITRATION PROVISIONS

 

1.            Dispute Resolution. For purposes of this Exhibit I, the term
“Claims” means any disputes, claims, demands, causes of action, requests for
injunctive relief, requests for specific performance, liabilities, damages,
losses, or controversies whatsoever arising from, related to, or connected with
the transactions contemplated in the Transaction Documents and any
communications between the parties related thereto, including without limitation
any claims of mutual mistake, mistake, fraud, misrepresentation, failure of
formation, failure of consideration, promissory estoppel, unconscionability,
failure of condition precedent, rescission, and any statutory claims, tort
claims, contract claims, or claims to void, invalidate or terminate the
Agreement (or these Arbitration Provisions (defined below)) or any of the other
Transaction Documents. The term “Claims” specifically excludes a dispute over
Calculations. The parties to the Agreement (the “parties”) hereby agree that the
arbitration provisions set forth in this Exhibit I (“Arbitration Provisions”)
are binding on each of them. As a result, any attempt to rescind the Agreement
(or these Arbitration Provisions) or declare the Agreement (or these Arbitration
Provisions) or any other Transaction Document invalid or unenforceable for any
reason is subject to these Arbitration Provisions. These Arbitration Provisions
shall also survive any termination or expiration of the Agreement. Any
capitalized term not defined in these Arbitration Provisions shall have the
meaning set forth in the Agreement.

 

2.            Arbitration. Except as otherwise provided herein, all Claims must
be submitted to arbitration (“Arbitration”) to be conducted exclusively in Salt
Lake County, Utah and pursuant to the terms set forth in these Arbitration
Provisions. Subject to the arbitration appeal right provided for in Paragraph 5
below (the “Appeal Right”), the parties agree that the award of the arbitrator
rendered pursuant to Paragraph 4 below (the “Arbitration Award”) shall be (a)
final and binding upon the parties, (b) the sole and exclusive remedy between
them regarding any Claims, counterclaims, issues, or accountings presented or
pleaded to the arbitrator, and (c) promptly payable in United States dollars
free of any tax, deduction or offset (with respect to monetary awards). Subject
to the Appeal Right, any costs or fees, including without limitation attorneys’
fees, incurred in connection with or incident to enforcing the Arbitration Award
shall, to the maximum extent permitted by law, be charged against the party
resisting such enforcement. The Arbitration Award shall include default interest
(as defined or otherwise provided for in the Note, “Default Interest”) (with
respect to monetary awards) at the rate specified in the Note for Default
Interest both before and after the Arbitration Award. Judgment upon the
Arbitration Award will be entered and enforced by any state or federal court
sitting in Salt Lake County, Utah.

 

3.            The Arbitration Act. The parties hereby incorporate herein the
provisions and procedures set forth in the Utah Uniform Arbitration Act, U.C.A.
§ 78B-11-101 et seq. (as amended or superseded from time to time, the
“Arbitration Act”). Notwithstanding the foregoing, pursuant to, and to the
maximum extent permitted by, Section 105 of the Arbitration Act, in the event of
conflict or variation between the terms of these Arbitration Provisions and the
provisions of the Arbitration Act, the terms of these Arbitration Provisions
shall control and the parties hereby waive or otherwise agree to vary the effect
of all requirements of the Arbitration Act that may conflict with or vary from
these Arbitration Provisions.

 

4.            Arbitration Proceedings. Arbitration between the parties will be
subject to the following:

 

4.1           Initiation of Arbitration. Pursuant to Section 110 of the
Arbitration Act, the parties agree that a party may initiate Arbitration by
giving written notice to the other party (“Arbitration Notice”) in the same
manner that notice is permitted under Section 9.13 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 9.13 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 9.13 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.

 

Arbitration Provisions, Page 1

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4.2           Selection and Payment of Arbitrator.

 

(a) Within ten (10) calendar days after the Service Date, Investor shall select
and submit to 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 Investor has submitted to Company
the names of the Proposed Arbitrators, Company must select, by written notice to
Investor, one (1) of the Proposed Arbitrators to act as the arbitrator for the
parties under these Arbitration Provisions. If Company fails to select one of
the Proposed Arbitrators in writing within such 5-day period, then Investor may
select the arbitrator from the Proposed Arbitrators by providing written notice
of such selection to Company.

 

(b) If Investor fails to submit to Company the Proposed Arbitrators within ten
(10) calendar days after the Service Date pursuant to subparagraph (a) above,
then Company may at any time prior to Investor 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
Investor. Investor may then, within five (5) calendar days after Company has
submitted notice of its Proposed Arbitrators to Investor, select, by written
notice to Company, one (1) of the Proposed Arbitrators to act as the arbitrator
for the parties under these Arbitration Provisions. If Investor fails to select
in writing and within such 5-day period one (1) of the three (3) Proposed
Arbitrators selected by Company, then Company may select the arbitrator from its
three (3) previously selected Proposed Arbitrators by providing written notice
of such selection to Investor.

 

(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 and there is no successor thereto, 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.

 

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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,

 

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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

 

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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

 

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(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.

 

5.4Timing.

 

(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

 

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right to appeal the Arbitration Award, and the Arbitration Award shall be final.
If the Appellee shall fail to deliver the Memorandum in Opposition as required
above, or if the Appellant shall fail to deliver the Reply Memorandum as
required above, then the Appellee or the Appellant, as the case may be, shall
lose its right to so deliver the same, and the Appeal shall proceed regardless.

 

(b)           Subject to subparagraph (a) above, the parties hereby agree that
the Appeal must be heard by the Appeal Panel within thirty (30) calendar days of
the Appeal Commencement Date, and that the Appeal Panel must render its decision
within thirty (30) calendar days after the Appeal is heard (and in no event
later than sixty (60) calendar days after the Appeal Commencement Date).

 

5.5           Appeal Panel Award. The Appeal Panel shall issue its decision (the
“Appeal Panel Award”) through the lead arbitrator on the Appeal Panel.
Notwithstanding any other provision contained herein, the Appeal Panel Award
shall (a) supersede in its entirety and make of no further force or effect the
Arbitration Award (provided that any protective orders issued by the Original
Arbitrator shall remain in full force and effect), (b) be final and binding upon
the parties, with no further rights of appeal, (c) be the sole and exclusive
remedy between the parties regarding any Claims, counterclaims, issues, or
accountings presented or pleaded in the Arbitration, and (d) be promptly payable
in United States dollars free of any tax, deduction or offset (with respect to
monetary awards). Any costs or fees, including without limitation attorneys’
fees, incurred in connection with or incident to enforcing the Appeal Panel
Award shall, to the maximum extent permitted by law, be charged against the
party resisting such enforcement. The Appeal Panel Award shall include Default
Interest (with respect to monetary awards) at the rate specified in the Note for
Default Interest both before and after the Arbitration Award. Judgment upon the
Appeal Panel Award will be entered and enforced by a state or federal court
sitting in Salt Lake County, Utah.

 

5.6           Relief. The Appeal Panel shall have the right to award or include
in the Appeal Panel Award any relief which the Appeal Panel deems proper under
the circumstances, including, without limitation, specific performance and
injunctive relief, provided that the Appeal Panel may not award exemplary or
punitive damages.

 

5.7           Fees and Costs. As part of the Appeal Panel Award, the Appeal
Panel is hereby directed to require the losing party (the party being awarded
the least amount of money by the arbitrator, which, for the avoidance of doubt,
shall be determined without regard to any statutory fines, penalties, fees, or
other charges awarded to any party) to (a) pay the full amount of any unpaid
costs and fees of the Arbitration and the Appeal Panel, and (b) reimburse the
prevailing party (the party being awarded the most amount of money by the Appeal
Panel, which, for the avoidance of doubt, shall be determined without regard to
any statutory fines, penalties, fees, or other charges awarded to any part) the
reasonable attorneys’ fees, arbitrator and Appeal Panel costs and fees,
deposition costs, other discovery costs, and other expenses, costs or fees paid
or otherwise incurred by the prevailing party in connection with the Arbitration
(including without limitation in connection with the Appeal).

 

6.Miscellaneous.

 

6.1           Severability. If any part of these Arbitration Provisions is found
to violate or be illegal under applicable law, then such provision shall be
modified to the minimum extent necessary to make such provision enforceable
under applicable law, and the remainder of the Arbitration Provisions shall
remain unaffected and in full force and effect.

 

6.2           Governing Law. These Arbitration Provisions shall be governed by
the laws of the State of Utah without regard to the conflict of laws principles
therein. 

 

6.3           Interpretation. The headings of these Arbitration Provisions are
for convenience of reference only and shall not form part of, or affect the
interpretation of, these Arbitration Provisions.

 

6.4           Waiver. No waiver of any provision of these Arbitration Provisions
shall be effective unless it is in the form of a writing signed by the party
granting the waiver.

 

6.5           Time is of the Essence. Time is expressly made of the essence with
respect to each and every provision of these Arbitration Provisions.

 

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Exhibit A

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

Effective Date: August 7, 2018 U.S. $1,655,000.00

 

FOR VALUE RECEIVED, Growlife, Inc., a Delaware corporation (“Borrower”),
promises to pay to Iliad Research and Trading, L.P., a Utah limited partnership,
or its successors or assigns (“Lender”), $1,655,000.00 and any interest, fees,
charges, and late fees on the date that is twelve (12) months after the Purchase
Price Date (the “Maturity Date”) in accordance with the terms set forth herein
and to pay interest on the Outstanding Balance (including all Tranches (as
defined below), both Conversion Eligible Tranches (as defined below) and
Subsequent Tranches (as defined below) that have not yet become Conversion
Eligible Tranches) at the rate of ten percent (10%) per annum from the Purchase
Price Date until the same is paid in full. This Secured Convertible Promissory
Note (this “Note”) is issued and made effective as of August 7, 2018 (the
“Effective Date”). This Note is issued pursuant to that certain Securities
Purchase Agreement dated August 7, 2018, as the same may be amended from time to
time, by and between Borrower and Lender (the “Purchase Agreement”). All
interest calculations hereunder shall be computed on the basis of a 360-day year
comprised of twelve (12) thirty (30) day months, shall compound daily and shall
be payable in accordance with the terms of this Note. Certain capitalized terms
used herein are defined in Attachment 1 attached hereto and incorporated herein
by this reference.

 

This Note carries an OID of $150,000.00. In addition, Borrower agrees to pay
$5,000.00 to Lender to cover Lender’s legal fees, accounting costs, due
diligence, monitoring and other transaction costs incurred in connection with
the purchase and sale of this Note (the “Transaction Expense Amount”), all of
which amount is included in the initial principal balance of this Note. The
purchase price for this Note shall be $1,500,000.00 (the “Purchase Price”),
computed as follows: $1,655,000.00 original principal balance, less the OID,
less the Transaction Expense Amount. The Purchase Price shall be payable by
delivery to Borrower at Closing of the Investor Notes (as defined in the
Purchase Agreement) and a wire transfer of immediately available funds in the
amount of the Initial Cash Purchase Price (as defined in the Purchase
Agreement). This Note shall be comprised of eight (8) tranches (each, a
“Tranche”), consisting of (i) an initial Tranche in an amount equal to
$60,000.00 and any interest, costs, fees or charges accrued thereon or added
thereto under the terms of this Note and the other Transaction Documents (as
defined in the Purchase Agreement) (the “Initial Tranche”), and (ii) seven (7)
additional Tranches, one (1) in the amount of $275,000.00 and six (6) in the
amount of $220,000.00, plus any interest, costs, fees or charges accrued thereon
or added thereto under the terms of this Note and the other Transaction
Documents (each, a “Subsequent Tranche”). The Initial Tranche shall correspond
to the Initial Cash Purchase Price, $5,000.00 of the OID and the Transaction
Expense Amount, and may be converted into shares of Common Stock (as defined
below) any time subsequent to the Purchase Price Date. The first Subsequent
Tranche shall correspond to Investor Note #1 and $25,000.00 of the OID, the
second Subsequent Tranche shall correspond to Investor Note #2 and $20,000.00 of
the OID, the third Subsequent Tranche shall correspond to Investor Note #3 and
$20,000.00 of the OID, the fourth Subsequent Tranche shall correspond to
Investor Note #4 and $20,000.00 of the OID, the fifth Subsequent Tranche shall
correspond to Investor Note #5 and $20,000.00 of the OID, the sixth Subsequent
Tranche shall correspond to Investor Note #6 and $20,000.00 of the OID; and the
seventh Subsequent Tranche shall correspond to Investor Note #7 and $20,000.00.
Lender’s right to convert any portion of any of the Subsequent Tranches is
conditioned upon Lender’s payment in full of the Investor Note corresponding to
such Subsequent Tranche (upon the satisfaction of such condition, such
Subsequent Tranche becomes a “Conversion Eligible Tranche”). In the event Lender
exercises its Lender Offset Right (as defined below) with respect to a portion
of an Investor Note and pays in full the remaining outstanding balance of such
Investor Note, the Subsequent Tranche that corresponds to such

 

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Investor Note shall be deemed to be a Conversion Eligible Tranche only for the
portion of such Tranche that was paid for in cash by Lender and the portion of
such Investor Note that was offset pursuant to Lender’s exercise of the Lender
Offset Right shall not be included in the applicable Conversion Eligible
Tranche. For the avoidance of doubt, subject to the other terms and conditions
hereof, the Initial Tranche shall be deemed a Conversion Eligible Tranche as of
the Purchase Price Date for all purposes hereunder and may be converted in whole
or in part at any time subsequent to the Purchase Price Date, and each
Subsequent Tranche that becomes a Conversion Eligible Tranche may be converted
in whole or in part at any time subsequent to the first date on which such
Subsequent Tranche becomes a Conversion Eligible Tranche. For all purposes
hereunder, Conversion Eligible Tranches shall be converted (or redeemed, as
applicable) in order of the lowest-numbered Conversion Eligible Tranche and
Conversion Eligible Tranches may be converted (or redeemed, as applicable) in
one or more separate Conversions (as defined below), as determined in Lender’s
sole discretion. At all times hereunder, the aggregate amount of any costs, fees
or charges incurred by or assessable against Borrower hereunder, including,
without limitation, any fees, charges or premiums incurred in connection with an
Event of Default (as defined below), shall be added to the lowest-numbered
then-current Conversion Eligible Tranche.

 

10.Payment; Prepayment.

 

10.1.        Payment. Provided there is an Outstanding Balance, on each
Redemption Date (as defined below), Borrower shall pay to Lender an amount equal
to the Redemption Amount (as defined below) due on such Redemption Date in
accordance with Section 17. 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 or bank account
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.

 

10.2.        Prepayment. Notwithstanding the foregoing, so long as Borrower has
not received a Lender Conversion Notice (as defined below) or a Redemption
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 Effective Date (whether declared by Lender or undeclared and
regardless of whether or not cured), 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 10. 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 110% (the “Prepayment Premium”) 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 and Lender shall be entitled to exercise its
conversion rights set forth herein during such five (5) day period. In addition,
if Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
Prepayment Amount due to Lender within two

 

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(2) Trading Days following the Optional Prepayment Date, Borrower shall forever
forfeit its right to prepay this Note.

 

11.           Security. This Note is secured by a certain Security Agreement of
even date herewith, as the same may be amended from time to time (the “Security
Agreement”), executed by Borrower in favor of Lender encumbering all of
Borrower’s assets, as more specifically set forth in the Security Agreement, all
the terms and conditions of which are hereby incorporated into and made a part
of this Note.

 

12.           Lender Optional Conversion.

 

12.1.        Lender Conversions. Lender has the right at any time after the
Purchase Price Date until the Outstanding Balance has been paid in full,
including without limitation (a) until any Optional Prepayment Date (even if
Lender has received an Optional Prepayment Notice) or at any time thereafter
with respect to any amount that is not prepaid, and (b) during or after any
Fundamental Default Measuring Period, at its election, to convert (each instance
of conversion is referred to herein as a “Lender Conversion”) all or any part of
the Outstanding Balance into shares (“Lender 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 Lender
Conversion Shares equals the amount being converted (the “Conversion Amount”)
divided by the Lender Conversion Price (as defined below). Conversion notices in
the form attached hereto as Exhibit A (each, a “Lender 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 Lender Conversions shall be cashless and not require further
payment from Lender. Borrower shall deliver the Lender Conversion Shares from
any Lender Conversion to Lender in accordance with Section 17.1 below.

 

12.2.        Lender Conversion Price. Subject to adjustment as set forth in this
Note, the price at which Lender has the right to convert all or any portion of
the Outstanding Balance into Common Stock is $0.015 per share of Common Stock
(the “Lender Conversion Price”). However, in the event the Market Capitalization
falls below the Minimum Market Capitalization at any time, then in such event
(a) the Lender Conversion Price for all Lender Conversions occurring after the
first date of such occurrence shall equal the lower of the Lender Conversion
Price and the Market Price as of any applicable date of Conversion, and (b) the
true-up provisions of Section 20 below shall apply to all Lender Conversions
that occur after the first date the Market Capitalization falls below the
Minimum Market Capitalization, provided that all references to the “Redemption
Notice” in Section 20 shall be replaced with references to a “Lender Conversion
Notice” for purposes of this Section 12.2, all references to “Redemption
Conversion Shares” in Section 20 shall be replaced with references to “Lender
Conversion Shares” for purposes of this Section 12.2, and all references to the
“Redemption Conversion Price” in Section 20 shall be replaced with references to
the “Lender Conversion Price” for purposes of this Section 12.2.

 

13.           Defaults and Remedies.

 

13.1.        Defaults. The following are events of default under this Note
(each, an “Event of Default”): (a) Borrower fails to pay any principal,
interest, fees, charges, or any other amount when due and payable hereunder; (b)
Borrower fails to deliver any Lender Conversion Shares in accordance with the
terms hereof; (c) Borrower fails to deliver any Redemption Conversion Shares (as
defined below) or True-Up Shares (as defined below) in accordance with the terms
hereof; (d) 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; (e) Borrower becomes 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; (f) Borrower makes a general

 

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assignment for the benefit of creditors; (g) Borrower files a petition for
relief under any bankruptcy, insolvency or similar law (domestic or foreign);
(h) an involuntary bankruptcy proceeding is commenced or filed against Borrower;
(i) Borrower defaults or otherwise fails to observe or perform any covenant,
obligation, condition or agreement of Borrower contained herein or in any other
Transaction Document, other than those specifically set forth in this Section
13.1 and Section 4 of the Purchase Agreement; (j) any representation, warranty
or other statement made or furnished by or on behalf of Borrower to Lender
herein, in any Transaction Document, or otherwise in connection with the
issuance of this Note is false, incorrect, incomplete or misleading in any
material respect when made or furnished; (k) the occurrence of a Fundamental
Transaction without Lender’s prior written consent; (l) Borrower fails to
establish and/or maintain the Share Reserve as required under the Purchase
Agreement (including without limitation failing to effect the Authorized Share
Increase (as defined in the Purchase Agreement); (m) Borrower effectuates a
reverse split of its Common Stock without twenty (20) Trading Days prior written
notice to Lender; (n) any money judgment, writ or similar process is 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; (o) Borrower fails to be DWAC Eligible; (p) Borrower fails to observe
or perform any covenant set forth in Section 4 of the Purchase Agreement, or (q)
Borrower breaches any covenant or other term or condition contained in any Other
Agreements.

 

13.2.        Remedies. At any time and from time to time after Lender becomes
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 (d), (e), (f), (g) or (h) of Section 13.1,
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”); provided, however, that no Default Interest shall accrue during the
Fundamental Default Measuring Period. For the avoidance of doubt, Lender may
continue making Lender Conversions at any time following an Event of Default
until such time as the Outstanding Balance is paid in full. Borrower further
acknowledges and agrees that Lender may continue making Conversions following
the entry of any judgment or arbitration award in favor of Lender until such
time that the entire judgment amount or arbitration award is paid in full.
Borrower agrees that any judgment or arbitration award will, by its terms, be
made convertible into Common Stock. Any Conversions made following a judgment or
arbitration award shall be made pursuant to the following formula: the amount of
the judgment or arbitration award being converted divided by 80% of the lowest
Closing Bid Price in the ten (10) Trading Days immediately preceding the date of
Conversion. In such event, Borrower and Lender agree that it is their
expectation that any such judgment amount or arbitration award that is converted
will tack back to the Purchase Price Date for purposes of determining the
holding period under Rule 144. Borrower and Lender agree and stipulate that any
judgment or arbitration award entered against Borrower

 

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shall be reduced by $1,000.00 and such $1,000.00 shall become the new
Outstanding Balance of this Note and this Note shall expressly survive such
judgment or arbitration award. Additionally, following the occurrence of any
Event of Default, Borrower may, at its option, pay any Lender Conversion in cash
instead of Lender Conversion Shares by paying to Lender on or before the
applicable Delivery Date (as defined below) a cash amount equal to the number of
Lender Conversion Shares set forth in the applicable Lender 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 Lender 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 13.2. 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.

 

13.3.        Fundamental Default Remedies. Notwithstanding anything to the
contrary herein, in addition to all other remedies set forth herein, after
giving effect to the Lender Offset Right (as defined below), which shall occur
automatically upon the occurrence of any Fundamental Default, the Fundamental
Liquidated Damages Amount shall be added to the Outstanding Balance upon
Lender’s delivery to Borrower of a notice (which notice Lender may deliver to
Borrower at any time following the occurrence of a Fundamental Default) setting
forth its election to declare a Fundamental Default and the Fundamental
Liquidated Damages Amount that will be added to the Outstanding Balance.

 

13.4.        Certain Additional Rights. Notwithstanding anything to the contrary
herein, in the event Borrower fails to make any payment when due or fails to
deliver any Conversion Shares as and when required under this Note, then (a) the
Lender Conversion Price for all Lender Conversions occurring after the date of
such failure to pay shall equal the lower of the Lender Conversion Price and the
Market Price as of any applicable date of Conversion, and (b) the true-up
provisions of Section 20 below shall apply to all Lender Conversions that occur
after the date of such failure to pay, provided that all references to the
“Redemption Notice” in Section 20 shall be replaced with references to a “Lender
Conversion Notice” for purposes of this Section 13.4, all references to
“Redemption Conversion Shares” in Section 20 shall be replaced with references
to “Lender Conversion Shares” for purposes of this Section 13.4, and all
references to the “Redemption Conversion Price” in Section 20 shall be replaced
with references to the “Lender Conversion Price” for purposes of this Section
13.4. For the avoidance of doubt, Lender’s exercise of the rights granted to it
pursuant to this Section 13.4 shall not relieve Borrower of its obligation to
continue paying the Redemption Amount on all future Redemption Dates.

 

14.           Unconditional Obligation; No Offset. Borrower acknowledges that
this Note is an unconditional, valid, binding and enforceable obligation of
Borrower not subject to offset (except as set forth in Section 29 below),
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. Notwithstanding the foregoing, any sale,
assignment, hypothecation or other transfer of the Note or a portion of the Note
where in return Lender receives consideration, the value of the consideration
received by Lender will offset any amounts owed by Borrower as of the date the
consideration is received by Lender.

 

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15.           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.

 

16.           Rights Upon Issuance of Securities.

 

16.1.        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 or
exchangeable for shares of Common Stock (collectively, the “Equity Securities”),
including without limitation any Deemed Issuance, at an effective price per
share less than the then effective Lender Conversion Price (such issuance is
referred to herein as a “Dilutive Issuance”), then, the Lender 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 Lender Conversion Price, such issuance
shall be deemed to have occurred for less than the Lender Conversion Price on
the date of such Dilutive Issuance, and the then effective Lender Conversion
Price shall be reduced and only reduced to equal such lower effective price per
share. Such adjustments described above to the Lender 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 16.1, 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 clarity, whether or not Borrower provides a Dilutive Issuance Notice pursuant
to this Section 16.1, upon the occurrence of any Dilutive Issuance, on the date
of such Dilutive Issuance the Lender 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
subsequent Redemption Notice or Lender Conversion Notice.

 

16.2.        Adjustment of Lender Conversion Price upon Subdivision or
Combination of Common Stock. Without limiting any provision hereof, if Borrower
at any time on or after the Effective 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 Lender 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 Effective 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 Lender Conversion Price in effect immediately
prior to such combination will be proportionately increased. Any adjustment
pursuant to this Section 16.2 shall become effective immediately after the
effective date of such subdivision or combination. If any event requiring an
adjustment under this Section 16.2 occurs during the period that a Lender
Conversion Price is calculated hereunder, then the calculation of such Lender
Conversion Price shall be adjusted appropriately to reflect such event.

 

16.3.        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

 

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Lender from dilution or if any event occurs of the type contemplated by the
provisions of this Section 16 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 Lender Conversion Price so as to protect the rights of Lender,
provided that no such adjustment pursuant to this Section 16.3 will increase the
Lender Conversion Price as otherwise determined pursuant to this Section 16,
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.

 

17.Borrower Redemptions.

 

17.1.        Redemption Conversion Price. Subject to the adjustments set forth
herein, the conversion price for each Redemption Conversion (as defined below)
(the “Redemption Conversion Price”) shall be the lesser of (a) the Lender
Conversion Price, and (b) the Market Price.

 

17.2.        Redemption Conversions. Beginning on the date that is six (6)
months after the Purchase Price Date and continuing thereafter until the
Maturity Date (each date on which Lender delivers a Redemption Notice, a
“Redemption Date”), Lender shall have the right, exercisable at any time, to
redeem a portion of the Note in any amount (the “Redemption Amount”) up to the
Maximum Monthly Redemption Amount by providing Borrower with a notice
substantially in the form attached hereto as Exhibit B (each, a “Redemption
Notice”). For the avoidance of doubt, Lender may submit to Borrower one (1) or
more Redemption Notices in any given calendar month, provided that the aggregate
amount being redeemed in any calendar month does not exceed the Maximum Monthly
Redemption Amount. Upon its receipt of a Redemption Notice, Borrower shall pay
the applicable Redemption Amount to Lender in accordance with the provisions of
this Section 17. Payments of each Redemption Amount may be made (a) in cash, or
(b) by converting such Redemption Amount into shares of Common Stock
(“Redemption Conversion Shares”, and together with the Lender Conversion Shares,
the “Conversion Shares”) in accordance with this Section 17 (each, a “Redemption
Conversion”) per the following formula: the number of Redemption Conversion
Shares equals the portion of the applicable Redemption Amount being converted
divided by the Redemption Conversion Price, or (c) by any combination of the
foregoing, so long as the cash is delivered to Lender on the second Trading Day
immediately following the applicable Redemption Date and the Redemption
Conversion Shares are delivered to Lender on or before the applicable Delivery
Date. Notwithstanding the foregoing, Borrower will not be entitled to elect a
Redemption Conversion with respect to any portion of any applicable Redemption
Amount and shall be required to pay the entire amount of such Redemption Amount
in cash if on the applicable Redemption Date there is an Equity Conditions
Failure, and such failure is not waived in writing by Lender. Notwithstanding
that failure to repay this Note in full by the Maturity Date is an Event of
Default, the Redemption Dates shall continue after the Maturity Date pursuant to
this Section 17 until the Outstanding Balance is repaid in full, provided that
the aggregate Redemption Amounts in any given calendar month following an Event
of Default may exceed the Maximum Monthly Redemption Amount.

 

17.3.       Allocation of Redemption Amounts. Following its receipt of a
Redemption Notice, Borrower may either ratify Lender’s proposed allocation in
the applicable Redemption Notice or elect to change the allocation by written
notice to Lender by email or fax within twenty-four (24) hours of its receipt of
such Redemption Notice, so long as the sum of the cash payments and the amount
of Redemption Conversions equal the applicable Redemption Amount. If Borrower
fails to notify Lender of its election to change the allocation prior to the
deadline set forth in the previous sentence, it shall be deemed to have ratified
and accepted the allocation set forth in the applicable Redemption Notice

 

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prepared by Lender. Borrower acknowledges and agrees that the amounts and
calculations set forth thereon are subject to correction or adjustment because
of error, mistake, or any adjustment resulting from an Event of Default or other
adjustment permitted under the Transaction Documents (an “Adjustment”).
Furthermore, no error or mistake in the preparation of such notices, or failure
to apply any Adjustment that could have been applied prior to the preparation of
a Redemption Notice may be deemed a waiver of Lender’s right to enforce the
terms of any Note, even if such error, mistake, or failure to include an
Adjustment arises from Lender’s own calculation. Borrower shall deliver the
Redemption Conversion Shares from any Redemption Conversion to Lender in
accordance with Section 17.1 below on or before each applicable Delivery Date.
If Borrower elects to pay a Redemption Amount in cash, such payment must be
delivered on the second Trading Day immediately following the Redemption Date.
If Borrowers elects to make a payment in cash and fails to make such payment by
the required due date on two (2) separate occasions, Borrower shall lose the
right to make payments of Redemption Amounts in cash in the future without
Lender’s written consent.

 

18.          Method of Conversion Share Delivery. On or before the close of
business on the third (3rd) Trading Day following the Redemption Date or the
third (3rd) Trading Day following the date of delivery of a Lender Conversion
Notice, as applicable (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 Lender Conversion Notice or Redemption Notice. If
Borrower is not DWAC Eligible, it shall deliver to Lender or its broker (as
designated in the Lender Conversion Notice or Redemption Notice, as applicable),
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 Transaction 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 17.1. 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.

 

19.          Conversion Delays. If Borrower fails to deliver Conversion Shares
or True-Up Shares in accordance with the timeframes stated in Sections 17.1 or
20, as applicable, Lender, at any time prior to selling all of those Conversion
Shares or True-Up Shares, as applicable, may rescind in whole or in part that
particular Conversion attributable to the unsold Conversion Shares or True-Up
Shares, with a corresponding increase to the Outstanding Balance (any returned
amount will tack back to the Purchase Price Date for purposes of determining the
holding period under Rule 144). In addition, for each Lender Conversion, in the
event that Lender Conversion Shares are not delivered by the fourth Trading Day
(inclusive of the day of the Lender Conversion), a late fee equal to the greater
of (a) $500.00 and (b) 2% of the applicable Lender Conversion Share Value
rounded to the nearest multiple of $100.00 (but in any event the cumulative
amount of such late fees for each Lender Conversion shall not exceed 200% of the
applicable Lender Conversion Share Value) will be assessed for each day after
the third Trading Day (inclusive of the day of the Lender Conversion) until
Lender 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 Lender Conversion Notice to
Borrower pursuant to which Borrower is required to deliver 100,000 Lender
Conversion Shares to Lender and on the Delivery Date such Lender Conversion
Shares have a Lender Conversion Share Value of $20,000.00, then in such event

 

15

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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 Lender Conversion Shares
are delivered to Lender. For purposes of this example, if the Lender 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 Lender 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 Lender Conversion Share
Value).

 

20.          True-Up. On the date that is twenty (20) Trading Days (a “True-Up
Date”) from each date that the Redemption Conversion Shares delivered by
Borrower to Lender become Free Trading, there shall be a true-up where Borrower
shall deliver to Lender additional Redemption Conversion Shares (“True-Up
Shares”) if the Redemption Conversion Price as of the True-Up Date is less than
the Redemption Conversion Price used in the applicable Redemption Notice. In
such event, Borrower shall deliver to Lender within three (3) Trading Days of
the True-Up Date (the “True-Up Share Delivery Date”) a number of True-Up Shares
equal to the difference between the number of Redemption Conversion Shares that
would have been delivered to Lender on the True-Up Date based on the Redemption
Conversion Price as of the True-Up Date and the number of Redemption Conversion
Shares originally delivered to Lender pursuant to the applicable Redemption
Notice. For the avoidance of doubt, if the Redemption Conversion Price as of the
True-Up Date is higher than the Redemption Conversion Price set forth in the
applicable Redemption Notice, then Borrower shall have no obligation to deliver
True-Up Shares to Lender, nor shall Lender have any obligation to return any
excess Redemption Conversion Shares to Borrower under any circumstance. For the
convenience of Borrower only, Lender may, in its sole discretion, deliver to
Borrower a notice (pursuant to a form of notice substantially in the form
attached hereto as Exhibit C) informing Borrower of the number of True-Up Shares
it is obligated to deliver to Lender as of any given True-Up Date, provided that
if Lender does not deliver any such notice, Borrower shall not be relieved of
its obligation to deliver True-Up Shares pursuant to this Section 20.
Notwithstanding the foregoing, if Borrower fails to deliver any required True-Up
Shares on or before any applicable True-Up Share Delivery Date, then in such
event the Outstanding Balance of this Note will automatically increase by a sum
equal to the number of True-Up Shares deliverable as of the applicable True-Up
Date multiplied by the Market Price for the Common Stock as of the applicable
True-Up Date (under Lender’s and Borrower’s expectations that any such increase
will tack back to the Purchase Price Date for purposes of determining the
holding period under Rule 144).

 

21.           Ownership Limitation. Notwithstanding anything to the contrary
contained in this Note or the other Transaction Documents, if at any time Lender
shall or would be issued shares of Common Stock under any of the Transaction
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.

 

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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.

 

22.           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.

 

23.           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.

 

24.           Governing Law; Venue. 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
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Utah. The provisions set forth in the Purchase Agreement
to determine the proper venue for any disputes are incorporated herein by this
reference.

 

25.           Resolution of Disputes.

 

25.1.        Arbitration of Disputes. By its acceptance of this Note, each party
agrees to be bound by the Arbitration Provisions (as defined in the Purchase
Agreement) set forth as an exhibit to the Purchase Agreement.

 

25.2.        Calculation Disputes. Notwithstanding the Arbitration Provisions,
in the case of a dispute as to any Calculation (as defined in the Purchase
Agreement), such dispute will be resolved in the manner set forth in the
Purchase Agreement.

 

26.           Cancellation. After repayment or conversion of the entire
Outstanding Balance (including without limitation delivery of True-Up Shares
pursuant to the payment of the final Redemption Amount, if applicable), this
Note shall be deemed paid in full, shall automatically be deemed canceled, and
shall not be reissued.

 

27.           Amendments. The prior written consent of both parties hereto shall
be required for any change or amendment to this Note.

 

28.           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.

 

29.           Offset Rights. Notwithstanding anything to the contrary herein or
in any of the other Transaction Documents, (a) the parties hereto acknowledge
and agree that Lender maintains a right of

 

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offset pursuant to the terms of the Investor Notes that, under certain
circumstances, permits Lender to deduct amounts owed by Borrower under this Note
from amounts otherwise owed by Lender under the Investor Notes (the “Lender
Offset Right”), and (b) at any time Borrower shall be entitled to deduct and
offset any amount owing by the initial Lender under the Investor Notes from any
amount owed by Borrower under this Note (the “Borrower Offset Right”). In order
to exercise the Borrower Offset Right, Borrower must deliver to Lender (a) a
completed and signed Borrower Offset Right Notice in the form attached hereto as
Exhibit D, (b) the original Investor Note being offset marked “cancelled” or, in
the event the applicable Investor Note has been lost, stolen or destroyed, a
lost note affidavit in a form reasonably acceptable to Lender, and (c) a check
payable to Lender in the amount of $250.00. In the event that Borrower’s
exercise of the Borrower Offset Right results in the full satisfaction of
Borrower’s obligations under this Note, Lender shall return the original Note to
Borrower marked “cancelled” or, in the event this Note has been lost, stolen or
destroyed, a lost note affidavit in a form reasonably acceptable to Borrower.
For the avoidance of doubt, Borrower shall not incur any Prepayment Premium set
forth in Section 10 hereof with respect to any portions of this Note that are
satisfied by way of a Borrower Offset Right.

 

30.           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.

 

31.           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 Purchase Agreement titled “Notices.”

 

32.           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 Purchase Price Date for purposes of determining
the holding period under Rule 144).

 

33.           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.

 

34.           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.

 

35.           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.

 

18

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36.           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 E.

 

[Remainder of page intentionally left blank; signature page follows]

 

19

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IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the
Effective Date.

 

  BORROWER:       Growlife, Inc.             By: /s/ Marco Hegyi   Name: Marco
Hegyi   Title: Chief Executive Officer

 

ACKNOWLEDGED, ACCEPTED AND AGREED:

 

LENDER:

 

Iliad Research and Trading, L.P.

 

By: Iliad Management, LLC, its General Partner             By: Fife Trading,
Inc., its Manager           By: /s/ John Fife         John M. Fife, President  

 

[Signature Page to Secured Convertible Promissory Note]

 

 

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ATTACHMENT 1

DEFINITIONS

 

For purposes of this Note, the following terms shall have the following
meanings:

 

A1.          “Adjusted Outstanding Balance” means the Outstanding Balance of
this Note as of the date the applicable Fundamental Default occurred less any
Conversion Delay Late Fees included in such Outstanding Balance.

 

A2.          “Approved Stock Plan” means any equity compensation plan which has
been approved by the shareholders of Borrower and is in effect as of the
Purchase Price Date, pursuant to which Borrower’s securities may be issued to
any employee, officer or director for services provided to Borrower.

 

A3.          “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).

 

A4.          “Closing Bid Price” and “Closing Trade Price” means the last
closing bid price and last closing trade price, respectively, for the Common
Stock on its principal market, as reported by Bloomberg, or, if its principal
market begins to operate on an extended hours basis and does not designate the
closing bid price or the closing trade price (as the case may be) then the last
bid price or last trade price, respectively, of the Common Stock prior to
4:00:00 p.m., New York time, as reported by Bloomberg, or, if its principal
market is not the principal securities exchange or trading market for the Common
Stock, the last closing bid price or last trade price, respectively, of the
Common Stock on the principal securities exchange or trading market where the
Common Stock is listed or traded as reported by Bloomberg, or if the foregoing
do not apply, the last closing bid price or last trade price, respectively, of
the Common Stock in the over-the-counter market on the electronic bulletin board
for the Common Stock as reported by Bloomberg, or, if no closing bid price or
last trade price, respectively, is reported for the Common Stock by Bloomberg,
the average of the bid prices, or the ask prices, respectively, of any market
makers for the Common Stock as reported by OTC Markets Group, Inc., and any
successor thereto. If the Closing Bid Price or the Closing Trade Price cannot be
calculated for the Common Stock on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Trade Price (as the case may be) of
the Common Stock on such date shall be the fair market value as mutually
determined by Lender and Borrower. If Lender and Borrower are unable to agree
upon the fair market value of the Common Stock, then such dispute shall be
resolved in accordance with the procedures in Section 25.2. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period.

 

A5.          “Conversion” means a Lender Conversion under Section 12 or a
Redemption Conversion under Section 17.

 

A6.          “Conversion Eligible Outstanding Balance” means the Outstanding
Balance of this Note less the sum of each Subsequent Tranche that has not yet
become a Conversion Eligible Tranche (i.e., Lender has not yet paid the
outstanding balance of the Investor Note that corresponds to such Subsequent
Tranche).

 

A7.          “Conversion Factor” means 65%, subject to the following
adjustments. If at any time after the Effective Date, Borrower is not DWAC
Eligible, then the then-current Conversion Factor will automatically be reduced
by 5% for all future Conversions. If at any time after the Effective Date, the
Conversion Shares are not DTC Eligible, then the then-current Conversion Factor
will automatically be reduced by an additional 5% for all future Conversions.
Finally, in addition to the Default Effect, if any Major Default occurs after
the Effective 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 Effective 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 DWAC Eligible, the Conversion Factor for future Conversions
thereafter will be reduced from 65% to 60% for purposes of this example.
Following such event, the first time the Conversion Shares are no longer DTC
Eligible, the Conversion Factor for future Conversions thereafter will be
reduced from 60% to 55% for purposes of this example. If, thereafter, there are
three (3) separate occurrences of a Major Default pursuant to Section 13.1(c),
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.

 

 Attachment 1 to Secured Convertible Promissory Note, Page 1

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A8.          “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 17.1 of the Note. For the avoidance of doubt,
if Borrower has elected or is deemed under Section 17.3 to have elected to pay a
Redemption Amount in Redemption Conversion Shares and fails to deliver such
Redemption Conversion Shares, such failure shall be considered a Deemed Issuance
hereunder even if an Equity Conditions Failure exists at that time or other
relevant date of determination.

 

A9.          “Default Effect” means multiplying the Conversion Eligible
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 13.1(b) hereof.

 

A10.        “DTC” means the Depository Trust Company or any successor thereto.

 

A11.        “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.

 

A12.        “DTC/FAST Program” means the DTC’s Fast Automated Securities
Transfer program.

 

A13.        “DWAC” means the DTC’s Deposit/Withdrawal at Custodian system.

 

A14.        “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 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.

 

A15.        “Equity Conditions Failure” means that any of the following
conditions has not been satisfied during any applicable Equity Conditions
Measuring Period (as defined below): (a) with respect to the applicable date of
determination all of the Conversion Shares would be freely tradable under Rule
144 or without the need for registration under any applicable federal or state
securities laws (in each case, disregarding any limitation on conversion of this
Note); (b) on each day during the period beginning one month prior to the
applicable date of determination and ending on and including the applicable date
of determination (the “Equity Conditions Measuring Period”), the Common Stock is
listed or designated for quotation (as applicable) on any of NYSE, NASDAQ,
OTCQX, OTCQB, or OTC Pink Current Information (each, an “Eligible Market”) and
shall not have been suspended from trading on any such Eligible Market (other
than suspensions of not more than two (2) Trading Days and occurring prior to
the applicable date of determination due to business announcements by Borrower);
(c) on each day during the Equity Conditions Measuring Period, Borrower shall
have delivered all shares of Common Stock issuable upon conversion of this Note
on a timely basis as set forth in Section 17.1 hereof and all other shares of
capital stock required to be delivered by Borrower on a timely basis as set
forth in the other Transaction Documents; (d) any shares of Common Stock to be
issued in connection with the event requiring determination may be issued in
full without violating Section 21 hereof (Lender acknowledges that Borrower
shall be entitled to assume that this condition has been met for all purposes
hereunder absent written notice from Lender); (e) any shares of Common Stock to
be issued in connection with the event requiring determination may be issued in
full without violating the rules or regulations of the Eligible Market on which
the Common Stock is then listed or designated for quotation (as applicable);
(f) on each day during the Equity Conditions Measuring Period, no public
announcement of a pending, proposed or intended Fundamental Transaction shall
have occurred which has not been abandoned, terminated or consummated;
(g) Borrower shall have no knowledge of any fact that would reasonably be
expected to cause any of the Conversion Shares to not be freely tradable without
the need for registration under any applicable state securities laws (in each
case, disregarding any limitation on conversion of this Note); (h) on each day
during the Equity Conditions Measuring Period, Borrower otherwise shall have
been in material compliance with each, and shall not have breached any, term,
provision, covenant, representation or warranty of any Transaction

 

 Attachment 1 to Secured Convertible Promissory Note, Page 2

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Document; (i) without limiting clause (j) above, on each day during the Equity
Conditions Measuring Period, there shall not have occurred an Event of Default
or an event that with the passage of time or giving of notice would constitute
an Event of Default; (k) on each Redemption Date, the average and median daily
dollar volume of the Common Stock on its principal market for the previous
twenty (20) Trading Days shall be greater than $50,000.00; (l) the ten (10) day
average VWAP of the Common Stock is greater than $0.005, and (m) the Common
Stock shall be DWAC Eligible as of each applicable Redemption Date or other date
of determination.

 

A16.        “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 Purchase Price Date.

 

A17.        “Free Trading” means that (a) the shares or certificate(s)
representing the applicable shares of Common Stock have been cleared and
approved for public resale by the compliance departments of Lender’s brokerage
firm and the clearing firm servicing such brokerage, and (b) such shares are
held in the name of the clearing firm servicing Lender’s brokerage firm and have
been deposited into such clearing firm’s account for the benefit of Lender.

 

A18.        “Fundamental Default” means that Borrower either fails to pay the
entire Outstanding Balance to Lender on or before the Maturity Date or fails to
pay the Mandatory Default Amount within three (3) Trading Days of the date
Lender delivers any notice of acceleration to Borrower pursuant to Section 13.2
of this Note.

 

A19.        “Fundamental Default Conversion Value” means the Adjusted
Outstanding Balance multiplied by the highest Fundamental Default Ratio that
occurs during the Fundamental Default Measuring Period.

 

A20.        “Fundamental Default Measuring Period” means a number of months
equal to the Outstanding Balance as of the date the Fundamental Default occurred
divided by the Redemption Amount, with such number being rounded up to the next
whole month; provided, however, that if Borrower repays the entire Outstanding
Balance prior to the conclusion of the Fundamental Default Measuring Period, the
Fundamental Default Measuring Period shall end on the date of repayment. For
illustration purposes only, if the Outstanding Balance were equal to $125,000.00
as of the date a Fundamental Default occurred and if the Redemption Amount were
$28,500.00, then the Fundamental Default Measuring Period would equal five (5)
months calculated as follows: $125,000.00/$28,500.00 equals 4.386, rounded up to
five (5).

 

A21.        “Fundamental Default Ratio” means a ratio that will be calculated on
each Trading Day during the Fundamental Default Measuring Period by dividing the
Closing Trade Price for the Common Stock on a given Trading Day by the Lender
Conversion Price (as adjusted pursuant to the terms hereof) in effect for such
Trading Day.

 

A22.        “Fundamental Liquidated Damages Amount” means the greater of (a) (i)
the quotient of the Outstanding Balance on the date the Fundamental Default
occurred divided by the then-current Conversion Factor, minus (ii) the
Outstanding Balance on the date the Fundamental Default occurred, or (b) the
Fundamental Default Conversion Value.

 

A23.        “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

 

 Attachment 1 to Secured Convertible Promissory Note, Page 3

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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.

 

A24.        “Lender Conversion Share Value” means the product of the number of
Lender Conversion Shares deliverable pursuant to any Lender Conversion
multiplied by the Closing Trade Price of the Common Stock on the Delivery Date
for such Lender Conversion.

 

A25.        “Major Default” means any Event of Default occurring under Sections
13.1(a), 13.1(c), 13.1(l), or 13.1(p) of this Note.

 

A26.        “Mandatory Default Amount” means the greater of (a) the Outstanding
Balance (including all Tranches, both Conversion Eligible Tranches and
Subsequent Tranches that have not yet become Conversion Eligible Tranches)
divided by the Redemption 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.

 

A27.        “Market Capitalization” means a number 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.

 

A28.        “Market Price” means the Conversion Factor multiplied by the average
of the three (3) lowest VWAPs during the twenty (20) Trading Days immediately
preceding the applicable Conversion.

 

A29.        “Maximum Monthly Redemption Amount” means $275,000.00, which is the
maximum aggregate Redemption Amount that may be redeemed in any calendar month.

 

A30.        “Minimum Market Capitalization” means $5,000,000.

 

A31.        “Minor Default” means any Event of Default that is not a Major
Default or a Fundamental Default.

 

A32.        “OID” means an original issue discount.

 

A33.        “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 Lender 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 Lender 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.

 

A34.        “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.

 

A35.        “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 OID, the
Transaction Expense Amount, 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.

 

A36.        “Par Value” means the par value of the Common Stock on any relevant
date of determination. The Par Value as of the Effective Date is $0.0001.

 

 Attachment 1 to Secured Convertible Promissory Note, Page 4

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A37.        “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).

 

A38.        “Purchase Price Date” means the date the Initial Cash Purchase Price
is delivered by Lender to Borrower.

 

A39.        “Trading Day” means any day on which the New York Stock Exchange is
open for trading.

 

A40.        “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.

 

 Attachment 1 to Secured Convertible Promissory Note, Page 5

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EXHIBIT A

 

Iliad Research and Trading, L.P.

303 East Wacker Drive, Suite 1040

 Chicago, Illinois 60601

 

Growlife, Inc. Date: __________________

Attn: Marco Hegyi, CEO

500 Union Street, Suite 810

Seattle, Washington 98101

 

LENDER CONVERSION NOTICE

 

The above-captioned Lender hereby gives notice to Growlife, Inc., a Delaware
corporation (the “Borrower”), pursuant to that certain Secured Convertible
Promissory Note made by Borrower in favor of Lender on August 7, 2018 (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
Lender Conversion Price set forth below. In the event of a conflict between this
Lender 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 Lender 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.Lender Conversion #: ____________

C.Conversion Amount: ____________

D.Lender Conversion Price: _______________

E.Lender Conversion Shares: _______________ (C divided by D)

F.Remaining Outstanding Balance of Note: ____________*

G.Remaining Balance of Investor Notes: ____________*

H.Outstanding Balance of Note Net of Balance of Investor Notes: ____________* (F
minus G)

 

* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Transaction Documents (as defined in the Purchase
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Lender Conversion Notice and such Transaction Documents.

 

The Conversion Amount converted hereunder shall be deducted from the following
Conversion Eligible Tranche(s):

 

Conversion Amount Tranche No.            

 

Additionally, $_________________ of the Conversion Amount converted hereunder
shall be deducted from the Redemption Amount(s) relating to the following
Redemption Date(s):

  .

 

Please transfer the Lender Conversion Shares electronically (via DWAC) to the
following account:

Broker:     Address:  

DTC#:         

 

Exhibit A to Secured Convertible Promissory Note, Page 1

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Account #:        

Account Name:        

 

To the extent the Lender Conversion Shares are not able to be delivered to
Lender electronically via the DWAC system, deliver all such certificated shares
to Lender via reputable overnight courier after receipt of this Lender
Conversion Notice (by facsimile transmission or otherwise) to:

 

                           

  

Sincerely,

 

Lender:

 

Iliad Research and Trading, L.P.

 

By: Iliad Management, LLC, its General Partner             By: Fife Trading,
Inc., its Manager           By:         John M. Fife, President  

 

Exhibit A to Secured Convertible Promissory Note, Page 2

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EXHIBIT B

 

Growlife, Inc.

500 Union Street, Suite 810

Seattle, Washington 98101

 

Iliad Research and Trading, L.P. Date: _____________

Attn: John Fife

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

REDEMPTION NOTICE

 

The above-captioned Borrower hereby gives notice to Iliad Research and Trading,
L.P., a Utah limited partnership (the “Lender”), pursuant to that certain
Secured Convertible Promissory Note made by Borrower in favor of Lender on
August 7, 2018 (the “Note”), of certain Borrower elections and certifications
related to payment of the Redemption Amount of $_________________ due on
___________, 201_ (the “Redemption Date”). In the event of a conflict between
this Redemption 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 Redemption Notice to conform to the Note. Capitalized
terms used in this notice without definition shall have the meanings given to
them in the Note.

 

REDEMPTION CONVERSION AND CERTIFICATIONS

AS OF THE REDEMPTION DATE

 

A.REDEMPTION CONVERSION

 

A.Redemption Date: ____________, 201_

B.Redemption Amount: ____________

C.Portion of Redemption Amount to be Paid in Cash: ____________

D.Portion of Redemption Amount to be Converted into Common Stock: ____________
(B minus C)

E.Redemption Conversion Price: _______________ (lower of (i) Lender Conversion
Price in effect and (ii) Market Price as of Redemption Date)

F.Redemption Conversion Shares: _______________ (D divided by E)

G.Remaining Outstanding Balance of Note: ____________ *

H.Remaining Balance of Investor Notes: ____________*

I.Outstanding Balance of Note Net of Balance of Investor Notes: ____________ (G
minus H)*

 

* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Transaction Documents (as defined in the Purchase
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Redemption Notice and such Transaction Documents.

 

B.EQUITY CONDITIONS CERTIFICATION

 

1.Market Capitalization:________________

 

(Check One)

 

2._________ Borrower herby certifies that no Equity Conditions Failure exists as
of the Redemption Date.

 

Exhibit B to Secured Convertible Promissory Note, Page 1

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3._________ Borrower hereby gives notice that an Equity Conditions Failure has
occurred and requests a waiver from Lender with respect thereto. The Equity
Conditions Failure is as follows:                

 

Sincerely,

 

Borrower:

 

Growlife, Inc.

 

By:    

 

Name:    

 

Title:    

 

ACKNOWLEDGED AND CERTIFIED BY:

 

Lender:

 

Iliad Research and Trading, L.P.

 

By: Iliad Management, LLC, its General Partner             By: Fife Trading,
Inc., its Manager           By:         John M. Fife, President  

 

Exhibit B to Secured Convertible Promissory Note, Page 2

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EXHIBIT C

 

Iliad Research and Trading, L.P.

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

Growlife, Inc. Date: __________________

Attn: Marco Hegyi, CEO 

500 Union Street, Suite 810 

Seattle, Washington 98101

 

TRUE-UP NOTICE

 

The above-captioned Lender hereby gives notice to Growlife, Inc., a Delaware
corporation (the “Borrower”), pursuant to that certain Secured Convertible
Promissory Note made by Borrower in favor of Lender on August 7, 2018 (the
“Note”), of True-Up Conversion Shares related to _____________, 201_ (the
“Redemption Date”). In the event of a conflict between this True-Up 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 True-Up Notice
to conform to the Note. Capitalized terms used in this notice without definition
shall have the meanings given to them in the Note.

 

TRUE-UP CONVERSION SHARES AND CERTIFICATIONS

AS OF THE TRUE-UP DATE

 

1.TRUE-UP CONVERSION SHARES

 

A.Redemption Date: ____________, 201_

 

B.True-Up Date: ____________, 201_

 

C.Portion of Redemption Amount Converted into Common Stock: _____________

 

D.True-Up Conversion Price: _______________ (lower of (i) Lender Conversion
Price in effect and (ii) Market Price as of True-Up Date)

 

E.True-Up Conversion Shares: _______________ (C divided by D)

 

F.Redemption Conversion Shares Delivered: ________________

 

G.True-Up Conversion Shares to be Delivered: ________________ (only applicable
if E minus F is greater than zero)

 

2.EQUITY CONDITIONS CERTIFICATION (Section to be completed by Borrower)

 

A.Market Capitalization:________________

 

(Check One)

 

B._________ Borrower herby certifies that no Equity Conditions Failure exists as
of the applicable True-Up Date.

 

Exhibit C to Secured Convertible Promissory Note, Page 1

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C._________ Borrower hereby gives notice that an Equity Conditions Failure has
occurred and requests a waiver from Lender with respect thereto. The Equity
Conditions Failure is as follows:                

  

Sincerely,

 

Lender:

 

Iliad Research and Trading, L.P.

 

By: Iliad Management, LLC, its General Partner             By: Fife Trading,
Inc., its Manager           By:         John M. Fife, President  

 

Exhibit C to Secured Convertible Promissory Note, Page 2

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EXHIBIT D

 

Growlife, Inc.

500 Union Street, Suite 810

Seattle, Washington 98101

 

Iliad Research and Trading, L.P. Date: _____________

Attn: John Fife

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

NOTICE OF EXERCISE

OF BORROWER OFFSET RIGHT

 

The above-captioned Borrower hereby gives notice to Iliad Research and Trading,
L.P., a Utah limited partnership (the “Lender”), pursuant to that certain
Secured Convertible Promissory Note made by Borrower in favor of Lender on
August 7, 2018 (the “Note”), of Borrower’s election to exercise the Borrower
Offset Right as set forth below. In the event of a conflict between this Notice
of Exercise of Borrower Offset Right and the Note, the Note shall govern.
Capitalized terms used in this notice without definition shall have the meanings
given to them in the Note.

 

A.Effective Date of Offset: ____________, 201_

B.Amount of Offset: ____________

C.Investor Note(s) Being Offset: _______________

 

* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Transaction Documents (as defined in the Purchase
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Notice of Exercise of Borrower Offset Right and such
Transaction Documents.

 

Sincerely,

 

Borrower:

 

Growlife, Inc.

 

By:    

 

Name:    

 

Title:    

  

EXHIBIT E

 

Iliad Research and Trading, L.P.

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

Growlife, Inc. Date: __________________

 

Exhibit D to Secured Convertible Promissory Note, Page 1

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Attn: Marco Hegyi, CEO 

500 Union Street, Suite 810 

Seattle, Washington 98101

 

LENDER CONVERSION NOTICE

 

The above-captioned Lender hereby gives notice to Growlife, Inc., a Delaware
corporation (the “Borrower”), pursuant to that certain Secured Convertible
Promissory Note made by Borrower in favor of Lender on August 7, 2018 (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.Lender Conversion #: ____________

C.Conversion Amount: ____________

D.Par Value Adjustment Amount: _______________

E.Lender Conversion Price: _______________ (Par Value)

F.Lender Conversion Shares: _______________ (C divided by E)

G.Remaining Outstanding Balance of Note: ____________*

H.Remaining Balance of Investor Notes: ____________*

I.Outstanding Balance of Note Net of Balance of Investor Notes: ____________* (F
minus G)

 

* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Transaction Documents (as defined in the Purchase
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Lender Conversion Notice and such Transaction Documents.

 

The Conversion Amount converted hereunder shall be deducted from the following
Conversion Eligible Tranche(s):

 

Conversion Amount Tranche No.            

 

Additionally, $_________________ of the Conversion Amount converted hereunder
shall be deducted from the Redemption Amount(s) relating to the following
Redemption Date(s):

  .

 

Please transfer the Lender Conversion Shares electronically (via DWAC) to the
following account:

Broker:     Address:  

DTC#:         

Account #:        

Account Name:        

 

2

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To the extent the Lender Conversion Shares are not able to be delivered to
Lender electronically via the DWAC system, deliver all such certificated shares
to Lender via reputable overnight courier after receipt of this Lender
Conversion Notice (by facsimile transmission or otherwise) to:

                           

 

The Par Value Adjustment Amount must be paid in cash within one (1) Trading Day
of your receipt of this Conversion Notice.

 

Sincerely,

 

Lender:

 

Iliad Research and Trading, L.P.

 

By: Iliad Management, LLC, its General Partner             By: Fife Trading,
Inc., its Manager           By:         John M. Fife, President  

 

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Exhibit B

 

ALLOCATION OF PURCHASE PRICE

 

Purchase Price Tranche OID/Transaction Expense

Initial Cash Purchase Price

 

Initial Tranche

 

$10,000.00 Investor Note #1 Subsequent Tranche #1

$25,000.00

 

Investor Note #2

 

Subsequent Tranche #2

 

$20,000.00

Investor Note #3

 

Subsequent Tranche #3

 

$20,000.00

Investor Note #4

 

Subsequent Tranche #4

 

$20,000.00

Investor Note #5

 

Subsequent Tranche #5

 

$20,000.00

Investor Note #6

 

Subsequent Tranche #6

 

$20,000.00

Investor Note #7

 

Subsequent Tranche #7

 

$20,000.00

 

4

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Exhibit C

 

THIS NOTE (AS DEFINED BELOW) MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE ALIENATED OR ENCUMBERED WITHOUT THE PRIOR WRITTEN
CONSENT OF INVESTOR (AS DEFINED BELOW). THIS NOTE IS SUBJECT TO A RIGHT OF
OFFSET IN FAVOR OF INVESTOR UPON THE OCCURRENCE OF CERTAIN EVENTS AS SET FORTH
IN MORE DETAIL IN SECTION 40 BELOW.

 

$250,000.00

State of Utah 

August 7, 2018 

 

Form of INVESTOR NOTE #1

 

FOR VALUE RECEIVED, Iliad Research and Trading, L.P., a Utah limited partnership
(“Investor”), hereby promises to pay to Growlife, Inc., a Delaware corporation
(“Company”, and together with Investor, the “Parties”), the principal sum of
$250,000.00 together with all accrued and unpaid interest thereon, fees incurred
or other amounts owing hereunder, all as set forth below in this Investor Note
#1 (this “Note”). This Note is issued pursuant to that certain Securities
Purchase Agreement of even date herewith, entered into by and between Investor
and Company (as the same may be amended from time to time, the “Purchase
Agreement”), pursuant to which Company issued to Investor that certain Secured
Convertible Promissory Note in the principal amount of $1,655,000.00 (as the
same may be amended from time to time, the “Company Note”), convertible into
shares of Company’s Common Stock. All capitalized terms used but not otherwise
defined herein shall have the meanings ascribed thereto in the Purchase
Agreement.

 

37.           Principal and Interest. Interest shall accrue on the unpaid
principal balance and any unpaid late fees or other fees under this Note at a
rate of ten percent (10%) per annum until the full amount of the principal and
fees has been paid. Interest shall be computed on the basis of a 365-day year
for the actual number of days elapsed. Notwithstanding any provision to the
contrary herein, in no event shall the applicable interest rate at any time
exceed the maximum interest rate allowed under applicable law, as provided in
Section 48 below. The entire unpaid principal balance and all accrued and unpaid
interest, if any, under this Note, shall be due and payable on the date that is
twelve (12) months from the date hereof (the “Investor Note Maturity Date”);
provided, however, that Investor may elect, in its sole discretion, to extend
the Investor Note Maturity Date for up to thirty (30) days by delivering written
notice of such election to Company at any time prior to the Investor Note
Maturity Date.

 

38.           Payment. Unless prepaid, all principal and accrued interest under
this Note is payable in one lump sum on the Investor Note Maturity Date. All
payments of interest and principal shall be (i) in lawful money of the United
States of America, and (ii) in the form of immediately available funds. All
payments shall be applied first to costs of collection, if any, then to accrued
and unpaid interest, and thereafter to principal. Payment of principal and
interest hereunder shall be delivered to Company at the address furnished to
Investor for that purpose.

 

39.           Prepayment by Investor. Investor may, with Company’s consent, pay,
without penalty, all or any portion of the outstanding balance along with any
accrued but unpaid interest on this Note at any time prior to the Investor Note
Maturity Date.

 

40.           Security; Collateral. Investor may, with Company’s consent,
designate collateral (the “Collateral”) as it deems fit, as security for
Investor’s obligations hereunder, which Collateral may be,

 

5

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but is not required to be, real property, a letter of credit with a financial
institution determined by Investor in its sole discretion, or pledged membership
interests. Upon Investor’s designation of Collateral, each of Investor and
Company shall timely execute any and all documents necessary or advisable in
order to properly grant a security interest upon the Collateral in favor of
Company.

 

41.           Release. Company covenants and agrees that in the event that this
Note is secured by Collateral, Company shall timely execute any and all
documents necessary or advisable in order to release such security interest and
Collateral to Investor, or Investor’s designee, upon the earlier of (i) the date
this Note is paid in full and (ii) the date that is six (6) months and three (3)
days following the date such Collateral is given as security for this Note, or
such later date as determined in the sole discretion of Investor (the “Release
Date”). For the avoidance of doubt, as of the date hereof, there is no
collateral securing this Note, and after the Release Date, as applicable, there
shall be no collateral securing this Note.

 

42.           Right of Offset. Notwithstanding anything to the contrary herein
or in any of the other Transaction Documents, in the event (i) of the occurrence
of any Event of Default (as defined in the Company Note) under the Company Note
or any other note issued by Company in connection with the Purchase Agreement,
(ii) of a breach of any material term, condition, representation, warranty,
covenant or obligation of Company under any Transaction Document, or (iii)
Company sells, transfers, assigns, pledges or hypothecates this Note, or
attempts to do any of the foregoing, whether voluntarily or involuntarily,
Investor shall be entitled to deduct and offset any amount owing by Company
under the Company Note from any amount owed by Investor under this Note (the
“Investor Offset Right”), provided that if any of the foregoing events occur and
Investor has not yet exercised the Investor Offset Right, the Investor Offset
Right shall be automatically exercised on the date that is thirty (30) days
prior to the Investor Note Maturity Date (an “Automatic Offset”). Other than
with respect to an Automatic Offset, Investor may only elect to exercise the
Investor Offset Right by delivering to Company an offset notice in a form
substantially similar to Exhibit D to the Company Note or another form of
Investor’s choosing. In the event that Investor’s exercise of the Investor
Offset Right under this Section 40 results in the full satisfaction of
Investor’s obligations under this Note, then Company shall return this Note to
Investor for cancellation or, in the event this Note has been lost, stolen or
destroyed, Company shall provide Investor with a lost note affidavit in a form
reasonably acceptable to Investor.

 

43.           Default. If any of the events specified below shall occur (each,
an “Investor Note Default”) Company may declare the unpaid principal balance
under this Note, together with all accrued and unpaid interest thereon, fees
incurred or other amounts owing hereunder immediately due and payable, by notice
in writing to Investor. If any default, other than a Payment Default (as defined
below), is curable, then the default may be cured (and no Investor Note Default
will have occurred) if Investor, after receiving written notice from Company
demanding cure of such default, either (i) cures the default within fifteen (15)
days of the receipt of such notice, or (ii) if the cure requires more than
fifteen (15) days, immediately initiates steps that Company deems in Company’s
reasonable discretion to be sufficient to cure the default and thereafter
diligently continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical. Each of the following
events shall constitute an Investor Note Default:

 

43.1.        Failure to Pay. Investor’s failure to make any payment when due and
payable under this Note (a “Payment Default”);

 

43.2.        Breaches of Covenants. Investor’s failure to observe or perform any
other covenant, obligation, condition or agreement contained in this Note;

 

6

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43.3.        Representations and Warranties. If any representation, warranty,
certificate, or other statement (financial or otherwise) made or furnished by or
on behalf of Investor to Company in writing in connection with this Note or any
of the other Transaction Documents, or as an inducement to Company to enter into
the Purchase Agreement, shall be false or misleading in any material respect
when made or furnished; and

 

43.4.        Involuntary Bankruptcy. If any involuntary petition is filed under
any bankruptcy or similar law or rule against Investor, and such petition is not
dismissed within sixty (60) days, or a receiver, trustee, liquidator, assignee,
custodian, sequestrator or other similar official is appointed to take
possession of any of the assets or properties of Investor.

 

44.           Binding Effect; Assignment. This Note shall be binding on the
Parties and their respective heirs, successors, and assigns; provided, however,
that neither Party shall assign any of its rights hereunder without the prior
written consent of the other Party, except that Investor may assign this Note to
any of its Affiliates without the prior written consent of Company and,
furthermore, Company agrees that it shall not unreasonably withhold, condition
or delay its consent to any other assignment of this Note by Investor.

 

45.           Governing Law; Venue. 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
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Utah. The provisions set forth in the Purchase Agreement
to determine the proper venue for any disputes are incorporated herein by this
reference.

 

46.           Purchase Agreement; Arbitration of Disputes. By acceptance of this
Note, each Party agrees to be bound by the applicable terms, conditions and
general provisions of the Purchase Agreement and the other Transaction
Documents, including without limitation the Arbitration Provisions attached as
an exhibit to the Purchase Agreement.

 

47.           Customer Identification–USA Patriot Act Notice. Company hereby
notifies Investor that pursuant to the requirements of the USA Patriot Act
(Title III of Pub. L. 107-56, signed into law October 26, 2001) (the “Act”), and
Company’s policies and practices, Company is required to obtain, verify and
record certain information and documentation that identifies Investor, which
information includes the name and address of Investor and such other information
that will allow Company to identify Investor in accordance with the Act.

 

48.           Lawful Interest. It being the intention of Company and Investor to
comply with all applicable laws with regard to the interest charged hereunder,
it is agreed that, notwithstanding any provision to the contrary in this Note or
any of the other Transaction Documents, no such provision, including without
limitation any provision of this Note providing for the payment of interest or
other charges, shall require the payment or permit the collection of any amount
in excess of the maximum amount of interest permitted by law to be charged for
the use or detention, or the forbearance in the collection, of all or any
portion of the indebtedness evidenced by this Note or by any extension or
renewal hereof (“Excess Interest”). If any Excess Interest is provided for, or
is adjudicated to be provided for, in this Note, then in such event:

 

48.1.        the provisions of this Section 48 shall govern and control;

 

48.2.        Investor shall not be obligated to pay any Excess Interest;

 

7

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48.3.        any Excess Interest that Company may have received hereunder shall,
at the option of Company, be (i) applied as a credit against the principal
balance due under this Note or the accrued and unpaid interest thereon not to
exceed the maximum amount permitted by law, or both, (ii) refunded to Investor,
or (iii) any combination of the foregoing;

 

48.4.        the applicable interest rate or rates shall be automatically
subject to reduction to the maximum lawful rate allowed to be contracted for in
writing under the applicable governing usury laws, and this Note and the
Transaction Documents shall be deemed to have been, and shall be, reformed and
modified to reflect such reduction in such interest rate or rates; and

 

48.5.        Investor shall not have any action or remedy against Company for
any damages whatsoever or any defense to enforcement of this Note or arising out
of the payment or collection of any Excess Interest.

 

49.           Pronouns. Regardless of their form, all words used in this Note
shall be deemed singular or plural and shall have the gender as required by the
text.

 

50.           Headings. The various headings used in this Note as headings for
sections or otherwise are for convenience and reference only and shall not be
used in interpreting the text of the section in which they appear and shall not
limit or otherwise affect the meanings thereof.

 

51.           Time is of the Essence. Time is of the essence with this Note.

 

52.           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
the Parties to the fullest extent permitted by law and the balance of this Note
shall remain in full force and effect.

 

53.           Attorneys’ Fees. If any arbitration or action at law or in equity
is necessary to enforce this Note or to collect payment under this Note, Company
shall be entitled to recover reasonable attorneys’ fees directly related to such
enforcement or collection actions.

 

54.           Amendments and Waivers; Remedies. No failure or delay on the part
of either 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. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to either Party hereto at law, in equity or otherwise. Any amendment,
supplement or modification of or to any provision of this Note, any waiver of
any provision of this Note, and any consent to any departure by either Party
from the terms of any provision of this Note, shall be effective (i) only if it
is made or given in writing and signed by Investor and Company and (ii) only in
the specific instance and for the specific purpose for which made or given.

 

55.           Notices. Unless otherwise provided for herein, all notices,
requests, demands, claims and other communications hereunder shall be given in
accordance with the subsection of the Purchase Agreement titled “Notices.”
Either Party may change the address to which notices, requests, demands, claims
and other communications hereunder are to be delivered by providing notice
thereof in the manner set forth in the Purchase Agreement.

 

56.           Final Note. This Note, together with the other Transaction
Documents, contains the complete understanding and agreement of Investor and
Company and supersedes all prior representations, warranties, agreements,
arrangements, understandings, and negotiations of Investor and Company with
respect to the subject matter of the Transaction Documents. THIS NOTE, TOGETHER
WITH THE

 

8

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OTHER TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

 

57.           Waiver of Jury Trial. EACH OF INVESTOR AND COMPANY 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.

 

[Remainder of page intentionally left blank; signature page follows]

 

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

            INVESTOR:           Iliad Research and Trading, L.P.           By:
Iliad Management, LLC, its General Partner             By: Fife Trading, Inc.,
its Manager               By: /s/ John Fife         John M. Fife, President    
     

 

ACKNOWLEDGED, ACCEPTED AND AGREED:

 

COMPANY:       Growlife, Inc.             By: /s/ Marco Hegyi  

          Name: Marco Hegyi  

          Title: Chief Executive Officer  

 

9

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Exhibit E

 

GROWLIFE, INC.

OFFICER’S CERTIFICATE

 

The undersigned, Marco Hegyi, Chief Executive Officer of Growlife, Inc., a
Delaware corporation (“Company”), in connection with the issuance of that
certain Secured Convertible Promissory Note issued by Company on August 7, 2018
(the “Note”) in the original principal amount of $1,655,000.00 in favor of Iliad
Research and Trading, L.P., a Utah limited partnership (“Investor”), pursuant to
that certain Securities Purchase Agreement dated August 7, 2018 between Investor
and Company (the “Purchase Agreement”), personally and in his capacity as an
officer of Company, hereby represents, warrants and certifies that:

 

1.             He is the duly appointed Chief Executive Officer of Company.

 

2.             Company has not made any Variable Security Issuances (as defined
in the Purchase Agreement) following the Closing Date (as defined in the
Purchase Agreement).

 

3.             He agrees to cause Company to comply with the covenants found in
Sections 4(vi) and (vii) of the Purchase Agreement.

 

4.             He acknowledges that his execution and issuance of this Officer’s
Certificate to Investor is a material inducement to Investor’s agreement to
purchase the Note on the terms set forth in the Purchase Agreement and that but
for his execution and issuance of this Officer’s Certificate, Investor would not
have purchased the Note from Company.

 

IN WITNESS WHEREOF, the undersigned, personally and in his capacity as an
officer of Company, has executed this Officer’s Certificate as of August 7,
2018.

 

  /s/ March Hegyi   Marco Hegyi, Chief Executive Officer

 

10

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Exhibit F

 

IRREVOCABLE LETTER OF INSTRUCTIONS TO TRANSFER AGENT

 

Date: August 7, 2018

 

To the transfer agent of Growlife, Inc.

 

Re:Instructions to Reserve and Issue Shares

 

Ladies and Gentlemen:

 

A.Reference is made to that certain Secured Convertible Promissory Note dated as
of August 7, 2018 (as the same may be amended or exchanged from time to time,
the “Note”), made by Growlife, Inc., a Delaware corporation (“Company”),
pursuant to which Company agreed to pay to Iliad Research and Trading, L.P., a
Utah limited partnership, its successors and/or assigns (“Investor”), the
aggregate sum of $1,655,000.00, plus interest, fees, and collection costs. The
Note was issued pursuant to that certain Securities Purchase Agreement dated
August 7, 2018, by and between Company and Investor (the “Purchase Agreement”,
and together with the Note and all other documents entered into in conjunction
therewith, including any amendments thereto, the “Transaction Documents”).
Pursuant to the terms of the Note, the Outstanding Balance (as defined in the
Note) of the Note 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 Note, the “Shares”).

 

B.Pursuant to the terms of the Purchase Agreement, until all of Company’s
obligations under the Purchase Agreement and the Note 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 Redemption Conversion Price (as defined in the Note).

 

C.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 Note, as follows:

 

From and after the date hereof and until all of Company’s obligations under the
Purchase Agreement and the Note 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 150,000,000 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 Note 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
Note from the Transfer Agent Reserve, (e) you shall not otherwise reduce the
Transfer Agent Reserve under any circumstances, unless Investor

 

11

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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 5,000,000 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 0 upon a conversion of all or any portion of the Note, upon delivery
to you of a duly executed Lender Conversion Notice substantially in the form
attached hereto as Exhibit J (a “Lender Conversion Notice”), a duly executed
Redemption Notice substantially in the form attached hereto as Exhibit K (an
“Redemption Notice”), and/or a True-Up Notice substantially in the form attached
hereto as Exhibit B (a “True-Up Notice”, and together with a Lender Conversion
Notice and an Redemption Notice, a “Conversion Notice”). By your signature
below, you acknowledge and agree that a conversion of the Note may include any
conversion by Investor of any judgment amount or arbitration award granted in
favor of Investor, as set forth in the Note, and that you will issue Shares to
Investor in accordance with Paragraph 0 below upon Investor’s delivery to you of
a duly executed Conversion Notice wherein Investor seeks to convert any portion
of any judgment amount or arbitration award granted in favor of Investor. You
further acknowledge that Company and Investor have agreed that it is their
expectation that any such judgment amount or arbitration award that is converted
will tack back to the Purchase Price Date (as defined in the Note) for purposes
of determining the holding period under Rule 144 (as defined below) and that
Company agreed that it will not take a contrary position in any filing,
document, letter, agreement or setting.

 

In connection with a Conversion Notice delivered to you pursuant to Paragraph 0
above, you will receive a legal opinion as to the free transferability of the
Shares, dated within ninety (90) days from the date of the 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 Securities Act of 1933, as amended (the “1933 Act”), or pursuant to Rule 144
promulgated under the 1933 Act (“Rule 144”), or any other available exemption
under the 1933 Act, the issuance of the applicable Shares to Investor is exempt
from registration under the 1933 Act, and thus the Shares may be issued or
delivered without restrictive legend (the “Opinion Letter”). Upon your receipt
of a 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:

 

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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 Transaction Documents have been approved by resolution
of Company’s board of directors (the “Share Issuance Resolution”). Pursuant to
the Share Issuance Resolution, all of the 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 Purchase Agreement to resolve disputes between Company and Investor.
Additionally, Company and Investor understand that you shall not be required to
perform any issuance or transfer of Shares if Company is in default of its
payment obligations under its agreement with you; provided, however, that in
such case Investor shall have the right to pay the applicable issuance or
transfer fee on behalf of Company and upon payment of the issuance or transfer
fee by Investor, you shall be obligated to make the requested issuance or
transfer.

 

You understand that a delay in the delivery of Shares hereunder could result in
economic loss to Investor and that time is of the essence in your processing of
each 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

 

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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 Note. Company further acknowledges that
without such representations and covenants of Company, Investor would not have
made the loan to Company evidenced by the Note.

 

Company shall indemnify you and your officers, directors, members, managers,
principals, partners, agents and representatives, and hold each of them harmless
from and against any and all loss, liability, damage, claim or expense
(including the reasonable fees and disbursements of its attorneys) incurred by
or asserted against you or any of them arising out of or in connection with the
instructions set forth herein, the performance of your duties hereunder and
otherwise in respect hereof, including the costs and expenses of defending
yourself or themselves against any claim or liability hereunder, except that
Company shall not be liable hereunder as to matters in respect of which it is
determined that you have acted with gross negligence or in bad faith.

 

Investor is an intended third-party beneficiary of this Letter. The parties
hereto specifically acknowledge and agree that in the event of a breach or
threatened breach by a party hereto of any provision hereof, Investor will be
irreparably damaged, and that damages at law would be an inadequate remedy if
this Letter were not specifically enforced. Therefore, in the event of a breach
or threatened breach of this Letter, Investor shall be entitled, in addition to
all other rights or remedies, to an injunction restraining such breach, without
being required to show any actual damage or to post any bond or other security,
and/or to a decree for a specific performance of the provisions of this Letter.
By your signature below, you agree to honor any injunction issued by any
arbitrator or court of competent jurisdiction that requires Company (i) to issue
shares of Common Stock to Investor, or (ii) to refrain from issuing shares of
Common Stock to any person or entity other than Investor. You further agree to
honor such injunction even if it does not name you as a party or has not been
domesticated in the state in which your principal office is located.

 

This Letter shall be fully binding and enforceable against Company even if it is
not signed by you. If Company takes (or fails to take) any action contrary to
this Letter, then such action or inaction will constitute a default under the
Transaction Documents. Although no additional direction is required by Company,
any refusal by Company to immediately confirm this Letter and the instructions
contemplated herein to you will constitute a default hereunder and under the
Transaction Documents.

 

Whenever possible, each provision of this Letter shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
of this Letter shall be invalid or unenforceable in any jurisdiction, such
provision shall be modified to achieve the objective of the parties to the
fullest extent permitted and such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Letter or the
validity or enforceability of this Letter in any other jurisdiction.

 

By signing below, (a) each individual executing this Letter on behalf of an
entity represents and warrants that he or she has authority to so execute this
Letter on behalf of such entity and thereby bind such entity to the terms and
conditions hereof, and (b) each party to this Letter represents and warrants
that such party has received good and valuable consideration in exchange for
executing this Letter.

 

This Letter is governed by Utah law.

 

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This Letter is subject to the Arbitration Provisions (as defined in the Purchase
Agreement) set forth as an exhibit to the Purchase Agreement, which you
acknowledge having received and reviewed by your signature below. Each party
consents to and expressly agrees that exclusive venue for arbitration of any
dispute arising out of or relating to this Letter or the relationship of the
parties or their affiliates shall be in Salt Lake County, Utah and,
notwithstanding the terms (specifically including any governing law and venue
terms) of any transfer agent services agreement or other agreement between you
and Company (which agreement, if any, is hereby amended to the extent necessary
in order to be consistent with the terms of this Letter and, for the avoidance
of doubt, you and Company hereby agree that in the event of any conflict between
the terms of this Letter and any agreement between you and Company, the terms of
this Letter shall govern), each party further agrees to not participate in any
action, suit, proceeding or arbitration (including without limitation any action
or proceeding seeking an injunction or temporary restraining order against your
issuance of Shares to Investor) of any dispute arising out of or relating to
this Letter or the relationship of the parties or their affiliates that takes
place outside of Salt Lake County, Utah.

 

Company hereby authorizes and directs you to provide to Investor a copy of any
process, stop order, notice or other instructions delivered to you in
furtherance of any attempt to prohibit or prevent you from issuing Shares to
Investor. By your signature below, you covenant and agree to promptly and as
soon as reasonably practicable provide to Investor, upon a request from
Investor, a copy of any such process, stop order, notice or other instructions.

 

[Remainder of page intentionally left blank; signature page follows]

 

  Very truly yours,       Growlife, Inc.             By: /s/ Marco Hegyi   Name:
Marco Hegyi   Title: Chief Executive Officer

 

ACKNOWLEDGED AND AGREED:

 

INVESTOR:

 

Iliad Research and Trading, L.P.

 

By: Iliad Management, LLC, its General Partner             By: Fife Trading,
Inc., its Manager           By: /s/ John Fife         John M. Fife, President  

 

TRANSFER AGENT:

 

Direct Transfer, LLC

 

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          By: /s/ Eddie Tobler  

          Name: Eddie Tobler  

          Title: VP Stock Transfer  

 

Attachments:

 

Exhibit JForm of Lender Conversion Notice

Exhibit KForm of Redemption Notice

Exhibit LForm of True-Up Notice

 

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Exhibit G

 

GROWLIFE, INC.

SECRETARY’S CERTIFICATE

 

I, Mark Scott, hereby certify that I am the duly elected, qualified and acting
Secretary of Growlife, Inc., a Delaware corporation (“Company”), and I am
authorized to execute this Secretary’s Certificate (this “Certificate”) on
behalf of Company. This Certificate is delivered in connection with that certain
Securities Purchase Agreement dated August 7, 2018 (the “Purchase Agreement”),
by and between Company and Iliad Research and Trading, L.P., a Utah limited
partnership.

 

Solely in my capacity as Secretary, I certify that Schedule 1 attached hereto is
a true, accurate and complete copy of all of the resolutions adopted by the
Board of Directors of Company (the “Resolutions”) approving and authorizing the
execution, delivery and performance of the Purchase Agreement and related
documents to which Company is a party on the date hereof, and the transactions
contemplated thereby. Such Resolutions have not been amended, rescinded or
modified since their adoption and remain in effect as of the date hereof.

 

IN WITNESS WHEREOF, I have made this Secretary’s Certificate effective as of
August 7, 2018.

 

  Growlife, Inc.         /s/ Mark Scott   Printed Name: Mark Scott   Title:
Secretary

 

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Exhibit H

 

Share Issuance Resolution

Authorizing The Issuance Of New Shares Of Common Stock In

 

Growlife, Inc.

 

 

 

Effective August 7, 2018

 

 

 

The undersigned, as a qualified officer of Growlife, Inc., a Delaware
corporation (“Company”), hereby certifies that this Share Issuance Resolution is
authorized by and consistent with the resolutions of Company’s board of
directors (“Board Resolutions”) regarding that certain Secured Convertible
Promissory Note in the face amount of $1,655,000.00 with an original issuance
date of August 7, 2018 (the “Note”), made by Company in favor of Iliad Research
and Trading, L.P., a Utah limited partnership, its successors and/or assigns
(“Investor”), pursuant to that certain Securities Purchase Agreement dated
August 7, 2018, by and between Company and Investor (the “Purchase Agreement”).

 

RESOLVED, that Direct Transfer, LLC, as transfer agent (including any successor
transfer agent, the “Transfer Agent”) of shares of Company’s common stock,
$0.0001 par value per share (“Common Stock”), is authorized to rely upon:

 

(i)a Lender Conversion Notice substantially in the form of Exhibit A attached
hereto, whether an original or a copy (the “Lender Conversion Notice”),

 

(ii)a Redemption Notice substantially in the form of Exhibit B attached hereto,
whether an original or a copy (the “Redemption Notice”), and

 

(iii)a True-Up Notice substantially in the form of Exhibit C attached hereto,
whether an original or a copy (the “True-Up Notice”),

 

in each case 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)“Lender Conversion Shares” (representing shares of Common Stock) set forth in
each Lender Conversion Notice delivered to the Transfer Agent,

 

(ii)“Redemption Conversion Shares” (representing shares of Common Stock) set
forth in each Redemption Notice delivered to the Transfer Agent,

 

(iii)“True-Up Shares” (representing shares of Common Stock) set forth in each
True-Up Notice delivered to the Transfer Agent, and

 

(iv)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 Note,

 

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 Note.

 

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RESOLVED FURTHER, that consistent with the terms of the Purchase Agreement, the
Transfer Agent is authorized and directed to create a share reserve equal to
150,000,000 shares of Company’s Common Stock for the benefit of Investor (the
“Share Reserve”); provided that the Share Reserve may increase in increments of
5,000,000 shares from time to time by written instructions provided to the
Transfer Agent by Company or Investor as required by the Purchase Agreement and
as contemplated by the Board Resolutions.

 

RESOLVED FURTHER, that Investor and the Transfer Agent may rely upon the more
general approvals and authorizations set forth in the Board Resolutions, and the
Transfer Agent is hereby authorized and directed to take those further actions
approved under the Board Resolutions.

 

RESOLVED FURTHER, that Investor must consent in writing to any reduction of the
Share Reserve held by the transfer agent; provided, however, that upon full
conversion and/or full repayment of the Note, the Share Reserve will terminate
thirty (30) days thereafter.

 

RESOLVED FURTHER, that Company shall indemnify the Transfer Agent and its
employees against any and all loss, liability, damage, claim or expenses
incurred by or asserted against the Transfer Agent arising from any action taken
by the Transfer Agent in reliance upon this Share Issuance Resolution.

 

Nothing in this Share Issuance Resolution shall limit or restrict those
resolutions and authorizations set forth in the Board Resolutions, including
without limitation increasing the Share Reserve from time to time required by
the Purchase Agreement.

 

The undersigned officer of Company hereby certifies that this is a true copy of
Company’s Share Issuance Resolution, effective as of the date set forth below,
and that said resolution has not been in any way rescinded, annulled, or
revoked, but the same is still in full force and effect.

 

/s/ Marco Hegyi   August 7, 2018 Officer’s Signature   Date       Marco Hegyi,
Chief Executive Officer     Printed Name and Title    

 

EXHIBITS ATTACHED TO SHARE ISSUANCE RESOLUTION:

 

Exhibit ALender Conversion Notice

Exhibit BRedemption Notice

Exhibit CTrue-Up Notice

 

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