Document:

Blueprint

 

 

Exhibit 10.1

 

FIRST AMENDMENT TO AMENDED AND RESTATED

SECURITIES PURCHASE AGREEMENT

 

This FIRST AMENDMENT TO AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (the “Amendment”) is dated effective as of the 30th day of April, 2016, by and between GROWLIFE, INC., a Delaware corporation
(the “Borrower”), EVERGREEN GARDEN CENTERS LLC, a Delaware limited liability company, GROWLIFE HYDROPONICS, INC., a Delaware corporation, ROCKY MOUNTAIN HYDROPONICS, a Colorado limited liability company (collectively, the “Guarantors,” and
together with the Borrower, the “Credit Parties”), and TCA GLOBAL CREDIT MASTER FUND, LP, a Cayman Islands limited partnership (the “Lender”).

 

RECITALS

 

WHEREAS, the Borrower and Lender entered into that certain Securities Purchase Agreement dated as of April 30, 2015, but made effective as of July 9, 2015 (the “Original Purchase Agreement”), as supplemented by that certain Securities Purchase Agreement dated as of April 30, 2015, but made
effective as of August 6, 2015 (the “Supplemental Purchase Agreement”), together with Amended and Restated Securities Purchase Agreement dated as of October 27, 2015 (the “Restated Purchase Agreement”) (the Original Purchase Agreement, the Supplemental Purchase Agreement, and the Restated Purchase Agreement, together with any other amendments, renewals,
substitutions, supplements, replacements, or modifications from time to time, collectively referred to as the “Purchase Agreement”); and

 

WHEREAS, pursuant to the Original Purchase Agreement, the Borrower executed and delivered to Lender that certain Senior Secured, Convertible, Redeemable Debenture dated as of April 30, 2015, but made effective as of July 9, 2015, in the original face amount of $700,000.00 (the “Original Debenture”);
and

 

WHEREAS, pursuant to the Supplemental Purchase Agreement, the Borrower executed and delivered to Lender that certain Senior Secured, Convertible, Redeemable Debenture dated as of April 30, 2015, but made effective as of August 6, 2015, in the original face amount of $100,000.00 (the “Supplemental Debenture”);
and

 

WHEREAS, pursuant to the Restated Purchase Agreement, the Borrower executed and delivered to Lender that certain Amended, Restated, and Consolidated Senior Secured, Convertible, Redeemable Debenture dated as of October 16, 2015, but made effective as of October 27, 2015, in the original face amount of $1,050,000.00 (the “Restated
Debenture”), which Restated Debenture amended, restated and replaced the Original Debenture in its entirety (the Restated Debenture and the Supplemental Debenture, collectively referred to as the “Debentures”); and

 

WHEREAS, in connection with the Purchase Agreement, the Original Debenture, and the Debentures, the Borrower executed and delivered to the Lender various ancillary documents referred to in the Purchase Agreement as the “Transaction Documents”; and

 

WHEREAS, the Borrower’s obligations under the Purchase Agreement and the Debentures are secured by the following, all of which are included within the Transaction Documents: (i) the Security Agreements; (ii) the Guaranty Agreements; (iii) the Pledge Agreements; (iv) the Validity Certificates; and (v) UCC-1 Financing Statements naming the Credit Parties, as debtors,
and Lender, as secured party (the “UCC-1’s”), among other Transaction Documents; and

 

 

1

 

 

WHEREAS, the Credit Parties are currently in default of their respective obligations under the Purchase Agreement and other Transaction Documents for failing to pay certain sums required under the Purchase Agreement and certain other Transaction Documents, among other defaults (these defaults, together any other default which may be existing as of the date hereof, the
“Existing Defaults”); and

 

WHEREAS, the Credit Parties and Lender desire to desire to resolve the Existing Defaults, and enter into certain agreements with respect to the Purchase Agreement, the Debentures, and the other Transaction Documents, all as more specifically set forth in this Amendment;

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants of the parties hereinafter expressed and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, each intending to be legally bound, agree as follows:

 

1. Recitals. The recitations set forth in the preamble of this Amendment are true and correct and incorporated herein by this reference.

 

2. Capitalized Terms. All capitalized terms used in this Amendment shall have the same meaning ascribed to them in the Purchase Agreement, except as otherwise specifically set forth herein.

 

3. Conflicts. In the event of any conflict or ambiguity by and between the terms and provisions of this Amendment and the terms and provisions of the Purchase Agreement, the terms and provisions of this Amendment shall
control, but only to the extent of any such conflict or ambiguity.

 

4. Modification of Debentures. From and after the date hereof, the Debentures shall be and are hereby combined, and thereafter severed, split, divided and apportioned into two (2) separate and distinct replacement debentures,
as follows:

 

(a) Second Replacement Debenture A evidencing a principal indebtedness of One Hundred Fifty Thousand and No/100 Dollars ($150,000.00), which is being executed and delivered by Borrower to Lender simultaneously herewith (the “Second
Replacement Debenture A”). Second Replacement Debenture A shall be and remain secured by the Security Agreements, the Guaranty Agreements, the Pledge Agreements, the Validity Certificates, the UCC-1’s, and all other applicable Transaction Documents.

 

(b) Second Replacement Debenture B evidencing a principal indebtedness of Two Million Six Hundred Eighty-One Thousand Two Hundred Nine and 82/100 Dollars ($2,681,209.82) (as of April 30, 2016), which is being executed and delivered by Borrower to Lender simultaneously
herewith (the “Second Replacement Debenture B”, and together with Second Replacement Debenture A, collectively, the “Second Replacement Debentures”). Second Replacement Debenture B shall be and remain secured by the Security Agreements, the Guaranty Agreements, the Pledge Agreements, the Validity Certificates, the UCC-1’s, and all other applicable
Transaction Documents.

 

(c) The Second Replacement Debentures are being executed and delivered simultaneously herewith in substitution for and to supersede the Debentures in their entirety. It is the intention of the Borrower and Lender that while the Second
Replacement Debentures replace and supersede the Debentures, in their entirety, they are not in payment or satisfaction of the Debentures, but rather are the substitute of one evidence of debt for another without any intent to extinguish the old. Nothing contained in this Amendment or in the Second Replacement Debentures shall be deemed to extinguish the indebtedness and obligations evidenced by the Debentures
or constitute a novation of the indebtedness evidenced by the Debentures.

 

 

2

 

 

(d) Notwithstanding the splitting of the Debentures into the Second Replacement Debentures in the principal amounts as contemplated by this Amendment, the Credit Parties understand and acknowledge that all sums received by Lender in payment of the Second Replacement
Debentures, or either one of them, shall be applied by Lender in accordance with the terms of the Purchase Agreement, first to outstanding fees, charges and other costs due and payable under the Purchase Agreement and other Transaction Documents, second to accrued and unpaid interest, and last to outstanding principal. By way of example, and not in limitation, if Second Replacement Debenture A is sold as contemplated under the Debt Purchase Agreement, as hereinafter defined, upon Lender’s receipt of the
purchase price therefor, such amounts received by Lender shall be applied to the total indebtedness evidenced by the Second Replacement Debentures in the order described above.

 

(e) Borrower understands and acknowledges that in connection with the Debt Purchase Agreement, it may be necessary or desirable, in Lender’s sole and absolute discretion, to have the Borrower further sever, split, divide and apportion the Second Replacement Debentures
further to accomplish the sale of the Outstanding Claims to Purchaser, as more specifically set forth in the Debt Purchase Agreement. In that regard, within no later than three (3) Business Days after request therefor is made by Lender to Borrower from time to time, the Borrower agrees to further sever, split, divide and apportion the Second Replacement Debentures, or any of them (or any replacement debentures issued in replacement thereof from time to time), and to execute and deliver such replacement debentures
to Lender within such time frames as required or requested by Lender from time to time.

 

(f) Lender acknowledges that the amount of First Closing Advisory Fees and Second Closing Advisory Fees due under the Purchase Agreement has been added and included within the principal balance of the Second Replacement Debentures, and accordingly, Lender agrees to return
to Borrower the Series B Preferred shares previously received by Lender towards payment of such advisory fees.

 

5. Sale of Second Replacement Debentures.

 

(a) The parties acknowledge that Lender is entering into this Amendment, in part, in connection with the contemplated sale of the indebtedness represented by the Second Replacement Debentures to Old Main Capital, LLC, or any other Person who may from
time to time seek to purchase any of such indebtedness (any such Person hereinafter referred to as a “Purchaser”) under the terms of a Debt Purchase Agreement (the “Debt Purchase Agreement”) to be entered into between a Purchaser, Lender, and Borrower. In that regard, the Credit Parties hereby represent and warrant to Lender as follows, which representations
and warranties shall be true and correct as of the date hereof, and which representations and warranties shall be deemed re-made and be true and correct as of each sale of the Second Replacement Debentures (or any replacement debentures issued in replacement thereof from time to time):

 

(i) All amounts of any nature or kind due and owing by the Borrower to Lender under the Purchase Agreement and the other Transaction Documents, and represented by the Second Replacement Debentures or any other Transaction Documents (collectively, the “Outstanding
Claims”) are bona fide Outstanding Claims against the Borrower and are enforceable obligations of the Borrower arising in the ordinary course of business, for services and financial accommodations rendered to the Borrower by Lender in good faith. The Outstanding Claims are currently due and owing and are payable in full.

 

 

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(ii) The amount of the Second Replacement Debentures, respectively and as applicable, is the amount due to Lender with respect thereto as of the date hereof, and neither the Borrower, nor the Guarantors, are entitled to any discounts, allowances or other deductions
with respect thereto. The aggregate amount of the indebtedness evidenced by the Second Replacement Debentures was funded by Lender to Borrower at least [__X___] six months preceding the date hereof, or [_____]  one year preceding the date hereof.

 

(iii) The Outstanding Claims are not subject to dispute by the Credit Parties, and the Credit Parties are unconditionally obligated to pay the full amount of all Outstanding Claims without defense, counterclaim or offset.

 

(iv) Except for the Purchase Agreement and other Transaction Documents, including this Amendment, there has been no modification, compromise, forbearance, or waiver (written or oral) entered into or given by Lender to Credit Parties with respect to the Outstanding Claims.

 

(v) Lender has not filed or commended any action against Credit Parties based on the Outstanding Claims, and no such action will be pending in any court or other legal venue, and no judgments based upon the Outstanding Claims have been previously entered in favor of
Lender in any legal proceeding.

 

(vi) That the Purchase Agreement and each of the Transaction Documents executed by the Credit Parties, respectively and as applicable, and all obligations due and owing thereunder, are valid and binding obligations of the Credit Parties, respectively and as applicable,
enforceable against the Credit Parties in accordance with their respective terms.

 

(b) The Credit Parties acknowledge that the Outstanding Claims, or a portion thereof, are contemplated to be sold by Lender to a Purchaser in accordance with a Debt Purchase Agreement, and that payment of the purchase price by Purchaser to Lender for such Outstanding
Claims may be conditioned upon the Borrower’s strict compliance with the terms of certain agreements to be entered into between the Borrower and Purchaser (the “Exchange Agreements”). If applicable, each of the Credit Parties hereby covenants and agrees to strictly comply with each and every term and provision of the Exchange Agreements, including, without limitation, timely issuance and delivery of Common Stock to Purchaser
upon conversion or exchange by Purchaser of any convertible debentures then in Purchaser’s possession.

 

(c) The Credit Parties understand and acknowledge that Lender is relying on the representations, warranties and covenants of the Credit Parties set forth in this Amendment in order to enter into a Debt Purchase Agreement with a Purchaser, and the foregoing representations,
warranties and acknowledgements by the Credit Parties are a material inducement for Lender to agree to a sale of the Outstanding Claims, or portion thereof, to a Purchaser, and without this acknowledgement, Lender would not have sold the Outstanding Claims, or portion thereof, to Purchaser.

 

6. Payment of Obligations. The Credit Parties hereby agree that all outstanding Obligations due and owing under the Purchase Agreement and other Transaction Documents shall be paid as follows:

 

 

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(a) Payments. As a material inducement for Lender to enter into this Amendment, the Borrower agrees to make payment for all Obligations due under the Purchase Agreement and the other Transaction Documents in accordance
with this Section 6(a). The Borrower shall make payments to Lender in the amounts and on the respective due dates as set forth in the payment schedule attached hereto as Exhibit “A”, until the “Extended Maturity Date” (as hereinafter defined) (each length of time between payment due dates referred to as a “Payment
Period”). Any payments due and owing as set forth in this Section 6(a), or a portion thereof, may be satisfied through: (i) the sale of the Outstanding Claims, or portions thereof, from time to time to a Purchaser under a Debt Purchase Agreement; or (ii) payments that Borrower has agreed are to be remitted to Lender in connection with a transaction between Borrower and Chicago Ventures (the “Payment
Methods”), such that if Lender receives any sums during any Payment Period from any of the Payment Methods, then the Dollar amount of the sums so received by Lender from the Payment Methods during such Payment Period shall be credited towards the payment due from the Borrower on the subsequent payment due date as follows: (A) if the Dollar amount of the sums received by Lender from any of the Payment Methods during any Payment Period is equal to or greater than the payment due on the subsequent payment
due date, then no further payment shall be due from Borrower on such subsequent payment due date; (B) if the Dollar amount of the sums received by Lender from any of the Payment Methods during any Payment Period is less than the payment due on the subsequent payment due date, then Borrower shall be liable for and obligated to pay to Lender, on such subsequent payment due date, the difference between the amount of that payment and the Dollar amount of the sums received by Lender from any of the Payment Methods
during such Payment Period; and (C) if no sums are received by Lender from any of the Payment Methods during any Payment Period, for whatever reason, then the Borrower shall be liable and obligated to timely make the payment in full when due on the subsequent payment due date.

 

(b) Maturity Date.  The Purchase Agreement is hereby amended such that the Maturity Date shall be extended to the earlier to occur of: (i) April 28, 2018; or (ii) the occurrence of any Future Default and acceleration
of all Obligations pursuant to this Agreement and the Purchase Agreement (the “Extended Maturity Date”). Notwithstanding anything contained in this Agreement to the contrary, all Obligations owing by the Borrower and all other Credit Parties under the Purchase Agreement, and all other Transaction Documents shall be paid in full by the Extended Maturity Date.

 

7. Ratification. The Credit Parties each hereby acknowledge, represent, warrant and confirm to Lender that: (i) each of the Transaction Documents executed by the Credit Parties are valid and binding obligations of the
Credit Parties, respectively and as applicable, enforceable against the Credit Parties in accordance with their respective terms; (ii) all Obligations of the Credit Parties under the Purchase Agreement, all other Transaction Documents and this Amendment, shall be and continue to be and remain (after execution of this Amendment and any Debt Purchase Agreement) secured by and under the Transaction Documents, including the Security Agreements, the Guaranty Agreements, the Pledge Agreements, the Validity Certificates,
and the UCC-1’s; and (iii) no oral representations, statements, or inducements have been made by Lender, or any agent or representative of Lender, with respect to the Purchase Agreement, this Amendment, or any other Transaction Documents, or any Debt Purchase Agreement.

 

8. Additional Confirmations. The Credit Parties hereby represent, warrant and covenant as follows: (i) that the Lender’s Liens and security interests in all of the “Collateral” (as such term is defined
in the Purchase Agreement and each of the Security Agreements) are and remain valid, perfected, first-priority security interests in such Collateral, subject only to Permitted Liens, and none of the Credit Parties have granted any other Liens or security interests of any nature or kind in favor of any other Person affecting any of such Collateral.

 

 

5

 

 

9. Lender’s Conduct. As of the date of this Amendment, the Credit Parties hereby acknowledge and admit that: (i) the Lender has acted in good faith and has fulfilled and fully performed all of its obligations under
or in connection with the Purchase Agreement or any other Transaction Documents; and (ii) that there are no other promises, obligations, understandings or agreements with respect to the Purchase Agreement or the Transaction Documents, except as expressly set forth herein, or in the Purchase Agreement and other Transaction Documents.

 

10. Redefined Terms. The term “Transaction Documents,” as defined in the Purchase Agreement and as used in this Amendment, shall be deemed to refer to and include this Amendment, the Second Replacement Debentures,
and all other documents or instruments executed in connection with this Amendment.

 

11. Affirmation of Guaranty Agreements. The Guarantors do hereby acknowledge and agree as follows: (i) Guarantors acknowledge having reviewed the terms of this Amendment, and agree to the terms thereof; (ii) that the Guaranty
Agreements, and all representations, warranties, covenants, agreements and guaranties made by Guarantors thereunder, and any other Transaction Documents by which the Guarantors may be bound, shall and do hereby remain, are effective and continue to apply to the Transaction Documents, and with respect to all Obligations of the Borrower under the Transaction Documents, as amended by this Amendment; (iii) that this Amendment shall not in any way adversely affect or impair the obligations of the Guarantors to Lender
under any of the Transaction Documents; and (iv) the Guaranty Agreements are hereby ratified, confirmed and continued, all as of the date of this Amendment.

 

12. Representations and Warranties of the Borrower and Guarantors. The Borrower and Guarantors hereby make the following representations and warranties to the Lender:

 

(a) Authority and Approval of Agreement; Binding Effect. The execution and delivery by the Borrower and Guarantors of this Amendment, the Second Replacement Debentures, and all other documents executed and delivered in
connection herewith and therewith, and the performance by Borrower and Guarantors of all of their respective Obligations hereunder and thereunder, have been duly and validly authorized and approved by the Borrower and the Guarantors and their respective board of directors, managers, members, or other governing board or committee pursuant to all applicable laws and no other corporate action or consent on the part of the Borrower, the Guarantors, their board of directors, members, managers, stockholders, or any
other Person is necessary or required by the Borrower and Guarantors to execute this Amendment, the Second Replacement Debentures, and the documents executed and delivered in connection herewith and therewith, to consummate the transactions contemplated herein or therein, or perform all of the Borrower’s and Guarantors’ obligations hereunder or thereunder. This Amendment, the Second Replacement Debentures, and each of the documents executed and delivered in connection herewith and therewith have been
duly and validly executed by the Borrower and the Guarantors (and the officer executing this Amendment and all such other documents for each Borrower and Guarantors is duly authorized to act and execute same on behalf of each Borrower and Guarantors) and constitute the valid and legally binding agreements of the Borrower and Guarantors, enforceable against the Borrower and Guarantors in accordance with their respective terms.

 

 

6

 

 

13. Indemnification. Each of the Credit Parties, jointly and severally, hereby indemnifies and holds the Buyer Indemnified Parties, their successors and assigns, and each of them, harmless from and against any and all
charges, complaints, claims, counter-claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, cross-actions, threats, setoffs, equities, judgments, accounts, suits, liens, rights, demands, benefits, costs, losses, debts, expenses, and other distributions, of every kind and nature whatsoever, payable by any of the Buyer Indemnified Parties to any Person, including reasonable attorneys’ and paralegals’ fees and expenses, court costs, settlement amounts,
costs of investigation and interest thereon from the time such amounts are due at the highest non-usurious rate of interest permitted by applicable law (collectively, the “Claims”), through all negotiations, mediations, arbitrations, trial and appellate levels, as a result of, or arising out of, or relating to any matters relating to this Amendment, the Purchase Agreement, or any other Transaction Documents. The foregoing indemnification
obligations shall survive the termination of the Purchase Agreement or any of the Transaction Documents, and repayment of the Obligations.

 

14. Waiver and Release.  Each of the Credit Parties hereby represents and warrants to Lender that none of them have any defenses, setoffs, claims, counterclaims, cross-actions, equities, or any other Claims in favor
of the Credit Parties, to or against the enforcement of any of the Transaction Documents, and to the extent any of the Credit Parties have any such defenses, setoffs, claims, counterclaims, cross-actions, equities, or other Claims against Lender and/or against the enforceability of any of the Transaction Documents, the Credit Parties each acknowledge and agree that same are hereby fully and unconditionally waived by the Credit Parties.  In addition to the foregoing full and unconditional waiver, each of
the Credit Parties does hereby release, waive, discharge, covenant not to sue, acquit, satisfy and forever discharges each of the Buyer Indemnified Parties and their respective successors and assigns, from any and all Claims whatsoever, in law or in equity, whether known or unknown, whether suspected or unsuspected, whether fixed or contingent, which the Credit Parties ever had, now have, or which any successor or assign of the Credit Parties hereafter can, shall, or may have against any of the Buyer Indemnified
Parties or their successors and assigns, for, upon or by reason of any matter, cause or thing whatsoever, from the beginning of the world through and including the date hereof, including, without limitation, any matter, cause, or thing related to the Purchase Agreement, this Amendment, the Original Debentures, the Debentures, the Second Replacement Debentures, or any other Transaction Documents (collectively, the “Released Claims”). 
Without in any manner limiting the generality of the foregoing waiver and release, Credit Parties hereby agree and acknowledge that the Released Claims specifically include: (i) any and all Claims regarding or relating to the enforceability of the Transaction Documents as against any of the Credit Parties; (ii) any and all Claims regarding, relating to, or otherwise challenging the governing law provisions of the Transaction Documents; (iii) any and all Claims regarding or relating to  the amount of principal,
interest, fees or other Obligations due from any of the Credit Parties to the Lender under any of the Transaction Documents; (iv) any and all Claims regarding or relating to Lender’s conduct or Lender’s failure to perform any of Lender’s covenants or obligations under any of the Transaction Documents; (v) any and all Claims regarding or relating to any delivery or failure to deliver any notices by Lender to Credit Parties; (vi) any and all Claims regarding or relating to any failure by Lender
to fund any advances or other amounts under any of the Transaction Documents; (vii) any and all Claims regarding or relating to any advisory services (or the lack thereof) provided by Lender to any of the Credit Parties for which any advisory fees may be due and owing and included within the Obligations; and (viii) any and all Claims based on grounds of public policy, unconscionability, or implied covenants of fair dealing and good faith. The Credit Parties further expressly agree that the foregoing release and
waiver agreement is intended to be as broad and inclusive as permitted by the laws governing the Transaction Documents, and the Released Claims include all Claims that the Credit Parties do not know or suspect to exist, whether through ignorance, oversight, error, negligence, or otherwise, and which, if known, would materially affect their decision to enter into this Amendment.  The foregoing waiver and release agreements by the Credit Parties are a material inducement for Lender to enter into this Amendment,
and Lender’s agreement to enter into this Amendment is separate and material consideration to the Credit Parties for the waiver and release agreements contained herein, the receipt and sufficiency of such consideration hereby acknowledged by Credit Parties. In addition, each of the Credit Parties agrees and acknowledges that it has had an opportunity to negotiate the terms and provisions of this Amendment, including the foregoing waiver and release agreements, with and through their own competent counsel,
and that each of the Credit Parties have sufficient leverage and economic bargaining power, and have used such leverage and economic bargaining power, to fairly and fully negotiate this Amendment, including the waiver and release agreements herein, in a manner that is acceptable to the Credit Parties.  The foregoing waiver and release agreements shall survive the termination of the Purchase Agreement or any of the Transaction Documents, and repayment of the Obligations.

 

 

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15. Effect on Agreement and Transaction Documents. Except as expressly amended by this Amendment, all of the terms and provisions of the Purchase Agreement and the Transaction Documents shall remain and continue in full
force and effect after the execution of this Amendment, are hereby ratified and confirmed, and incorporated herein by this reference.

 

16. Default. In addition to the Events of Default under the Purchase Agreement, any breach or default by Credit Parties under this Amendment, which breach or default is not cured within ten (10) calendar days after notice
of such breach or default is given to the Credit Parties, shall be deemed an immediate “Event of Default” under the Purchase Agreement, and such Events of Default hereunder include, without limitation, the following: (i) failure by Borrower to consummate any and all of the Purchase Tranche Closings, as such term is defined in the Debt Purchase Agreement, because of any of the conditions described in Section 3(b) of the Debt Purchase Agreement; or (ii)
any other failure of the Credit Parties, or any one of them, to comply with, satisfy, or perform any term, provision, covenant or agreement of the Credit Parties under this Amendment or any of the Exchange Agreements.

 

17. Waiver; Forbearance. The parties recognize and acknowledge that by entering into this Amendment, the Lender is not waiving any rights or remedies it may have under any of the Transaction Documents, or any defaults
or Events of Default arising thereunder, including the Existing Defaults (collectively, the “Existing Rights”); provided, however, that Lender hereby agrees that it shall not thereafter enforce, and Lender shall thereafter forbear from pursuing enforcement of, any of its Existing Rights, unless and until an additional default or Event of Default occurs under this Amendment, the Purchase Agreement, or any other Transaction Documents
(a “Future Default”), whereupon the foregoing forbearance shall automatically become null and void and of no further force or effect, without any further notice or demand from Lender, and Lender shall have the absolute right to pursue and obtain all Existing Rights.

 

18. Consultation with Counsel. Credit Parties represent that they have fully reviewed this Amendment with their respective attorneys and understand the legal effect of this Amendment, and each of the Credit Parties represents
that having understood the legal effects of this Amendment, each of them has freely and voluntarily consented to and authorized this Amendment.

 

19. Execution. This Amendment may be executed in one or more counterparts, all of which taken together shall be deemed and considered one and the same Amendment. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format file or other similar format file, such signature shall be deemed an original for all purposes and shall create a valid and binding obligation of the party executing same with the same force and effect as if such facsimile or “.pdf” signature page was an original thereof.

 

 

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20. Fees and Expenses.

 

(a) Document Review and Legal Fees; Due Diligence. The Borrower hereby agrees to pay to the Lender or its counsel a legal fee equal to Four Thousand Five Hundred and No/100 Dollars ($4,500.00) for the preparation, negotiation
and execution of this Amendment and all other documents in connection herewith, which legal fee and costs, to the extent not previously paid, shall be paid simultaneously with the execution of this Amendment.

 

[Signatures on the following page]

 

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the day and year first above written.

 

BORROWER:

 

GROWLIFE, INC., a Delaware

corporation

 

 

By:            /s/ Marco Hegyi

Name:       Marco Hegyi

Title:         Chief Executive Officer

 

GUARANTORS:

	
EVERGREEN GARDEN CENTERS LLC, 
	
GROWLIFE HYDROPONICS, INC.,

	a Delaware limited liability company	
 a Delaware corporation

	
 
	
 

	
By:            /s/ Marco Hegyi
	
 By: /s/ Marco Hegyi

	Name:       Marco Hegyi	
 Name: Marco Hegyi

	
Title:         Chief Executive Officer
	
 Title: Chief Executive Officer

 

 

ROCKY MOUNTAIN HYDROPONICS, a

Colorado limited liability company

 

 

By:            /s/ Marco Hegyi

Name:       Marco Hegyi

Title:         Chief Executive Officer

 

LENDER:

 

TCA GLOBAL CREDIT MASTER FUND, LP

 

By:            TCA Global Credit Fund GP, Ltd.

Its:            General Partner

 

By:            /s/ Robert Press

   Robert Press, Director

 

 

 

10

 

EXHIBIT “A”

 

PAYMENT SCHEDULE

 

 

	
Payment Date
	
Payment No.
	
Interest Payment
	
Prin. Payment
	
Total Payable
	
Balance Outstanding

	
5/30/2016
	
1
	
$42,468.15
	
 
	
$42,468.15
	
 

	
6/30/2016
	
2
	
$42,468.15
	
 
	
$42,468.15
	
 

	
7/30/2016
	
3
	
$42,468.15
	
 
	
$42,468.15
	
 

	
8/30/2016
	
4
	
$42,468.15
	
$36,615.32
	
$79,083.47
	
$2,831,209.82

	
9/30/2016
	
5
	
$41,918.92
	
$37,164.55
	
$79,083.47
	
$2,794,594.50

	
10/30/2016
	
6
	
$41,361.45
	
$37,722.02
	
$79,083.47
	
$2,757,429.95

	
11/30/2016
	
7
	
$40,795.62
	
$38,287.85
	
$79,083.47
	
$2,719,707.93

	
12/30/2016
	
8
	
$40,221.30
	
$38,862.17
	
$79,083.47
	
$2,681,420.08

	
1/30/2017
	
9
	
$39,638.37
	
$39,445.10
	
$79,083.47
	
$2,642,557.91

	
2/28/2017
	
10
	
$39,046.69
	
$150,047.48
	
$189,094.18
	
$2,603,112.81

	
3/28/2017
	
11
	
$36,795.98
	
$152,298.20
	
$189,094.18
	
$2,453,065.32

	
4/28/2017
	
12
	
$34,511.51
	
$154,582.67
	
$189,094.18
	
$2,300,767.13

	
5/28/2017
	
13
	
$32,192.77
	
$156,901.41
	
$189,094.18
	
$2,146,184.46

	
6/28/2017
	
14
	
$29,839.25
	
$159,254.93
	
$189,094.18
	
$1,989,283.05

	
7/28/2017
	
15
	
$27,450.42
	
$161,643.75
	
$189,094.18
	
$1,830,028.12

	
8/28/2017
	
16
	
$25,025.77
	
$164,068.41
	
$189,094.18
	
$1,668,384.36

	
9/28/2017
	
17
	
$22,564.74
	
$166,529.44
	
$189,094.18
	
$1,504,315.95

	
10/28/2017
	
18
	
$20,066.80
	
$169,027.38
	
$189,094.18
	
$1,337,786.51

	
11/28/2017
	
19
	
$17,531.39
	
$171,562.79
	
$189,094.18
	
$1,168,759.13

	
12/28/2017
	
20
	
$14,957.95
	
$174,136.23
	
$189,094.18
	
$997,196.35

	
1/28/2018
	
21
	
$12,345.90
	
$176,748.27
	
$189,094.18
	
$823,060.11

	
2/28/2018
	
22
	
$9,694.68
	
$179,399.50
	
$189,094.18
	
$646,311.84

	
3/28/2018
	
23
	
$7,003.69
	
$182,090.49
	
$189,094.18
	
$466,912.34

	
4/28/2018
	
24
	
$4,272.33
	
$284,821.85
	
$289,094.18
	
$284,821.85

	
 
	
 
	
 
	
 
	
 
	
 

 

 

11Blueprint

 

Exhibit 10.2

 

NEITHER THIS DEBENTURE NOR THE SECURITIES THAT ARE ISSUABLE TO THE HOLDER UPON CONVERSION HEREOF (COLLECTIVELY, THE “SECURITIES”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THE SECURITIES NOR ANY INTEREST OR PARTICIPATION
THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED: (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT OR APPLICABLE STATE SECURITIES LAWS; OR (II) IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR; (III) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 UNDER THE 1933 ACT.

 

BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SEC 6049(B)(4) OF THE INTERNAL REVENUE CODE AND REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SEC. 6049(B)(4) OF
THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).

 

SECOND REPLACEMENT DEBENTURE A

 

$150,000.00  Issuance and Effective Date: as of April 30, 2016

 

FOR VALUE RECEIVED, GROWLIFE, INC., a Delaware corporation (the “Borrower”), whose address is 500 Union Street, Suite 810, Seattle, WA 98101, promises to pay to the order of TCA GLOBAL CREDIT MASTER FUND, LP (hereinafter,
together with any holder hereof, “Lender”), whose address is 3960 Howard Hughes Parkway, Suite 500, Las Vegas, Nevada 89169, ONE HUNDRED FIFTY THOUSAND NO/100 DOLLARS ($150,000.00), together with interest (computed on the actual number of days elapsed on the basis of a 360 day year) thereon and all other fees, charges and all other Obligations due and payable in accordance with the terms of that
certain Securities Purchase Agreement dated as of April 30, 2015, but made effective as of July 9, 2015, executed by and among Borrower and Lender (the “Original Purchase Agreement”), as supplemented by that certain Securities Purchase Agreement dated as of April 30, 2015, but made effective as of August 6, 2015 (the “Supplemental Purchase Agreement”), together
with Amended and Restated Purchase Agreement dated as of October 27, 2015 (the “Restated Purchase Agreement”), as further amended by that certain First Amendment to Amended and Restated Purchase Agreement dated as of even date herewith (the “First Amendment”) (the Original Purchase Agreement, the Supplemental Purchase Agreement, the Restated Purchase Agreement,
and the First Amendment, together with all other renewals, extensions, future advances, amendments, modifications, substitutions, or replacements thereof, sometimes collectively referred to as the “Purchase Agreement”). Capitalized words and phrases not otherwise defined herein shall have the meanings assigned thereto in the Purchase Agreement.

 

 

1

 

 

This Second Replacement Debenture A (“Debenture”), along with the Second Replacement Debenture B being executed by Borrower simultaneously herewith (“Debenture B”), evidence the Debentures and other Obligations incurred
by the Borrower under and pursuant to the Purchase Agreement, to which reference is hereby made for a statement of the terms and conditions under which any payment hereon may be accelerated. The holder of this Debenture is entitled to all of the benefits and security provided for in the Purchase Agreement and all other Transaction Documents executed by and between Borrower and Lender.

 

This Debenture, along with Debenture B being executed and delivered simultaneously herewith, are being both executed in substitution for and to supersede the existing Amended, Restated, and Consolidated Senior Secured, Convertible, Redeemable Debenture dated as of October 16, 2015, but made effective as of October 27, 2015, as well as that certain Senior Secured, Convertible,
Redeemable Debenture dated as of April 30, 2015, but made effective as of August 6, 2015 (collectively, the “Existing Debentures”), in their entirety. It is the intention of the Borrower and Lender that while this Debenture and Debenture B replace and supersede the Existing Debentures, in their entirety, it is not in payment or satisfaction of the Existing Debentures, but rather is the substitute of one
evidence of debt for another without any intent to extinguish the old. Nothing contained in this Debenture or Debenture B shall be deemed to extinguish the indebtedness and obligations evidenced by the Existing Debentures or constitute a novation of the indebtedness evidenced by the Existing Debentures.

 

Principal, interest and other fees and charges shall be paid to Lender as set forth in the Purchase Agreement, or at such other place as the holder of this Debenture shall designate in writing to Borrower. Each Debenture made by Lender, and all payments on account of the principal and interest thereof shall be recorded on the
books and records of Lender and the principal balance as shown on such books and records, or any copy thereof certified by an officer of Lender, shall be rebuttably presumptive evidence of the principal amount owing hereunder.

 

Except for such notices as may be required under the terms of the Purchase Agreement, Borrower waives presentment, demand, notice, protest, and all other demands, or notices, in connection with the delivery, acceptance, performance, default, or enforcement of this Debenture, and assents to any extension or postponement of the time of payment or any other indulgence.

 

Borrower shall be solely responsible for the payment of any and all documentary stamps and other taxes applicable to the full face amount of this Debenture.

This Debenture shall be governed and construed in accordance with the laws of the State of Nevada, and shall be binding upon Borrower and their legal representatives, successors, and assigns. Wherever possible, each provision of the Purchase Agreement and this Debenture shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision
of the Purchase Agreement or this Debenture shall be prohibited by or be invalid under such law, such provision shall be severable, and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of the Purchase Agreement or this Debenture.

 

 

2

 

 

Nothing herein contained, nor in any instrument or transaction relating hereto, shall be construed or so operate as to require any Borrower, or any person liable for the payment of this Debenture, to pay interest in an amount or at a rate grater than the highest rate permissible under applicable law. By acceptance hereof, Lender hereby warrants and represents to Borrower
that Lender has no intention of charging a usurious rate of interest. Should any interest or other charges paid by Borrower, or any parties liable for the payments made pursuant to this Debenture, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, any and all such excess shall be and the same is hereby waived by the holder hereof. Lender shall make adjustments in the Debenture or Purchase Agreement, as applicable, as necessary to ensure that Borrower
will not be required to pay further interest in excess of the amount permitted by applicable law. All such excess shall be automatically credited against and in reduction of the outstanding principal balance. Any portion of such excess which exceeds the outstanding principal balance shall be paid by the holder hereof to the Lender and any parties liable for the payment of this Debenture, it being the intent of the parties hereto that under no circumstances shall Borrower, or any party liable for the payments
hereunder, be required to pay interest in excess of the highest rate permissible under applicable law.

 

THE HOLDER IS A NON-U.S. PERSON AS THAT TERM IS DEFINED IN THE UNITED STATES INTERNAL REVENUE CODE.  IT IS HEREBY AGREED AND UNDERSTOOD THAT THE OBLIGATIONS HEREUNDER MAY BE SOLD OR RESOLD ONLY TO NON-U.S. PERSONS.  THE INTEREST PAYABLE HEREUNDER IS PAYABLE ONLY OUTSIDE THE UNITED STATES.  ANY U.S. PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS
UNDER THE UNITED STATES INCOME TAX LAW.

 

Conversion of Debenture. At any time and from time to time while this Debenture is outstanding, but only upon the occurrence of an Event of Default under the Purchase Agreement or any other Transaction Documents, this Debenture may be, at the sole option of the Lender, convertible into shares of the common stock, par value
$0.0001 per share (the “Common Stock”) of Borrower, in accordance with the terms and conditions set forth below.

 

(a)           Voluntary Conversion. At any time while this Debenture is outstanding, but only upon the occurrence of an Event of Default under the Purchase Agreement or any other Transaction Documents, the Lender may convert all or any portion of the outstanding principal,
accrued and unpaid interest, and any other sums due and payable hereunder or under the Purchase Agreement (such total amount, the “Conversion Amount”) into shares of Common Stock of the Borrower (the “Conversion Shares”) at a price equal to: (i) the Conversion Amount (the numerator); divided by (ii) eighty-five percent
(85%) of the lowest of the daily volume weighted average price of the Borrower’s Common Stock during the five (5) Business Days immediately prior to the Conversion Date, which price shall be indicated in the conversion notice (in the form attached hereto as Exhibit “A”, the “Conversion Notice”) (the denominator) (the “Conversion
Price”). The Lender shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered.

 

 

3

 

 

(b)           The Lender’s Conversion Limitations. The Borrower shall not effect any conversion of this Debenture, and the Lender shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth
on the Conversion Notice submitted by the Lender, the Lender (together with the Lender’s Affiliates and any Persons acting as a group together with the Lender or any of the Lender’s Affiliates) would beneficially own shares of Common Stock in excess of the Beneficial Ownership Limitation (as defined herein). To ensure compliance with this restriction, prior to delivery of any Conversion Notice, the Lender shall have the right to request that the Borrower provide to the Lender a written statement of
the percentage ownership of the Borrower’s Common Stock that would be beneficially owned by the Lender and its Affiliates in the Borrower if the Lender converted such portion of this Debenture then intended to be converted by Lender. The Borrower shall, within two (2) Business Days of such request, provide Lender with the requested information in a written statement, and the Lender shall be entitled to rely on such written statement from the Borrower in its Conversion Notice and ensuring that its ownership
of the Borrower’s Common Stock is not in excess of the Beneficial Ownership Limitation. The restriction described in this Section may be waived by Lender, in whole or in part, upon notice not less than sixty-one (61) days prior written notice from the Lender to the Borrower to increase such percentage.

 

For purposes of this Debenture, the “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture.  The limitations contained in this
Section shall apply to a successor holder of this Debenture. For purposes of this Debenture, “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof.

 

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

 

(1)           To convert this Debenture into shares of Common Stock on any date set forth in the Conversion Notice by the Lender (the “Conversion Date”), the Lender shall transmit by facsimile or electronic mail (or otherwise deliver) a
copy of the fully executed Conversion Notice to the Borrower (or, under certain circumstances as set forth below, by delivery of the Conversion Notice to the Borrower’s transfer agent).

 

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

 

 

4

 

 

(3)           Record Lender. The Person(s) entitled to receive the shares of Common Stock issuable upon a conversion of this Debenture shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the Conversion Date.

 

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

 

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

 

 

5

 

 

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

 

(d)           Make-Whole Rights. Upon liquidation by the Lender of Conversion Shares issued pursuant to a Conversion Notice, provided that the Lender realizes a net amount
from such liquidation equal to less than the Conversion Amount specified in the relevant Conversion Notice (such net realized amount, the “Realized Amount”), the Borrower shall issue to the Lender additional shares of the Borrower’s Common Stock equal to: (i) the Conversion Amount specified in the relevant Conversion Notice; minus (ii) the Realized Amount, as evidenced by a reconciliation
statement from the Lender (a “Sale Reconciliation”) showing the Realized Amount from the sale of the Conversion Shares; divided by (iii) the average volume weighted average price of the Borrower’s Common Stock during the five (5) Business Days immediately prior to the date upon which the Lender delivers notice (the “Make-Whole
Notice”) to the Borrower that such additional shares are requested by the Lender (the “Make-Whole Stock Price”) (such number of additional shares to be issued, the “Make-Whole Shares”). Upon receiving the Make-Whole Notice and Sale Reconciliation evidencing the number of Make-Whole Shares requested, the Borrower shall instruct its transfer agent
to issue certificates representing the Make-Whole Shares, which Make whole Shares shall be issued and delivered in the same manner and within the same time frames as set forth in Subsection (c)(2) above. Subsections (c)(3), (c)(4), (c)(5) and (c)(6) above shall be applicable to the issuance of the Make-Whole Shares. The Make-Whole Shares, when issued, shall be deemed to be validly issued, fully paid, and non-assessable shares of the Borrower’s Common Stock. Following the sale of the Make-Whole Shares by
the Lender: (i) in the event that the Lender receives net proceeds from such sale which, when added to the Realized Amount from the prior relevant Conversion Notice, is less than the Conversion Amount specified in the relevant Conversion Notice, the Lender shall deliver an additional Make-Whole Notice to the Borrower following the procedures provided previously in this paragraph, and such procedures and the delivery of Make-Whole Notices shall continue until the Conversion Amount has been fully satisfied; (ii)
in the event that the Lender received net proceeds from the sale of Make-Whole Shares in excess of the Conversion Amount specified in the relevant Conversion Notice, such excess amount shall be applied to satisfy any and all amounts owed hereunder in excess of the Conversion Amount specified in the relevant Conversion Notice.

 

 

6

 

 

(e)           Adjustments to Conversion Price.

 

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

 

(2)           Fundamental Transaction. If, at any time while this Debenture is outstanding: (i) the Borrower effects any merger or consolidation of the Borrower with or into another Person, (ii) the Borrower effects any sale of all or substantially all of its assets
in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Borrower or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Borrower effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such
case, a “Fundamental Transaction”), then upon any subsequent conversion of this Debenture, the Lender shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if
it had been, immediately prior to such Fundamental Transaction, the holder of one (1) share of Common Stock (the “Alternate Consideration”).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction,
and the Borrower shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Lender shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction.  To
the extent necessary to effectuate the foregoing provisions, any successor to the Borrower or surviving entity in such Fundamental Transaction shall issue to the Lender a new debenture consistent with the foregoing provisions and evidencing the Lender’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section
and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

 

7

 

 

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

 

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

 

 

[SIGNATURE PAGE FOLLOWS]

 

 

8

 

 

IN WITNESS WHEREOF, the Borrower has executed this Debenture as of the date set forth above.

 

BORROWER:

 

GROWLIFE, INC., a Delaware corporation

 

 

By:            /s/ Marco Hegyi

Name:       Marco Hegyi

Title:         Chief Executive Officer

 

 

 

 

 

 

 

9

 

EXHIBIT “A”

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal, interest, and other Obligations under the Revolving Debenture (the “Debenture”) of GROWLIFE, INC., a Delaware corporation (the “Borrower”),
into shares of common stock, par value $0.0001 per share (the “Common Shares”), of the Borrower in accordance with the conditions of the Debenture, as of the date written below.  

 

Based solely on information provided by the Borrower to Holder, the undersigned represents and warrants to the Borrower that its ownership of the Common Shares does not exceed the Beneficial Ownership Limitation determined in accordance with Section 13(d) of the Exchange Act of 1934, as amended, as specified under the Debenture.

 

Conversion calculations

Effective Date of Conversion:                                                                                                 _______________________

Principal Amount and/or Interest to be Converted:                                                                    
_______________________

Number of Common Shares to be Issued:                                                                                
_______________________

 

[HOLDER]

 

By: _____________________________

 

Name: __________________________

 

Title: ____________________________

 

Address: _________________________

             

            __________________________

 

            __________________________

 

 

 

10

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