Blueprint





 







Exhibit 10.1



Securities Purchase Agreement


 


This Securities Purchase
Agreement (this “Agreement”), dated as of January
9, 2017, is entered into by and between Growlife, Inc., a Delaware
corporation (“Company”), and Chicago Venture Partners, L.P., a
Utah limited partnership, its successors and/or assigns
(“Investor”).


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


B.           Investor
desires to purchase and Company desires to issue and sell, upon the
terms and conditions set forth in this Agreement, a Secured
Convertible Promissory Note, in the form attached hereto as
Exhibit A, in the
original principal amount of $1,105,000.00 (the “Note”), convertible into shares of
common stock, $0.0001 par value per share, of Company (the
“Common Stock”),
upon the terms and subject to the limitations and conditions set
forth in such Note.


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


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


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


1. Purchase and Sale of
Securities.


1.1. Purchase
of Securities. Company shall issue and sell to Investor and
Investor agrees to purchase from Company the Note. In consideration
thereof, Investor shall pay (i) the amount designated as the
initial cash purchase price on the signature page to this Agreement
(the “Initial
Cash Purchase Price”), and (ii) issue
to Company the Secured Investor Notes and the Investor Notes (the
sum of the initial principal amounts of the Secured Investor Notes
and the Investor Notes, together with the Initial Cash Purchase
Price, the “Purchase
Price”). Subject to Section 1.5, the Secured Investor
Notes shall be secured by the Membership Interest Pledge Agreement
substantially in the form attached hereto as Exhibit B, as the same may be
amended from time to time (the “Pledge Agreement”). Initially,
only the Secured Investor Notes will be secured by the Pledge
Agreement pursuant to the terms and conditions of the Pledge
Agreement, the Secured Investor Notes, and this Agreement, but the
Investor Notes may become secured subsequent to the Closing (as
defined below) by such collateral and at such time as determined by
Investor in its sole discretion. The Purchase Price, the OID (as
defined below), and the Transaction Expense Amount (as defined
below) are allocated to the Tranches (as defined in the Note) of
the Note as set forth in the table attached hereto as Exhibit C.



 







 






1.2. Form of Payment. On the Closing
Date, (i) Investor shall pay the Purchase Price to Company by
delivering the following at the Closing: (A) the Initial Cash
Purchase Price, which shall be delivered by wire transfer of
immediately available funds to Company, in accordance with
Company’s written wiring instructions; (B) Secured Investor
Note #1 in the principal amount of $100,000.00 duly executed and
substantially in the form attached hereto as Exhibit D (“Secured Investor Note #1”); (C)
Secured Investor Note #2 in the principal amount of $100,000.00
duly executed and substantially in the form attached hereto as
Exhibit D
(“Secured Investor Note
#2”); (D) Secured Investor Note #3 in the principal
amount of $100,000.00 duly executed and substantially in the form
attached hereto as Exhibit
D (“Secured Investor
Note #3”); (E) Secured Investor Note #4 in the
principal amount of $100,000.00 duly executed and substantially in
the form attached hereto as Exhibit D (“Secured Investor Note #4”); (F)
Secured Investor Note #5 in the principal amount of $100,000.00
duly executed and substantially in the form attached hereto as
Exhibit D
(“Secured Investor Note
#5”, and together with Secured Investor Note #1,
Secured Investor Note #2, Secured Investor Note #3 and Secured
Investor Note #4, the “Secured Investor Notes”); (G)
Investor Note #6 in the principal amount of $100,000.00 duly
executed and substantially in the form attached hereto as
Exhibit E
(“Investor Note
#6”); (H) Investor Note #7 in the principal amount of
$100,000.00 duly executed and substantially in the form attached
hereto as Exhibit E
(“Investor Note
#7”); (I) Investor Note #8 in the principal amount of
$100,000.00 duly executed and substantially in the form attached
hereto as Exhibit E
(“Investor Note
#8”); and (J) Investor Note #9 in the principal amount
of $100,000.00 duly executed and substantially in the form attached
hereto as Exhibit E
(“Investor Note
#9”, and together with Investor Note #6, Investor Note
#7 and Investor Note #8, the “Investor Notes”) and (ii) Company
shall deliver the duly executed Note on behalf of Company, to
Investor, against delivery of such Purchase Price.


1.3. Closing
Date. Subject to the satisfaction (or written waiver) of the
conditions set forth in Section 5 and Section 6 below, the date of
the issuance and sale of the Securities pursuant to this Agreement
(the “Closing
Date”) shall be January 9, 2017, or such other
mutually agreed upon date. The closing of the transactions
contemplated by this Agreement (the “Closing”) shall occur on the
Closing Date by means of the exchange by email of signed .pdf
documents, but shall be deemed for all purposes to have occurred at
the offices of Hansen Black Anderson Ashcraft PLLC in Lehi,
Utah.


1.4. Collateral
for the Note. The Note shall be
secured by the collateral set forth in that certain Security
Agreement attached hereto as Exhibit F listing all of
Company’s assets as security for Company’s obligations
under the Transaction Documents (the “Security Agreement”). The parties acknowledge and agree that
Investor’s right, title and interest in the Collateral will
be subject at all times to the terms and conditions of an
Intercreditor Agreement to be entered into by and between Investor
and Logic Works, LLC.



 

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1.5. Collateral for
Secured Investor
Notes. At the Closing,
Investor shall execute the Pledge Agreement, thereby granting to
Company a security interest in the collateral described therein
(the “Collateral”). Investor also agrees
to file a UCC Financing Statement (Form UCC1) with the Utah
Department of Commerce in the manner set forth in the Pledge
Agreement in order to perfect Company’s security interest in
the Collateral. Notwithstanding anything to the contrary herein or
in any other Transaction Document, Investor may, in
Investor’s sole discretion, add additional collateral to the
Collateral covered by the Pledge Agreement, and may substitute
Collateral as Investor deems fit, provided that the net fair market
value of the substituted Collateral may not be less than the
aggregate principal balance of the Secured Investor Notes as of the
date of any such substitution. In the event of a substitution of
Collateral, Investor shall timely execute any and all amendments
and documents necessary or advisable in order to properly release
the original collateral and grant a security interest upon the
substitute collateral in favor of Company, including without
limitation the filing of an applicable UCC Financing Statement
Amendment (Form UCC3) with the Utah Department of Commerce. Company
agrees to sign the documents and take such other measures requested
by Investor in order to accomplish the intent of the Transaction
Documents, including without limitation, execution of a Form UCC3
(or equivalent) termination statement against the Collateral within
five (5) Trading Days (as defined in the Note) after written
request from Investor. Company acknowledges and agrees that the
Collateral may be encumbered by other monetary liens in priority
and/or subordinate positions. The intent of the parties is that the
net fair market value of the Collateral (less any other prior liens
or encumbrances) will be equal to or greater than the aggregate
outstanding balance of the Secured Investor Notes. To the extent
the fair market value of the Collateral (less any other liens or
encumbrances) is less than the total outstanding balance of all the
Secured Investor Notes, then the Collateral will be deemed to only
secure those Secured Investor Notes with an aggregate outstanding
balance that is less than or equal to such net fair market value of
the Collateral, applied in numerical order of the Secured Investor
Notes. By way of example only, if the fair market value of the
Collateral is determined by appraisal to be $400,000.00 and the
Collateral is encumbered by $100,000.00 of prior liens, then the
net fair market value for purposes of this section is $300,000.00
($400,000.00 - $100,000.00). Accordingly, the Collateral will be
deemed to secure only Secured Investor Note #1, Secured Investor
Note #2 and Secured Investor Note #3, while Secured Investor Note
#4 and Secured Investor Note #5 shall be deemed unsecured. If the
Collateral is subsequently appraised for $500,000.00 with all prior
liens removed, then the Collateral will automatically be deemed to
secure all of the Secured Investor Notes.


1.6. Original
Issue Discount; Transaction Expense Amount. The Note carries
an original issue discount of $100,000.00 (the “OID”). In addition, Company agrees to pay
$5,000.00 to Investor to cover Investor’s legal fees,
accounting costs, due diligence, monitoring and other transaction
costs incurred in connection with the purchase and sale of the
Securities (the “Transaction
Expense Amount”), all of which amount is included in
the initial principal balance of the Note. The Purchase Price,
therefore, shall be $1,000,000.00, computed as follows:
$1,105,000.00 initial principal balance, less the OID, less the
Transaction Expense Amount. The Initial Cash Purchase Price shall
be the Purchase Price less the sum of the initial principal amounts
of the Secured Investor Notes and the Investor Notes. The portions
of the OID and the Transaction Expense Amount allocated to the
Initial Cash Purchase Price are set forth on Exhibit C.


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



 

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3. Company’s Representations and
Warranties. Company represents and warrants to Investor that
as of the Effective Date: Company is a corporation duly organized,
validly existing and in good standing under the laws of its state
of incorporation and has the requisite corporate power to own its
properties and to carry on its business as now being conducted;
Company is duly qualified as a foreign corporation to do business
and is in good standing in each jurisdiction where the nature of
the business conducted or property owned by it makes such
qualification necessary; Company has registered its Common Stock
under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the “1934
Act”), and is obligated to file reports pursuant to
Section 13 or Section 15(d) of the 1934 Act; each of the
Transaction Documents and the transactions contemplated hereby and
thereby, have been duly and validly authorized by Company and all
necessary actions have been taken; this Agreement, the Note, and
the other Transaction Documents have been duly executed and
delivered by Company and constitute the valid and binding
obligations of Company enforceable in accordance with their terms;
the execution and delivery of the Transaction Documents by Company,
the issuance of Securities in accordance with the terms hereof, and
the consummation by Company of the other transactions contemplated
by the Transaction Documents do not and will not conflict with or
result in a breach by Company of any of the terms or provisions of,
or constitute a default under (a) Company’s formation
documents or bylaws, each as currently in effect, (b) any
indenture, mortgage, deed of trust, or other material agreement or
instrument to which Company is a party or by which it or any of its
properties or assets are bound, including, without limitation, any
listing agreement for the Common Stock, or (c) any existing
applicable law, rule, or regulation or any applicable decree,
judgment, or order of any court, United States federal, state or
foreign regulatory body, administrative agency, or other
governmental body having jurisdiction over Company or any of
Company’s properties or assets; no further authorization,
approval or consent of any court, governmental body, regulatory
agency, self-regulatory organization, or stock exchange or market
or the stockholders or any lender of Company is required to be
obtained by Company for the issuance of the Securities to Investor
or the entering into of the Transaction Documents; none of
Company’s filings with the SEC contained, at the time they
were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances
under which they were made, not misleading; Company has filed all
reports, schedules, forms, statements and other documents required
to be filed by Company with the SEC under the 1934 Act on a timely
basis or has received a valid extension of such time of filing and
has filed any such report, schedule, form, statement or other
document prior to the expiration of any such extension; there is no
action, suit, proceeding, inquiry or investigation before or by any
court, public board or body pending or, to the knowledge of
Company, threatened against or affecting Company before or by any
governmental authority or non-governmental department, commission,
board, bureau, agency or instrumentality or any other person,
wherein an unfavorable decision, ruling or finding would have a
material adverse effect on Company or which would adversely affect
the validity or enforceability of, or the authority or ability of
Company to perform its obligations under, any of the Transaction
Documents; Company has not consummated any financing transaction
that has not been disclosed in a periodic filing or current report
with the SEC under the 1934 Act; Company is not, nor has it been at
any time in the previous twelve (12) months, a “Shell
Company,” as such type of “issuer” is described
in Rule 144(i)(1) under the 1933 Act; with respect to any
commissions, placement agent or finder’s fees or similar
payments that will or would become due and owing by Company to any
person or entity as a result of this Agreement or the transactions
contemplated hereby (“Broker
Fees”), any such Broker Fees will be made in full
compliance with all applicable laws and regulations and only to a
person or entity that is a registered investment adviser or
registered broker-dealer; Investor shall have no obligation with
respect to any Broker Fees or with respect to any claims made by or
on behalf of other persons for fees of a type contemplated in this
subsection that may be due in connection with the transactions
contemplated hereby and Company shall indemnify and hold harmless
each of Investor, Investor’s employees, officers, directors,
stockholders, members, managers, agents, and partners, and their
respective affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and
attorneys’ fees) and expenses suffered in respect of any such
claimed Broker Fees; when issued, the Conversion Shares will be
duly authorized, validly issued, fully paid for and non-assessable,
free and clear of all liens, claims, charges and encumbrances;
neither Investor nor any of its officers, directors, stockholders,
members, managers, employees, agents or representatives has made
any representations or warranties to Company or any of its
officers, directors, employees, agents or representatives except as
expressly set forth in the Transaction Documents and, in making its
decision to enter into the transactions contemplated by the
Transaction Documents, Company is not relying on any
representation, warranty, covenant or promise of Investor or its
officers, directors, members, managers, employees, agents or
representatives other than as set forth in the Transaction
Documents; Company acknowledges that the State of Utah has a
reasonable relationship and sufficient contacts to the transactions
contemplated by the Transaction Documents and any dispute that may
arise related thereto such that the laws and venue of the State of
Utah, as set forth more specifically in Section 9.3 below, shall be
applicable to the Transaction Documents and the transactions
contemplated therein; and  Company has performed due diligence and background
research on Investor and its affiliates including, without
limitation, John M. Fife, and, to its satisfaction, has made
inquiries with respect to all matters Company may consider
relevant to the undertakings and
relationships contemplated by the Transaction Documents including,
among other things, the following:
http://investing.businessweek.com/research/stocks/people/person.asp?personId=7505107&ticker=UAHC;
SEC Civil Case No. 07-C-0347 (N.D. Ill.); SEC Civil Action No.
07-CV-347 (N.D. Ill.); and
FINRA Case #2011029203701.
Company, being aware of the matters described in subsection
(xviii) above, acknowledges and agrees that such
matters, or any similar matters, have no bearing on the
transactions contemplated by the Transaction Documents and
covenants and agrees it will not use any such information as a
defense to performance of its obligations under the Transaction
Documents or in any attempt to avoid, modify or reduce such
obligations.



 

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4. Company Covenants. Until all of
Company’s obligations under all of the Transaction Documents
are paid and performed in full, or within the timeframes otherwise
specifically set forth below, Company will at all times comply with
the following covenants: so long as Investor beneficially owns any
of the Securities and for at least twenty (20) Trading Days
thereafter, Company will timely file on the applicable deadline all
reports required to be filed with the SEC pursuant to
Sections 13 or 15(d) of the 1934 Act, and will take all
reasonable action under its control to ensure that adequate current
public information with respect to Company, as required in
accordance with Rule 144 of the 1933 Act, is publicly available,
and will not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination; the Common
Stock shall be listed or quoted for trading on any of (a) NYSE, (b)
NASDAQ, (c) OTCQX, (d) OTCQB, or (e) OTC Pink Current Information;
when issued, the Conversion Shares will be duly authorized, validly
issued, fully paid for and non-assessable, free and clear of all
liens, claims, charges and encumbrances; trading in Company’s
Common Stock will not be suspended, halted, chilled, frozen, reach
zero bid or otherwise cease on Company’s principal trading
market; Company will not transfer, assign, sell, pledge,
hypothecate or otherwise alienate or encumber the Secured Investor
Notes or the Investor Notes in any way without the prior written
consent of Investor, which consent may be given or withheld in
Investor’s sole and absolute discretion; after the Closing
Date, Company will not make any Variable Security Issuances (as
defined below) without Investor’s prior written consent,
which consent may be granted or withheld in Investor’s sole
and absolute discretion; at Closing and on the first day of each
calendar quarter for so long as the Note remains outstanding or on
any other date during which the Note is outstanding, as may be
requested by Investor, Company shall cause its Chief Executive
Officer to provide to Investor a certificate in substantially the
form attached hereto as Exhibit G (the
“Officer’s
Certificate”) certifying in his personal capacity and
in his capacity as Chief Executive Officer of Company that Company
has not made any Variable Security Issuances following the Closing
Date; and if at any time the Common Stock trades below $0.0005,
Company shall, as soon as practicable but in no event longer than
one hundred eighty days (180) days thereafter, reduce the par value
of its Common Stock to $0.00001 or below. For purposes hereof, the
term “Variable Security
Issuance” means any issuance of Company securities
that (A) have or may have conversion rights of any kind,
contingent, conditional or otherwise, in which the number of shares
that may be issued pursuant to such conversion right varies with
the market price of the Common Stock, or (B) are or may become
convertible into Common Stock (including without limitation
convertible debt, warrants or convertible preferred stock), with a
conversion price that varies with the market price of the Common
Stock, even if such security only becomes convertible following an
event of default, the passage of time, or another trigger event or
condition. For avoidance of doubt, the issuance of shares of Common
Stock under, pursuant to, in exchange for or in connection with any
contract or instrument, whether convertible or not, is deemed a
Variable Security Issuance for purposes hereof if the number of
shares of Common Stock to be issued is based upon or related in any
way to the market price of the Common Stock, including, but not
limited to, Common Stock issued in connection with a Section
3(a)(9) exchange, a Section 3(a)(10) settlement, or any other
similar settlement or exchange.


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



 

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


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


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


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


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


6.3. Company
shall have executed and delivered to Investor the Pledge
Agreement.


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


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


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


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


7. Reservation of Shares. On the
date hereof, Company will reserve 500,000,000 shares of Common
Stock from its authorized and unissued Common Stock to provide for
all issuances of Common Stock under the Note and all other
obligations owed by Company to Investor (the “Share Reserve”). Company further
agrees to add additional shares of Common Stock to the Share
Reserve as and when requested by Investor if as of the date of any
such request the number of shares being held in the Share Reserve
is less than the number of shares of Common Stock obtained by
dividing the Outstanding Balance (as defined in the Note) as of the
date of the request by the Redemption Conversion Price (as defined
in the Note). Company shall further require the Transfer Agent to
hold the shares of Common Stock reserved pursuant to the Share
Reserve exclusively for the benefit of Investor and to issue such
shares to Investor promptly upon Investor’s delivery of a
conversion notice under the Note. Finally, Company shall require
the Transfer Agent to issue shares of Common Stock pursuant to the
Note to Investor out of its authorized and unissued shares, and not
the Share Reserve, to the extent shares of Common Stock have been
authorized, but not issued, and are not included in the Share
Reserve. The Transfer Agent shall only issue shares out of the
Share Reserve to the extent there are no other authorized shares
available for issuance and then only with Investor’s written
consent. Company further agrees to increase the Share Reserve to
600,000,000 shares of Common Stock at such time as either (i)
Investor purchases the remaining debt balance from TCA Global
Credit Master Fund, LP (the “TCA Debt”), or (ii) the TCA Debt
has otherwise been paid in full.



 

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


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


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


9.2. Arbitration
of Claims. The parties shall submit all Claims (as defined
in Exhibit K)
arising under this Agreement or any other Transaction Document or
any other agreement between the parties and their affiliates or any
Claim relating to the relationship of the parties to binding
arbitration pursuant to the arbitration provisions set forth in
Exhibit K attached
hereto (the “Arbitration
Provisions”). The parties hereby acknowledge and agree
that the Arbitration Provisions are unconditionally binding on the
parties hereto and are severable from all other provisions of this
Agreement. By executing this Agreement, Company represents,
warrants and covenants that Company has reviewed the Arbitration
Provisions carefully, consulted with legal counsel about such
provisions (or waived its right to do so), understands that the
Arbitration Provisions are intended to allow for the expeditious
and efficient resolution of any dispute hereunder, agrees to the
terms and limitations set forth in the Arbitration Provisions, and
that Company will not take a position contrary to the foregoing
representations. Company acknowledges and agrees that Investor may
rely upon the foregoing representations and covenants of Company
regarding the Arbitration Provisions.


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



 

7







 






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


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



 

8







 






 


9.6. Counterparts.
Each Transaction Document may be executed in any number of
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one instrument. The parties hereto
confirm that any electronic copy of another party’s executed
counterpart of a Transaction Document (or such party’s
signature page thereof) will be deemed to be an executed original
thereof.


9.7. Document
Imaging. Investor shall be entitled, in its sole discretion,
to image or make copies of all or any selection of the agreements,
instruments, documents, and items and records governing, arising
from or relating to any of Company’s loans, including,
without limitation, this Agreement and the other Transaction
Documents, and Investor may destroy or archive the paper
originals. The parties hereto (i) waive any right to insist or
require that Investor produce paper originals, (ii) agree that such
images shall be accorded the same force and effect as the paper
originals, (iii) agree that Investor is entitled to use such images
in lieu of destroyed or archived originals for any purpose,
including as admissible evidence in any demand, presentment or
other proceedings, and (iv) further agree that any executed
facsimile (faxed), scanned, emailed, or other imaged copy of this
Agreement or any other Transaction Document shall be deemed to be
of the same force and effect as the original manually executed
document.


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


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


9.10. Entire
Agreement. This Agreement, together with the other
Transaction Documents, contains the entire understanding of the
parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither Company
nor Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. For the avoidance of
doubt, all prior term sheets or other documents between Company and
Investor, or any affiliate thereof, related to the transactions
contemplated by the Transaction Documents (collectively,
“Prior
Agreements”), that may have been entered into between
Company and Investor, or any affiliate thereof, are hereby null and
void and deemed to be replaced in their entirety by the Transaction
Documents. To the extent there is a conflict between any term set
forth in any Prior Agreement and the term(s) of the Transaction
Documents, the Transaction Documents shall govern.


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



 

9







 






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


9.13. Notices. Any notice required or
permitted hereunder shall be given in writing (unless otherwise
specified herein) and shall be deemed effectively given on the
earliest of: (i) the date delivered, if delivered by personal
delivery as against written receipt therefor or by email to an
executive officer, or by facsimile (with successful transmission
confirmation), (ii) the earlier of the date delivered or the third
Trading Day after deposit, postage prepaid, in the United States
Postal Service by certified mail, or (iii) the earlier of the date
delivered or the third Trading Day after mailing by express
courier, with delivery costs and fees prepaid, in each case,
addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may
designate by five (5) calendar days’ advance written notice
similarly given to each of the other parties hereto):


If to
Company:


 


Growlife,
Inc.


Attn:
Marco Hegyi


5400
Carillon Point


Kirkland,
Washington 98033


 


If to
Investor:


 


Chicago
Venture Partners, L.P.


Attn:
John Fife


303
East Wacker Drive, Suite 1040


Chicago, Illinois
60601


 


With a
copy to (which copy shall not constitute notice):


 


Hansen
Black Anderson Ashcraft PLLC


Attn:
Jonathan Hansen


3051
West Maple Loop Drive, Suite 325


Lehi,
Utah 84043


 


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


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



 

10







 






 


9.16. Further
Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions
contemplated hereby.


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


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


9.19. Attorneys’
Fees and Cost of Collection. In the event of any arbitration
or action at law or in equity to enforce or interpret the terms of
this Agreement or any of the other Transaction Documents, the
parties agree that the party who is awarded the most money (which,
for the avoidance of doubt, shall be determined without regard to
any statutory fines, penalties, fees, or other charges awarded to
any party) shall be deemed the prevailing party for all purposes
and shall therefore be entitled to an additional award of the full
amount of the attorneys’ fees, deposition costs, and expenses
paid by such prevailing party in connection with arbitration or
litigation without reduction or apportionment based upon the
individual claims or defenses giving rise to the fees and expenses.
Nothing herein shall restrict or impair an arbitrator’s or a
court’s power to award fees and expenses for frivolous or bad
faith pleading. If (i) the Note is placed in the hands of an
attorney for collection or enforcement prior to commencing arbitration or legal
proceedings, or is collected or enforced through any
arbitration or legal proceeding, or Investor otherwise takes action
to collect amounts due under the Note or to enforce the provisions
of the Note, or (ii) there occurs any bankruptcy,
reorganization, receivership of Company or other proceedings
affecting Company’s creditors’ rights and involving a
claim under the Note; then Company shall pay the costs incurred by
Investor for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or
other proceeding, including, without limitation, attorneys’
fees, expenses, deposition costs, and disbursements.



 

11







 






9.20. Waiver.
No waiver of any provision of this Agreement shall be effective
unless it is in the form of a writing signed by the party granting
the waiver. No waiver of any provision or consent to any prohibited
action shall constitute a waiver of any other provision or consent
to any other prohibited action, whether or not similar. No waiver
or consent shall constitute a continuing waiver or consent or
commit a party to provide a waiver or consent in the future except
to the extent specifically set forth in writing.


9.21. Waiver
of Jury Trial. EACH PARTY TO
THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY
HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER
TRANSACTION DOCUMENT, OR THE RELATIONSHIPS OF THE PARTIES HERETO BE
TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND
A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE,
LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES
THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH
PARTY’S RIGHT TO DEMAND TRIAL BY JURY.


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


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


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




 

12








 






 


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



SUBSCRIPTION AMOUNT:


 

Principal Amount of
Note:                
                 
                 
                 
    $1,105,000.00


 

Initial Cash
Purchase
Price:                                                                        
$100,000.00


 


	
 

	


INVESTOR:


 



Chicago Venture Partners, L.P.


 


By:
Chicago Venture Management, L.L.C.,


       its
General Partner


 


       By: CVM, Inc., its
Manager


 


 


       By:
/s/ John M. Fife


   
          John M. Fife,
President


 


 


 


COMPANY:


 



Growlife, Inc.


 


 

By: /s/ Marco
Hegyi


Printed
Name: Marco Hegyi


Title:
Chief Executive Officer









 




[Signature Page to Securities Purchase
Agreement]

13








 






 


ATTACHED
EXHIBITS:


 




Exhibit
A


Note








Exhibit
B

Membership
Interest Pledge Agreement








Exhibit
C

Allocation of
Purchase Price (Not Used)








Exhibit
D

Form of Secured
Investor Note








Exhibit
E

Form of
Investor Note








Exhibit
F

Security
Agreement








Exhibit
G

Officer’s
Certificate








Exhibit
H

Irrevocable
Transfer Agent Instructions








Exhibit
I


Secretary’s Certificate








Exhibit
J

Share Issuance
Resolution








Exhibit
K

Arbitration
Provisions






 



 

14







 






 



exhibit a



SECURED CONVERTIBLE PROMISSORY NOTE


Effective
Date: January 9, 2017  U.S. $1,105,000.00


 


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”), $1,105,000.00 and any
interest, fees, charges, and late fees on the date that is twelve
(12) months after the Purchase Price Date (the “Maturity Date”) in accordance with
the terms set forth herein and to pay interest on the Outstanding
Balance (including all Tranches (as defined below), both Conversion
Eligible Tranches (as defined below) and Subsequent Tranches (as
defined below) that have not yet become Conversion Eligible
Tranches) at the rate of ten percent (10%) per annum from the
Purchase Price Date until the same is paid in full. This Secured
Convertible Promissory Note (this “Note”) is issued and made
effective as of January 9, 2017 (the “Effective Date”). This Note is
issued pursuant to that certain Securities Purchase Agreement dated
January 9, 2017, 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 $100,000.00. In addition, Borrower agrees to pay
$5,000.00 to Lender to cover Lender’s legal fees, accounting
costs, due diligence, monitoring and other transaction costs
incurred in connection with the purchase and sale of this Note (the
“Transaction Expense
Amount”), all of which amount is included in the
initial principal balance of this Note. The purchase price for this
Note shall be $1,000,000.00 (the “Purchase Price”), computed as
follows: $1,105,000.00 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 the Investor Notes
(as defined in the Purchase Agreement) and a wire transfer of
immediately available funds in the amount of the Initial Cash
Purchase Price (as defined in the Purchase Agreement). This Note
shall be comprised of ten (10) tranches (each, a
“Tranche”),
consisting of (i) an initial Tranche in an amount equal to
$115,000.00 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) nine (9)
additional Tranches, each in the amount of $110,000.00, 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, $10,000.00 of the OID and the Transaction
Expense Amount, and may be converted into shares of Common Stock
(as defined below) any time subsequent to the Purchase Price Date.
The first Subsequent Tranche shall
correspond to Secured
Investor Note #1
and $10,000.00 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
$10,000.00 of the OID, the fourth Subsequent Tranche shall
correspond to Secured Investor Note #4 and $10,000.00 of the OID, the fifth Subsequent
Tranche shall correspond to Secured Investor Note
#5 and $10,000.00 of the OID, the
sixth Subsequent Tranche shall correspond to Investor Note
#6 and $10,000.00 of the OID; the
seventh Subsequent Tranche shall correspond to Investor Note
#7 and $10,000.00 of the OID; the
eighth Subsequent Tranche shall correspond to Investor Note
#8 and $10,000.00 of the OID; and the
ninth Subsequent Tranche shall correspond to Investor Note
#9 and $10,000.00 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 or Investor
Note corresponding to such Subsequent Tranche (upon the
satisfaction of such condition, such Subsequent Tranche becomes
a “Conversion Eligible
Tranche”). In the event
Lender exercises its Lender Offset Right (as defined below) with
respect to a portion of a Secured Investor Note or Investor Note
and pays in full the remaining outstanding balance of such Secured
Investor Note or Investor Note, the Subsequent Tranche that
corresponds to such Secured Investor Note or 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 Secured Investor Note or 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.



 

15







 






 


10. Payment;
Prepayment.


10.1. Payment.
Provided there is an Outstanding Balance, on each Redemption Date
(as defined below), Borrower shall pay to Lender an amount equal to
the Redemption Amount (as defined below) due on such Redemption
Date in accordance with Section 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 or bank account furnished to
Borrower for that purpose. All payments shall be applied first to
(a) costs of collection, if any, then to (b) fees and charges, if
any, then to (c) accrued and unpaid interest, and thereafter, to
(d) principal.


10.2. Prepayment.
Notwithstanding the foregoing, so long as Borrower has not received
a Lender Conversion Notice (as defined below) or a Redemption
Notice (as defined below) from Lender where the applicable
Conversion Shares have not yet been delivered and so long as no
Event of Default has occurred since the Effective Date (whether
declared by Lender or undeclared and regardless of whether or not
cured), then Borrower shall have the right, exercisable on not less
than five (5) Trading Days prior written notice to Lender to prepay
the Outstanding Balance of this Note, in full, in accordance with
this Section 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 and Lender shall be entitled to exercise its
conversion rights set forth herein during such five (5) day period.
In addition, if Borrower delivers an Optional Prepayment Notice and
fails to pay the Optional Prepayment Amount due to Lender within
two (2) Trading Days following the Optional Prepayment Date,
Borrower shall forever forfeit its right to prepay this
Note.



 

16







 






11. Security. This Note is secured
by a certain Security Agreement of even date herewith, as the same
may be amended from time to time (the “Security Agreement”), executed by
Borrower in favor of Lender encumbering all of Borrower’s
assets, as more specifically set forth in the Security Agreement,
all the terms and conditions of which are hereby incorporated into
and made a part of this Note. The
parties acknowledge and agree that Investor’s right, title
and interest in the Collateral will be subject at all times to the
terms and conditions of an Intercreditor Agreement to be entered
into by and between Investor and Logic Works,
LLC.


12. Lender Optional
Conversion.


12.1. Lender
Conversions. Lender has the right at any time after the
Purchase Price Date until the Outstanding Balance has been paid in
full, including without limitation (a) until any Optional
Prepayment Date (even if Lender has received an Optional Prepayment
Notice) or at any time thereafter with respect to any amount that
is not prepaid, and (b) during or after any Fundamental Default
Measuring Period, at its election, to convert (each instance of
conversion is referred to herein as a “Lender Conversion”) all or any
part of the Outstanding Balance into shares (“Lender Conversion Shares”) of
fully paid and non-assessable common stock, $0.0001 par value per
share (“Common
Stock”), of Borrower as per the following conversion
formula: the number of Lender Conversion Shares equals the amount
being converted (the “Conversion Amount”) divided by the
Lender Conversion Price (as defined below). Conversion notices in
the form attached hereto as Exhibit A (each, a
“Lender Conversion
Notice”) may be effectively delivered to Borrower by
any method of Lender’s choice (including but not limited to
facsimile, email, mail, overnight courier, or personal delivery),
and all Lender Conversions shall be cashless and not require
further payment from Lender. Borrower shall deliver the Lender
Conversion Shares from any Lender Conversion to Lender in
accordance with Section 8.1 below.


12.2. Lender Conversion Price.
Subject to adjustment as set forth in this Note, the price at which
Lender has the right to convert all or any portion of the
Outstanding Balance into Common Stock is $0.009 per share of Common
Stock (the “Lender Conversion
Price”). However, in the event the Market
Capitalization falls below the Minimum Market Capitalization at any
time, then in such event (a) the Lender Conversion Price for all
Lender Conversions occurring after the first date of such
occurrence shall equal the lower of the Lender Conversion Price and
the Market Price as of any applicable date of Conversion, and (b)
the true-up provisions of Section 11 below shall apply to all
Lender Conversions that occur after the first date the Market
Capitalization falls below the Minimum Market Capitalization,
provided that all references to the “Redemption Notice”
in Section 11 shall be replaced with references to a “Lender
Conversion Notice” for purposes of this Section 3.2, all
references to “Redemption Conversion Shares” in Section
11 shall be replaced with references to “Lender Conversion
Shares” for purposes of this Section 3.2, and all references
to the “Redemption Conversion Price” in Section 11
shall be replaced with references to the “Lender Conversion
Price” for purposes of this Section 3.2.



 

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13. Defaults and
Remedies.


13.1. Defaults. The following are
events of default under this Note (each, an “Event of Default”):  Borrower fails
to pay any principal, interest, fees, charges, or any other amount
when due and payable hereunder; Borrower fails to deliver any
Lender Conversion Shares in accordance with the terms hereof;

Borrower fails to deliver any Redemption Conversion Shares (as
defined below) or True-Up Shares (as defined below) in accordance
with the terms hereof; 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; Borrower becomes insolvent or generally fails to pay, or
admits in writing its inability to pay, its debts as they become
due, subject to applicable grace periods, if any; Borrower makes a
general assignment for the benefit of creditors; Borrower files a
petition for relief under any bankruptcy, insolvency or similar law
(domestic or foreign); an involuntary bankruptcy proceeding is
commenced or filed against Borrower; Borrower defaults or otherwise
fails to observe or perform any covenant, obligation, condition or
agreement of Borrower contained herein or in any other Transaction
Document, other than those specifically set forth in this Section
4.1 and Section 4 of the Purchase Agreement; any representation,
warranty or other statement made or furnished by or on behalf of
Borrower to Lender herein, in any Transaction Document, or
otherwise in connection with the issuance of this Note is false,
incorrect, incomplete or misleading in any material respect when
made or furnished; the occurrence of a Fundamental Transaction
without Lender’s prior written consent;  Borrower fails
to maintain the Share Reserve as required under the Purchase
Agreement; Borrower effectuates a reverse split of its Common Stock
without twenty (20) Trading Days prior written notice to Lender;
any money judgment, writ or similar process is entered or filed
against Borrower or any subsidiary of Borrower or any of its
property or other assets for more than $100,000.00, and shall
remain unvacated, unbonded or unstayed for a period of twenty (20)
calendar days unless otherwise consented to by Lender; Borrower
fails to be DWAC Eligible;  Borrower fails to observe or
perform any covenant set forth in Section 4 of the Purchase
Agreement, or Borrower breaches any covenant or other term or
condition contained in any Other Agreements.



 

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13.2. Remedies. At any time and from
time to time after Lender becomes aware of the occurrence of any
Event of Default, Lender may accelerate this Note by written notice
to Borrower, with the Outstanding Balance becoming immediately due
and payable in cash at the Mandatory Default Amount.
Notwithstanding the foregoing, at any time following the occurrence
of any Event of Default, Lender may, at its option, elect to
increase the Outstanding Balance by applying the Default Effect
(subject to the limitation set forth below) via written notice to
Borrower without accelerating the Outstanding Balance, in which
event the Outstanding Balance shall be increased as of the date of
the occurrence of the applicable Event of Default pursuant to the
Default Effect, but the Outstanding Balance shall not be
immediately due and payable unless so declared by Lender (for the
avoidance of doubt, if Lender elects to apply the Default Effect
pursuant to this sentence, it shall reserve the right to declare
the Outstanding Balance immediately due and payable at any time and
no such election by Lender shall be deemed to be a waiver of its
right to declare the Outstanding Balance immediately due and
payable as set forth herein unless otherwise agreed to by Lender in
writing). Notwithstanding the foregoing, upon the occurrence of any
Event of Default described in clauses (d), (e), (f), (g) or (h) of
Section 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. Borrower
further acknowledges and agrees that Lender may continue making
Conversions following the entry of any judgment or arbitration
award in favor of Lender until such time that the entire judgment
amount or arbitration award is paid in full. Borrower agrees that
any judgment or arbitration award will, by its terms, be made
convertible into Common Stock. Any Conversions made following a
judgment or arbitration award shall be made pursuant to the
following formula: the amount of the judgment or arbitration award
being converted divided by 80% of the lowest Closing Bid Price in
the ten (10) Trading Days immediately preceding the date of
Conversion. In such event, Borrower and Lender agree that it is
their expectation that any such judgment amount or arbitration
award that is converted will tack back to the Purchase Price Date
for purposes of determining the holding period under Rule 144.
Borrower and Lender agree and stipulate that any judgment or
arbitration award entered against Borrower shall be reduced by
$1,000.00 and such $1,000.00 shall become the new Outstanding
Balance of this Note and this Note shall expressly survive such
judgment or arbitration award. Additionally, following the
occurrence of any Event of Default, Borrower may, at its option,
pay any Lender Conversion in cash instead of Lender Conversion
Shares by paying to Lender on or before the applicable Delivery
Date (as defined below) a cash amount equal to the number of Lender
Conversion Shares set forth in the applicable Lender Conversion
Notice multiplied by the highest intra-day trading price of the
Common Stock that occurs during the period beginning on the date
the applicable Event of Default occurred and ending on the date of
the applicable Lender Conversion Notice. In connection with
acceleration described herein, Lender need not provide, and
Borrower hereby waives, any presentment, demand, protest or other
notice of any kind, and Lender may immediately and without
expiration of any grace period enforce any and all of its rights
and remedies hereunder and all other remedies available to it under
applicable law. Such acceleration may be rescinded and annulled by
Lender at any time prior to payment hereunder and Lender shall have
all rights as a holder of the Note until such time, if any, as
Lender receives full payment pursuant to this Section 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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13.3. Fundamental
Default Remedies. Notwithstanding anything to the contrary
herein, in addition to all other remedies set forth herein, after
giving effect to the Lender Offset Right (as defined below), which
shall occur automatically upon the occurrence of any Fundamental
Default, the Fundamental Liquidated Damages Amount shall be added
to the Outstanding Balance upon Lender’s delivery to Borrower
of a notice (which notice Lender may deliver to Borrower at any
time following the occurrence of a Fundamental Default) setting
forth its election to declare a Fundamental Default and the
Fundamental Liquidated Damages Amount that will be added to the
Outstanding Balance.


13.4. Certain Additional Rights.
Notwithstanding anything to the contrary herein, in the event
Borrower fails to make any payment when due or fails to deliver any
Conversion Shares as and when required under this Note, then (a)
the Lender Conversion Price for all Lender Conversions occurring
after the date of such failure to pay shall equal the lower of the
Lender Conversion Price and the Market Price as of any applicable
date of Conversion, and (b) the true-up provisions of Section 11
below shall apply to all Lender Conversions that occur after the
date of such failure to pay, provided that all references to the
“Redemption Notice” in Section 11 shall be replaced
with references to a “Lender Conversion Notice” for
purposes of this Section 4.4, all references to “Redemption
Conversion Shares” in Section 11 shall be replaced with
references to “Lender Conversion Shares” for purposes
of this Section 4.4, and all references to the “Redemption
Conversion Price” in Section 11 shall be replaced with
references to the “Lender Conversion Price” 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 Redemption Amount on all future Redemption
Dates.


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



 

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15. Waiver. No waiver of any
provision of this Note shall be effective unless it is in the form
of a writing signed by the party granting the waiver. No waiver of
any provision or consent to any prohibited action shall constitute
a waiver of any other provision or consent to any other prohibited
action, whether or not similar. No waiver or consent shall
constitute a continuing waiver or consent or commit a party to
provide a waiver or consent in the future except to the extent
specifically set forth in writing.


16. Rights Upon Issuance of
Securities.


16.2. Adjustment of Lender Conversion Price
upon Subdivision or Combination of Common Stock. Without
limiting any provision hereof, if Borrower at any time on or after
the Effective Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares,
the Lender Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. Without limiting any
provision hereof, if Borrower at any time on or after the Effective
Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into
a smaller number of shares, the Lender Conversion Price in effect
immediately prior to such combination will be proportionately
increased. Any adjustment pursuant to this Section 7.2 shall become
effective immediately after the effective date of such subdivision
or combination. If any event requiring an adjustment under this
Section 7.2 occurs during the period that a Lender Conversion Price
is calculated hereunder, then the calculation of such Lender
Conversion Price shall be adjusted appropriately to reflect such
event.



 

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16.3. Other
Events. In the event that
Borrower (or any subsidiary) shall take any action to which the
provisions hereof are not strictly applicable, or, if applicable,
would not operate to protect Lender from dilution
or if any event occurs of the type
contemplated by the provisions of this
Section 7
but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with
equity features), then Borrower’s board of directors shall in
good faith determine and implement an appropriate adjustment in the
Lender Conversion Price so as to protect the rights of Lender,
provided that no such adjustment pursuant to this Section
7.3 will increase the Lender Conversion Price as
otherwise determined pursuant to this
Section 7, provided
further that if Lender does not accept such adjustments as
appropriately protecting its interests hereunder against such
dilution, then Borrower’s board of directors and Lender shall
agree, in good faith, upon an independent investment bank of
nationally recognized standing to make such appropriate
adjustments, whose determination shall be final and binding and
whose fees and expenses shall be borne by
Borrower.


17. Borrower
Redemptions.


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


17.2. Redemption
Conversions. Beginning on the date that is six (6) months
after the Purchase Price Date and continuing thereafter until the
Maturity Date (each date on which Lender delivers a Redemption
Notice, a “Redemption
Date”), Lender shall have the right, exercisable at
any time, to redeem a portion of the Note in any amount (the
“Redemption
Amount”) up to the Maximum Monthly Redemption Amount
by providing Borrower with a notice substantially in the form
attached hereto as Exhibit
B (each, a “Redemption
Notice”). For the avoidance of doubt, Lender may
submit to Borrower one (1) or more Redemption Notices in any given
calendar month, provided that the aggregate amount being redeemed
in any calendar month does not exceed the Maximum Monthly
Redemption Amount. Upon its receipt of a Redemption Notice,
Borrower shall pay the applicable Redemption Amount to Lender in
accordance with the provisions of this Section 8. Payments of each
Redemption Amount may be made (a) in cash, or (b) by converting
such Redemption Amount into shares of Common Stock
(“Redemption Conversion
Shares”, and together with the Lender Conversion
Shares, the “Conversion
Shares”) in accordance with this Section 8 (each, a
“Redemption
Conversion”) per the following formula: the number of
Redemption Conversion Shares equals the portion of the applicable
Redemption Amount being converted divided by the Redemption
Conversion Price, or (c) by any combination of the foregoing, so
long as the cash is delivered to Lender on the second Trading Day
immediately following the applicable Redemption Date and the
Redemption Conversion Shares are delivered to Lender on or before
the applicable Delivery Date. Notwithstanding the foregoing,
Borrower will not be entitled to elect a Redemption Conversion with
respect to any portion of any applicable Redemption Amount and
shall be required to pay the entire amount of such Redemption
Amount in cash if on the applicable Redemption Date there is an
Equity Conditions Failure, and such failure is not waived in
writing by Lender. Notwithstanding that failure to repay this Note
in full by the Maturity Date is an Event of Default, the Redemption
Dates shall continue after the Maturity Date pursuant to this
Section 8 until the Outstanding Balance is repaid in full,
provided that the aggregate Redemption Amounts in any given
calendar month following an Event of Default may exceed the Maximum
Monthly Redemption Amount.



 

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17.3. Allocation of Redemption
Amounts. Following its receipt of a Redemption Notice,
Borrower may either ratify Lender’s proposed allocation in
the applicable Redemption Notice or elect to change the allocation
by written notice to Lender by email or fax within twenty-four (24)
hours of its receipt of such Redemption Notice, so long as the sum
of the cash payments and the amount of Redemption Conversions equal
the applicable Redemption Amount. If Borrower fails to notify
Lender of its election to change the allocation prior to the
deadline set forth in the previous sentence, it shall be deemed to
have ratified and accepted the allocation set forth in the
applicable Redemption Notice prepared by Lender. Borrower
acknowledges and agrees that the amounts and calculations set forth
thereon are subject to correction or adjustment because of error,
mistake, or any adjustment resulting from an Event of Default or
other adjustment permitted under the Transaction Documents (an
“Adjustment”).
Furthermore, no error or mistake in the preparation of such
notices, or failure to apply any Adjustment that could have been
applied prior to the preparation of a Redemption Notice may be
deemed a waiver of Lender’s right to enforce the terms of any
Note, even if such error, mistake, or failure to include an
Adjustment arises from Lender’s own calculation. Borrower
shall deliver the Redemption Conversion Shares from any Redemption
Conversion to Lender in accordance with Section 8.1 below on or
before each applicable Delivery Date. If Borrower elects to pay a
Redemption Amount in cash, such payment must be delivered on the
second Trading Day immediately following the Redemption Date. If
Borrowers elects to make a payment in cash and fails to make such
payment by the required due date on two (2) separate occasions,
Borrower shall lose the right to make payments of Redemption
Amounts in cash in the future without Lender’s written
consent.


18. Method
of Conversion Share Delivery. On or before the close of
business on the third (3rd) Trading Day
following the Redemption Date or the third (3rd) Trading Day
following the date of delivery of a Lender Conversion Notice, as
applicable (the “Delivery
Date”), Borrower shall, provided it is DWAC Eligible
at such time, deliver or cause its transfer agent to deliver the
applicable Conversion Shares electronically via DWAC to the account
designated by Lender in the applicable Lender Conversion Notice or
Redemption Notice. If
Borrower is not DWAC Eligible, it shall deliver to Lender or its
broker (as designated in the Lender Conversion Notice or Redemption
Notice, as applicable), via reputable overnight courier, a
certificate representing the number of shares of Common Stock equal
to the number of Conversion Shares to which Lender shall be
entitled, registered in the name of Lender or its designee. For the
avoidance of doubt, Borrower has not met its obligation to deliver
Conversion Shares by the Delivery Date unless Lender or its broker,
as applicable, has actually received the certificate representing
the applicable Conversion Shares no later than the close of
business on the relevant Delivery Date pursuant to the terms set
forth above. Moreover, and notwithstanding anything to the contrary
herein or in any other Transaction Document, in the event Borrower
or its transfer agent refuses to deliver any Conversion Shares to
Lender on grounds that such issuance is in violation of Rule 144
under the Securities Act of 1933, as amended (“Rule 144”), Borrower shall deliver
or cause its transfer agent to deliver the applicable Conversion
Shares to Lender with a restricted securities legend, but otherwise
in accordance with the provisions of this Section 8.1. In
conjunction therewith, Borrower will also deliver to Lender a
written opinion from its counsel or its transfer agent’s
counsel opining as to why the issuance of the applicable Conversion
Shares violates Rule 144.


19. Conversion
Delays. If Borrower fails to deliver Conversion Shares or
True-Up Shares in accordance with the timeframes stated in Sections
8.1 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, 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).



 

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20. True-Up. On the date that is
twenty (20) Trading Days (a “True-Up Date”) from each date that
the Redemption Conversion Shares delivered by Borrower to Lender
become Free Trading, there shall be a true-up where Borrower shall
deliver to Lender additional Redemption Conversion Shares
(“True-Up
Shares”) if the Redemption Conversion Price as of the
True-Up Date is less than the Redemption Conversion Price used in
the applicable Redemption Notice. In such event, Borrower shall
deliver to Lender within three (3) Trading Days of the True-Up Date
(the “True-Up Share Delivery
Date”) a number of True-Up Shares equal to the
difference between the number of Redemption Conversion Shares that
would have been delivered to Lender on the True-Up Date based on
the Redemption Conversion Price as of the True-Up Date and the
number of Redemption Conversion Shares originally delivered to
Lender pursuant to the applicable Redemption Notice. For the
avoidance of doubt, if the Redemption Conversion Price as of the
True-Up Date is higher than the Redemption Conversion Price set
forth in the applicable Redemption Notice, then Borrower shall have
no obligation to deliver True-Up Shares to Lender, nor shall Lender
have any obligation to return any excess Redemption Conversion
Shares to Borrower under any circumstance. For the convenience of
Borrower only, Lender may, in its sole discretion, deliver to
Borrower a notice (pursuant to a form of notice substantially in
the form attached hereto as Exhibit C) informing Borrower
of the number of True-Up Shares it is obligated to deliver to
Lender as of any given True-Up Date, provided that if Lender does
not deliver any such notice, Borrower shall not be relieved of its
obligation to deliver True-Up Shares pursuant to this Section 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).


21. Ownership Limitation.
Notwithstanding anything to the contrary contained in this Note or
the other Transaction Documents, if at any time Lender shall or
would be issued shares of Common Stock under any of the Transaction
Documents, but such issuance would cause Lender (together with its
affiliates) to beneficially own a number of shares exceeding 4.99%
of the number of shares of Common Stock outstanding on such date
(including for such purpose the shares of Common Stock issuable
upon such issuance) (the “Maximum Percentage”), then
Borrower must not issue to Lender shares of Common Stock which
would exceed the Maximum Percentage. For purposes of this section,
beneficial ownership of Common Stock will be determined pursuant to
Section 13(d) of the 1934 Act. The shares of Common Stock issuable
to Lender that would cause the Maximum Percentage to be exceeded
are referred to herein as the “Ownership Limitation Shares”. Borrower will reserve the
Ownership Limitation Shares for the exclusive benefit of Lender.
From time to time, Lender may notify Borrower in writing of the
number of the Ownership Limitation Shares that may be issued to
Lender without causing Lender to exceed the Maximum Percentage.
Upon receipt of such notice, Borrower shall be unconditionally
obligated to immediately issue such designated shares to Lender,
with a corresponding reduction in the number of the Ownership
Limitation Shares. Notwithstanding the forgoing, the term
“4.99%” above shall be replaced with
“9.99%” at such time as the Market Capitalization is
less than $10,000,000.00. 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.



 

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22. Payment of Collection Costs. If
this Note is placed in the hands of an attorney for collection or
enforcement prior to commencing
arbitration or legal proceedings, or is collected or
enforced through any arbitration or legal proceeding, or Lender
otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note, then Borrower shall pay the
costs incurred by Lender for such collection, enforcement or action
including, without limitation, attorneys’ fees and
disbursements. Borrower also agrees to pay for any costs, fees or
charges of its transfer agent that are charged to Lender pursuant
to any Conversion or issuance of shares pursuant to this
Note.


23. Opinion of Counsel. In the
event that an opinion of counsel is needed for any matter related
to this Note, Lender has the right to have any such opinion
provided by its counsel. Lender also has the right to have any such
opinion provided by Borrower’s counsel.


24. Governing Law; Venue.
This Note shall be construed and
enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Note
shall be governed by, the internal laws of the State of Utah,
without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Utah or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Utah. The provisions set forth
in the Purchase Agreement to
determine the proper venue for any disputes are incorporated herein
by this reference.


25. Resolution of
Disputes.


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


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


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



 

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28. Assignments. Borrower may not
assign this Note without the prior written consent of Lender. This
Note and any shares of Common Stock issued upon conversion of this
Note may be offered, sold, assigned or transferred by Lender
without the consent of Borrower.


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


30. Time is of the Essence. Time is
expressly made of the essence with respect to each and every
provision of this Note and the documents and instruments entered
into in connection herewith.


31. Notices. Whenever notice is
required to be given under this Note, unless otherwise provided
herein, such notice shall be given in accordance with the
subsection of the Purchase Agreement titled
“Notices.”


32. Liquidated Damages. Lender and
Borrower agree that in the event Borrower fails to comply with any
of the terms or provisions of this Note, Lender’s damages
would be uncertain and difficult (if not impossible) to accurately
estimate because of the parties’ inability to predict future
interest rates, future share prices, future trading volumes and
other relevant factors. Accordingly, Lender and Borrower agree that
any fees, balance adjustments, Default Interest or other charges
assessed under this Note are not penalties but instead are intended
by the parties to be, and shall be deemed, liquidated damages
(under Lender’s and Borrower’s expectations that any
such liquidated damages will tack back to the Purchase Price Date
for purposes of determining the holding period under Rule
144).


33. Waiver of Jury Trial. EACH OF
LENDER AND BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH
PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR
THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS
WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY
ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR
REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY
IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO
DEMAND TRIAL BY JURY.


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



 

26







 






35. Severability. If any part of
this Note is construed to be in violation of any law, such part
shall be modified to achieve the objective of Borrower and Lender
to the fullest extent permitted by law and the balance of this Note
shall remain in full force and effect.


36. Par Value Adjustments. If at
any time Lender delivers a Conversion Notice to Borrower and as of
such date the Conversion Price would be less than the Par Value,
then, as liquidated damages, Company must pay to Lender the Par
Value Adjustment Amount in cash within one (1) Trading Day of
delivery of the applicable Conversion Notice (a “Par Value Adjustment”). If
Borrower does not deliver the Par Value Adjustment Amount as
required, then such amount shall automatically be added to the
Outstanding Balance. The number of Conversion Shares deliverable
pursuant to any relevant Conversion Notice following a Par Value
Adjustment shall be equal to (a) the Conversion Amount, divided by
(b) the Par Value. In the event of a Par Value Adjustment, Lender
will use a Conversion Notice in substantially the form attached
hereto as Exhibit
E.


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


 


 


 




 

27








 






 


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


	
 

	


BORROWER:



Growlife, Inc.


 


 


By:
/s/ Marco Hegyi


Name:
Marco Hegyi


Title:
Chief Executive Officer









 



ACKNOWLEDGED, ACCEPTED AND AGREED:


LENDER:



Chicago Venture Partners, L.P.


 



By: Chicago Venture Management, L.L.C.,


its
General Partner


 


By:
CVM, Inc., its Manager


 


 


By: John M.
Fife


      John
M. Fife, President


 


 


 


 


 




[Signature Page to Secured Convertible
Promissory Note]


 

28








 










 



ATTACHMENT 1



DEFINITIONS


 


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


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


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


A3. “Bloomberg”
means Bloomberg L.P. (or if that service is not then reporting the
relevant information regarding the Common Stock, a comparable
reporting service of national reputation selected by Lender and
reasonably satisfactory to Borrower).


A4. “Closing
Bid Price” and
“Closing Trade
Price” means the last
closing bid price and last closing trade price, respectively, for
the Common Stock on its principal market, as reported by Bloomberg,
or, if its principal market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing
trade price (as the case may be) then the last bid price or last
trade price, respectively, of the Common Stock prior to
4:00:00 p.m., New York time, as reported by Bloomberg, or, if
its principal market is not the principal securities exchange or
trading market for the Common Stock, the last closing bid price or
last trade price, respectively, of the Common Stock on the
principal securities exchange or trading market where the Common
Stock is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price or last trade
price, respectively, of the Common Stock in the over-the-counter
market on the electronic bulletin board for the Common Stock as
reported by Bloomberg, or, if no closing bid price or last trade
price, respectively, is reported for the Common Stock by Bloomberg,
the average of the bid prices, or the ask prices, respectively, of
any market makers for the Common Stock as reported by OTC Markets
Group, Inc., and any successor thereto. If the Closing Bid Price or
the Closing Trade Price cannot be calculated for the Common Stock
on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Trade Price (as the case may be) of the Common
Stock on such date shall be the fair market value as mutually
determined by Lender and Borrower. If Lender and Borrower are
unable to agree upon the fair market value of the Common Stock,
then such dispute shall be resolved in accordance with the
procedures in Section 16.2. All such
determinations shall be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar
transaction during such period.


A5. “Conversion”
means a Lender Conversion under Section 3 or a
Redemption Conversion under Section 8.


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


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



 

29







 






 


A8. “Deemed
Issuance” means an
issuance of Common Stock that shall be deemed to have occurred on
the latest possible permitted date pursuant to the terms hereof in
the event Borrower fails to deliver Conversion Shares as and when
required pursuant to Section 8.1 of the
Note. For the avoidance of doubt, if Borrower has elected or is
deemed under Section 8.3
to have elected to pay a Redemption
Amount in Redemption Conversion Shares and fails to deliver such
Redemption Conversion Shares, such failure shall be considered a
Deemed Issuance hereunder even if an Equity Conditions Failure
exists at that time or other relevant date of
determination.


A9. “Default
Effect” means multiplying
the Conversion Eligible Outstanding Balance as of the date the
applicable Event of Default occurred by (a) 15% for each occurrence
of any Major Default, or (b) 5% for each occurrence of any Minor
Default, and then adding the resulting product to the Outstanding
Balance as of the date the applicable Event of Default occurred,
with the sum of the foregoing then becoming the Outstanding Balance
under this Note as of the date the applicable Event of Default
occurred; provided that the Default Effect may only be applied
three (3) times hereunder with respect to Major Defaults and three
(3) times hereunder with respect to Minor Defaults; and provided
further that the Default Effect shall not apply to any Event of
Default pursuant to Section 4.1(b)
hereof.


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


A11. “DTC
Eligible” means, with
respect to the Common Stock, that such Common Stock is eligible to
be deposited in certificate form at the DTC, cleared and converted
into electronic shares by the DTC and held in the name of the
clearing firm servicing Lender’s brokerage firm for the
benefit of Lender.


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


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


A14. “DWAC
Eligible” means that (a)
Borrower’s Common Stock is eligible at DTC for full services
pursuant to DTC’s operational arrangements, including without
limitation transfer through DTC’s DWAC system, (b) Borrower
has been approved (without revocation) by DTC’s underwriting
department, (c) Borrower’s transfer agent is approved as an
agent in the DTC/FAST Program, (d) the Conversion Shares are
otherwise eligible for delivery via DWAC; (e) Borrower has
previously delivered all Conversion Shares to Lender via DWAC; and
(f) Borrower’s transfer agent does not have a policy
prohibiting or limiting delivery of the Conversion Shares via
DWAC.


A15. “Equity
Conditions Failure” means
that any of the following conditions has not been satisfied during
any applicable Equity Conditions Measuring Period (as defined
below): (a) with respect to the applicable date of
determination all of the Conversion Shares would be freely tradable
under Rule 144 or without the need for registration under any
applicable federal or state securities laws (in each case,
disregarding any limitation on conversion of this Note);
(b) on each day during the period beginning one month prior to
the applicable date of determination and ending on and including
the applicable date of determination (the
“Equity
Conditions Measuring Period”), the Common Stock is listed or designated
for quotation (as applicable) on any of NYSE, NASDAQ, OTCQX, OTCQB,
or OTC Pink Current Information (each, an
“Eligible
Market”) and shall not
have been suspended from trading on any such Eligible Market (other
than suspensions of not more than two (2) Trading Days and
occurring prior to the applicable date of determination due to
business announcements by Borrower); (c) on each day during
the Equity Conditions Measuring Period, Borrower shall have
delivered all shares of Common Stock issuable upon conversion of
this Note on a timely basis as set forth in
Section 8.1
hereof and all other shares of capital
stock required to be delivered by Borrower on a timely basis as set
forth in the other Transaction Documents; (d) any shares of
Common Stock to be issued in connection with the event requiring
determination may be issued in full without violating
Section 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 Redemption Date, the average and median
daily dollar volume of the Common Stock on its principal market for
the previous twenty (20) Trading Days shall be greater than
$50,000.00; (l) the ten (10) day average VWAP of the Common Stock
is greater than $0.005, and (m) the Common Stock shall be DWAC
Eligible as of each applicable Redemption Date or other date of
determination.



 

30







 






 


A16. “Excluded
Securities” means any
shares of Common Stock, options, or convertible securities issued
or issuable in connection with any Approved Stock Plan;
provided
that the option term, exercise
price or similar provisions of any issuances pursuant to such
Approved Stock Plan are not amended, modified or changed on or
after the Purchase Price Date.


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


A18. “Fundamental
Default” means that
Borrower either fails to pay the entire Outstanding Balance to
Lender on or before the Maturity Date or fails to pay the Mandatory
Default Amount within three (3) Trading Days of the date Lender
delivers any notice of acceleration to Borrower pursuant to
Section 4.2 of this Note.


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


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


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


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


A23. “Fundamental
Transaction” means that
(a) (i) Borrower or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, consolidate or
merge with or into (whether or not Borrower or any of its
subsidiaries is the surviving corporation) any other person or
entity, or (ii) Borrower or any of its subsidiaries shall,
directly or indirectly, in one or more related transactions, sell,
lease, license, assign, transfer, convey or otherwise dispose of
all or substantially all of its respective properties or assets to
any other person or entity, or (iii) Borrower or any of its
subsidiaries shall, directly or indirectly, in one or more related
transactions, allow any other person or entity to make a purchase,
tender or exchange offer that is accepted by the holders of more
than 50% of the outstanding shares of voting stock of Borrower (not
including any shares of voting stock of Borrower held by the person
or persons making or party to, or associated or affiliated with the
persons or entities making or party to, such purchase, tender or
exchange offer), or (iv) Borrower or any of its subsidiaries
shall, directly or indirectly, in one or more related transactions,
consummate a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with any other
person or entity whereby such other person or entity acquires more
than 50% of the outstanding shares of voting stock of Borrower (not
including any shares of voting stock of Borrower held by the other
persons or entities making or party to, or associated or affiliated
with the other persons or entities making or party to, such stock
or share purchase agreement or other business combination), or
(v) Borrower or any of its subsidiaries shall, directly or
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.



 

31







 






 


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


A25. “Major
Default” means any Event
of Default occurring under Sections 4.1(a),
4.1(c), 4.1(l),
or 4.1(p) of this Note.


A26. “Mandatory
Default Amount” means the
greater of (a) the Outstanding Balance (including all Tranches,
both Conversion Eligible Tranches and Subsequent Tranches that have
not yet become Conversion Eligible Tranches) divided by the
Redemption Conversion Price on the date the Mandatory Default
Amount is demanded, multiplied by the VWAP on the date the
Mandatory Default Amount is demanded, or (b) the Outstanding
Balance following the application of the Default
Effect.


A27. “Market
Capitalization” means a
number equal to (a) the average VWAP of the Common Stock for the
immediately preceding fifteen (15) Trading Days, multiplied by (b)
the aggregate number of outstanding shares of Common Stock as
reported on Borrower’s most recently filed Form 10-Q or Form
10-K.


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


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


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


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


A32. “OID”
means an original issue discount.


A33. “Optional
Prepayment Liquidated Damages Amount” means an amount equal to the difference
between (a) the product of (i) the number of shares of Common Stock
obtained by dividing (1) the applicable Optional Prepayment Amount
by (2) the Lender Conversion Price as of the date Borrower
delivered the applicable Optional Prepayment Amount to Lender,
multiplied by (ii) the Closing Trade Price of the Common Stock on
the date Borrower delivered the applicable Optional Prepayment
Amount to Lender, and (b) the applicable Optional Prepayment Amount
paid by Borrower to Lender. For illustration purposes only, if the
applicable Optional Prepayment Amount were $50,000.00, the Lender
Conversion Price as of the date the Optional Prepayment Amount was
paid to Lender was equal to $0.75 per share of Common Stock, and
the Closing Trade Price of a share of Common Stock as of such date
was equal to $1.00, then the Optional Prepayment Liquidated Damages
Amount would equal $16,666.67 computed as follows: (a) $66,666.67
(calculated as (i) (1) $50,000.00 divided by (2) $0.75 multiplied
by (ii) $1.00) minus (b) $50,000.00.


A34. “Other
Agreements” means,
collectively, (a) all existing and future agreements and
instruments between, among or by Borrower (or an affiliate), on the
one hand, and Lender (or an affiliate), on the other hand, and (b)
any financing agreement or a material agreement that affects
Borrower’s ongoing business operations.


A35. “Outstanding
Balance” means as of any
date of determination, the Purchase Price, as reduced or increased,
as the case may be, pursuant to the terms hereof for payment,
Conversion, offset, or otherwise, plus the OID, the Transaction
Expense Amount, accrued but unpaid interest, collection and
enforcements costs (including attorneys’ fees) incurred by
Lender, transfer, stamp, issuance and similar taxes and fees
related to Conversions, and any other fees or charges (including
without limitation Conversion Delay Late Fees) incurred under this
Note.



 

32







 






 


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


A37. “Par
Value Adjustment Amount”
means an amount calculated as follows: (a) the number of Conversion
Shares deliverable under a particular Conversion Notice (prior to
any Par Value Adjustment) multiplied by the Par Value, less (b) the
Conversion Amount (prior to any Par Value Adjustment), plus (c)
$500.00. For illustration purposes only, if for a given Conversion,
the Conversion Amount was $20,000.00, the Conversion Price was
$0.0008 and the Par Value was $0.001 then the Par Value Adjustment
Amount would be $5,500.00 (25,000,000 Conversion Shares
($20,000.00/$0.0008) multiplied by the Par Value of $0.001
($25,000.00) minus the Conversion Amount of $20,000.00 plus $500.00
equals $5,500.00).


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


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


A40. “VWAP”
means the volume weighted average price of the Common stock on the
principal market for a particular Trading Day or set of Trading
Days, as the case may be, as reported by
Bloomberg.


 




 

33








 











EXHIBIT A


Chicago
Venture Partners, L.P.


303
East Wacker Drive, Suite 1040


Chicago,
Illinois 60601


 

Growlife,
Inc.                                                                                                                                           Date:
__________________


Attn:
Marco Hegyi, CEO


500
Union Street, Suite 810


Seattle,
Washington 98101


 



LENDER CONVERSION NOTICE


 


The
above-captioned Lender hereby gives notice to Growlife, Inc., a
Delaware corporation (the “Borrower”), pursuant to that
certain Secured Convertible Promissory Note made by Borrower in
favor of Lender on January 9, 2017 (the “Note”), that Lender elects to
convert the portion of the Note balance set forth below into fully
paid and non-assessable shares of Common Stock of Borrower as of
the date of conversion specified below. Said conversion shall be
based on the Lender Conversion Price set forth below. In the event
of a conflict between this Lender Conversion Notice and the Note,
the Note shall govern, or, in the alternative, at the election of
Lender in its sole discretion, Lender may provide a new form of
Lender Conversion Notice to conform to the Note. Capitalized terms
used in this notice without definition shall have the meanings
given to them in the Note.




A.

Date of
Conversion: 








B.

Lender Conversion
#: 








C.

Conversion
Amount: 








D.

Lender Conversion
Price: _______________








E.

Lender Conversion
Shares: _______________ (C divided by D)








F.

Remaining
Outstanding Balance of Note: ____________*








G.

Remaining Balance
of Secured Investor Notes and Investor Notes:
____________*








H.

Outstanding Balance
of Note Net of Balance of Secured Investor Notes and Investor
Notes: ____________* (F minus G)






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


 


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


 


	


Conversion Amount

	


Tranche No.


	
 

	
 


	
 

	
 


	
 

	
 







 


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


 



 

34







 






 



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

Broker:                                                      
Address:                      

DTC#:                                                      

Account
#:                                                      

Account
Name:                                                       


 


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


_____________________________________


_____________________________________


_____________________________________


 


Sincerely,


 



Lender:


 



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


 




 

35








 











EXHIBIT B


Growlife,
Inc.



500 Union Street, Suite 810



Seattle, Washington 98101


 


 


 


Chicago
Venture Partners,
L.P.                                                                                                                            
Date: _____________


Attn:
John Fife



303 East Wacker Drive, Suite 1040



Chicago, Illinois 60601


REDEMPTION
NOTICE


The
above-captioned Borrower hereby gives notice to Chicago Venture
Partners, L.P., a Utah limited partnership (the “Lender”), pursuant to that certain
Secured Convertible Promissory Note made by Borrower in favor of
Lender on January 9, 2017 (the “Note”), of certain Borrower
elections and certifications related to payment of the Redemption
Amount of $_________________ due on ___________, 201_ (the
“Redemption
Date”). In the event of a conflict between this
Redemption Notice and the Note, the Note shall govern, or, in the
alternative, at the election of Lender in its sole discretion,
Lender may provide a new form of Redemption Notice to conform to
the Note. Capitalized terms used in this notice without definition
shall have the meanings given to them in the Note.



REDEMPTION CONVERSION AND CERTIFICATIONS



AS OF THE REDEMPTION DATE


 


A. REDEMPTION
CONVERSION




A.

Redemption Date:
____________, 201_








B.

Redemption
Amount: 








C.

Portion of
Redemption Amount to be Paid in Cash: ____________








D.

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








E.

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








F.

Redemption
Conversion Shares: _______________ (D divided by E)








G.

Remaining
Outstanding Balance of Note: ____________ *








H.

Remaining Balance
of Secured Investor Notes and Investor Notes:
____________*








I.

Outstanding Balance
of Note Net of Balance of Secured Investor Notes and Investor
Notes: ____________ (G minus H)*






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


 


B. EQUITY
CONDITIONS CERTIFICATION




1.

Market
Capitalization:________________







 

36







 






(Check
One)




2.

_________ Borrower
herby certifies that no Equity Conditions Failure exists as of the
Redemption 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:






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




 

37








 










 



EXHIBIT C


 


Chicago
Venture Partners, L.P.


303
East Wacker Drive, Suite 1040


Chicago,
Illinois 60601


 

Growlife,
Inc.                                                                                                                                           Date:
__________________


Attn:
Marco Hegyi, CEO



500 Union Street, Suite 810



Seattle, Washington 98101


TRUE-UP
NOTICE


The
above-captioned Lender hereby gives notice to Growlife, Inc., a
Delaware corporation (the “Borrower”), pursuant to that
certain Secured Convertible Promissory Note made by Borrower in
favor of Lender on January 9, 2017 (the “Note”), of True-Up Conversion
Shares related to _____________, 201_ (the “Redemption Date”). In the event of
a conflict between this True-Up Notice and the Note, the Note shall
govern, or, in the alternative, at the election of Lender in its
sole discretion, Lender may provide a new form of True-Up Notice to
conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the
Note.



TRUE-UP CONVERSION SHARES
AND CERTIFICATIONS



AS OF THE TRUE-UP DATE


 




1.

TRUE-UP
CONVERSION SHARES








A.

Redemption Date:
____________, 201_








B.

True-Up Date:
____________, 201_








C.

Portion of
Redemption Amount Converted into Common
Stock:                                                                                                                       
_____________








D.

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








E.

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








F.

Redemption
Conversion Shares Delivered: ________________








G.

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








2.

EQUITY
CONDITIONS CERTIFICATION (Section to be completed by
Borrower)








A.

Market
Capitalization:________________







 

38







 






(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:






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


 


 


 


 




 

39








 










 



EXHIBIT D


 


Growlife,
Inc.



500 Union Street, Suite 810



Seattle, Washington 98101


 


 


Chicago
Venture Partners,
L.P.                                                                                                                                          
Date: _____________


Attn:
John Fife



303 East Wacker Drive, Suite 1040



Chicago, Illinois 60601


 



NOTICE OF EXERCISE



OF BORROWER OFFSET RIGHT


 


The
above-captioned Borrower hereby gives notice to Chicago Venture
Partners, L.P., a Utah limited partnership (the “Lender”), pursuant to that certain
Secured Convertible Promissory Note made by Borrower in favor of
Lender on January 9, 2017 (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:                                                    












 

40








 











EXHIBIT E


Chicago
Venture Partners, L.P.


303
East Wacker Drive, Suite 1040


Chicago,
Illinois 60601


 

Growlife,
Inc.                                                                                                                                           Date:
__________________


Attn:
Marco Hegyi, CEO


500
Union Street, Suite 810


Seattle,
Washington 98101


 



LENDER CONVERSION NOTICE


 


The
above-captioned Lender hereby gives notice to Growlife, Inc., a
Delaware corporation (the “Borrower”), pursuant to that
certain Secured Convertible Promissory Note made by Borrower in
favor of Lender on January 9, 2017 (the “Note”), that Lender elects to
convert the portion of the Note balance set forth below into fully
paid and non-assessable shares of Common Stock of Borrower as of
the date of conversion specified below. Said conversion shall be
based on the Conversion Price set forth below. In the event of a
conflict between this Conversion Notice and the Note, the Note
shall govern, or, in the alternative, at the election of Lender in
its sole discretion, Lender may provide a new form of Conversion
Notice to conform to the Note. Capitalized terms used in this
notice without definition shall have the meanings given to them in
the Note.




A.

Date of
Conversion: 








B.

Lender Conversion
#: 








C.

Conversion
Amount: 








D.

Par Value
Adjustment Amount: _______________








E.

Lender Conversion
Price: _______________ (Par Value)








F.

Lender Conversion
Shares: _______________ (C divided by E)








G.

Remaining
Outstanding Balance of Note: ____________*








H.

Remaining Balance
of Secured Investor Notes and Investor Notes:
____________*








I.

Outstanding Balance
of Note Net of Balance of Secured Investor Notes and Investor
Notes: ____________* (F minus G)






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


 


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


 


	


Conversion Amount

	


Tranche No.


	
 

	
 


	
 

	
 


	
 

	
 







 


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


 



 

41







 






 



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

Broker:                                                      
Address:                      

DTC#:                                                      

Account
#:                                                      

Account
Name:                                                       


 


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


_____________________________________


_____________________________________


_____________________________________


 


 


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


 



 

42







 






 



Exhibit B


 



Membership Interest Pledge Agreement


 


This
MEMBERSHIP INTEREST PLEDGE AGREEMENT (this “Agreement”) is entered into as of
January 9, 2017 (the “Effective Date”) by and between
Growlife, Inc., a
Delaware corporation (“Company”), and Chicago Venture Partners, L.P., a
Utah limited partnership (the “Pledgor”).


A.           Pursuant
to the terms and conditions of that certain Securities Purchase
Agreement of even date herewith by and between the Pledgor and
Company (the “Purchase
Agreement”), the Pledgor issued to Company a series of
five (5) Secured Investor Notes, each in the principal amount of
$100,000.00 (collectively, the “Notes”). All capitalized terms
used but not otherwise defined herein shall have the meanings
ascribed thereto in the Purchase Agreement.


B.           The
Pledgor has agreed to pledge a 60% membership interest in Typenex
Medical, LLC, an Illinois limited liability company
(“Typenex
Medical”), to secure the Pledgor’s performance
of its obligations under all of the Notes.


C.           Company
is willing to accept the Notes only upon receiving the
Pledgor’s pledge of such membership interest as set forth in
this Agreement.


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


37. Grant
of Security Interest. The Pledgor hereby pledges to Company
as collateral and security for the Secured Obligations (as defined
in Section 2) a 60% membership interest in Typenex Medical (the
“Pledged Interest”). Company shall have the
right to exercise the rights and remedies set forth herein and in
the Notes if a Payment Default (as defined in the Notes) shall
occur. Such Pledged Interest, together with any additions,
replacements, accessions or substitutes therefor or proceeds
thereof, are hereinafter referred to collectively as the
“Collateral”.


38. Secured Obligations. During the
term hereof, the Collateral shall secure the performance by the
Pledgor of all of its payment obligations under each and every one
of the Notes (the “Secured
Obligations”).


39. Perfection of Security
Interests. The Pledgor hereby authorizes Company to file and
record, as the Pledgor’s attorney-in-fact, any financing
statements, any carbon, photographic or other reproduction of a
financing statement, or other paper that may be necessary in order
to create, preserve, perfect or validate any security interest or
to enable Company to exercise and enforce its rights hereunder with
respect to any of the Collateral.


40. Representations and Warranties of the
Pledgor. The Pledgor represents and warrants hereby to
Company as follows with respect to the Pledged
Interest:


40.1.  Title.
The Pledgor is the sole owner of the Pledged Interest, having good
and marketable title thereto; provided, however, that the Pledged
Interest may be subject to other liens and encumbrances. The
Pledged Interest is subject to the applicable transfer restrictions
which may be imposed under the operating agreement of Typenex
Medical or other governing documents of Typenex Medical or
applicable federal and state securities laws.



 

43







 






 


40.2. Binding
Effect. This Agreement constitutes a legal, valid and
binding obligation of the Pledgor enforceable in accordance with
its terms (except as the enforcement thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, and similar laws now or hereafter in
effect).


41. Preservation of the Value of the
Collateral. The Pledgor shall pay all taxes, charges, and
assessments against the Collateral and do all acts necessary to
preserve and maintain the value thereof.


42. Collection of Distributions and
Interest. During the term of this Agreement and so long as
no Payment Default has occurred and is continuing under any of the
Notes, the Pledgor is authorized to collect all distributions,
interest payments, and other amounts that may be, or may become,
due on any of the Collateral.


43. Voting Rights. Unless and until
Company has rightfully exercised its rights under this Agreement to
foreclose its security interest in the Collateral, the Pledgor
shall have the right to exercise any voting rights evidenced by, or
relating to, the Collateral.


44. Company Not a Member or
Partner. The pledge of the Pledged Interest hereunder does
not, in and of itself, constitute an assignment of any rights
or obligations of
the Pledgor as a member in or of Typenex Medical. Company is not,
in any manner or respect, a member, partner or joint venturer in or
with Typenex Medical.


45. Remedies upon Default. Upon the
occurrence and during the continuance of a Payment Default under
any of the Notes (“Event of
Default”), Company may exercise in respect of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of
a secured party on default under applicable law (irrespective of
whether such applies to the affected items of Collateral). The
Pledgor agrees that, to the extent notice of sale shall be required
by law, at least fifteen (15) calendar days’ notice to the
Pledgor of the time and place of any public sale or the time after
which a private sale is to be made shall constitute reasonable
notification.


46. Termination of Agreement and Security
Interests. Company covenants and agrees that on the earlier of (i) the date on which all
of the Notes are repaid in full and
(ii) at Pledgor’s option, the date that is six (6) months and
three (3) days following the Effective Date, or such later date as
specified by the Pledgor in its sole discretion (the
“Termination
Date”), this Agreement
and all security interests granted hereunder with respect to the
Collateral shall terminate (and all such security interests shall
be deemed released). At the Termination Date, Pledgor, as
Company’s attorney-in-fact,
shall be authorized to terminate all UCC Financing Statements (Form
UCC1) (each a “Financing
Statement”) filed
hereunder by way of filing a UCC Financing Statement
Amendment (Form UCC3) with respect to each such Financing
Statement, and to take all other action (including making all
filings) necessary to reflect that this Agreement and the security
interests granted hereunder have terminated. Any portion of the
Collateral held by or on behalf of Company shall be returned to the
Pledgor within five (5) business days of the Termination Date and
Company shall timely execute and deliver to the Pledgor, and file
and/or record, as necessary, all such documents as the Pledgor
shall reasonably request to evidence the termination of this
Agreement and all security interests granted hereunder and the
return of the Collateral to the Pledgor. Notwithstanding any other
provision contained herein, all provisions of this Agreement that
by their nature are intended to survive the termination of this
Agreement shall survive the termination of this
Agreement.


47. Substitution of Collateral.
Notwithstanding anything to the contrary herein, the Pledgor may,
in the Pledgor’s sole discretion, add additional collateral
to the Collateral and/or may substitute Collateral as the Pledgor
deems fit, provided that the fair market value of the substituted
Collateral may not be less than the aggregate principal balance of
the Notes as of the date of any such substitution. Pledgor, as
Company’s attorney-in-fact, shall be authorized to file a UCC
Financing Statement Amendment (Form UCC3) with respect to each
applicable Financing Statement to reflect such substitution of
Collateral. Any portion of the Collateral replaced by the
substituted Collateral that is held by or on behalf of Company
shall be returned to the Pledgor within five (5) business days of
Pledgor’s written notice of substitution, and Company shall
timely execute and deliver to the Pledgor, and file and/or record,
as necessary, all such documents as the Pledgor shall reasonably
request to evidence such substitution of Collateral.



 

44







 






 


48. Application of Collateral
Proceeds. Upon the occurrence and during the continuance of
an Event of Default, any cash held by Company as Collateral and all
cash proceeds received by Company in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Company of its remedies as a
secured creditor as provided in Section 9 shall be paid to and
applied as follows:


48.1. First,
to the payment of reasonable costs and expenses, including all
amounts expended to preserve the value of the Collateral, of
foreclosure or suit, if any, and of such sale and the exercise of
any other rights or remedies, and of all proper fees, expenses,
liability and advances, including reasonable legal expenses and
attorneys’ fees, incurred or made hereunder by
Company;


48.2. Second,
to the payment to Company of the amount then owing or unpaid on the
Notes (to be applied first to accrued interest and second to
outstanding principal); and


48.3. Third,
to the payment of the surplus, if any, to the Pledgor, its assigns,
or to whosoever may be lawfully entitled to receive the
same.


49. Expenses. The Pledgor agrees to
pay and reimburse Company upon demand for all reasonable costs and
expenses (including, without limitation, reasonable
attorneys’ fees and expenses) that Company may incur in
connection with (a) the custody, use or preservation of, or the
sale of, collection from or other realization upon, any of the
Collateral, (b) the exercise or enforcement of any rights or
remedies granted hereunder, under any of the Notes or otherwise
available to it (whether at law, in equity or otherwise), or (c)
the failure by the Pledgor to perform or observe any of the
provisions hereof.


50. Governing Law; Venue.
This Agreement shall be construed and
enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this
Agreement shall be governed by, the internal laws of the State
of Utah, without giving effect
to any choice of law or conflict of law provision or rule (whether
of the State of Utah or any
other jurisdictions) that would cause the application of the laws
of any jurisdictions 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.


51. Waiver of Jury Trial. EACH
PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT
MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE
RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER
EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING
UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR
REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT IT IS
KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY
JURY.



 

45







 






 


52. Purchase Agreement; Arbitration of
Disputes. By executing this Agreement, each party agrees to
be bound by the terms, conditions and general provisions of the
Purchase Agreement and the other Transaction Documents (as defined
in the Purchase Agreement), including without limitation the
Arbitration Provisions set forth as an Exhibit to the Purchase
Agreement.


53. Waivers and
Amendments.


53.1. Non-waiver.
No failure or delay on either party’s part in exercising any
right hereunder shall operate as a waiver thereof or of any other
right nor shall any single or partial exercise of any such right
preclude any other further exercise thereof or of any other
right.


53.2. Amendments
and Waivers. This Agreement may not be amended or modified,
nor may any of its terms be waived, except by written instruments
signed by the Pledgor and Company; provided, however, that the Pledgor may
amend this Agreement to add additional Secured Investor Notes or
Investor Notes (as such terms are defined in the Purchase
Agreement) to the definition of “Notes” in the Recitals
above without Company’s consent thereto and in such event it
shall be sufficient to amend this Agreement for the Pledgor to give
written notice of such amendment to Company. For the avoidance of
doubt, in the event the Pledgor amends this Agreement as permitted
in the preceding sentence, any such Secured Investor Notes or
Investor Notes that are added to the definition of
“Notes” set forth in the recitals above shall
automatically become Notes for all purposes hereunder and shall be
secured by the Collateral pursuant to the terms and conditions set
forth herein from the date of such amendment. Each waiver or
consent under any provision hereof shall be effective only in the
specific instances for the purpose for which given.


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


55. Headings. Section and
subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of
this Agreement or be given any substantive effect.


56. Attorneys’ Fees. Without
limiting any other provision contained herein, in the event of any
action at law or in equity to enforce or interpret the terms of
this Agreement, the parties agree that the party who is awarded the
most money (which, for the avoidance of doubt, shall be determined
without regard to any statutory fines, penalties, fees, or other
charges awarded to any party) shall be deemed the prevailing party
for all purposes and shall therefore be entitled to an additional
award of the full amount of the attorneys’ fees and expenses
paid by such prevailing party in connection with the litigation
and/or dispute without reduction or apportionment based upon the
individual claims or defenses giving rise to the fees and expenses.
Nothing herein shall restrict or impair a court’s power to
award fees and expenses for frivolous or bad faith
pleading.


57. Construction and
Interpretation. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement and each party
has been represented by its or its own legal counsel. In the event
an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.


58. Successor and Assigns;
Assignment. The terms and provisions of this Agreement shall
be binding upon, and, subject to the provisions of this Section,
the benefits thereof shall insure to, the parties hereto and their
respective successors and assigns; provided, however, that the rights,
interests or obligations of Company hereunder may not be assigned,
by operation of law or otherwise, in whole or in part, by Company
without the prior written consent of the Pledgor, which consent may
be withheld at the sole discretion of the Pledgor; provided, however, that in the case of
a merger, sale of substantially all of Company’s assets or
other corporate reorganization, the Pledgor shall not unreasonably
withhold, condition or delay such consent.



 

46







 






 


59. Severability.                                 If
any part of this Agreement is construed to be in violation of any
law, such part shall be modified to achieve the objective of the
parties to the fullest extent permitted by law and the balance of
this Agreement shall remain in full force and effect.


60. Entire Agreement. This Agreement, together with the Purchase
Agreement and Notes and all
other Transaction Documents, constitute and contain the entire
agreement between Company and
the Pledgor and supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter
hereof.


61. Counterparts; Facsimile
Execution. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same Agreement.
Delivery of an executed counterpart of this Agreement by facsimile
or email shall be equally as effective as delivery of an original
executed counterpart of this Agreement.


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




 

47








 






 


IN
WITNESS WHEREOF, the Pledgor and Company have caused this Agreement
to be duly executed and delivered by their officers thereunto, as
applicable, duly authorized as of the date first written
above.


	
 

	


PLEDGOR:


 



Chicago Venture Partners, L.P.


 


By:
Chicago Venture Management, L.L.C.,


       its
General Partner


 


       By: CVM, Inc., its
Manager


 


 


       By:
/s/ John M. Fife


             
John M. Fife, President


 


 


 


COMPANY:


 



Growlife, Inc.


 


 

By: /s/ Marco
Hegyi


Printed
Name: Marco Hegyi


Title:
Chief Executive Officer

 












 



 

48







 






 


Exhibit
D


 



THIS NOTE (AS DEFINED BELOW) MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE ALIENATED OR
ENCUMBERED WITHOUT THE PRIOR WRITTEN CONSENT OF INVESTOR (AS
DEFINED BELOW). THIS NOTE IS SUBJECT TO A RIGHT OF OFFSET IN FAVOR
OF INVESTOR UPON THE OCCURRENCE OF CERTAIN EVENTS AS SET FORTH IN
MORE DETAIL IN SECTION 6 BELOW.


 


	

 



$100,000.00

	


State of Utah



______________







 


FORM OF
SECURED INVESTOR NOTE #1


 


FOR VALUE RECEIVED, Chicago Venture Partners, L.P., a
Utah limited partnership (“Investor”), hereby promises to pay
to Growlife, Inc., a
Delaware corporation (“Company”, and together with
Investor, the “Parties”), the principal sum of
$100,000.00 together with all accrued and unpaid interest thereon,
fees incurred or other amounts owing hereunder, all as set forth
below in this Secured Investor Note #1 (this “Note”). This Note is issued
pursuant to that certain Securities Purchase Agreement of even date
herewith, entered into by and between Investor and Company (as the
same may be amended from time to time, the “Purchase Agreement”), pursuant to
which Company issued to Investor that certain Secured Convertible
Promissory Note in the principal amount of $1,105,000.00 (as the
same may be amended from time to time, the “Company Note”), convertible into
shares of Company’s Common Stock. All capitalized terms used
but not otherwise defined herein shall have the meanings ascribed
thereto in the Purchase Agreement.


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


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


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


65. Security. The payment of this
Note (and all the other Secured Investor Notes (as defined in the
Purchase Agreement)) shall be secured by that certain Membership
Interest Pledge Agreement of even date herewith (as the same may be
amended from time to time, the “Pledge Agreement”) executed by
Investor, as Pledgor, in favor of Company, as Secured Party,
whereby Investor has pledged as collateral its 60% membership
interest in Typenex Medical, LLC, an Illinois limited liability
company, as more specifically set forth in the Pledge Agreement.
All the terms and conditions of the Pledge Agreement are hereby
incorporated into and made a part of this Note.



 

49







 






 


66. Termination
of Security Interest. As set forth in the Pledge Agreement,
Company covenants and agrees that upon
the earlier of (i) the date on which all of the Secured Investor
Notes are repaid in full and (ii) at Investor’s election, the date that is six (6) months
and three (3) days following the execution of the Pledge Agreement,
or such later date as specified by Investor in its sole discretion (the
“Termination
Date”), the Pledge
Agreement and all security interests granted thereunder with
respect to the Collateral (as defined in the Pledge Agreement)
shall terminate, and Investor,
as Company’s
attorney-in-fact, shall be authorized to terminate all UCC
Financing Statements (Form UCC1) (each, a
“Financing
Statement”) filed under
the Pledge Agreement by way of filing a UCC Financing
Statement Amendment (Form UCC3) with respect to each such Financing
Statement, and to take all
other actions (including making all filings) necessary to reflect
that the Pledge Agreement and the security interests granted
thereunder have terminated. For
avoidance of doubt, after the Termination Date, there shall be no
collateral securing this Note.


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


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


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


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



 

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


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


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


70. 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.


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


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



 

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


73.1. the
provisions of this Section 12 shall govern and
control;


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


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


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


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


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


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


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


77. Severability. If any part of
this Note is construed to be in violation of any law, such part
shall be modified to achieve the objective of the Parties to the
fullest extent permitted by law and the balance of this Note shall
remain in full force and effect.


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


79. Amendments and Waivers;
Remedies. No failure or delay on the part of either Party
hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power
or remedy. The remedies provided for herein are cumulative and are
not exclusive of any remedies that may be available to either Party
hereto at law, in equity or otherwise. Any amendment, supplement or
modification of or to any provision of this Note, any waiver of any
provision of this Note, and any consent to any departure by either
Party from the terms of any provision of this Note, shall be
effective (i) only if it is made or given in writing and signed by
Investor and Company and (ii) only in the specific instance and for
the specific purpose for which made or given.


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



 

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81. Final Note. This Note, together
with the other Transaction Documents, contains the complete
understanding and agreement of Investor and Company and supersedes
all prior representations, warranties, agreements, arrangements,
understandings, and negotiations of Investor and Company with
respect to the subject matter of the Transaction Documents. THIS
NOTE, TOGETHER WITH THE OTHER TRANSACTION DOCUMENTS, REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF ANY ALLEGED PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.


82. Waiver of Jury Trial. EACH OF
INVESTOR AND COMPANY IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH
PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR
THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS
WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY
ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR
REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY
IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO
DEMAND TRIAL BY JURY.


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53








 






 


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


 


	
 

	


INVESTOR:



 



Chicago Venture Partners, L.P.


 


By:
Chicago Venture Management, L.L.C.,


        its
General Partner


 


        By: CVM, Inc.,
its Manager


 


 


        By: /s/ John M. Fife


   
           John M. Fife,
President









 


 


 


 


ACKNOWLEDGED,
ACCEPTED AND AGREED:



COMPANY:



Growlife, Inc.


 


By: /s/
Marco Hegyi


Name:
Marco Hegyi


Title:
Chief Executive Officer


 



 

54







 






 


Exhibit
E


 



THIS NOTE (AS DEFINED BELOW) MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE ALIENATED OR
ENCUMBERED WITHOUT THE PRIOR WRITTEN CONSENT OF INVESTOR (AS
DEFINED BELOW). THIS NOTE IS SUBJECT TO A RIGHT OF OFFSET IN FAVOR
OF INVESTOR UPON THE OCCURRENCE OF CERTAIN EVENTS AS SET FORTH IN
MORE DETAIL IN SECTION 6 BELOW.


	

 



$100,000.00

	


State of Utah



_______________







 


FORM OF
INVESTOR NOTE #6


 


FOR VALUE RECEIVED, Chicago Venture Partners, L.P., a
Utah limited partnership (“Investor”), hereby promises to pay
to Growlife, Inc., a
Delaware corporation (“Company”, and together with
Investor, the “Parties”), the principal sum of
$100,000.00 together with all accrued and unpaid interest thereon,
fees incurred or other amounts owing hereunder, all as set forth
below in this Investor Note #6 (this “Note”). This Note is issued
pursuant to that certain Securities Purchase Agreement of even date
herewith, entered into by and between Investor and Company (as the
same may be amended from time to time, the “Purchase Agreement”), pursuant to
which Company issued to Investor that certain Secured Convertible
Promissory Note in the principal amount of $1,105,000.00 (as the
same may be amended from time to time, the “Company Note”) convertible into
shares of Company’s Common Stock. All capitalized terms used
but not otherwise defined herein shall have the meanings ascribed
thereto in the Purchase Agreement.


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


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


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


86. Security;
Collateral. Investor
may, in its sole discretion, designate
collateral (the “Collateral”) as it deems fit, as security for
Investor’s obligations
hereunder, which Collateral may be, but is not required to be, real
property, a letter of credit with a financial institution
determined by Investor in its
sole discretion, or pledged membership interests. Upon
Investor’s designation of
Collateral, each of Investor and Company shall timely execute any and all documents
necessary or advisable in order to properly grant a security
interest upon the Collateral in favor of Company.



 

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


88. Right of Offset.
Notwithstanding anything to the contrary herein or in any of the
other Transaction Documents, in the event (i) of the occurrence of
any Event of Default (as defined in the Company Note) under the
Company Note or any other note issued by Company in connection with
the Purchase Agreement, (ii) of a breach of any material term,
condition, representation, warranty, covenant or obligation of
Company under any Transaction Document, or (iii) Company sells,
transfers, assigns, pledges or hypothecates this Note, or attempts
to do any of the foregoing, whether voluntarily or involuntarily,
Investor shall be entitled to deduct and offset any amount owing by
Company under the Company Note from any amount owed by Investor
under this Note (the “Investor Offset Right”), provided
that if any of the foregoing events occur and Investor has not yet
exercised the Investor Offset Right, the Investor Offset Right
shall be automatically exercised on the date that is thirty (30)
days prior to the Investor Note Maturity Date (an
“Automatic
Offset”). Other than with respect to an Automatic
Offset, Investor may only elect to exercise the Investor Offset
Right by delivering to Company an offset notice in a form
substantially similar to Exhibit D to the Company Note
or another form of Investor’s choosing. In the event that Investor’s exercise of the Investor Offset Right
under this Section 6
results in the full satisfaction
of Investor’s obligations
under this Note, then Company shall return this Note to Investor
for cancellation or, in the event this
Note has been lost, stolen or destroyed, Company
shall provide Investor
with a lost note affidavit in a form
reasonably acceptable to Investor.


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


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


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


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



 

56







 






 


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


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


91. 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.


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


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


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


94.1. the
provisions of this Section 12 shall govern and
control;


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


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



 

57







 






 


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


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


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


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


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


98. Severability. If any part of
this Note is construed to be in violation of any law, such part
shall be modified to achieve the objective of the Parties to the
fullest extent permitted by law and the balance of this Note shall
remain in full force and effect.


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


100. Amendments
and Waivers; Remedies. No failure or delay on the part of
either Party hereto in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other
right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be
available to either Party hereto at law, in equity or otherwise.
Any amendment, supplement or modification of or to any provision of
this Note, any waiver of any provision of this Note, and any
consent to any departure by either Party from the terms of any
provision of this Note, shall be effective (i) only if it is made
or given in writing and signed by Investor and Company and (ii)
only in the specific instance and for the specific purpose for
which made or given.


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


102. Final
Note. This Note, together with the other Transaction
Documents, contains the complete understanding and agreement of
Investor and Company and supersedes all prior representations,
warranties, agreements, arrangements, understandings, and
negotiations of Investor and Company with respect to the subject
matter of the Transaction Documents. THIS NOTE, TOGETHER WITH THE
OTHER TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.


103. Waiver
of Jury Trial. EACH OF INVESTOR AND COMPANY IRREVOCABLY
WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY
RELATED TO THIS NOTE OR THE RELATIONSHIPS OF THE PARTIES HERETO BE
TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND
A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE,
LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES
THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH
PARTY’S RIGHT TO DEMAND TRIAL BY JURY.


[Remainder
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58








 






 


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


 


	
 

	


INVESTOR:



Chicago Venture Partners, L.P.



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









 


 


ACKNOWLEDGED,
ACCEPTED AND AGREED:



COMPANY:



Growlife, Inc.


 


By: /s/
Marco Hegyi


Name:
Marco Hegyi


Title:
Chief Executive Officer


 


 


 


 



 

59







 







Exhibit F



Security Agreement


 


This Security Agreement (this
“Agreement”),
dated as of January 9, 2017, is executed by Growlife, Inc., a Delaware
corporation (“Debtor”), in favor of Chicago Venture Partners, L.P., a
Utah limited partnership (“Secured Party”).


A.           Debtor
issued to Secured Party a certain Secured Convertible Promissory
Note of even date herewith, as may be amended from time to time, in
the original face amount of $1,105,000.00 (the “Note”).


B.           In
order to induce Secured Party to extend the credit evidenced by the
Note, Debtor has agreed to enter into this Agreement and to grant
Secured Party a security interest in the Collateral (as defined
below).


NOW,
THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Debtor hereby agrees with Secured Party as
follows:


104. Definitions
and Interpretation. When used in this Agreement, the
following terms have the following respective
meanings:


“Collateral” means the property
described in Schedule
A hereto, and all replacements, proceeds, products, and
accessions thereof.


“Intellectual Property” means all
patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses (software or otherwise), information, know-how,
inventions, discoveries, published and unpublished works of
authorship, processes, any and all other proprietary rights, and
all rights corresponding to all of the foregoing throughout the
world, now owned and existing or hereafter arising, created or
acquired.


“Lien” shall mean, with respect to
any property, any security interest, mortgage, pledge, lien, claim,
charge or other encumbrance in, of, or on such property or the
income therefrom, including, without limitation, the interest of a
vendor or lessor under a conditional sale agreement, capital lease
or other title retention agreement, or any agreement to provide any
of the foregoing, and the filing of any financing statement or
similar instrument under the UCC or comparable law of any
jurisdiction.


“Obligations” means (a) all loans,
advances, future advances, debts, liabilities and obligations,
howsoever arising, owed by Debtor to Secured Party or any affiliate
of Secured Party of every kind and description, now existing or
hereafter arising, whether created by the Note, this Agreement, the
Purchase Agreement (as defined in the Note), any other Transaction
Documents (as defined in the Purchase Agreement), any other
agreement between Debtor and Secured Party (or any affiliate of
Secured Party) or any other promissory note issued by Debtor in
favor of Secured Party (or any affiliate of Secured Party), any
modification or amendment to any of the foregoing, guaranty of
payment or other contract or by a quasi-contract, tort, statute or
other operation of law, whether incurred or owed directly to
Secured Party or as an affiliate of Secured Party or acquired by
Secured Party or an affiliate of Secured Party by purchase, pledge
or otherwise, (b) all costs and expenses, including
attorneys’ fees, incurred by Secured Party or any affiliate
of Secured Party in connection with the Note or in connection with
the collection or enforcement of any portion of the indebtedness,
liabilities or obligations described in the foregoing clause (a),
(c) the payment of all other sums, with interest thereon, advanced
in accordance herewith to protect the security of this Agreement,
and (d) the performance of the covenants and agreements of Debtor
contained in this Agreement and all other Transaction
Documents.



 

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“Permitted Liens” means (a) Liens
for taxes not yet delinquent or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate
reserves have been established, and (b) Liens in favor of Secured
Party under this Agreement or arising under the other Transaction
Documents.


“UCC” means the Uniform Commercial
Code as in effect in the state whose laws would govern the security
interest in, including without limitation the perfection thereof,
and foreclosure of the applicable Collateral.


Unless
otherwise defined herein, all terms defined in the UCC have the
respective meanings given to those terms in the UCC.


105. Grant
of Security Interest. As security for the Obligations,
Debtor hereby pledges to Secured Party and grants to Secured Party
a security interest in all right, title, interest, claims and
demands of Debtor in and to the Collateral.


106. Authorization
to File Financing Statements. Debtor hereby irrevocably
authorizes Secured Party at any time and from time to time to file
in any filing office in any Uniform Commercial Code jurisdiction or
other jurisdiction of Debtor or its subsidiaries (including without
limitation Nevada, Delaware and Washington) any financing
statements or documents having a similar effect and amendments
thereto that provide any other information required by the Uniform
Commercial Code (or similar law of any non-United States
jurisdiction, if applicable) of such state or jurisdiction for the
sufficiency or filing office acceptance of any financing statement
or amendment, including whether Debtor is an organization, the type
of organization and any organization identification number issued
to Debtor. Debtor agrees to furnish any such information to Secured
Party promptly upon Secured Party’s request.


107. General
Representations and Warranties. Debtor represents and
warrants to Secured Party that (a) Debtor is the owner of the
Collateral and that no other person has any right, title, claim or
interest (by way of Lien or otherwise) in, against or to the
Collateral, other than Permitted Liens, (b) upon the filing of
UCC-1 financing statements with the Delaware Secretary of State
and/or the Washington Secretary of State, Secured Party shall have
a perfected security interest in the Collateral to the extent that
a security interest in the Collateral can be perfected by such
filing, except for Permitted Liens; (c) Debtor has received at
least a reasonably equivalent value in exchange for entering into
this Agreement, (d) Debtor is not insolvent, as defined in any
applicable state or federal statute, nor will Debtor be rendered
insolvent by the execution and delivery of this Agreement to
Secured Party; and (e) as such, this Agreement is a valid and
binding obligation of Debtor. Notwithstanding the foregoing, any
sale, assignment, hypothecation or other transfer of the Note or a
portion of the Note where in return Secured Party receives
consideration, the value of the consideration received by Secured
Party will offset any amounts owed by Debtor as of the date the
consideration is received by Secured Party.


108. Additional
Covenants. Debtor hereby agrees:


108.1. to
perform all acts that may be necessary to maintain, preserve,
protect and perfect in the Collateral, the Lien granted to Secured
Party therein, and the perfection and priority of such
Lien;



 

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108.2. to
procure, execute (including endorse, as applicable), and deliver
from time to time any endorsements, assignments, financing
statements, certificates of title, and all other instruments,
documents and/or writings reasonably deemed necessary or
appropriate by Secured Party to perfect, maintain and protect
Secured Party’s Lien hereunder and the priority
thereof;


108.3. to
provide at least fifteen (15) days prior written notice to Secured
Party of any of the following events: (a) any changes or
alterations of Debtor’s name, (b) any changes with respect to
Debtor’s address or principal place of business, and (c) the
formation of any subsidiaries of Debtor;


108.4. upon
the occurrence of an Event of Default (as defined in the Note)
under the Note and, thereafter, at Secured Party’s request,
to endorse (up to the outstanding amount under such promissory
notes at the time of Secured Party’s request), assign and
deliver any promissory notes included in the Collateral to Secured
Party, accompanied by such instruments of transfer or assignment
duly executed in blank as Secured Party may from time to time
specify;


108.5. to
the extent the Collateral is not delivered to Secured Party
pursuant to this Agreement, to keep the Collateral at the principal
office of Debtor (unless otherwise agreed to by Secured Party in
writing), and not to relocate the Collateral to any other locations
without the prior written consent of Secured Party;


108.6. not
to sell or otherwise dispose, or offer to sell or otherwise
dispose, of the Collateral or any interest therein (other than
inventory in the ordinary course of business);


108.7. not
to, directly or indirectly, allow, grant or suffer to exist any
Lien upon any of the Collateral, other than Permitted
Liens;


108.8. not
to grant any license or sublicense under any of its Intellectual
Property, or enter into any other agreement with respect to any of
its Intellectual Property, except in the ordinary course of
Debtor’s business;


108.9. to
the extent commercially reasonable and in Debtor’s good faith
business judgment: (a) to file and prosecute diligently any patent,
trademark or service mark applications pending as of the date
hereof or hereafter until all Obligations shall have been paid in
full, (b) to make application on unpatented but patentable
inventions and on trademarks and service marks, (c) to preserve and
maintain all rights in all of its Intellectual Property, and (d) to
ensure that all of its Intellectual Property is and remains
enforceable. Any and all costs and expenses incurred in connection
with each of Debtor’s obligations under this Section 5.9
shall be borne by Debtor. Debtor shall not knowingly and
unreasonably abandon any right to file a patent, trademark or
service mark application, or abandon any pending patent
application, or any other of its Intellectual Property, without the
prior written consent of Secured Party except for Intellectual
Property that Debtor determines, in the exercise of its good faith
business judgment, is not or is no longer material to its
business;


108.10. upon
the request of Secured Party at any time or from time to time, and
at the sole cost and expense (including, without limitation,
reasonable attorneys’ fees) of Debtor, Debtor shall take all
actions and execute and deliver any and all instruments,
agreements, assignments, certificates and/or documents reasonably
required by Secured Party to collaterally assign any and all of
Debtor’s foreign patent, copyright and trademark
registrations and applications now owned or hereafter acquired to
and in favor of Secured Party; and


108.11. at
any time amounts paid by Secured Party under the Transaction
Documents are used to purchase Collateral, Debtor shall perform all
acts that may be necessary, and otherwise fully cooperate with
Secured Party, to cause (a) any such amounts paid by Secured Party
to be disbursed directly to the sellers of any such Collateral, (b)
all certificates of title pertaining to such Collateral (as
applicable) to be properly filed and reissued to reflect Secured
Party’s Lien on such Collateral, and (c) all such reissued
certificates of title to be delivered to and held by Secured
Party.



 

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109. Authorized Action by Secured
Party. Debtor hereby irrevocably appoints Secured Party as
its attorney-in-fact (which appointment is coupled with an
interest) and agrees that Secured Party may perform (but Secured
Party shall not be obligated to and shall incur no liability to
Debtor or any third party for failure so to do) any act which
Debtor is obligated by this Agreement to perform, and to exercise
such rights and powers as Debtor might exercise with respect to the
Collateral, including the right to (a) collect by legal proceedings
or otherwise and endorse, receive and receipt for all dividends,
interest, payments, proceeds and other sums and property now or
hereafter payable on or on account of the Collateral; (b) enter
into any extension, reorganization, deposit, merger, consolidation
or other agreement pertaining to, or deposit, surrender, accept,
hold or apply other property in exchange for the Collateral; (c)
make any compromise or settlement, and take any action Secured
Party deems advisable, with respect to the Collateral, including
without limitation bringing a suit in Secured Party’s own
name to enforce any Intellectual Property; (d) endorse Debtor’s name on all applications,
documents, papers and instruments necessary or desirable for
Secured Party in the use of any Intellectual Property; (e) grant or
issue any exclusive or non-exclusive license under any Intellectual
Property to any person or entity; (f) assign, pledge, sell, convey
or otherwise transfer title in or dispose of any Intellectual
Property to any person or entity; (g) cause the Commissioner of Patents and Trademarks, United
States Patent and Trademark Office (or as appropriate, such
equivalent agency in foreign countries) to issue any and all
patents and related rights and applications to Secured Party as the
assignee of Debtor’s entire interest therein; (h) file a copy
of this Agreement with any governmental agency, body or authority,
including without limitation the United States Patent and Trademark
Office and, if applicable, the United States Copyright Office or
Library of Congress, at the sole cost and expense of Debtor;
(i) insure, process and preserve the Collateral; (j) pay any
indebtedness of Debtor relating to the Collateral; (k) execute and
file UCC financing statements and other documents, certificates,
instruments and agreements with respect to the Collateral or as
otherwise required or permitted hereunder; and (l) take any and all
appropriate action and execute any and all documents and
instruments that may be necessary or useful to accomplish the
purposes of this Agreement; provided, however, that Secured Party
shall not exercise any such powers granted pursuant to clauses (a)
through (g) above prior to the occurrence of an Event of Default
and shall only exercise such powers during the continuance of an
Event of Default. The powers conferred on Secured Party under this
Section 6 are solely to protect its interests in the Collateral and
shall not impose any duty upon it to exercise any such powers.
Secured Party shall be accountable only for the amounts that it
actually receives as a result of the exercise of such powers, and
neither Secured Party nor any of its stockholders, directors,
officers, managers, employees or agents shall be responsible to
Debtor for any act or failure to act, except with respect to
Secured Party’s own gross negligence or willful misconduct.
Nothing in this Section 6 shall be deemed an authorization for
Debtor to take any action that it is otherwise expressly prohibited
from undertaking by way of other provision of this
Agreement.


110. Default
and Remedies.


110.1. Default.
Debtor shall be deemed in default under this Agreement upon the
occurrence of an Event of Default.



 

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110.2. Remedies. Upon the occurrence
of any such Event of Default, Secured Party shall have the rights
of a secured creditor under the UCC, all rights granted by this
Agreement and by law, including, without limiting the foregoing,
(a) the right to require Debtor to assemble the Collateral and make
it available to Secured Party at a place to be designated by
Secured Party, and (b) the right to take possession of the
Collateral, and for that purpose Secured Party may enter upon
premises on which the Collateral may be situated and remove the
Collateral therefrom. Debtor hereby agrees that fifteen (15)
days’ notice of a public sale of any Collateral or notice of
the date after which a private sale of any Collateral may take
place is reasonable. In addition, Debtor waives any and all rights
that it may have to a judicial hearing in advance of the
enforcement of any of Secured Party’s rights and remedies
hereunder, including, without limitation, Secured Party’s
right following an Event of Default to take immediate possession of
Collateral and to exercise Secured Party’s rights and
remedies with respect thereto. Secured Party may also have a
receiver appointed to take charge of all or any portion of the
Collateral and to exercise all rights of Secured Party under this
Agreement. Secured Party may exercise any of its rights under this
Section 7.2 without demand or notice of any kind. The remedies in
this Agreement, including without limitation this Section 7.2, are
in addition to, not in limitation of, any other right, power,
privilege, or remedy, either in law, in equity, or otherwise, to
which Secured Party may be entitled. No failure or delay on the
part of Secured party in exercising any right, power, or remedy
will operate as a waiver thereof, nor will any single or partial
exercise thereof preclude any other or further exercise thereof or
the exercise of any other right hereunder. All of Secured
Party’s rights and remedies, whether evidenced by this
Agreement or by any other agreement, instrument or document shall
be cumulative and may be exercised singularly or
concurrently.


110.3. Standards
for Exercising Rights and Remedies. To the extent that
applicable law imposes duties on Secured Party to exercise remedies
in a commercially reasonable manner, Debtor acknowledges and agrees
that it is not commercially unreasonable for Secured Party (a) to
fail to incur expenses reasonably deemed significant by Secured
Party to prepare Collateral for disposition, (b) to fail to obtain
third party consents for access to Collateral to be disposed of, or
to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or
disposition of Collateral to be collected or disposed of, (c) to
fail to exercise collection remedies against account debtors or
other persons obligated on Collateral or to fail to remove liens or
encumbrances on or any adverse claims against Collateral, (d) to
exercise collection remedies against account debtors and other
persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (e) to
advertise dispositions of Collateral through publications or media
of general circulation, whether or not the Collateral is of a
specialized nature, (f) to contact other persons, whether or not in
the same business as Debtor, for expressions of interest in
acquiring all or any portion of the Collateral, (g) to hire one or
more professional auctioneers to assist in the disposition of
Collateral, whether or not the Collateral is of a specialized
nature, (h) to dispose of Collateral by utilizing Internet sites
that provide for the auction of assets of the types included in the
Collateral or that have the reasonable capability of doing so, or
that match buyers and sellers of assets, (i) to dispose of assets
in wholesale rather than retail markets, (j) to disclaim
disposition warranties, (k) to purchase insurance or credit
enhancements to insure Secured Party against risks of loss,
collection or disposition of Collateral or to provide to Secured
Party a guaranteed return from the collection or disposition of
Collateral, or (l) to the extent deemed appropriate by Secured
Party, to obtain the services of other brokers, investment bankers,
consultants and other professionals to assist Secured Party in the
collection or disposition of any of the Collateral. Debtor
acknowledges that the purpose of this Section is to provide
non-exhaustive indications of what actions or omissions by Secured
Party would fulfill Secured Party’s duties under the UCC in
Secured Party’s exercise of remedies against the Collateral
and that other actions or omissions by Secured Party shall not be
deemed to fail to fulfill such duties solely on account of not
being indicated in this Section. Without limitation upon the
foregoing, nothing contained in this Section shall be construed to
grant any rights to Debtor or to impose any duties on Secured Party
that would not have been granted or imposed by this Agreement or by
applicable law in the absence of this Section.



 

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110.4. Marshalling.
Secured Party shall not be required to marshal any present or
future Collateral for, or other assurances of payment of, the
Obligations or to resort to such Collateral or other assurances of
payment in any particular order, and all of its rights and remedies
hereunder and in respect of such Collateral and other assurances of
payment shall be cumulative and in addition to all other rights and
remedies, however existing or arising. To the extent that it
lawfully may, Debtor hereby agrees that it will not invoke any law
relating to the marshalling of Collateral which might cause delay
in or impede the enforcement of Secured Party’s rights and
remedies under this Agreement or under any other instrument
creating or evidencing any of the Obligations or under which any of
the Obligations is outstanding or by which any of the Obligations
is secured or payment thereof is otherwise assured, and, to the
extent that it lawfully may, Debtor hereby irrevocably waives the
benefits of all such laws.


110.5. Application
of Collateral Proceeds. The proceeds and/or avails of the
Collateral, or any part thereof, and the proceeds and the avails of
any remedy hereunder (as well as any other amounts of any kind held
by Secured Party at the time of, or received by Secured Party
after, the occurrence of an Event of Default) shall be paid to and
applied as follows:


(a) First, to the
payment of reasonable costs and expenses, including all amounts
expended to preserve the value of the Collateral, of foreclosure or
suit, if any, and of such sale and the exercise of any other rights
or remedies, and of all proper fees, expenses, liability and
advances, including reasonable legal expenses and attorneys’
fees, incurred or made hereunder by Secured Party;


(b) Second, to the
payment to Secured Party of the amount then owing or unpaid on the
Note (to be applied first to accrued interest and second to
outstanding principal) and all amounts owed under any of the other
Transaction Documents or other documents included within the
Obligations; and


(c) Third, to the
payment of the surplus, if any, to Debtor, its successors and
assigns, or to whosoever may be lawfully entitled to receive the
same.


In the
absence of final payment and satisfaction in full of all of the
Obligations, Debtor shall remain liable for any
deficiency.


111. Miscellaneous.


111.1. Notices.
Any notice required or permitted hereunder shall be given in the
manner provided in the subsection titled “Notices” in
the Purchase Agreement, the terms of which are incorporated herein
by this reference.


111.2. Non-waiver.
No failure or delay on Secured Party’s part in exercising any
right hereunder shall operate as a waiver thereof or of any other
right nor shall any single or partial exercise of any such right
preclude any other further exercise thereof or of any other
right.


111.3. Amendments
and Waivers. This Agreement may not be amended or modified,
nor may any of its terms be waived, except by written instruments
signed by Debtor and Secured Party. Each waiver or consent under
any provision hereof shall be effective only in the specific
instances for the purpose for which given.


111.4. Assignment.
This Agreement shall be binding upon and inure to the benefit of
Secured Party and Debtor and their respective successors and
assigns; provided, however,
that Debtor may not sell, assign or delegate rights and obligations
hereunder without the prior written consent of Secured
Party.


111.5. Cumulative
Rights, etc. The rights, powers and remedies of Secured
Party under this Agreement shall be in addition to all rights,
powers and remedies given to Secured Party by virtue of any
applicable law, rule or regulation of any governmental authority,
or the Note, all of which rights, powers, and remedies shall be
cumulative and may be exercised successively or concurrently
without impairing Secured Party’s rights hereunder. Debtor
waives any right to require Secured Party to proceed against any
person or entity or to exhaust any Collateral or to pursue any
remedy in Secured Party’s power.



 

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111.6. Partial
Invalidity. If any part of this Agreement is construed to be
in violation of any law, such part shall be modified to achieve the
objective of the parties to the fullest extent permitted and the
balance of this Agreement shall remain in full force and
effect.


111.7. Expenses.
Debtor shall pay on demand all reasonable fees and expenses,
including reasonable attorneys’ fees and expenses, incurred
by Secured Party in connection with the custody, preservation or
sale of, or other realization on, any of the Collateral or the
enforcement or attempt to enforce any of the Obligations which are
not performed as and when required by this Agreement.


111.8. Entire
Agreement. This Agreement, the Note and the other
Transaction Documents, taken together, constitute and contain the
entire agreement of Debtor and Secured Party with respect to this
particular matter and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications
between the parties, whether written or oral, respecting the
subject matter hereof.


111.9. Governing
Law; Venue. Except as otherwise specifically set forth
herein, the parties expressly agree that this Agreement shall be
governed solely by the laws of the State of Utah, without giving
effect to the principles thereof regarding the conflict of laws;
provided, however, that
enforcement of Secured Party’s rights and remedies against
the Collateral as provided herein will be subject to the UCC.
The provisions set forth in the
Purchase Agreement to determine the
proper venue for any disputes are incorporated herein by this
reference.


111.10. Waiver
of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY
WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO
THIS AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED
BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A
TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE,
LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES
THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND
TRIAL BY JURY.


111.11. Purchase
Agreement; Arbitration of Disputes. By executing this
Agreement, each party agrees to be bound by the terms, conditions
and general provisions of the Purchase Agreement and the other
Transaction Documents, including without limitation the Arbitration
Provisions (as defined in the Purchase Agreement) set forth as an
exhibit to the Purchase Agreement.


111.12. Counterparts.
This Agreement may be executed in any number of counterparts, each
of which shall be an original and all of which together shall
constitute one instrument. Any electronic copy of a party’s
executed counterpart will be deemed to be an executed
original.


111.13. Time
of the Essence. Time is expressly made of the essence with
respect to each and every provision of this Agreement.


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




 

66








 






 


IN
WITNESS WHEREOF, Secured Party and Debtor have caused this
Agreement to be executed as of the day and year first above
written.


 


 


SECURED
PARTY:


 



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


 


 


 


DEBTOR:


 



Growlife, Inc.


 


 



By: 


/s/ Marco Hegyi






Name:
Marco Hegyi


Title:
Chief Executive Officer


 




[Signature
Page to Security Agreement]

67








 






 


SCHEDULE
A


TO
SECURITY AGREEMENT


 


All
right, title, interest, claims and demands of Debtor in and to all
of Debtor’s assets, including without limitation, the
following property:


 

1. All customer
accounts, insurance contracts, and clients underlying such
insurance contracts.


 

2. All goods and
equipment now owned or hereafter acquired, including, without
limitation, all laboratory equipment, computer equipment, office
equipment, machinery, fixtures, vehicles, and any interest in any
of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of
the foregoing, wherever located;


 

3. All inventory now
owned or hereafter acquired, including, without limitation, all
merchandise, raw materials, parts, supplies, packing and shipping
materials, work in process and finished products including such
inventory as is temporarily out of Debtor’s custody or
possession or in transit and including any returns upon any
accounts or other proceeds, including insurance proceeds, resulting
from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and
Debtor’s books relating to any of the foregoing;


 

4. All accounts
receivable, contract rights, general intangibles, healthcare
insurance receivables, payment intangibles and commercial tort
claims, now owned or hereafter acquired, including, without
limitation, all patents, patent rights and patent applications
(including without limitation, the inventions and improvements
described and claimed therein, and (a) all reissues, divisions,
continuations, renewals, extensions and continuations-in-part
thereof, (b) all income, royalties, damages, proceeds and payments
now and hereafter due or payable under or with respect thereto,
including, without limitation, damages and payments for past or
future infringements thereof, (c) the right to sue for past,
present and future infringements thereof, and (d) all rights
corresponding thereto throughout the world), trademarks and service
marks (and applications and registrations therefor), inventions,
discoveries, copyrights and mask works (and applications and
registrations therefor), trade names, trade styles, software and
computer programs including source code, trade secrets, methods,
published and unpublished works of authorship, processes, know how,
drawings, specifications, descriptions, and all memoranda, notes,
and records with respect to any research and development, goodwill,
license agreements, information, any and all other proprietary
rights, franchise agreements, blueprints, drawings, purchase
orders, customer lists, route lists, infringements, claims,
computer programs, computer disks, computer tapes, literature,
reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kind and whether in tangible
or intangible form or contained on magnetic media readable by
machine together with all such magnetic media, and all rights
corresponding to all of the foregoing throughout the world, now
owned and existing or hereafter arising, created or
acquired;


 

5. All now existing
and hereafter arising accounts, contract rights, royalties, license
rights and all other forms of obligations owing to Debtor arising
out of the sale or lease of goods, the licensing of technology or
the rendering of services by Debtor (subject, in each case, to the
contractual rights of third parties to require funds received by
Debtor to be expended in a particular manner), whether or not
earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Debtor and Debtor’s books
relating to any of the foregoing;


 



 

68







 





6. All documents,
cash, deposit accounts, letters of credit, letter of credit rights,
supporting obligations, certificates of deposit, instruments,
chattel paper, electronic chattel paper, tangible chattel paper and
investment property, including, without limitation, all securities,
whether certificated or uncertificated, security entitlements,
securities accounts, commodity contracts and commodity accounts,
and all financial assets held in any securities account or
otherwise, wherever located, now owned or hereafter acquired and
Debtor’s books relating to the foregoing;


 

7. All other assets,
goods and personal property of Debtor, wherever located, whether
tangible or intangible, and whether now owned or hereafter
acquired; and


 

8. Any and all claims,
rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds and products thereof,
including, without limitation, insurance, condemnation, requisition
or similar payments and the proceeds thereof.


 


 


 


 


 


 



 

69







 






 



Exhibit G


 



GROWLIFE, INC.



OFFICER’S CERTIFICATE


 


 


The
undersigned, Marco Hegyi, Chief Executive Officer of Growlife,
Inc., a Delaware corporation (“Company”), in connection with the
issuance of that certain Secured Convertible Promissory Note issued
by Company on January 9, 2017 (the “Note”) in the original principal
amount of $1,105,000.00 in favor of Chicago Venture Partners, L.P.,
a Utah limited partnership (“Investor”), pursuant to that
certain Securities Purchase Agreement dated January 9, 2017 between
Investor and Company (the “Purchase Agreement”), personally
and in his capacity as an officer of Company, hereby represents,
warrants and certifies that:


 

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


 

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


 

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


 

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


 


IN
WITNESS WHEREOF, the undersigned, personally and in his capacity as
an officer of Company, has executed this Officer’s
Certificate as of January 9, 2017.


 


	
 

	
 

/s/
Marco Hegyi


Marco
Hegyi









 


 



 

70







 






Exhibit
H


 


IRREVOCABLE
LETTER OF INSTRUCTIONS TO TRANSFER AGENT


 


Date:
January 9, 2017


 


To the
transfer agent of Growlife, Inc.


 




Re:           


Instructions to Reserve and Issue Shares






 


Ladies
and Gentlemen:


 


Reference is made
to that certain Secured Convertible Promissory Note dated as of
December 28, 2016 (as the same may be amended or exchanged from
time to time, the “Note”), made by Growlife, Inc., a
Delaware corporation (“Company”), pursuant to which
Company agreed to pay to Chicago Venture Partners, L.P., a Utah
limited partnership, its successors and/or assigns
(“Investor”),
the aggregate sum of $1,105,000.00, plus interest, fees, and
collection costs. The Note was issued pursuant to that certain
Securities Purchase Agreement dated December 28, 2016, by and
between Company and Investor (the “Purchase Agreement”, and together
with the Note and all other documents entered into in conjunction
therewith, including any amendments thereto, the
“Transaction
Documents”). Pursuant to the terms of the Note, the
Outstanding Balance (as defined in the Note) of the Note may be
converted into shares of the common stock, par value $0.0001 per
share, of Company (the “Common Stock”, and the shares of
Common Stock issuable upon any conversion or otherwise under the
Note, the “Shares”).


Pursuant to the
terms of the Purchase Agreement, Company has agreed to establish a
reserve of shares of authorized but unissued Common Stock for
Investor’s sole and exclusive benefit in an amount not less
than 500,000,000 (the “Share
Reserve”) for all instruments between the parties.
Company further agreed to add additional shares of Common Stock to
the Share Reserve, as and when requested by Investor, if the number
of shares being held in the Share Reserve is less than the amount
calculated as follows: one (1) times the number of shares of Common
Stock obtained by dividing the Outstanding Balance by the
Redemption Conversion Price (as defined in the Note).


 This
irrevocable letter of instructions (this “Letter”) shall serve as the
authorization and direction of Company to Direct Transfer, LLC, or
its successors, as Company’s transfer agent (hereinafter,
“you” or
“your”), to
reserve shares of Common Stock and to issue (or where relevant, to
reissue in the name of Investor) shares of Common Stock to Investor
or its broker, upon conversion of the Note, as
follows:


112. From
and after the date hereof and until all of Company’s
obligations under the Purchase Agreement and the Note are paid and
performed in full, (a) you shall establish a reserve of shares of
authorized but unissued Common Stock in an amount not less than the
Share Reserve, (b) you shall maintain and hold the Share Reserve
for the exclusive benefit of Investor, (c) you shall issue the
shares of Common Stock held in the Share Reserve to Investor or its
broker only (subject to the immediately following clause (d)), (d)
when you issue shares of Common Stock to Investor or its broker
under the Note pursuant to the other instructions in this Letter,
you shall issue such shares from Company’s authorized and
unissued shares of Common Stock to the extent the same are
available and not from the Share Reserve unless and until there are
no authorized shares of Common Stock available for issuance other
than those held in the Share Reserve, at which point, and upon your
receipt of written authorization from Investor, you shall then
issue any shares of Common Stock deliverable to Investor under the
Note from the Share Reserve, (e) you shall not otherwise reduce the
Share Reserve under any circumstances, unless Investor delivers to
you written pre-approval of such reduction, and (f) you shall
immediately add shares of Common Stock to the Share Reserve in
increments of 50,000,000 shares as and when requested by Company or
Investor in writing from time to time.



 

71







 






113. You shall issue the Shares to
Investor or its broker in accordance with Paragraph 3 upon a
conversion of all or any portion of the Note, upon delivery to you
of a duly executed Lender Conversion Notice substantially in the
form attached hereto as Exhibit A (a
“Lender Conversion Notice”), a duly
executed Redemption Notice substantially in the form attached
hereto as Exhibit B
(an “Redemption
Notice”), and/or a True-Up Notice substantially in the
form attached hereto as Exhibit C (a
“True-Up
Notice”, and together with a Lender Conversion Notice
and an Redemption Notice, a “Conversion Notice”). By your
signature below, you acknowledge and agree that a conversion of the
Note may include any conversion by Investor of any judgment amount
or arbitration award granted in favor of Investor, as set forth in
the Note, and that you will issue Shares to Investor in accordance
with Paragraph 3 below upon Investor’s delivery to you of a
duly executed Conversion Notice wherein Investor seeks to convert
any portion of any judgment amount or arbitration award granted in
favor of Investor. You further acknowledge that Company and
Investor have agreed that it is their expectation that any such
judgment amount or arbitration award that is converted will tack
back to the Purchase Price Date (as defined in the Note) for
purposes of determining the holding period under Rule 144 (as
defined below) and that Company agreed that it will not take a
contrary position in any filing, document, letter, agreement or
setting.


114. In connection with a Conversion
Notice delivered to you pursuant to Paragraph 2 above, you will
receive a legal opinion as to the free transferability of the
Shares, dated within ninety (90) days from the date of the
Conversion Notice, from either Investor’s or Company’s
legal counsel, indicating that the Shares to be issued are
registered pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the “1933 Act”), or pursuant to Rule
144 promulgated under the 1933 Act (“Rule 144”), or any other available
exemption under the 1933 Act, the issuance of the applicable Shares
to Investor is exempt from registration under the 1933 Act, and
thus the Shares may be issued or delivered without restrictive
legend (the “Opinion
Letter”). Upon your receipt of a Conversion Notice and
an Opinion Letter, you shall, within three (3) Trading Days (as
defined below) thereafter, (i) if you are eligible to participate
in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer program, and the Common Stock is eligible to be
transferred electronically with DTC through the Deposit/Withdrawal
at Custodian system (“DWAC
Eligible”), credit such aggregate number of DWAC
Eligible shares of Common Stock to Investor’s or its
designee’s balance account with DTC, provided Investor
identifies its bank or broker (by providing its name and DTC
participant number) and causes its bank or broker to initiate such
DWAC Eligible transaction, or (ii) if the Common Stock is not then
DWAC Eligible, issue and deliver to Investor or its broker (as
specified in the applicable Conversion Notice), via reputable
overnight courier, to the address specified in the Conversion
Notice, a certificate, registered in the name of Investor or its
designee, representing such aggregate number of shares of Common
Stock as have been requested by Investor to be transferred in the
Conversion Notice. Such Shares (A) shall not bear any legend
restricting transfer, (B) shall not be subject to any stop-transfer
restrictions, and (C) shall otherwise be freely transferable on the
books and records of Company. For purposes hereof,
“Trading Day”
shall mean any day on which the New York Stock Exchange is open for
trading.


If you
receive a Conversion Notice, but you do not also receive an Opinion
Letter, and you are required to issue the Shares in certificated
form, then any certificates for the applicable Shares shall bear a
restrictive legend substantially as follows:



 

72







 






THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL
IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN
COMPARABLE TRANSACTIONS OR OTHER EVIDENCE ACCEPTABLE TO COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.


115. Please
note that a share issuance resolution is not required for each
conversion since this Letter and the Transaction Documents have
been approved by resolution of Company’s board of directors
(the “Share Issuance
Resolution”). Pursuant to the Share Issuance
Resolution, all of the Shares are authorized to be issued to
Investor. For the avoidance of doubt, this Letter is your
authorization and instruction by Company to issue the Shares
pursuant to this Letter without any further authorization or
direction from Company. You shall rely exclusively on the
instructions in this Letter and shall have no liability for relying
on any Conversion Notice provided by Investor. Any Conversion
Notice delivered hereunder shall constitute an irrevocable
instruction to you to process such notice or notices in accordance
with the terms thereof, without any further direction or inquiry.
Such notice or notices may be transmitted to you by fax, email, or
any commercially reasonable method.


116. Notwithstanding
any other provision hereof, Company and Investor understand that
you shall not be required to perform any issuance or transfer of
Shares if (a) such an issuance or transfer of Shares is in
violation of any state or federal securities laws or regulations;
provided, however, that if
you refuse to issue Shares to Investor based on an assertion
(whether by you, Company, or any other third party) that such
issuance would be in violation of Rule 144, you are hereby
instructed and agree to issue the applicable Shares to Investor
with a restricted legend and to further provide a written opinion
to Investor from an attorney explaining why such issuance is
considered to be in violation of Rule 144, or (b) the issuance or
transfer of Shares is prohibited or stopped as required or directed
by a court order from the court or arbitrator authorized by the
Purchase Agreement to resolve disputes between Company and
Investor. Additionally, Company and Investor understand that you
shall not be required to perform any issuance or transfer of Shares
if Company is in default of its payment obligations under its
agreement with you; provided,
however, that in such case Investor shall have the right to
pay the applicable issuance or transfer fee on behalf of Company
and upon payment of the issuance or transfer fee by Investor, you
shall be obligated to make the requested issuance or
transfer.


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


118. You
are hereby authorized and directed to promptly disclose to
Investor, after Investor’s request from time to time, the
total number of shares of Common Stock issued and outstanding and
the total number of shares that are authorized but unissued and
unreserved.


119. Company
hereby confirms to you and to Investor that no instruction other
than as contemplated herein (including instructions to increase the
Share Reserve as necessary pursuant to Paragraph 1(f) above) will
be given to you by Company with respect to the matters referenced
herein. Company hereby authorizes you, and you shall be obligated,
to disregard any contrary instruction received by or on behalf of
Company or any other person purporting to represent
Company.


120. Company
hereby agrees not to change you as its transfer agent without first
(a) providing Investor with at least 30-days’ written notice
of such proposed change, and (b) obtaining Investor’s written
consent to such proposed change. Any such consent is conditioned
upon the new transfer agent executing an irrevocable letter of
instructions substantially similar to this Letter so that such
transfer agent is bound by the same terms set forth herein. You
agree not to help facilitate any change to Company’s transfer
agent without first receiving such written consent to such change
from Investor.



 

73







 






121. Company
acknowledges that Investor is relying on the representations and
covenants made by Company in this Letter and that the
representations and covenants contained in this Letter constitute a
material inducement to Investor to make the loan evidenced by the
Note. Company further acknowledges that without such
representations and covenants of Company, Investor would not have
made the loan to Company evidenced by the Note.


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


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


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


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


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


127. This
Letter is governed by Utah law.



 

74







 






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


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


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


 


 


 


 


 




 

75








 






 


	
 

	


Very
truly yours,


 



Growlife, Inc.


 


 


By: /s/
Marco Hegyi


Name:
Marco Hegyi


Title:
Chief Executive Officer









 


 


ACKNOWLEDGED
AND AGREED:


 


INVESTOR:


 



Chicago Venture Partners, L.P.


 



By: Chicago Venture Management, L.L.C.,


its
General Partner


 


By:
CVM, Inc., its Manager


 


 


By:
/s/ John M. Fife


      John
M. Fife, President


 


 


 


TRANSFER
AGENT:


 



Direct Transfer, LLC


 


 


By: /s/
Eddie Tobler


Name:
Eddie Tobler


Title:
VP Stock Transfer


 


 



Attachments:


 

Exhibit L  
        Form of Lender Conversion
Notice

Exhibit M  
       Form of Redemption
Notice

Exhibit
N          Form of
True-Up Notice






 



 

76







 







Exhibit I


 



GROWLIFE, INC.



SECRETARY’S CERTIFICATE


 


I,
Michael E. Fasci, hereby certify that I am the duly elected,
qualified and acting Secretary of Growlife, Inc., a Delaware
corporation (“Company”), and I am authorized to
execute this Secretary’s Certificate (this
“Certificate”)
on behalf of Company. This Certificate is delivered in connection
with that certain Securities Purchase Agreement dated January 9,
2017 (the “Purchase
Agreement”), by and between Company and Chicago
Venture Partners, L.P., a Utah limited partnership.


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


IN
WITNESS WHEREOF, I have made this Secretary’s Certificate
effective as of January 9, 2017.


	
 

	


Growlife,
Inc.


 


 


/s/ Michael E.
Fasci


Printed
Name: Michael E. Fasci


Title:
Secretary









 




 

77








 






 



Schedule 1


 



BOARD RESOLUTIONS


 


[attached]


 


 


 


 


 




 

78








 










 



GROWLIFE, INC.



RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS


________________________


Effective January
9, 2017


________________________


 


APPROVAL
OF FINANCING


 


WHEREAS, the Board
of Directors (the “Board”) of Growlife, Inc., a
Delaware corporation (“Company”), has determined that it
is in the best interests of Company to seek financing in the amount
of up to $1,000,000.00 through the issuance and sale to Chicago
Venture Partners, L.P., a Utah limited partnership
(“Investor”), of
a Secured Convertible Promissory Note (the “Financing”);


WHEREAS, the terms
of the Financing are reflected in a Securities Purchase Agreement
substantially in the form attached hereto as Exhibit A (the
“Purchase
Agreement”), a Secured Convertible Promissory Note
issued by Company to Investor in the original principal amount of
$1,105,000.00 substantially in the form attached hereto as
Exhibit B (the
“Note”), an
Irrevocable Letter of Instructions to Transfer Agent substantially
in the form attached hereto as Exhibit C, a Share Issuance
Resolution substantially in the form attached hereto as
Exhibit D
(“Share Issuance
Resolution”), a Membership Interest Pledge Agreement
substantially in the form attached hereto as Exhibit E, a series of five (5)
Secured Investor Notes made by Investor in favor of Company
substantially in the form attached hereto as Exhibit F, a series of four (4)
Investor Notes made by Investor in favor of Company substantially
in the form attached hereto as Exhibit G, a Security Agreement
made by Company in favor of Investor substantially in the form
attached hereto as Exhibit
H, and all other agreements, certificates, instruments and
documents being or to be executed and delivered under or in
connection with the Financing (collectively, the
“Financing
Documents”); and


WHEREAS, the Board,
having received and reviewed the Financing Documents, believes that
it is in the best interests of Company and the stockholders to
approve the Financing and the Financing Documents and authorize the
officers of Company to execute such documents.


NOW,
THEREFORE, BE IT:


RESOLVED, that the
Financing is hereby approved and determined to be in the best
interests of Company and its stockholders;


RESOLVED FURTHER,
that the form, terms and provisions of the Financing Documents
(including all exhibits, schedules and other attachments thereto)
are hereby ratified, confirmed and approved;


RESOLVED FURTHER,
that the Note shall be duly and validly issued upon the issuance
and delivery thereof in accordance with the Purchase
Agreement;


RESOLVED FURTHER,
that the Conversion Shares (as defined in the Note) shall be duly
authorized, validly issued, fully paid for and non-assessable upon
the issuance and delivery thereof in accordance with the Purchase
Agreement and the Note;



 

79







 






RESOLVED FURTHER,
that Company shall take all action necessary to at all times have
authorized and reserved for the purpose of issuance under the Note
such number of shares of Company’s common stock required
under the Purchase Agreement (the “Share Reserve”);


RESOLVED FURTHER,
that the fixed number of shares of common stock set forth in the
Share Issuance Resolution to be reserved by the transfer agent is
not meant to limit or restrict in any way the resolutions contained
herein, including without limitation the calculation of the Share
Reserve under the Purchase Agreement, as required from time to
time;


RESOLVED FURTHER,
that each of the officers of Company be, and each of them hereby
is, authorized to instruct the transfer agent to increase the Share
Reserve, from time to time, in the incremental amount set forth in
the Share Issuance Resolution; provided, however, that any decrease in
the Share Reserve held by the transfer agent will require the prior
written consent of Investor;


RESOLVED FURTHER,
that in the event of any conflict between these resolutions and the
Share Issuance Resolution, these resolutions shall
control;


RESOLVED FURTHER,
that with respect to each Conversion (as defined in the Note) under
the Note, the reduction in the Outstanding Balance (as defined in
the Note and as the same may increase or decrease pursuant to the
terms of the Note) in an amount equal to the applicable Conversion
Amount (as defined in the Note) or Redemption Amount (as defined in
the Note) being converted into Conversion Shares shall constitute
fair and adequate consideration to Company for the issuance of the
applicable Conversion Shares, regardless of the conversion price
used to determine the number of Conversion Shares deliverable with
respect to any Conversion;


RESOLVED FURTHER,
that each of the officers of Company be, and each of them hereby
is, authorized to execute and deliver in the name of and on behalf
of Company, each of the Financing Documents and any other related
agreements (with such additions to, modifications to, or deletions
from such documents as the officer approves, such approval to be
conclusively evidenced by such execution and delivery), to conform
Company’s minute books and other records to the matters set
forth in these resolutions, and to take all other actions on behalf
of Company as any of them deem necessary, required, or advisable
with respect to the matters set forth in these
resolutions;


RESOLVED FURTHER,
that the Board hereby determines that all acts and deeds previously
performed by the Board and other officers of Company relating to
the foregoing matters prior to the date of these resolutions are
ratified, confirmed and approved in all respects as the authorized
acts and deeds of Company; and


RESOLVED FURTHER,
that all prior actions or resolutions of Company’s directors
that are inconsistent with the foregoing are hereby amended,
corrected and restated to the extent required to be consistent
herewith.



 

80







 






******************


 


EXHIBITS
ATTACHED TO BOARD RESOLUTIONS:


 




Exhibit
O

PURCHASE
AGREEMENT








Exhibit
P

NOTE








Exhibit
Q

TRANSFER AGENT
LETTER








Exhibit
R

SHARE ISSUANCE
RESOLUTION








Exhibit
S

MEMBERSHIP
INTEREST PLEDGE AGREEMENT








Exhibit
T

FORM OF SECURED
INVESTOR NOTE








Exhibit
U

FORM OF
INVESTOR NOTE








Exhibit
V

SECURITY
AGREEMENT









 


 


 


[Remainder
of page intentionally left blank]


 


 


 


 


 


 


 


 


 


 


 


 


 



 

81







 







Exhibit J



Share Issuance Resolution



Authorizing The Issuance Of New Shares Of Common Stock
In


 



Growlife, Inc.


___________________________


Effective January
9, 2017


___________________________


 


The
undersigned, as a qualified officer of Growlife, Inc., a Delaware
corporation (“Company”), hereby certifies that
this Share Issuance Resolution is authorized by and consistent with
the resolutions of Company’s board of directors
(“Board
Resolutions”) regarding that certain Secured
Convertible Promissory Note in the face amount of $1,105,000.00
with an original issuance date of January 9, 2017 (the
“Note”), made by
Company in favor of Chicago Venture Partners, L.P., a Utah limited
partnership, its successors and/or assigns (“Investor”), pursuant to that
certain Securities Purchase Agreement dated January 9, 2017, by and
between Company and Investor (the “Purchase Agreement”).


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




(i)

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








(ii)

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








(iii)

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






in each
case without any further inquiry, to be delivered to the Transfer
Agent from time to time either by Company or Investor.


RESOLVED FURTHER,
that the Transfer Agent is authorized to issue the number
of:




(i)

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








(ii)

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








(iii)

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








(iv)

all additional
shares of Common Stock Company may subsequently instruct the
Transfer Agent to issue in connection with any of the foregoing or
otherwise under the Note,






with
such shares to be issued in the name of Investor, or its
successors, transferees, or designees, free of any restricted
security legend, as permitted by the Note.



 

82







 






RESOLVED FURTHER,
that consistent with the terms of the Purchase Agreement, the
Transfer Agent is authorized and directed to immediately create a
share reserve equal to 500,000,000 shares of Company’s Common
Stock for the benefit of Investor (the “Share Reserve”); provided that the Share Reserve may
increase in increments of 50,000,000 shares from time to time by
written instructions provided to the Transfer Agent by Company or
Investor as required by the Purchase Agreement and as contemplated
by the Board Resolutions.


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


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


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


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


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


 


 

/s/ Marco
Hegyi                                           
1/9/2017


Officer’s
Signature                                 
         Date


 


Marco
Hegyi, CEO


Printed
Name and Title

 





 


EXHIBITS
ATTACHED TO SHARE ISSUANCE RESOLUTION:


 

Exhibit
A                       
Lender Conversion Notice

Exhibit
B                       
Redemption Notice

Exhibit
C                       
True-Up Notice


 




 

83








 






EXHIBIT
K


 



ARBITRATION PROVISIONS


 

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

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

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

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


4.1         Initiation
of Arbitration. Pursuant to Section 110 of the Arbitration
Act, the parties agree that a party may initiate Arbitration by
giving written notice to the other party (“Arbitration Notice”) in the same
manner that notice is permitted under Section 9.13 of the
Agreement; provided,
however, that the Arbitration Notice may not be given by
email or fax. Arbitration will be deemed initiated as of the date
that the Arbitration Notice is deemed delivered to such other party
under Section 9.13 of the Agreement (the “Service Date”). After the Service
Date, information may be delivered, and notices may be given, by
email or fax pursuant to Section 9.13 of the Agreement or any other
method permitted thereunder. The Arbitration Notice must describe
the nature of the controversy, the remedies sought, and the
election to commence Arbitration proceedings. All Claims in the
Arbitration Notice must be pleaded consistent with the Utah Rules
of Civil Procedure.



 

84







 






4.2         Selection
and Payment of Arbitrator.


(a)
Within ten (10) calendar days after the Service Date, Investor
shall select and submit to Company the names of three (3)
arbitrators that are designated as “neutrals” or
qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com)
(such three (3) designated persons hereunder are referred to herein
as the “Proposed
Arbitrators”). For the avoidance of doubt, each
Proposed Arbitrator must be qualified as a “neutral”
with Utah ADR Services. Within five (5) calendar days after
Investor has submitted to Company the names of the Proposed
Arbitrators, Company must select, by written notice to Investor,
one (1) of the Proposed Arbitrators to act as the arbitrator for
the parties under these Arbitration Provisions. If Company fails to
select one of the Proposed Arbitrators in writing within such 5-day
period, then Investor may select the arbitrator from the Proposed
Arbitrators by providing written notice of such selection to
Company.


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


(c) If
a Proposed Arbitrator chosen to serve as arbitrator declines or is
otherwise unable to serve as arbitrator, then the party that
selected such Proposed Arbitrator may select one (1) of the other
three (3) Proposed Arbitrators within three (3) calendar days of
the date the chosen Proposed Arbitrator declines or notifies the
parties he or she is unable to serve as arbitrator. If all three
(3) Proposed Arbitrators decline or are otherwise unable to serve
as arbitrator, then the arbitrator selection process shall begin
again in accordance with this Paragraph 4.2.


(d) The
date that the Proposed Arbitrator selected pursuant to this
Paragraph 4.2 agrees in writing (including via email) delivered to
both parties to serve as the arbitrator hereunder is referred to
herein as the “Arbitration
Commencement Date”. If an arbitrator resigns or is
unable to act during the Arbitration, a replacement arbitrator
shall be chosen in accordance with this Paragraph 4.2 to continue
the Arbitration. If Utah ADR Services ceases to exist or to provide
a list of neutrals and there is no successor thereto, then the
arbitrator shall be selected under the then prevailing rules of the
American Arbitration Association.


(e)
Subject to Paragraph 4.10 below, the cost of the arbitrator must be
paid equally by both parties. Subject to Paragraph 4.10 below, if
one party refuses or fails to pay its portion of the arbitrator
fee, then the other party can advance such unpaid amount (subject
to the accrual of Default Interest thereupon), with such amount
being added to or subtracted from, as applicable, the Arbitration
Award.


4.3         Applicability
of Certain Utah Rules. The parties agree that the
Arbitration shall be conducted generally in accordance with the
Utah Rules of Civil Procedure and the Utah Rules of Evidence. More
specifically, the Utah Rules of Civil Procedure shall apply,
without limitation, to the filing of any pleadings, motions or
memoranda, the conducting of discovery, and the taking of any
depositions. The Utah Rules of Evidence shall apply to any
hearings, whether telephonic or in person, held by the arbitrator.
Notwithstanding the foregoing, it is the parties’ intent that
the incorporation of such rules will in no event supersede these
Arbitration Provisions. In the event of any conflict between the
Utah Rules of Civil Procedure or the Utah Rules of Evidence and
these Arbitration Provisions, these Arbitration Provisions shall
control.


4.4         Answer
and Default. An answer and any counterclaims to the
Arbitration Notice shall be required to be delivered to the party
initiating the Arbitration within twenty (20) calendar days after
the Arbitration Commencement Date. If an answer is not delivered by
the required deadline, the arbitrator must provide written notice
to the defaulting party stating that the arbitrator will enter a
default award against such party if such party does not file an
answer within five (5) calendar days of receipt of such notice. If
an answer is not filed within the five (5) day extension period,
the arbitrator must render a default award, consistent with the
relief requested in the Arbitration Notice, against a party that
fails to submit an answer within such time period.



 

85







 






4.5         Related
Litigation. The party that delivers the Arbitration Notice
to the other party shall have the option to also commence
concurrent legal proceedings with any state or federal court
sitting in Salt Lake County, Utah (“Litigation Proceedings”), subject
to the following: (a) the complaint in the Litigation Proceedings
is to be substantially similar to the claims set forth in the
Arbitration Notice, provided that an additional cause of action to
compel arbitration will also be included therein, (b) so long as
the other party files an answer to the complaint in the Litigation
Proceedings and an answer to the Arbitration Notice, the Litigation
Proceedings will be stayed pending an Arbitration Award (or Appeal
Panel Award (defined below), as applicable) hereunder, (c) if the
other party fails to file an answer in the Litigation Proceedings
or an answer in the Arbitration proceedings, then the party
initiating Arbitration shall be entitled to a default judgment
consistent with the relief requested, to be entered in the
Litigation Proceedings, and (d) any legal or procedural issue
arising under the Arbitration Act that requires a decision of a
court of competent jurisdiction may be determined in the Litigation
Proceedings. Any award of the arbitrator (or of the Appeal Panel
(defined below)) may be entered in such Litigation Proceedings
pursuant to the Arbitration Act.


4.6         Discovery.
Pursuant to Section 118(8) of the Arbitration Act, the parties
agree that discovery shall be conducted as follows:


(a)
Written discovery will only be allowed if the likely benefits of
the proposed written discovery outweigh the burden or expense
thereof, and the written discovery sought is likely to reveal
information that will satisfy a specific element of a claim or
defense already pleaded in the Arbitration. The party seeking
written discovery shall always have the burden of showing that all
of the standards and limitations set forth in these Arbitration
Provisions are satisfied. The scope of discovery in the Arbitration
proceedings shall also be limited as follows:


(i)                 To
facts directly connected with the transactions contemplated by the
Agreement.


(ii)                 To
facts and information that cannot be obtained from another source
or in another manner that is more convenient, less burdensome or
less expensive than in the manner requested.


(b) No
party shall be allowed (i) more than fifteen (15) interrogatories
(including discrete subparts), (ii) more than fifteen (15) requests
for admission (including discrete subparts), (iii) more than ten
(10) document requests (including discrete subparts), or (iv) more
than three (3) depositions (excluding expert depositions) for a
maximum of seven (7) hours per deposition. The costs associated
with depositions will be borne by the party taking the deposition.
The party defending the deposition will submit a notice to the
party taking the deposition of the estimated attorneys’ fees
that such party expects to incur in connection with defending the
deposition. If the party defending the deposition fails to submit
an estimate of attorneys’ fees within five (5) calendar days
of its receipt of a deposition notice, then such party shall be
deemed to have waived its right to the estimated attorneys’
fees. The party taking the deposition must pay the party defending
the deposition the estimated attorneys’ fees prior to taking
the deposition, unless such obligation is deemed to be waived as
set forth in the immediately preceding sentence. If the party
taking the deposition believes that the estimated attorneys’
fees are unreasonable, such party may submit the issue to the
arbitrator for a decision. All depositions will be taken in
Utah.


(c) All
discovery requests (including document production requests included
in deposition notices) must be submitted in writing to the
arbitrator and the other party. The party submitting the written
discovery requests must include with such discovery requests a
detailed explanation of how the proposed discovery requests satisfy
the requirements of these Arbitration Provisions and the Utah Rules
of Civil Procedure. The receiving party will then be allowed,
within five (5) calendar days of receiving the proposed discovery
requests, to submit to the arbitrator an estimate of the
attorneys’ fees and costs associated with responding to such
written discovery requests and a written challenge to each
applicable discovery request. After receipt of an estimate of
attorneys’ fees and costs and/or challenge(s) to one or more
discovery requests, consistent with subparagraph (c) above, the
arbitrator will within three (3) calendar days make a finding as to
the likely attorneys’ fees and costs associated with
responding to the discovery requests and issue an order that (i)
requires the requesting party to prepay the attorneys’ fees
and costs associated with responding to the discovery requests, and
(ii) requires the responding party to respond to the discovery
requests as limited by the arbitrator within twenty-five (25)
calendar days of the arbitrator’s finding with respect to
such discovery requests. If a party entitled to submit an estimate
of attorneys’ fees and costs and/or a challenge to discovery
requests fails to do so within such 5-day period, the arbitrator
will make a finding that (A) there are no attorneys’ fees or
costs associated with responding to such discovery requests, and
(B) the responding party must respond to such discovery requests
(as may be limited by the arbitrator) within twenty-five (25)
calendar days of the arbitrator’s finding with respect to
such discovery requests. Any party submitting any written discovery
requests, including without limitation interrogatories, requests
for production subpoenas to a party or a third party, or requests
for admissions, must prepay the estimated attorneys’ fees and
costs, before the responding party has any obligation to produce or
respond to the same, unless such obligation is deemed waived as set
forth above.



 

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(d) In
order to allow a written discovery request, the arbitrator must
find that the discovery request satisfies the standards set forth
in these Arbitration Provisions and the Utah Rules of Civil
Procedure. The arbitrator must strictly enforce these standards. If
a discovery request does not satisfy any of the standards set forth
in these Arbitration Provisions or the Utah Rules of Civil
Procedure, the arbitrator may modify such discovery request to
satisfy the applicable standards, or strike such discovery request
in whole or in part.


(e)
Each party may submit expert reports (and rebuttals thereto),
provided that such reports must be submitted within sixty (60) days
of the Arbitration Commencement Date. Each party will be allowed a
maximum of two (2) experts. Expert reports must contain the
following: (i) a complete statement of all opinions the expert will
offer at trial and the basis and reasons for them; (ii) the
expert’s name and qualifications, including a list of all the
expert’s publications within the preceding ten (10) years,
and a list of any other cases in which the expert has testified at
trial or in a deposition or prepared a report within the preceding
ten (10) years; and (iii) the compensation to be paid for the
expert’s report and testimony. The parties are entitled to
depose any other party’s expert witness one (1) time for no
more than four (4) hours. An expert may not testify in a
party’s case-in-chief concerning any matter not fairly
disclosed in the expert report.


4.6         Dispositive
Motions. Each party shall have the right to submit
dispositive motions pursuant Rule 12 or Rule 56 of the Utah Rules
of Civil Procedure (a “Dispositive Motion”). The party
submitting the Dispositive Motion may, but is not required to,
deliver to the arbitrator and to the other party a memorandum in
support (the “Memorandum in
Support”) of the Dispositive Motion. Within seven (7)
calendar days of delivery of the Memorandum in Support, the other
party shall deliver to the arbitrator and to the other party a
memorandum in opposition to the Memorandum in Support (the
“Memorandum in
Opposition”). Within seven (7) calendar days of
delivery of the Memorandum in Opposition, as applicable, the party
that submitted the Memorandum in Support shall deliver to the
arbitrator and to the other party a reply memorandum to the
Memorandum in Opposition (“Reply Memorandum”). If the
applicable party shall fail to deliver the Memorandum in Opposition
as required above, or if the other party fails to deliver the Reply
Memorandum as required above, then the applicable party shall lose
its right to so deliver the same, and the Dispositive Motion shall
proceed regardless.


4.7         Confidentiality.
All information disclosed by either party (or such party’s
agents) during the Arbitration process (including without
limitation information disclosed during the discovery process or
any Appeal (defined below)) shall be considered confidential in
nature. Each party agrees not to disclose any confidential
information received from the other party (or its agents) during
the Arbitration process (including without limitation during the
discovery process or any Appeal) unless (a) prior to or after the
time of disclosure such information becomes public knowledge or
part of the public domain, not as a result of any inaction or
action of the receiving party or its agents, (b) such information
is required by a court order, subpoena or similar legal duress to
be disclosed if such receiving party has notified the other party
thereof in writing and given it a reasonable opportunity to obtain
a protective order from a court of competent jurisdiction prior to
disclosure, or (c) such information is disclosed to the receiving
party’s agents, representatives and legal counsel on a need
to know basis who each agree in writing not to disclose such
information to any third party. Pursuant to Section 118(5) of the
Arbitration Act, the arbitrator is hereby authorized and directed
to issue a protective order to prevent the disclosure of privileged
information and confidential information upon the written request
of either party.


4.8         Authorization;
Timing; Scheduling Order. Subject to all other portions of
these Arbitration Provisions, the parties hereby authorize and
direct the arbitrator to take such actions and make such rulings as
may be necessary to carry out the parties’ intent for the
Arbitration proceedings to be efficient and expeditious. Pursuant
to Section 120 of the Arbitration Act, the parties hereby agree
that an Arbitration Award must be made within one hundred twenty
(120) calendar days after the Arbitration Commencement Date. The
arbitrator is hereby authorized and directed to hold a scheduling
conference within ten (10) calendar days after the Arbitration
Commencement Date in order to establish a scheduling order with
various binding deadlines for discovery, expert testimony, and the
submission of documents by the parties to enable the arbitrator to
render a decision prior to the end of such 120-day
period.



 

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4.9         Relief.
The arbitrator shall have the right to award or include in the
Arbitration Award (or in a preliminary ruling) any relief which the
arbitrator deems proper under the circumstances, including, without
limitation, specific performance and injunctive relief, provided
that the arbitrator may not award exemplary or punitive
damages.


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



5.       

Arbitration
Appeal.






5.1         Initiation
of Appeal. Following the entry of the Arbitration Award,
either party (the “Appellant”) shall have a period of
thirty (30) calendar days in which to notify the other party (the
“Appellee”), in
writing, that the Appellant elects to appeal (the
“Appeal”) the
Arbitration Award (such notice, an “Appeal Notice”) to a panel of
arbitrators as provided in Paragraph 5.2 below. The date the
Appellant delivers an Appeal Notice to the Appellee is referred to
herein as the “Appeal
Date”. The Appeal Notice must be delivered to the
Appellee in accordance with the provisions of Paragraph 4.1 above
with respect to delivery of an Arbitration Notice. In addition,
together with delivery of the Appeal Notice to the Appellee, the
Appellant must also pay for (and provide proof of such payment to
the Appellee together with delivery of the Appeal Notice) a bond in
the amount of 110% of the sum the Appellant owes to the Appellee as
a result of the Arbitration Award the Appellant is appealing. In
the event an Appellant delivers an Appeal Notice to the Appellee
(together with proof of payment of the applicable bond) in
compliance with the provisions of this Paragraph 5.1, the Appeal
will occur as a matter of right and, except as specifically set
forth herein, will not be further conditioned. In the event a party
does not deliver an Appeal Notice (along with proof of payment of
the applicable bond) to the other party within the deadline
prescribed in this Paragraph 5.1, such party shall lose its right
to appeal the Arbitration Award. If no party delivers an Appeal
Notice (along with proof of payment of the applicable bond) to the
other party within the deadline described in this Paragraph 5.1,
the Arbitration Award shall be final. The parties acknowledge and
agree that any Appeal shall be deemed part of the parties’
agreement to arbitrate for purposes of these Arbitration Provisions
and the Arbitration Act.


5.2         Selection
and Payment of Appeal Panel. In the event an Appellant
delivers an Appeal Notice to the Appellee (together with proof of
payment of the applicable bond) in compliance with the provisions
of Paragraph 5.1 above, the Appeal will be heard by a three (3)
person arbitration panel (the “Appeal Panel”).


(a)         Within
ten (10) calendar days after the Appeal Date, the Appellee shall
select and submit to the Appellant the names of five (5)
arbitrators that are designated as “neutrals” or
qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com)
(such five (5) designated persons hereunder are referred to herein
as the “Proposed Appeal
Arbitrators”). For the avoidance of doubt, each
Proposed Appeal Arbitrator must be qualified as a
“neutral” with Utah ADR Services, and shall not be the
arbitrator who rendered the Arbitration Award being appealed (the
“Original
Arbitrator”). Within five (5) calendar days after the
Appellee has submitted to the Appellant the names of the Proposed
Appeal Arbitrators, the Appellant must select, by written notice to
the Appellee, three (3) of the Proposed Appeal Arbitrators to act
as the members of the Appeal Panel. If the Appellant fails to
select three (3) of the Proposed Appeal Arbitrators in writing
within such 5-day period, then the Appellee may select such three
(3) arbitrators from the Proposed Appeal Arbitrators by providing
written notice of such selection to the Appellant.


(b)         If
the Appellee fails to submit to the Appellant the names of the
Proposed Appeal Arbitrators within ten (10) calendar days after the
Appeal Date pursuant to subparagraph (a) above, then the Appellant
may at any time prior to the Appellee so designating the Proposed
Appeal Arbitrators, identify the names of five (5) arbitrators that
are designated as “neutrals” or qualified arbitrators
by Utah ADR Service (none of whom may be the Original Arbitrator)
by written notice to the Appellee. The Appellee may then, within
five (5) calendar days after the Appellant has submitted notice of
its selected arbitrators to the Appellee, select, by written notice
to the Appellant, three (3) of such selected arbitrators to serve
on the Appeal Panel. If the Appellee fails to select in writing
within such 5-day period three (3) of the arbitrators selected by
the Appellant to serve as the members of the Appeal Panel, then the
Appellant may select the three (3) members of the Appeal Panel from
the Appellant’s list of five (5) arbitrators by providing
written notice of such selection to the Appellee.



 

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(c)         If
a selected Proposed Appeal Arbitrator declines or is otherwise
unable to serve, then the party that selected such Proposed Appeal
Arbitrator may select one (1) of the other five (5) designated
Proposed Appeal Arbitrators within three (3) calendar days of the
date a chosen Proposed Appeal Arbitrator declines or notifies the
parties he or she is unable to serve as an arbitrator. If at least
three (3) of the five (5) designated Proposed Appeal Arbitrators
decline or are otherwise unable to serve, then the Proposed Appeal
Arbitrator selection process shall begin again in accordance with
this Paragraph 5.2; provided,
however, that any Proposed Appeal Arbitrators who have
already agreed to serve shall remain on the Appeal
Panel.


(d)         The
date that all three (3) Proposed Appeal Arbitrators selected
pursuant to this Paragraph 5.2 agree in writing (including via
email) delivered to both the Appellant and the Appellee to serve as
members of the Appeal Panel hereunder is referred to herein as the
“Appeal Commencement
Date”. No later than five (5) calendar days after the
Appeal Commencement Date, the Appellee shall designate in writing
(including via email) to the Appellant and the Appeal Panel the
name of one (1) of the three (3) members of the Appeal Panel to
serve as the lead arbitrator in the Appeal proceedings. Each member
of the Appeal Panel shall be deemed an arbitrator for purposes of
these Arbitration Provisions and the Arbitration Act, provided
that, in conducting the Appeal, the Appeal Panel may only act or
make determinations upon the approval or vote of no less than the
majority vote of its members, as announced or communicated by the
lead arbitrator on the Appeal Panel. If an arbitrator on the Appeal Panel
ceases or is unable to act during the Appeal proceedings, a
replacement arbitrator shall be chosen in accordance with Paragraph
5.2 above to continue the Appeal as a member of the Appeal
Panel. If Utah ADR Services ceases to exist or to provide a
list of neutrals, then the arbitrators for the Appeal Panel shall
be selected under the then prevailing rules of the American
Arbitration Association.


(d)         Subject
to Paragraph 5.7 below, the cost of the Appeal Panel must be paid
entirely by the Appellant.

5.3         
Appeal Procedure. The
Appeal will be deemed an appeal of the entire Arbitration Award. In
conducting the Appeal, the Appeal Panel shall conduct a de novo
review of all Claims described or otherwise set forth in the
Arbitration Notice. Subject to the foregoing and all other
provisions of this Paragraph 5, the Appeal Panel shall conduct the
Appeal in a manner the Appeal Panel considers appropriate for a
fair and expeditious disposition of the Appeal, may hold one or
more hearings and permit oral argument, and may review all previous
evidence and discovery, together with all briefs, pleadings and
other documents filed with the Original Arbitrator (as well as any
documents filed with the Appeal Panel pursuant to Paragraph 5.4(a)
below). Notwithstanding the foregoing, in connection with the
Appeal, the Appeal Panel shall not permit the parties to conduct
any additional discovery or raise any new Claims to be arbitrated,
shall not permit new witnesses or affidavits, and shall not base
any of its findings or determinations on the Original
Arbitrator’s findings or the Arbitration Award.



5.4         


Timing.






 (a)         Within
seven (7) calendar days of the Appeal Commencement Date, the
Appellant (i) shall deliver or cause to be delivered to the Appeal
Panel copies of the Appeal Notice, all discovery conducted in
connection with the Arbitration, and all briefs, pleadings and
other documents filed with the Original Arbitrator (which material
Appellee shall have the right to review and supplement if
necessary), and (ii) may, but is not required to, deliver to the
Appeal Panel and to the Appellee a Memorandum in Support of the
Appellant’s arguments concerning or position with respect to
all Claims, counterclaims, issues, or accountings presented or
pleaded in the Arbitration. Within seven (7) calendar days of the
Appellant’s delivery of the Memorandum in Support, as
applicable, the Appellee shall deliver to the Appeal Panel and to
the Appellant a Memorandum in Opposition to the Memorandum in
Support. Within seven (7) calendar days of the Appellee’s
delivery of the Memorandum in Opposition, as applicable, the
Appellant shall deliver to the Appeal Panel and to the Appellee a
Reply Memorandum to the Memorandum in Opposition. If the Appellant
shall fail to substantially comply with the requirements of clause
(i) of this subparagraph (a), the Appellant shall lose its right to
appeal the Arbitration Award, and the Arbitration Award shall be
final. If the Appellee shall fail to deliver the Memorandum in
Opposition as required above, or if the Appellant shall fail to
deliver the Reply Memorandum as required above, then the Appellee
or the Appellant, as the case may be, shall lose its right to so
deliver the same, and the Appeal shall proceed
regardless.



 

89







 






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

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

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

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


6.           Miscellaneous.


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


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


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


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


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


 




 

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