exhibit 10.2
 
CONVERTIBLE PROMISSORY NOTE
 
Effective Date: April 5, 2016 U.S. $2,755,000.00

FOR VALUE RECEIVED, Growlife, Inc., a Delaware corporation (“Borrower”),
promises to pay to Chicago Venture Partners, L.P., a Utah limited partnership,
or its successors or assigns (“Lender”), $2,755,000.00 and any interest, fees,
charges, and late fees on the date that is sixteen (16) 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 Convertible Promissory Note
(this “Note”) is issued and made effective as of April 5, 2016 (the “Effective
Date”). This Note is issued pursuant to that certain Securities Purchase
Agreement dated April 5, 2016, 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 $250,000.00. 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 $2,500,000.00 (the “Purchase Price”),
computed as follows: $2,755,000.00 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 Secured 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 thirteen (13) tranches (each, a
“Tranche”), consisting of (i) an initial Tranche in an amount equal to
$390,000.00 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) twelve (12)
additional Tranches, one in the amount of $55,000.00, one in the amount of
$110,000.00, and ten 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, $35,000.00 of the
OID and the Transaction Expense Amount, and may be converted any time subsequent
to the Purchase Price Date. The first Subsequent Tranche shall correspond to
Secured Investor Note #1 and $5,000.00 of the OID, the second Subsequent Tranche
shall correspond to Secured Investor Note #2 and $10,000.00 of the OID, the
third Subsequent Tranche shall correspond to Secured Investor Note #3 and
$20,000.00 of the OID, the fourth Subsequent Tranche shall correspond to Secured
Investor Note #4 and $20,000.00 of the OID, the fifth Subsequent Tranche shall
correspond to Secured Investor Note #5 and $20,000.00 of the OID, the sixth
Subsequent Tranche shall correspond to Secured Investor Note #6 and $20,000.00
of the OID, the seventh Subsequent Tranche shall correspond to Secured Investor
Note #7 and $20,000.00 of the OID, the eighth Subsequent Tranche shall
correspond to Secured Investor Note #8 and $20,000.00 of the OID, the ninth
Subsequent Tranche shall correspond to Secured Investor Note #9 and $20,000.00
of the OID, the tenth Subsequent Tranche shall correspond to Secured Investor
Note #10 and $20,000.00 of the OID, the eleventh Subsequent Tranche shall
correspond to Secured Investor Note #11 and $20,000.00 of the OID, and the
twelfth Subsequent Tranche shall correspond to Secured Investor Note #12 and
$20,000.00 of the OID. Lender’s right to convert any portion of any of the
Subsequent Tranches is conditioned upon Lender’s payment in full of the Secured
Investor Note corresponding to such Subsequent Tranche
 
 
 

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(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 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.
 
1. Payment; Prepayment. Provided there is an Outstanding Balance, on each
Installment Date (as defined below), Borrower shall pay to Lender an amount
equal to the Installment Amount (as defined below) due on such Installment Date
in accordance with Section 8. All payments owing hereunder shall be in lawful
money of the United States of America or Conversion Shares (as defined below),
as provided for herein, and delivered to Lender at the address furnished to
Borrower for that purpose. All payments shall be applied first to (a) costs of
collection, if any, then to (b) fees and charges, if any, then to (c) accrued
and unpaid interest, and thereafter, to (d) principal. Notwithstanding the
foregoing, so long as Borrower has not received a Lender Conversion Notice (as
defined below) or an Installment 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), then Borrower shall have the right, exercisable on not less than
five (5) Trading Days prior written notice to Lender to prepay the Outstanding
Balance of this Note, in full, in accordance with this Section 1. Any notice of
prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to
Lender at its registered address and shall state: (i) that Borrower is
exercising its right to prepay this Note, and (ii) the date of prepayment, which
shall be not less than five (5) Trading Days from the date of the Optional
Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment
Date”), Borrower shall make payment of the Optional Prepayment Amount (as
defined below) to or upon the order of Lender as may be specified by Lender in
writing to Borrower. If Borrower exercises its right to prepay this Note,
Borrower shall make payment to Lender of an amount in cash equal to 125% (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. In addition, if Borrower delivers an Optional Prepayment
Notice and fails to pay the Optional Prepayment Amount due to Lender within two
(2) Trading Days following the Optional Prepayment Date, Borrower shall forever
forfeit its right to prepay this Note.
 
 
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2. Security. This Note is unsecured.
 
3. Lender Optional Conversion.
 
3.1. Market Price. Subject to adjustment as set forth in this Note, the
conversion price for each Lender Conversion (as defined below) shall be the
Market Price. However, in the event the Market Capitalization falls below
$5,000,000.00 at any time, then in such event the true-up provisions of Section
11 below shall apply to all Lender Conversions that occur after the first date
the Market Capitalization falls below $5,000,000.00 provided that all references
to the “Installment Notice” in Section 11 shall be replaced with references to a
“Lender Conversion Notice” for purposes of this Section 3.1, and all references
to “Installment Conversion Shares” in Section 11 shall be replaced with
references to “Lender Conversion Shares” for purposes of this Section 3.1.
 
3.2. 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 Market Price; provided, however, that, except as adjusted
pursuant to Section 7 below, in no event shall the Market Price be less than
$0.02 (the “Lender Conversion Floor”) or greater than $0.09 (the “Lender
Conversion Ceiling”) for any Lender Conversion. 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 9 below.
 
3.3. Application to Installments. Notwithstanding anything to the contrary
herein, including without limitation Section 8 hereof, Lender may, in its sole
discretion, apply all or any portion of any Lender Conversion toward any
Installment Conversion (as defined below), even if such Installment Conversion
is pending, as determined in Lender’s sole discretion, by delivering written
notice of such election (which notice may be included as part of the applicable
Lender Conversion Notice) to Borrower at any date on or prior to the applicable
Installment Date. In such event, Borrower may not elect to allocate such portion
of the Installment Amount being paid pursuant to this Section 3.3 in the manner
prescribed in Section 8.3; rather, Borrower must reduce the applicable
Installment Amount by the Conversion Amount described in this Section 3.3.
 
4. Defaults and Remedies.
 
4.1. Defaults. The following are events of default under this Note (each, an
“Event of Default”): (a) Borrower shall fail to pay any principal, interest,
fees, charges, or any other amount when due and payable hereunder; (b) Borrower
shall fail to deliver any Lender Conversion Shares in accordance with the terms
hereof; (c) Borrower shall fail to deliver any Installment 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 shall become insolvent or generally fails to pay,
or admits in writing its inability to pay, its debts as they become due, subject
to applicable grace periods, if any; (f) Borrower shall make a general
assignment for the benefit of creditors; (g) Borrower shall file a petition for
relief under any bankruptcy, insolvency or similar law (domestic or foreign);
(h) an involuntary proceeding shall be commenced or filed against Borrower; (i)
Borrower shall default or otherwise fail 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
4.1 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 shall be 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 shall fail to maintain the
Share Reserve as required under 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 shall
be entered or filed against Borrower or any subsidiary of Borrower or any of its
property or other assets for more than $100,000.00, and shall remain unvacated,
unbonded or unstayed for a period of twenty (20) calendar days unless otherwise
consented to by Lender; (o) Borrower’s Common Stock shall fail to be DTC
Eligible; or (p) Borrower shall fail to observe or perform any covenant set
forth in Section 4 of the Purchase Agreement; provided, however, that if
Borrower files the Registration Statement (as defined in the Purchase Agreement)
when and as required by Section 4(ix) of the Purchase Agreement, but it does not
subsequently become effective, such shall not be deemed an Event of Default,
but, in such case, Lender shall not be required to provide Borrower with any
additional amounts or funding under any of the Transaction Documents.
 
 
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4.2. Remedies. Upon the occurrence of any Event of Default, Borrower shall
within three (3) Trading Days deliver written notice thereof via facsimile,
email or reputable overnight courier (with next day delivery specified) (an
“Event of Default Notice”) to Lender.  At any time and from time to time after
the earlier of Lender’s receipt of an Event of Default Notice and Lender
becoming aware of the occurrence of any Event of Default, Lender may accelerate
this Note by written notice to Borrower, with the Outstanding Balance becoming
immediately due and payable in cash at the Mandatory Default Amount.
Notwithstanding the foregoing, at any time following the occurrence of any Event
of Default, Lender may, at its option, elect to increase the Outstanding Balance
by applying the Default Effect (subject to the limitation set forth below) via
written notice to Borrower without accelerating the Outstanding Balance, in
which event the Outstanding Balance shall be increased as of the date of the
occurrence of the applicable Event of Default pursuant to the Default Effect,
but the Outstanding Balance shall not be immediately due and payable unless so
declared by Lender (for the avoidance of doubt, if Lender elects to apply the
Default Effect pursuant to this sentence, it shall reserve the right to declare
the Outstanding Balance immediately due and payable at any time and no such
election by Lender shall be deemed to be a waiver of its right to declare the
Outstanding Balance immediately due and payable as set forth herein unless
otherwise agreed to by Lender in writing). Notwithstanding the foregoing, upon
the occurrence of any Event of Default described in clauses (d), (e), (f), (g)
or (h) of Section 4.1, the Outstanding Balance as of the date of acceleration
shall become immediately and automatically due and payable in cash at the
Mandatory Default Amount, without any written notice required by Lender. At any
time following the occurrence of any Event of Default, upon written notice given
by Lender to Borrower, interest shall accrue on the Outstanding Balance
beginning on the date the applicable Event of Default occurred at an interest
rate equal to the lesser of 22% per annum or the maximum rate permitted under
applicable law (“Default Interest”); 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.
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 4.2.
No such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon. Nothing herein shall limit Lender’s right
to pursue any other remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to Borrower’s failure to timely deliver Conversion Shares upon
Conversion of the Notes as required pursuant to the terms hereof.
 
 
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4.3. 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.
 
4.4. Certain Additional Rights. Notwithstanding anything to the contrary herein,
in the event Borrower fails to make any payment or otherwise to deliver any
Conversion Shares as and when required under this Note, then the true-up
provisions of Section 11 below shall apply to all Lender Conversions that occur
after the date of such failure to pay, provided that all references to the
“Installment Notice” in Section 11 shall be replaced with references to a
“Lender Conversion Notice” for purposes of this Section 4.4, and all references
to “Installment Conversion Shares” in Section 11 shall be replaced with
references to “Lender Conversion Shares” for purposes of this Section 4.4. For
the avoidance of doubt, Lender’s exercise of the rights granted to it pursuant
to this Section 4.4 shall not relieve Borrower of its obligation to continue
paying the Installment Amount on all future Installment Dates.
 
4.5. Cross Default. A breach or default by Borrower of any covenant or other
term or condition contained in any Other Agreements shall, at the option of
Lender, be considered an Event of Default under this Note, in which event Lender
shall be entitled (but in no event required) to apply all rights and remedies of
Lender under the terms of this Note.
 
5. 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 20 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.
 
6. 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.
 
7. Adjustment of Market 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 Market Price in effect immediately prior to such
subdivision, as well as the Lender Conversion Floor and the Lender Conversion
Ceiling, 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 Market Price in effect
immediately prior to such combination, as well as the Lender Conversion Floor
and the Lender Conversion Ceiling, will be proportionately increased. Any
adjustment pursuant to this Section 7 shall become effective immediately after
the effective date of such subdivision or combination. If any event requiring an
adjustment under this Section 7 occurs during the period that a Market Price is
calculated hereunder, then the calculation of such Market Price shall be
adjusted appropriately to reflect such event.
 
 
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8. Borrower Installments.
 
8.1. Installment Conversion Price. Subject to the adjustments set forth herein,
the conversion price for each Installment Conversion shall be the Market Price.
 
8.2. Installment Conversions. Beginning on the date that is the earlier of (i)
six (6) months after the Purchase Price Date and (ii) five (5) days after the
Borrower’s Registration Statement (as defined in the Purchase Agreement) becomes
effective, and on the same day of each month thereafter until the Maturity Date
(each, an “Installment Date”), if paying in cash, Borrower shall pay to Lender
the applicable Installment Amount due on such date subject to the provisions of
this Section 8, and if paying in Installment Conversion Shares (as defined
below), Borrower shall deliver such Installment Conversion Shares on or before
the Delivery Date. Payments of each Installment Amount may be made (a) in cash;
provided, however, that in the event Lender has paid off all or any portion of
any Secured Investor Note (such amount that is prepaid, the “Investor Note
Prepayment Amount”), Borrower may not pay any portion of any Installment Amount
in cash for a period of ninety (90) days following the date Investor delivered
the applicable Investor Note Prepayment Amount to Borrower (the “Standstill
Period”) and any payment in cash of any Installment Amount made during the
Standstill Period shall be deemed to be a prepayment pursuant to Section 1 above
and shall be subject to the Prepayment Premium provided in such section, or (b)
by converting such Installment Amount into shares of Common Stock (“Installment
Conversion Shares”, and together with the Lender Conversion Shares, the
“Conversion Shares”) in accordance with this Section 8 (each an “Installment
Conversion”) per the following formula: the number of Installment Conversion
Shares equals the portion of the applicable Installment Amount being converted
divided by the Market Price, or (c) by any combination of the foregoing, so long
as the cash is delivered to Lender on the applicable Installment Date and the
Installment Conversion Shares are delivered to Lender on or before the
applicable Delivery Date. For the avoidance of doubt, neither the Lender
Conversion Ceiling nor the Lender Conversion Floor shall apply to Installment
Conversions. Notwithstanding the foregoing, Borrower will not be entitled to
elect an Installment Conversion with respect to any portion of any applicable
Installment Amount and shall be required to pay the entire amount of such
Installment Amount in cash if on the applicable Installment Date there is an
Equity Conditions Failure, and such failure is not waived in writing by Lender.
Moreover, in the event Borrower desires to pay all or any portion of any
Installment Amount in cash, it must notify Lender in writing of such election
and the portion of the applicable Installment Amount it elects to pay in cash
not more than twenty-five (25) or less than fifteen (15) Trading Days prior to
the applicable Installment Date. If Borrower fails to so notify Lender, it shall
not be permitted to elect to pay any portion of such Installment Amount in cash
unless otherwise agreed to by Lender in writing or proposed by Lender in an
Installment Notice delivered by Lender to Borrower. Notwithstanding the
foregoing or anything to the contrary herein, Borrower shall only be obligated
to deliver Installment Amounts with respect to Tranches that have become
Conversion Eligible Tranches and shall have no obligation to pay to Lender any
Installment Amount with respect to any Tranche that has not become a Conversion
Eligible Tranche. In furtherance thereof, in the event Borrower has repaid all
Conversion Eligible Tranches pursuant to the terms of this Note, it shall have
no further obligations to deliver any Installment Amount to Lender unless and
until any Subsequent Tranche that was not previously a Conversion Eligible
Tranche becomes a Conversion Eligible Tranche pursuant to the terms of this
Note. Notwithstanding that failure to repay this Note in full by the Maturity
Date is an Event of Default, the Installment Dates shall continue after the
Maturity Date pursuant to this Section 8 until the Outstanding Balance is repaid
in full, provided that Lender shall, in Lender’s sole discretion, determine the
Installment Amount for each Installment Date after the Maturity Date.
 
 
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8.3. Allocation of Installment Amounts. Subject to Section 8.2 regarding an
Equity Conditions Failure, for each Installment Date, Borrower may elect to
allocate the amount of the applicable Installment Amount between cash and via an
Installment Conversion, by email or fax delivery of a notice to Lender
substantially in the form attached hereto as Exhibit B (each, an “Installment
Notice”), provided, that to be effective, each applicable Installment Notice
must be received by Lender not more than twenty-five (25) or less than fifteen
(15) Trading Days prior to the applicable Installment Date. If Lender has not
received an Installment Notice within such time period, then Lender may prepare
the Installment Notice and deliver the same to Borrower by fax or email.
Following its receipt of such Installment Notice, Borrower may either ratify
Lender’s proposed allocation in the applicable Installment Notice or elect to
change the allocation by written notice to Lender by email or fax on or before
12:00 p.m. New York time on the applicable Installment Date, so long as the sum
of the cash payments and the amount of Installment Conversions equal the
applicable Installment Amount, provided that Lender must approve any increase to
the portion of the Installment Amount payable in cash. If Borrower fails to
notify Lender of its election to change the allocation prior to the deadline set
forth in the previous sentence (and seek approval to increase the amount payable
in cash), it shall be deemed to have ratified and accepted the allocation set
forth in the applicable Installment Notice prepared by Lender. If neither
Borrower nor Lender prepare and deliver to the other party an Installment Notice
as outlined above, then Borrower shall be deemed to have elected that the entire
Installment Amount be converted via an Installment Conversion. Borrower
acknowledges and agrees that regardless of which party prepares the applicable
Installment Notice, 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 an Installment 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 Installment Conversion Shares from any
Installment Conversion to Lender in accordance with Section 9 below on or before
each applicable Delivery Date.
 
9. Method of Conversion Share Delivery. On or before the close of business on
the third (3rd) Trading Day following the Installment 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 Installment Notice. If Borrower is
not DWAC Eligible, it shall deliver to Lender or its broker (as designated in
the Lender Conversion Notice or Installment 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 9. 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.
 
 
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10. Conversion Delays. If Borrower fails to deliver Conversion Shares or True-Up
Shares in accordance with the timeframes stated in Sections 9 or 11, 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 (assuming a Closing
Trade Price on the Delivery Date of $0.20 per share of Common Stock), then in
such event a Conversion Delay Late Fee in the amount of $500.00 per day (the
greater of $500.00 per day and $20,000.00 multiplied by 2%, which is $400.00)
would be added to the Outstanding Balance of the Note until such 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).
 
11. True-Up. On the date that is twenty (20) Trading Days (a “True-Up Date”)
from each date that the Installment Conversion Shares delivered by Borrower to
Lender become Free Trading, there shall be a true-up where Borrower shall
deliver to Lender additional Installment Conversion Shares (“True-Up Shares”) if
the Market Price as of the True-Up Date is less than the Market Price used in
the applicable Installment 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 Installment Conversion Shares that would have been delivered to Lender
on the True-Up Date based on the Market Price as of the True-Up Date and the
number of Installment Conversion Shares originally delivered to Lender pursuant
to the applicable Installment Notice. If the Market Price as of the True-Up Date
is higher than the Market Price set forth in the applicable Installment Notice
and the number of Installment Conversion Shares delivered exceeds the number of
Installment Conversion Shares Lender would be entitled to receive as of the
True-Up Date,  then Borrower shall have no obligation to deliver True-Up Shares
to Lender, and Lender shall apply the excess shares toward the next Installment
Conversion Shares to be delivered by Borrower to Lender hereunder (unless the
Outstanding Balance has been reduced to zero, in which case Lender will, at
Lender’s sole election, either (a) return such excess shares to Borrower or (b)
retain such excess shares and instead pay Borrower the value of such shares,
valued based on the Market Price for the Common Stock as of the True-Up
Date).  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 11. 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).
 
 
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12. 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. 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.
 
13. 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.
 
14. 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.
 
15. 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.
 
16. Resolution of Disputes.
 
16.1. 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.
 
 
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16.2. 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.
 
17. 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 Installment Amount, if applicable), this Note shall be
deemed paid in full, shall automatically be deemed canceled, and shall not be
reissued.
 
18. Amendments. The prior written consent of both parties hereto shall be
required for any change or amendment to this Note.
 
19. 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.
 
20. 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 offset pursuant to the terms of the Secured
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 Secured 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 Secured 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 1 hereof with respect to any portions of this Note that are satisfied by
way of a Borrower Offset Right.
 
21. 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.
 
22. 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.”
 
23. 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).
 
24. 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.
 
 
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25. 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.
 
26. 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.
 
27. Par Value Adjustments. If at any time Lender delivers a Conversion Notice to
Borrower and as of such date the Market 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]
 
 
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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: CEO

ACKNOWLEDGED, ACCEPTED AND AGREED:
 
LENDER:
 
Chicago Venture Partners, L.P.

By: Chicago Venture Management, L.L.C.,
its General Partner

By: CVM, Inc., its Manager

By: /s/ John. M. Fife
      John M. Fife, President

[Signature Page to 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.  “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).
 
A3. “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 16.2. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period.
 
A4. “Conversion” means a Lender Conversion under Section 3 or an Installment
Conversion under Section 8.
 
A5. “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 Secured Investor Note that corresponds to such Subsequent
Tranche).
 
A6. “Conversion Factor” means 65%, subject to the following adjustments. 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 DTC
Eligible, the Conversion Factor for future Conversions thereafter will be
reduced from 65% to 60% for purposes of this example.  If, thereafter, there are
three (3) separate occurrences of a Major Default pursuant to Section 4.1(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.
 
A7. “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 9 of the Note. For the avoidance of doubt, if Borrower has
elected or is deemed under Section 8.3 to have elected to pay an Installment
Amount in Installment Conversion Shares and fails to deliver such Installment
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.
 
A8. “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
4.1(b) hereof.
 
Attachment 1 to Convertible Promissory Note, Page 1
 
 
 

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A9. “DTC” means the Depository Trust Company or any successor thereto.
 
A10. “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.
 
A11. “DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer
program.
 
A12. “DWAC” means the DTC’s Deposit/Withdrawal at Custodian system.
 
A13. “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.
 
A14. “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 9 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 12 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 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 Installment 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 $0.01, and (m) the Common Stock shall be DTC Eligible as of each applicable
Installment Date or other date of determination.
 
A15.  “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.
 
Attachment 1 to Convertible Promissory Note, Page 2
 
 
 

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A16. “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 4.2 of this
Note.
 
A17. “Fundamental Default Conversion Value” means the Adjusted Outstanding
Balance multiplied by the highest Fundamental Default Ratio that occurs during
the Fundamental Default Measuring Period.
 
A18. “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 Installment 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 Installment 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).
 
A19. “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 Market
Price in effect for such Trading Day.
 
A20. “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.
 
A21. “Fundamental Transaction” means that (a) (i) Borrower or any of its
subsidiaries shall, directly or indirectly, in one or more related transactions,
consolidate or merge with or into (whether or not Borrower or any of its
subsidiaries is the surviving corporation) any other person or entity, or
(ii) Borrower or any of its subsidiaries shall, directly or indirectly, in one
or more related transactions, sell, lease, license, assign, transfer, convey or
otherwise dispose of all or substantially all of its respective properties or
assets to any other person or entity, or (iii) Borrower or any of its
subsidiaries shall, directly or indirectly, in one or more related transactions,
allow any other person or entity to make a purchase, tender or exchange offer
that is accepted by the holders of more than 50% of the outstanding shares of
voting stock of Borrower (not including any shares of voting stock of Borrower
held by the person or persons making or party to, or associated or affiliated
with the persons or entities making or party to, such purchase, tender or
exchange offer), or (iv) Borrower or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, consummate a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with any
other person or entity whereby such other person or entity acquires more than
50% of the outstanding shares of voting stock of Borrower (not including any
shares of voting stock of Borrower held by the other persons or entities making
or party to, or associated or affiliated with the other persons or entities
making or party to, such stock or share purchase agreement or other business
combination), or (v) Borrower or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, reorganize, recapitalize or
reclassify the Common Stock, other than an increase in the number of authorized
shares of Borrower’s Common Stock, or (b) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the
rules and regulations promulgated thereunder) is or shall become the “beneficial
owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding
voting stock of Borrower.
 
A22. “Installment Amount” means $250,454.55 ($2,755,000.00 ÷ 11), plus the sum
of any accrued and unpaid interest on all Conversion Eligible Tranches as of the
applicable Installment Date, and accrued and unpaid late charges, if any, under
this Note as of the applicable Installment Date, and any other amounts accruing
or owing to Lender under this Note as of such Installment Date; provided,
however, that, if the remaining amount owing under all then-existing Conversion
Eligible Tranches or otherwise with respect to this Note as of the applicable
Installment Date is less than the Installment Amount set forth above, then the
Installment Amount for such Installment Date (and only such Installment Amount)
shall be reduced (and only reduced) by the amount necessary to cause such
Installment Amount to equal such outstanding amount.
 
Attachment 1 to Convertible Promissory Note, Page 3
 
 
 

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A23. “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.
 
A24. “Major Default” means any Event of Default occurring under Sections 4.1(a)
(payments), 4.1(c) (delivery of Installment Conversion Shares or True-Up
Shares), 4.1(l) (Share Reserve), or 4.1(p) (breach of certain covenants) of this
Note.
 
A25. “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
Market 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.
 
A26. “Market Capitalization” means the product equal to (a) the average VWAP of
the Common Stock for the immediately preceding fifteen (15) Trading Days,
multiplied by (b) the aggregate number of outstanding shares of Common Stock as
reported on Borrower’s most recently filed Form 10-Q or Form 10-K.
 
A27. “Market Price” means the Conversion Factor multiplied by the average of the
three (3) lowest VWAPs in the twenty (20) Trading Days immediately preceding the
applicable Conversion.
 
A28. “Minor Default” means any Event of Default that is not a Major Default or a
Fundamental Default.
 
A29. “OID” means an original issue discount.
 
A30. “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 Market 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 Market 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.
 
A31. “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.
 
A32. “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.
 
A33. “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.
 
A34. “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 Market 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).
 
A35. “Purchase Price Date” means the date the Initial Cash Purchase Price is
delivered by Lender to Borrower.
 
A36. “Trading Day” means any day on which the New York Stock Exchange is open
for trading.
 
A37. “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 Convertible Promissory Note, Page 4

 
 

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EXHIBIT A
 
Chicago Venture Partners, L.P.
 
 

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 Convertible Promissory
Note made by Borrower in favor of Lender on April 5, 2016 (the “Note”), that
Lender elects to convert the portion of the Note balance set forth below into
fully paid and non-assessable shares of Common Stock of Borrower as of the date
of conversion specified below. Said conversion shall be based on the Market
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.
Market Price:  _______________

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

 
F.
Remaining Outstanding Balance of Note:  ____________*

 
G.
Remaining Balance of Secured Investor Notes: ____________*

 
H.
Outstanding Balance of Note Net of Balance of Secured 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 Installment Amount(s) relating to the following
Installment Date(s): __________________________________________.

So that DTC processing can begin, please deliver, via reputable overnight
courier, a certificate representing DTC Eligible Lender Conversion Shares to:
 

 
Exhibit A to Convertible Promissory Note, Page 1
 
 
 

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Name:             _____________________________________
Address:        _____________________________________
                    _____________________________________
 
To the extent the Lender Conversion Shares are not DTC Eligible, please deliver,
via reputable overnight courier, a certificate representing the non-DTC Eligible
Lender Conversion Shares to the party at the address set forth above.

Sincerely,

Lender:

Chicago Venture Partners, L.P.

By: Chicago Venture Management, L.L.C.,
its General Partner

By: CVM, Inc., its Manager

By:                                                      
        John M. Fife, President
 
 

 
Exhibit A to Convertible Promissory Note, Page 2

 
 

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EXHIBIT B
 
Growlife, Inc.
500 Union Street, Suite 810
Seattle, Washington 98101

Chicago Venture Partners,
L.P.                                                                                                                    Date:
_____________
Attn: John Fife
 
 
INSTALLMENT NOTICE
 
The above-captioned Borrower hereby gives notice to Chicago Venture Partners,
L.P., a Utah limited partnership (the “Lender”), pursuant to that certain
Convertible Promissory Note made by Borrower in favor of Lender on April 5, 2016
(the “Note”), of certain Borrower elections and certifications related to
payment of the Installment Amount of $_________________ due on ___________, 201_
(the “Installment Date”). In the event of a conflict between this Installment
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
Installment Notice to conform to the Note. Capitalized terms used in this notice
without definition shall have the meanings given to them in the Note.
 
INSTALLMENT CONVERSION AND CERTIFICATIONS
AS OF THE INSTALLMENT DATE

A.  
INSTALLMENT CONVERSION

 
 
A.
Installment Date: ____________, 201_

 
B.
Installment Amount:
____________

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

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

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

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

 
G.
Remaining Outstanding Balance of Note:  ____________ *

 
H.
Remaining Balance of Secured Investor Notes: ____________*

 
I.
Outstanding Balance of Note Net of Balance of Secured 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 Installment 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 Installment Date.

 
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:

 
Exhibit B to Convertible Promissory Note, Page 1
 
 
 

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Sincerely,
 
Borrower:
 
Growlife, Inc.
 

 
By:                                                      
 
Name:                                                                 
 
Title:                                                     
 

 
ACKNOWLEDGED AND CERTIFIED BY:
 
Lender:
 
Chicago Venture Partners, L.P.

By: Chicago Venture Management, L.L.C.,
its General Partner

By: CVM, Inc., its Manager

By:                                                      
      John M. Fife, President
 
Exhibit B to Convertible Promissory Note, Page 2
 
 
 

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EXHIBIT C

Chicago Venture Partners, L.P.
 
 

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 Convertible Promissory
Note made by Borrower in favor of Lender on April 5, 2016 (the “Note”), of
True-Up Conversion Shares related to _____________, 201_ (the “Installment
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.  
Installment Date: ____________, 201_

 
B.  
True-Up Date: ____________, 201_

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

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

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

 
F.  
Installment 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.

 
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:

 
Exhibit C to Convertible Promissory Note, Page 1
 
 
 

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--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 
Sincerely,

Lender:                      

Chicago Venture Partners, L.P.

By: Chicago Venture Management, L.L.C.,
its General Partner

By: CVM, Inc., its Manager

By:                                                     
      John M. Fife, President

 
Exhibit C to Convertible Promissory Note, Page 2
 
 
 

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EXHIBIT D

Growlife, Inc.
500 Union Street, Suite 810
Seattle, Washington 98101

Chicago Venture Partners,
L.P.                                                                                                                                Date:
_____________
Attn: John Fife
 
 

NOTICE OF EXERCISE
OF BORROWER OFFSET RIGHT

The above-captioned Borrower hereby gives notice to Chicago Venture Partners,
L.P., a Utah limited partnership (the “Lender”), pursuant to that certain
Convertible Promissory Note made by Borrower in favor of Lender on April 5, 2016
(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 D to Convertible Promissory Note, Page 1
 
 
 

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EXHIBIT E
 
Chicago Venture Partners, L.P.
 
 

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 Convertible Promissory
Note made by Borrower in favor of Lender on April 5, 2016 (the “Note”), that
Lender elects to convert the portion of the Note balance set forth below into
fully paid and non-assessable shares of Common Stock of Borrower as of the date
of conversion specified below. Said conversion shall be based on the conversion
price set forth below. In the event of a conflict between this Conversion Notice
and the Note, the Note shall govern, or, in the alternative, at the election of
Lender in its sole discretion, Lender may provide a new form of Conversion
Notice to conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the Note.
 
 
A.
Date of Conversion:
____________

 
B.
Lender Conversion #:
____________

 
C.
Conversion Amount:
____________

 
D.
Par Value Adjustment Amount:  _______________

 
E.
Market Price:  _______________ (Par Value)

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

 
G.
Remaining Outstanding Balance of Note:  ____________*

 
H.
Remaining Balance of Secured Investor Notes: ____________*

 
I.
Outstanding Balance of Note Net of Balance of Secured 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 Installment Amount(s) relating to the following
Installment Date(s): __________________________________________.
 
So that DTC processing can begin, please deliver, via reputable overnight
courier, a certificate representing DTC Eligible Lender Conversion Shares to:

 
Exhibit D to Convertible Promissory Note, Page 1
 
 
 

--------------------------------------------------------------------------------

 

Name:              _____________________________________
Address:         _____________________________________
                     _____________________________________

To the extent the Lender Conversion Shares are not DTC Eligible, please deliver,
via reputable overnight courier, a certificate representing the non-DTC Eligible
Lender Conversion Shares to the party at the address set forth above.
 
 
The Par Value Adjustment Amount must be paid in cash within one (1) Trading Day
of your receipt of this Conversion Notice.

Sincerely,

Lender:

Chicago Venture Partners, L.P.

By: Chicago Venture Management, L.L.C.,
its General Partner

By: CVM, Inc., its Manager

By:                                                      
      John M. Fife, President

Exhibit D to Convertible Promissory Note, Page 2
 
 
 

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