Exhibit 10.2 

 

THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS DEBENTURE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.

  

GROWLIFE, INC. 

 

SENIOR SECURED, CONVERTIBLE, REDEEMABLE DEBENTURE

 

Dated as of: April 30, 2015   Principal Amount: $700,000.00 Effective Date: July
9, 2015     Maturity Date: October 9, 2016    

  

This SENIOR SECURED, CONVERTIBLE REDEEMABLE DEBENTURE (the “Debenture”) is
issued, dated as of April 30, 2015 and effective as of July 9, 2015 (the
“Effective Date”), by GROWLIFE, INC., a corporation incorporated under the laws
of the State of Delaware (the “Company”), to TCA GLOBAL CREDIT MASTER FUND, LP,
a limited partnership organized and existing under the laws of the Cayman
Islands (together with its permitted successors and assigns, the “Holder”)
pursuant to exemptions from registration under the Securities Act of 1933, as
amended. This Debenture is issued in connection with that certain Securities
Purchase Agreement, dated as of the date hereof, by and between the Company and
the Holder (the “Purchase Agreement”). All capitalized terms used in this
Debenture and not otherwise defined herein shall have the meanings assigned to
them in the Purchase Agreement.

  

ARTICLE I 

 

Section 1.01     Principal and Interest. For value received, the Company hereby
promises to pay to the order of the Holder, by no later than October 9, 2016
(the “Maturity Date”), in immediately available and lawful money of the United
States of America, Seven Hundred Thousand and No/100 United States Dollars
($700,000.00), together with interest on the outstanding principal amount under
this Debenture, at the rate

 

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of eighteen percent (18%) per annum simple interest (the “Interest Rate”) from
the Effective Date, until paid, as more specifically provided below.

 

Section 1.02     Optional Redemption Prior to Maturity. The Company, at its
option, shall have the right to redeem this Debenture in full and for cash, at
any time prior to the Maturity Date, with three (3) business days advance
written notice (the “Redemption Notice”) to the Holder. The amount required to
redeem this Debenture in full pursuant to this Section 1.02 shall be equal to:
(i) the aggregate principal amount then outstanding under this Debenture; plus
all accrued and unpaid interest due under this Debenture as of the redemption
date; plus (ii) all other costs, fees and charges due and payable hereunder or
under any other “Transaction Documents” (as hereinafter defined), including, but
not limited to, any prepayment penalties provided for in the Purchase Agreement
(collectively, the “Redemption Amount”). The Company shall deliver the
Redemption Amount to the Holder on the third (3rd) business day after the date
of the Redemption Notice.

 

Section 1.03     Mandatory Redemption at Maturity. On the Maturity Date, the
Company shall redeem this Debenture for the Redemption Amount, which Redemption
Amount shall be due and payable to the Holder by no later than 2:00 P.M., EST,
on the Maturity Date.

 

Section 1.04      Payments.

  

(1)      Monthly Payments. The Company shall make monthly payments of principal,
interest and the corresponding amount of redemption premium to the Holder, while
this Debenture is outstanding, until the Maturity Date, based on the payment,
amortization and redemption premium schedule attached hereto as Schedule A. In
the event such day is not a Business Day, then said payment shall be due on the
first Business Day thereafter occurring.

 

(2)      Interest Calculations; Payment Application. Interest shall be
calculated on the basis of a 360-day year, and shall accrue daily on the
outstanding principal amount outstanding from time to time for the actual number
of days elapsed, commencing on the Effective Date until payment in full of the
outstanding principal, together with all accrued and unpaid interest and other
amounts which may become due hereunder or under any Transaction Documents, has
been made. All payments received and actually collected by Holder hereunder
shall be applied first to any costs and expenses due or incurred hereunder or
under any other Transaction Documents, second to accrued and unpaid interest
hereunder, and last to reduce the outstanding principal balance of this
Debenture.

 

(3)      Late Fee. If all or any portion of the payments of principal, interest
or other charges due hereunder are not received by the Holder within five (5)
days of the date such payment is due, then the Company shall pay to the Holder a
late charge (in addition to any other remedies that Holder may have) equal to
five percent (5%) of each such unpaid payment or sum. Any payments returned to
Holder for any reason must be covered by wire transfer of immediately available
funds to an account designated by Holder, plus a $100.00 administrative fee
charge. Holder shall have no responsibility or liability for payments
purportedly made hereunder but not actually received by Holder; and the Company
shall not

 

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be discharged from the obligation to make such payments due to loss of same in
the mails or due to any other excuse or justification ultimately involving facts
where such payments were not actually received by Holder.

  

Section 1.05.    Manner of Payments. All sums payable to the order of Holder
hereunder shall be payable by ACH transfer of lawful dollars of the United
States of America to the ACH instructions set forth below, or at such place as
Holder, from time to time, may designate in writing. ACH Instructions for all
sums due and payable hereunder are as follows:

  

Bank Name:     Bank Address:     Beneficiary Account Name:     Beneficiary
Account Number:   ACH Transfer/Routing Number:     SWIFT:    

  

ARTICLE II

 

Section 2.01     Secured Nature of Debenture. This Debenture is being issued in
connection with the Purchase Agreement. The indebtedness evidenced by this
Debenture is also secured by all of the assets and property of the Company and
various other instruments and documents referred to in the Purchase Agreement as
the “Transaction Documents”. All of the agreements, conditions, covenants,
provisions, representations, warranties and stipulations contained in any of the
Transaction Documents which are to be kept and performed by the Company are
hereby made a part of this Debenture to the same extent and with the same force
and effect as if they were fully set forth herein, and the Company covenants and
agrees to keep and perform them, or cause them to be kept or performed, strictly
in accordance with their terms.

 

ARTICLE III 

 

Section 3.01      Events of Default. The occurrence of any of the following
events shall constitute an “Event of Default” hereunder: (i) the Company shall
fail to pay any interest, principal or other charges due under this Debenture or
any other Transaction Documents on the date when any such payment shall be due
and payable; (ii) the Company makes an assignment for the benefit of creditors;
(iii) any order or decree is rendered by a court which appoints or requires the
appointment of a receiver, liquidator or trustee for the Company, and the order
or decree is not vacated within thirty (30) days from the date of entry thereof;
(iv) any order or decree is rendered by a court adjudicating the Company
insolvent, and the order or decree is not vacated within thirty (30) days from
the date of entry thereof; (v) the Company files a petition in bankruptcy under
the provisions of any bankruptcy law or any insolvency act; (vi) the Company
admits, in writing, its inability to pay its debts as they become due; (vii) a
proceeding or petition in bankruptcy is filed against the Company and such
proceeding or petition is not dismissed within thirty (30) days from the date it
is filed; (viii) the Company files a petition or answer seeking reorganization
or arrangement under the bankruptcy laws or any law or statute of the United
States or any other foreign country or state; (ix) any written warranty,
representation, certificate or statement of the Company and/or

 

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Guarantors in this Debenture, the Purchase Agreement or any other Transaction
Document or any other agreement with Holder shall be false or misleading in any
material respect when made or deemed made; and (x) the Company shall fail to
perform, comply with or abide by any of the stipulations, agreements, conditions
and/or covenants contained in this Debenture or any of the other Transaction
Documents on the part of the Company to be performed complied with or abided by
(except as otherwise provided in the Transaction Documents), and such failure
continues or remains uncured for ten (10) days following written notice from the
Holder to the Company.

 

Section 3.02     Remedies. Upon the occurrence of an Event of Default that is
not timely cured within an applicable cure period hereunder, the interest on
this Debenture shall immediately accrue at an interest rate equal to twenty-two
percent (22%) per annum or the maximum interest rate allowable by law, and, in
addition to all other rights or remedies the Holder may have, at law or in
equity, the Holder may, in its sole discretion, accelerate full repayment of all
principal amounts outstanding hereunder, together with accrued interest thereon,
together with redemption premiums due thereon, together with all attorneys’
fees, paralegals’ fees and costs and expenses incurred by the Holder in
collecting or enforcing payment hereof (whether such fees, costs or expenses are
incurred in negotiations, all trial and appellate levels, administrative
proceedings, bankruptcy proceedings or otherwise), and together with all other
sums due by the Company hereunder and under the Transaction Documents, all
without any relief whatsoever from any valuation or appraisement laws, and
payment thereof may be enforced and recovered in whole or in part at any time by
one or more of the remedies provided to the Holder at law, in equity, or under
this Debenture or any of the other Transaction Documents. In connection with the
Holder’s rights hereunder upon an Event of Default, the Holder need not provide,
and the Company hereby waives, any presentment, demand, protest or other notice
of any kind, and the Holder may immediately enforce any and all of its rights
and remedies hereunder and all other remedies available to it in equity or under
applicable law.

  

ARTICLE IV 

 

Section 4.01     Usury Savings Clause. Notwithstanding any provision in this
Debenture or the other Transaction Documents to the contrary, the total
liability for payments of interest and payments in the nature of interest,
including, without limitation, all charges, fees, exactions, or other sums which
may at any time be deemed to be interest, shall not exceed the limit imposed by
the usury laws of the jurisdiction governing this Debenture or any other
applicable law. In the event the total liability of payments of interest and
payments in the nature of interest, including, without limitation, all charges,
fees, exactions or other sums which may at any time be deemed to be interest,
shall, for any reason whatsoever, result in an effective rate of interest, which
for any month or other interest payment period exceeds the limit imposed by the
usury laws of the jurisdiction governing this Debenture, all sums in excess of
those lawfully collectible as interest for the period in question shall, without
further agreement or notice by, between, or to any party hereto, be applied to
the reduction of the outstanding principal balance due hereunder immediately
upon receipt of such sums by the Holder hereof, with the same force and effect
as though the Company had specifically designated such excess

 

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sums to be so applied to the reduction of the principal balance then
outstanding, and the Holder hereof had agreed to accept such sums as a
penalty-free payment of principal; provided, however, that the Holder may, at
any time and from time to time, elect, by notice in writing to the Company, to
waive, reduce, or limit the collection of any sums in excess of those lawfully
collectible as interest, rather than accept such sums as a prepayment of the
principal balance then outstanding. It is the intention of the parties that the
Company does not intend or expect to pay, nor does the Holder intend or expect
to charge or collect any interest under this Debenture greater than the highest
non-usurious rate of interest which may be charged under applicable law.

  

ARTICLE V

 

Section 5.01     No Exemption. The Company hereby waives and releases all
benefit that might accrue to the Company by virtue of any present or future laws
exempting any property that may serve as security for this Debenture, or any
other property, real or personal, or any part of the proceeds arising from any
sale of any such property, from attachment, levy, or sale under execution,
exemption from civil process, or extension of time for payment; and the Company
agrees that any property that may be levied upon pursuant to a judgment obtained
by virtue hereof, on any writ of execution issued thereon, may be sold upon any
such writ in whole or in part in any order or manner desired by Holder.

 

Section 5.02    Exercise of Remedies. The remedies of the Holder as provided
herein and in any of the other Transaction Documents shall be cumulative and
concurrent and may be pursued singly, successively or together, at the sole
discretion of the Holder, and may be exercised as often as occasion therefor
shall occur; and the failure to exercise any such right or remedy shall in no
event be construed as a waiver or release thereof.

 

Section 5.03    Waivers. The Company and all others who are, or may become
liable for the payment hereof: (i) severally waive presentment for payment,
demand, notice of nonpayment or dishonor, protest and notice of protest of this
Debenture or any other Transaction Documents, and all other notices in
connection with the delivery, acceptance, performance, default, or enforcement
of the payment of this Debenture and the other Transaction Documents, except as
specifically provided in this Debenture or any other Transaction Document; (ii)
expressly consent to all extensions of time, renewals or postponements of time
of payment of this Debenture and any other Transaction Documents from time to
time prior to or after the maturity of this Debenture without notice, consent or
further consideration to any of the foregoing; (iii) expressly agree that the
Holder shall not be required first to institute any suit, or to exhaust its
remedies against the Company or any other person or party to become liable
hereunder or against any collateral that may secure this Debenture in order to
enforce the payment of this Debenture; and (iv) expressly agree that,
notwithstanding the occurrence of any of the foregoing (except the express
written release by the Holder of any such person), the undersigned shall be and
remain, directly and primarily liable for all sums due under this Debenture.

 

Section 5.04     No Waiver. Holder shall not be deemed, by any act of omission
or commission, to have waived any of its rights or remedies hereunder unless
such waiver is

 

5

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in writing and signed by Holder, and then only to the extent specifically set
forth in the writing. A waiver on one event shall not be construed as continuing
or as a bar to or waiver of any right or remedy to a subsequent event.

 

ARTICLE VI 

 

Section 6.01     Notice. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Debenture must be in
writing and in each case properly addressed to the party to receive the same in
accordance with the information below, and will be deemed to have been
delivered: (i) if mailed by certified mail, return receipt requested, postage
prepaid and properly addressed to the address below, then three (3) business
days after deposit of same in a regularly maintained U.S. Mail receptacle; or
(ii) if mailed by Federal Express, UPS or other nationally recognized overnight
courier service, next business morning delivery, then one (1) business day after
deposit of same in a regularly maintained receptacle of such overnight courier;
or (iii) if hand delivered, then upon hand delivery thereof to the address
indicated on or prior to 5:00 p.m ., EST, on a business day. Any notice hand
delivered after 5:00 p.m., EST, shall be deemed delivered on the following
business day. Notwithstanding the foregoing, notice, consents, waivers or other
communications referred to in this Debenture may be sent by facsimile, e-mail,
or other method of delivery, but shall be deemed to have been delivered only
when the sending party has confirmed (by reply e-mail or some other form of
written confirmation from the receiving party) that the notice has been received
by the other party. The addresses and facsimile numbers for such communications
shall be as set forth below, unless such address or information is changed by a
notice conforming to the requirements hereof.

 

  If to the Company: GrowLife, Inc.     500 Union Street, Suite 810     Seattle,
WA 98101     Attention:  Marco Hegyi     E-Mail: mhegyi@growlifeinc.com        
With a copy to: Horwitz & Armstrong, LLP   (which shall not constitute notice)
26475 Rancho Parkway South     Lake Forest, CA 92630     Attention: John
Armstrong, Esq.     E-Mail:  jarmstrong@horwitzarmstrong.com         If to the
Holder: TCA Global Credit Master Fund, LP     3960 Howard Hughes Parkway, Suite
500     Las Vegas, NV 89196     Attn: Mr. Robert Press    
E-Mail:  bpress@tcaglobalfund.com         With a copy to: Lucosky Brookman LLP  
(which shall not constitute notice) 101 Wood Avenue South, 5th Floor    
Woodbridge, NJ 08830     Attn: Seth A. Brookman, Esq.    
E-Mail:  sbrookman@lucbro.com

  

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Section 6.02    Governing Law and Venue. The Company and Holder each irrevocably
agrees that any dispute arising under, relating to, or in connection with,
directly or indirectly, this Debenture or related to any matter which is the
subject of or incidental to this Debenture (whether or not such claim is based
upon breach of contract or tort) shall be subject to the exclusive jurisdiction
and venue of the state and/or federal courts located in Broward County, Florida.
This provision is intended to be a “mandatory” forum selection clause and
governed by and interpreted consistent with Florida law. The Company and Holder
each hereby consents to the exclusive jurisdiction and venue of any state or
federal court having its situs in said county, and each waives any objection
based on forum non conveniens. The Company hereby waives personal service of any
and all process and consent that all such service of process may be made by
certified mail, return receipt requested, directed to the Company, as set forth
herein in the manner provided by applicable statute, law, rule of court or
otherwise. Except for the foregoing mandatory forum selection clause, all terms
and provisions hereof and the rights and obligations of the Company and Holder
hereunder shall be governed, construed and interpreted in accordance with the
laws of the State of Nevada, without reference to conflict of laws principles. 

 

Section 6.03     Severability. In the event any one or more of the provisions of
this Debenture shall for any reason be held to be invalid, illegal, or
unenforceable, in whole or in part, in any respect, or in the event that any one
or more of the provisions of this Debenture operates or would prospectively
operate to invalidate this Debenture, then and in any of those events, only such
provision or provisions shall be deemed null and void and shall not affect any
other provision of this Debenture. The remaining provisions of this Debenture
shall remain operative and in full force and effect and shall in no way be
affected, prejudiced, or disturbed thereby.

  

Section 6.04     Entire Agreement and Amendments. This Debenture, together with
the other Transaction Documents represents the entire agreement between the
parties hereto with respect to the subject matter hereof and thereof, and there
are no representations, warranties or commitments, except as set forth herein
and therein. This Debenture may be amended only by an instrument in writing
executed by the parties hereto.

  

Section 6.05     Binding Effect. This Debenture shall be binding upon the
Company and the successors and assigns of the Company and shall inure to the
benefit of the Holder and the successors and assigns of the Holder.

  

Section 6.06     Assignment. The Holder may from time to time sell or assign, in
whole or in part, or grant participations in, this Debenture and/or the
obligations evidenced hereby without the consent of the Company. The holder of
any such sale, assignment or participation, if the applicable agreement between
Holder and such holder o provides, shall be: (i) entitled to all of the rights
obligations and benefits of Holder (to the extent of such holder’s interest or
pa1ticipation); and (ii) deemed to hold and may exercise the rights of setoff or
banker’s lien with respect to any and all obligations of such holder to the
Company (to the extent of such holder s interest or participation), in each case
as fully as though the Company was directly indebted to

 

7

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such holder. Holder may in its discretion give notice to the Company of such
sale, assignment or participation; however, the failure to give such notice
shall not affect any of Holder’s or such holder’s rights hereunder.

  

Section 6.07     Lost or Mutilated Debenture. If this Debenture shall be
mutilated, lost, stolen or destroyed the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated Debenture or
in lieu of or in substitution for a lost, stolen or destroyed Debenture a new
Debenture for the principal amount of this Debenture so mutilated, lost stolen
or destroyed, but only upon receipt of evidence of such loss, theft or
destruction of such Debenture, and of the ownership hereof, reasonably
satisfactory to the Company.

  

Section 6.08     WAIVER OF JURY TRIAL. THE COMPANY HEREBY KNOWINGLY,
VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY
WITH RESPECT TO ANY LITIGATION BASED ON THIS DEBENTURE, OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH, THIS DEBENTURE OR ANY OTHER TRANSACTION DOCUMENTS, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF OR BETWEEN ANY PARTY HERETO, AND THE COMPANY AGREES AND CONSENTS TO
THE GRANTING TO HOLDER OF RELIEF FROM ANY STAY ORDER WHICH MIGHT BE ENTERED BY
ANY COURT AGAINST HOLDER AND TO ASSIST HOLDER IN OBTAINING SUCH RELIEF. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER ACCEPTING THIS DEBENTURE FROM THE
COMPANY. THE COMPANY’S REASONABLE RELIANCE UPON SUCH INDUCEMENT I HEREBY
ACKNOWLEDGED.

  

Section 6.09      NON-US STATUS. THE HOLDER IS A NON-US PERSON AS THAT TERM IS
DEFINED IN THE UNITED STATES INTERNAL REVENUE CODE. IT IS HEREBY AGREED AND
UNDERSTOOD THAT THE OBLIGATIONS HEREUNDER MAY BE SOLD ONLY TO NON-U.S. PERSON.
THE INTEREST PAYABLE HEREUNDER IS PAYABLE ONLY OUTSIDE THE UNITED STATES. ANY
U.S. PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE
UNITED STATES INCOME TAX LAW. BY ACCEPTING THIS OBLIGATION, THE HOLDER
REPRESENTS AND WARRANT THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN
EXEMPT RECIPIENT DESCRIBED IN SEC 6049(8)(4) OF THE INTERNAL REVENUE CODE AND
REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED
STATE PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SEC. 6049(B)(4) OF THE
INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).

 

ARTICLE VII

 

Section 7.01     Conversion of Debenture. At any time and from time to time
while this Debenture is outstanding on or after the Closing Date, (i) if
mutually agreed upon by the parties or (ii) upon the occurrence of an Event of
Default at the sole option of the Holder, this Debenture may be, convertible
into shares of the Company’s common stock, $0.0001 par value per share (the
“Common Stock”) in accordance with the terms and conditions set

 

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forth in this Article VII.

  

(1)             Voluntary Conversion. At any time while this Debenture is
outstanding on or after the Closing Date, (i) if mutually agreed upon by the
parties or (ii) at the sole option of the Holder upon the occurrence of an Event
of Default, the Holder may convert all or any portion of the outstanding
principal, accrued and unpaid interest redemption premium and any other sums due
and payable hereunder or under any of the other Transaction Documents (such
total amount, the “Conversion Amount”) into shares of Common Stock of the
Company (the “Conversion Shares”) at a price equal to: (i) the Conversion Amount
(the numerator); divided by (ii) ninety percent (90%) of the lowest of the
average daily volume weighted average price of the Company’s Common Stock during
the five (5) trading days immediately prior to the Conversion Date (as defined
below), as indicated in the conversion notice (in the form attached hereto as
Exhibit “B” the “Conversion Notice”) (the denominator) (the “Conversion Price”).
The Holder shall submit a Conversion Notice indicating the amount of the
Debenture being converted and the number of Conversion Shares issuable upon such
conversion, and where the Conversion Shares should be delivered.

 

(2)             The Holder’s Conversion Limitations. The Company shall not
affect any conversion of this Debenture, and the Holder shall not have the right
to convert any portion of this Debenture, to the extent that after giving effect
to the conversion set forth on the Conversion Notice submitted by the Holder,
the Holder (together with the Holder’s affiliates (as defined herein) and any
Persons acting as a group together with the Holder or any of the Holder’s
affiliates) would beneficially own in excess of the Beneficial Ownership
Limitation (as defined herein). To ensure compliance with this restriction,
prior to delivery of any Conversion Notice, the Holder shall have the right to
request that the Company provide to the Holder a written statement of the
percentage ownership of the Company’s Common Stock that would by beneficially
owned by the Holder and its affiliates in the Company if the Holder converted
such portion of this Debenture then intended to be converted by Holder. The
Company shall, within two (2) business days of such request, provide Holder with
the requested information in a written statement, and the Holder shall be
entitled to rely on such written statement from the Company in issuing its
Conversion Notice and ensuring that its ownership of the Company’s Common Stock
is not in excess of the Beneficial Ownership Limitation. The restriction
described in this Section may be waived by Holder, in whole or in part, upon
notice from the Holder to the Company. For purposes of this Debenture, the
“Beneficial Ownership Limitation” shall be 4.99% of the number of shares of
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon conversion of this Debenture. The
limitations contained in this Section shall apply to any successor holder of
this Debenture. For purposes of this Debenture, “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization or a government or any department or
agency thereof.

 

(3)             Mechanics of Conversion. The conversion of this Debenture shall
be conducted in the following manner:

  

(a)                Holder’s Delivery Requirements. To convert this Debenture
into shares of Common Stock on any date set forth in the Conversion Notice by
the Holder 

 

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(the “Conversion Date”), the Holder shall transmit by facsimile or electronic
mail (or otherwise deliver) a copy of the fully executed Conversion Notice to
the Company (or, under certain circumstances as set forth below, by delivery of
the Conversion Notice to the Company’s transfer agent).

(b)               Company’s Response. Upon receipt by the Company of a copy of a
Conversion Notice, the Company shall as soon as practicable, but in no event
later than two (2) Business Days after receipt of such Conversion Notice, send,
via facsimile or electronic mail (or otherwise deliver) a confirmation of
receipt of such Conversion Notice (the “Conversion Confirmation”) to the Holder
indicating that the Company will process such Conversion Notice in accordance
with the terms herein. In the event the Company fails to issue its Conversion
Confirmation within said two (2) Business Day time period, the Holder shall have
the absolute and irrevocable right and authority to deliver the fully executed
Conversion Notice to the Company’s transfer agent, and pursuant to the terms of
the Purchase Agreement, the Company’s transfer agent shall issue the applicable
Conversion Shares to Holder as hereby provided. Within five (5) Business Days
after the date of the Conversion Confirmation (or the date of the Conversion
Notice, if the Company fails to issue the Conversion Confirmation), provided
that the Company’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, the Company
shall cause the transfer agent to (or, if for any reason the Company fails to
instruct or cause its transfer agent to so act, then pursuant to the Purchase
Agreement, the Holder may request and require the Company’s transfer agent to)
electronically transmit the applicable Conversion Shares to which the Holder
shall be entitled by crediting the account of the Holder’s prime broker with DTC
through its Deposit Withdrawal Agent Commission (“DWAC”) system, and provide
proof satisfactory to the Holder of such delivery. In the event that the
Company’s transfer agent is not participating in the DTC FAST program and is not
otherwise DWAC eligible (or in the event the Holder otherwise requests), within
five (5) Business Days after the date of the Conversion Confirmation (or the
date of the Conversion Notice, if the Company fails to issue the Conversion
Confirmation), the Company shall instruct and cause its transfer agent to (or,
if for any reason the Company fails to instruct or cause its transfer agent to
so act, then pursuant to the Purchase Agreement, the Holder may request and
require the Company’s transfer agent to) issue and surrender to a nationally
recognized overnight courier for delivery to the address specified in the
Conversion Notice, a certificate, registered in the name of the Holder or its
nominee, for the number of Conversion Shares to which the Holder shall be
entitled. To effect conversions hereunder, the Holder shall not be required to
physically surrender this Debenture to the Company unless the entire principal
amount of this Debenture, plus all accrued and unpaid interest thereon and other
sums due hereunder, has been so converted. Conversions hereunder shall have the
effect of lowering the outstanding principal amount of this Debenture in an
amount equal to the applicable Conversion Amount. The Holder and the Company
shall maintain records showing the principal amount(s) converted and the date of
such conversion(s). The Holder, and any assignee by acceptance of this
Debenture, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the unpaid and
unconverted principal amount of this Debenture may be less than the amount
stated on the face hereof. 

(c)                Record Holder. The Person(s) entitled to receive the shares
of

 

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Common Stock issuable upon a conversion of this Debenture shall be treated for
all purposes as the record holder(s) of such shares of Common Stock as of the
Conversion Date.

  

(d)                  Failure to Deliver Certificates. If in the case of any
Conversion Notice, the certificate or certificates are not delivered to or as
directed by the Holder by the date required hereby, the Holder shall be entitled
to elect by written notice to the Company at any time on or before its receipt
of such certificate or certificates, to rescind such Conversion Notice, in which
event the Company shall promptly return to the Holder any original Debenture
delivered to the Company and the Holder shall promptly return to the Company the
Common Stock certificates representing the principal amount of this Debenture
unsuccessfully tendered for conversion to the Company.

 

(e)                Obligation Absolute; Partial Liquidated Damages. The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any person or entity or any action to enforce
the same, or any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder or any other person or entity of any
obligation to the Company or any violation or alleged violation of law by the
Holder or any other person or entity, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; provided, however, that
such delivery shall not operate as a waiver by the Company of any such action
the Company may have against the Holder . In the event the Holder of this
Debenture shall elect to convert any or all of the outstanding principal amount
hereof and accrued but unpaid interest thereon in accordance with the terms of
this Debenture, the Company may not refuse conversion based on any claim that
the Holder or anyone associated or affiliated with the Holder has been engaged
in any violation of law, agreement or for any other reason, unless an injunction
from a court, on notice to Holder, restraining and or enjoining conversion of
all or part of this Debenture shall have been sought and obtained, and the
Company posts a surety bond for the benefit of the Holder in the amount of 150%
of the outstanding principal amount of this Debenture being converted, which is
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the underlying dispute and the proceeds
of which shall be payable to such Holder to the extent it obtains judgment. In
the absence of such injunction, the Company shall issue Conversion Shares upon a
properly noticed conversion. If the Company fails for any reason to deliver to
the Holder such certificate or certificates representing Conversion Shares
pursuant to timing and delivery requirements of this Debenture, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
for each $1,000 of principal amount being converted, $1.00 per day for each day
after the date by which such certificates should have been delivered until such
certificates are delivered. Nothing herein shall limit a Holder’s right to
pursue actual damages or declare an Event of Default pursuant to this Debenture
or any agreement securing the indebtedness under this Debenture for the
Company’s failure to deliver Conversion Shares within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity, including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any 

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other Section hereof or under applicable law. Nothing herein shall prevent the
Holder from having the Conversion Shares issued directly by the Company’s
transfer agent in accordance with the Purchase Agreement, in the event for any
reason the Company fails to issue or deliver, or cause its transfer agent to
issue and deliver, the Conversion Shares to the Holder upon exercise of Holder’s
conversion rights hereunder.

 

(f)                 Transfer Taxes. The issuance of certificates for shares of
the Common Stock on conversion of this Debenture shall be made without charge to
the Holder hereof for any documentary stamp or similar taxes, or any other
issuance or transfer fees of any nature or kind that may be payable in respect
of the issue or delivery of such certificates, any such taxes or fees, if
payable, to be paid by the Company.

 

(4)             Reservation of Common Stock. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, three (3) times such number of shares of Common Stock as shall be
necessary to effect the full conversion of the Debenture in accordance with its
terms (the “Share Reserve”).  If upon receipt of a conversion notice from the
Holder, the Share Reserve is insufficient to effect the full conversion of the
Debenture then outstanding, the Company shall increase the Share Reserve
accordingly.  If the Company does not have sufficient authorized and unissued
shares of Common Stock available to increase the Share Reserve, the Company
shall cause its authorized and unissued shares to be increased within forty-five
(45) days to an amount of shares equal to three (3) times the Conversion Shares.
The Company’s management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized.

  

(5)             Make-Whole Rights. Upon liquidation by the Holder of Conversion
Shares issued pursuant to a Conversion Notice, provided that the Holder realizes
a net amount from such liquidation equal to less than the Conversion Amount
specified in the relevant Conversion Notice (such net realized amount, the
“Realized Amount”), the Company shall issue to the Holder additional shares of
the Company’s Common Stock equal to: (i) the Conversion Amount specified in the
relevant Conversion Notice; minus (ii) the Realized Amount, as evidenced by a
reconciliation statement from the Holder (a “Sale Reconciliation”) showing the
Realized Amount from the sale of the Conversion Shares; divided by (iii) the
average volume weighted average price of the Company’s Common Stock during the
five (5) Business Days immediately prior to the date upon which the Holder
delivers notice (the “Make-Whole Notice”) to the Company that such additional
shares are requested by the Holder (the “Make-Whole Stock Price”) (such number
of additional shares to be issued, the “Make-Whole Shares”). Upon receiving the
Make-Whole Notice and Sale Reconciliation evidencing the number of Make-Whole
Shares requested, the Company shall instruct its transfer agent to issue
certificates representing the Make-Whole Shares, which Make-Whole Shares shall
be issued and delivered in the same manner and within the same time frames as
set forth herein. The Make-Whole Shares, when issued, shall be deemed to be
validly issued, fully paid, and non-assessable shares of the Company’s Common
Stock. Following the sale of the Make-Whole Shares by the Holder: (i) in the
event that the Holder receives net proceeds from such sale which, when added to
the Realized Amount from the prior relevant Conversion Notice, is less than the
Conversion Amount specified in the relevant Conversion Notice, the Holder shall
deliver an additional

 

12

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Make-Whole Notice to the Company following the procedures provided previously in
this paragraph, and such procedures and the delivery of Make-Whole Notices and
issuance of Make-Whole Shares shall continue until the Conversion Amount has
been fully satisfied; and (ii) in the event that the Holder received net
proceeds from the sale of Make-Whole Shares in excess of the Conversion Amount
specified in the relevant Conversion Notice, such excess amount shall be applied
to satisfy any and all amounts owed hereunder in excess of the Conversion Amount
specified in the relevant Conversion Notice.

 

(6)             Adjustments to Conversion Price.

  

(a)                Stock Dividends and Stock Splits. If the Company, at any time
while this Debenture is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions payable in shares of Common Stock on
outstanding shares of Common Stock, (ii) subdivides outstanding shares of Common
Stock into a larger number of shares, (iii) combines (including by way of a
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, or (iv) issues, in the event of a reclassification of shares of Common
Stock, any shares of capital stock of the Company, then the Conversion Price
shall be multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock (excluding any treasury shares of the Company)
outstanding immediately before such event, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination, or re-classification. 

 

(b)               Fundamental Transaction. If, at any time while this Debenture
is outstanding: (i) the Company effects any merger or consolidation of the
Company with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one transaction or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (iv) the Company effects any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental Transaction”), then upon any subsequent
conversion of this Debenture, the Holder shall have the right to receive, for
each Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction, the same
kind and amount of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one (1) share
of Common Stock (the “Alternate Consideration”). For purposes of any such
conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one (1) share of Common Stock in
such Fundamental Transaction, and the Company shall apportion the Conversion
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If 

 

13

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holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any
conversion of this Debenture following such Fundamental Transaction. To the
extent necessary to effectuate the foregoing provisions, any successor to the
Company or surviving entity in such Fundamental Transaction shall issue to the
Holder a new note consistent with the foregoing provisions and evidencing the
Holder’s right to convert such note into Alternate Consideration. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this Section and insuring that this Debenture (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.

  

(c)                Adjustment to Conversion Price. Whenever the Conversion Price
is adjusted pursuant to any provision of this Debenture, the Company shall
promptly deliver to Holder a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.

  

(d)                Notice to Allow Conversion by Holder. If (A) the Company
shall declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash dividend
on or a redemption of the Common Stock, (C) the Company shall authorize the
granting to all holders of the Common Stock of rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of any rights, (D)
the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Company is a party, any sale or transfer of all or substantially all
of the assets of the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property, or (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company, then, in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be delivered to the Holder at
its last address as it shall appear upon the Company’s records, at least twenty
(20) calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating: (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of the Common
Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is expected
that holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder is entitled
to convert this Debenture during the 10-day period commencing on the date of
such 

 

14

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notice through the effective date of the event triggering such notice.

 

[signature page follows]

 

15

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IN WITNESS WHEREOF with the intent to be legally bound hereby, the Company as
executed this Senior Secured, Convertible, Redeemable Debenture as of the date
first written above.

 

GROWLIFE, INC. 

 

By:   /s/ Marco Hegyi   Name: Marco Hegyi    Title: President        STATE OF
________________ )   ) SS. COUNTY OF ______________ )

   

The undersigned, a Notary Public in and for the said County, in the State
aforesaid, DO HEREBY CERTIFY that Marco Hegyi, the President of Growlife, Inc.,
a Delaware corporation, who is personally known to me to be the same person
whose name is subscribed to the foregoing instrument, appeared before me this
day in person and acknowledged that he/she signed and delivered the said
instrument as his/her own free and voluntary act and as the free and voluntary
act of said corporation, for the uses and purposes therein set forth.

 

GIVEN under my hand and notarial seal this _____ day of ________________,
20____. 

        Notary Public           My Commission Expires:        

 

16

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CONSENT AND AGREEMENT

  

The undersigned is a Guarantor, as that term is defined in that certain
securities purchase agreement by and between the Company and the Holder and, as
such, the undersigned hereby consents and agrees to the payment of the amounts
contemplated in the senior secured, convertible, redeemable debenture, documents
contemplated thereby and to the provisions contained therein relating to
conditions to be fulfilled and obligations to be performed by the Company
pursuant to or in connection with said senior secured, convertible, redeemable
debenture secured redeemable debenture to the same extent as if the undersigned
were a party to said senior secured, convertible, redeemable debenture. 

 

GUARANTOR:

 

EVERGREEN GARDEN CENTERS LLC  

 

By:   /s/ Marco Hegyi   Name: Marco Hegyi    Title: Manager  

    STATE OF ________________ )   ) SS. COUNTY OF ______________ )

  

The undersigned, a Notary Public in and for the said County, in the State
aforesaid, DO HEREBY CERTIFY that Marco Hegyi, the Manager of Evergreen Garden
Centers LLC, a Delaware limited liability company, who is personally known to me
to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person and acknowledged that he/she signed and
delivered the said instrument as his/her own free and voluntary act and as the
free and voluntary act of said corporation, for the uses and purposes therein
set forth. 

 

GIVEN under my hand and notarial seal this _____ day of ________________,
20____. 

        Notary Public           My Commission Expires:        

 

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CONSENT AND AGREEMENT

  

The undersigned is a Guarantor, as that term is defined in that certain
securities purchase agreement by and between the Company and the Holder and, as
such, the undersigned hereby consents and agrees to the payment of the amounts
contemplated in the senior secured, convertible, redeemable debenture, documents
contemplated thereby and to the provisions contained therein relating to
conditions to be fulfilled and obligations to be performed by the Company
pursuant to or in connection with said senior secured, convertible, redeemable
debenture secured redeemable debenture to the same extent as if the undersigned
were a party to said senior secured, convertible, redeemable debenture.

  

GUARANTOR: 

 

GROWLIFE HYDROPONICS, INC. 

 

By:   /s/ Marco Hegyi   Name: Marco Hegyi    Title: Chief Executive Officer  

    STATE OF ________________ )   ) SS. COUNTY OF ______________ )

  

The undersigned, a Notary Public in and for the said County, in the State
aforesaid, DO HEREBY CERTIFY that Marco Hegyi, the Chief Executive Officer of
Growlife Hydroponics, Inc., a Delaware corporation, who is personally known to
me to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person and acknowledged that he/she signed and
delivered the said instrument as his/her own free and voluntary act and as the
free and voluntary act of said corporation, for the uses and purposes therein
set forth.

  

GIVEN under my hand and notarial seal this _____ day of ________________,
20____. 

        Notary Public           My Commission Expires:        

 

18

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CONSENT AND AGREEMENT

 

The undersigned is a Guarantor, as that term is defined in that certain
securities purchase agreement by and between the Company and the Holder and, as
such, the undersigned hereby consents and agrees to the payment of the amounts
contemplated in the senior secured, convertible, redeemable debenture, documents
contemplated thereby and to the provisions contained therein relating to
conditions to be fulfilled and obligations to be performed by the Company
pursuant to or in connection with said senior secured, convertible, redeemable
debenture secured redeemable debenture to the same extent as if the undersigned
were a party to said senior secured, convertible, redeemable debenture.

  

GUARANTOR:

  

ROCKY MOUNTAIN HYDROPONICS

 

By:   /s/ Marco Hegyi   Name: Marco Hegyi    Title: Manager  

    STATE OF ________________ )   ) SS. COUNTY OF ______________ )

 

The undersigned, a Notary Public in and for the said County, in the State
aforesaid, DO HEREBY CERTIFY that Marco Hegyi, the Manager of Rocky Mountain
Hydroponics, a Colorado limited liability company, who is personally known to me
to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person and acknowledged that he/she signed and
delivered the said instrument as his/her own free and voluntary act and as the
free and voluntary act of said corporation, for the uses and purposes therein
set forth.

 

GIVEN under my hand and notarial seal this _____ day of ________________,
20____.

        Notary Public           My Commission Expires:        

 

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SCHEDULE A

 

PAYMENT SCHEDULE

  

    Period       Principal Balance   interest pmt   principal
pmt   Total Int   Total
payment 7/25/2015                             7/25/2015   1      
                    -       10,500.00                    -          10,500.00  
   10,500.00 8/25/2015   2                           -      10,500.00  
                 -          21,000.00      21,000.00 9/25/2015   3      
                    -      10,500.00                    -          31,500.00  
   31,500.00 10/25/2015   4   1      700,000.00   10,500.00    53,676.00  
    42,000.00      95,676.00 11/25/2015   5   2      646,324.00   9,694.86  
 54,481.13       51,694.86    159,851.99 12/25/2015   6   3      591,842.87  
8,877.64    55,298.35       60,572.50    224,027.99 1/25/2016   7   4  
   536,544.52   8,048.17    56,127.83       68,620.67    288,203.98 2/25/2016  
8   5      480,416.69   7,206.25    56,969.74       75,826.92    352,379.98
3/25/2016   9   6      423,446.95   6,351.70    57,824.29       82,178.63  
 416,555.97 4/25/2016   10   7      365,622.66   5,484.34    58,691.66  
    87,662.97    480,731.97 5/25/2016   11   8      306,931.00   4,603.97  
 59,572.03       92,266.93    544,907.96 6/25/2016   12   9      247,358.97  
3,710.38    60,465.61       95,977.31    609,083.96 7/25/2016   13   10  
   186,893.36   2,803.40    61,372.59       98,780.72    673,259.95 8/25/2016  
14   11      125,520.76   1,882.81    62,293.18    100,663.53    737,435.95
9/25/2016   15   12        63,227.58   948.41    63,227.58    101,611.94  
 801,611.94

 

20

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EXHIBIT B

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal and/or interest under the
Senior Secured, Convertible, Redeemable Debenture (the “Debenture”) issued by
GrowLife, Inc., a corporation incorporated under the laws of the State of
Delaware (the “Company”), into shares of common stock, par value $0.0001 per
share (the “Common Shares”), of the Company in accordance with the conditions of
the Debenture, as of the date written below. 

 

Based solely on information provided by the Company to Holder, the undersigned
represents and warrants to the Company that its ownership of the Common Shares
does not exceed the Beneficial Ownership Limitation as specified under the
Note. 

 

Conversion Calculations
Effective Date of
Conversion:     Principal Amount and/or Interest to be Converted:     Number of
Common Shares to be Issued:    

  

                [HOLDER]           By:                     Name:                
    Title:               Address:          

 

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