Document:

ex10_1.htm

Exhibit 10.1

 

 

THIS 7% CONVERTIBLE NOTE (THIS “NOTE”) IS ISSUED IN EXCHANGE FOR THE REVOLVING PROMISSORY NOTE ORIGINALLY ISSUED ON JUNE 7, 2013 BY THE COMPANY TO W-NET FUND I, L.P., AND AMENDED ON AUGUST 6, 2013 (the “EXCHANGED NOTE”).

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.

 

THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THIS NOTE IN THE EVENT OF A PARTIAL REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND ACCRUED INTEREST SET FORTH BELOW.

 

GROWLIFE, INC.

 

7% CONVERTIBLE NOTE

 

Issuance Date:  August 27, 2013

Original Issuance Date for which this Note was Exchanged:  June 7, 2013

Original Principal Amount:  $750,000

 

FOR VALUE RECEIVED, GROWLIFE, INC., a Delaware corporation (the “Company”), hereby promises to pay to the order of W-NET FUND I, L.P., a Delaware limited partnership, or registered assigns (the “Holder”), the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate (as defined below) from the dates set forth below until the same becomes due and payable, upon the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof).  This Note is hereby issued in exchange for the Exchanged Note.  Upon the execution and delivery of this Note, the Exchanged Note shall be cancelled and null and void.

 

  

  

  

 

	
  

	
1.

	
General Terms.

 

(a)           Payment of Principal. The “Maturity Date” shall be September 30, 2015.

 

(b)           Interest. Interest on (i) $550,000 of the unpaid Principal shall accrue daily at the rate of seven percent (7%) (the “Interest Rate”) per annum commencing on June 10, 2013 and compounding on the Maturity Date, (ii) $75,000 of the unpaid Principal shall accrue daily at the Interest Rate commencing on August 6, 2013 and compounding on the Maturity Date and (iii) $125,000 of the unpaid Principal shall accrue daily at the Interest Rate commencing on August 27, 2013 and compounding on the Maturity Date; provided that from and after the occurrence and during the continuance of an Event of Default (as defined below) interest shall accrue all of the unpaid Principal hereunder at the lesser of the default rate of twenty-four percent (24%) per annum or the maximum rate permitted under any applicable law (the “Default Rate”).

	  

 

(c)           Security.  This Note shall not be secured by any collateral or any assets pledged to the Holder.

 

	
  

	
2.

	
Events of Default.

 

 

(a)           Event of Default.  An “Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

(i)           The Company’s failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as due under this Note (including, without limitation, the Company’s failure to pay any redemption payments or amounts hereunder);

 

(ii)           A Conversion Failure as defined in Section 3(b)(ii) hereof;

 

(iii)           The Company or any subsidiary of the Company shall commence, or there shall be commenced against the Company or any subsidiary of the Company under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any subsidiary of the Company or there is commenced against the Company or any subsidiary of the Company any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of sixty-one (61) days; or the Company or any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary of the Company suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty-one (61) days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or the Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the foregoing;

 

  

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(iv)           The Company or any subsidiary of the Company shall default in any of its obligations under any other note or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any subsidiary of the Company in an amount exceeding $100,000, whether such indebtedness now exists or shall hereafter be created;

 

(v)           The common stock of the Company (“Common Stock”) is suspended or delisted for trading on the Over the Counter Bulletin Board market (the “Primary Market”) and the OTCQB;

 

(vi)           The Company loses its status as “DTC Eligible”; or

 

(vii)           The Company shall become late or delinquent in its filing requirements as a fully-reporting issuer registered with the Securities & Exchange Commission.

 

(b)           Cure Period.  Upon receiving a written notice of the occurrence of an Event of Default, the Company shall have a grace period of five (5) Business Days to cure such Event of Default.

 

(c)           Remedies Upon Event of Default.  In addition to any other remedies provided for herein, while an Event of Default occurs and is continuing, the outstanding Principal, plus accrued but unpaid Interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount.  The “Mandatory Default Amount” is equal to the greater of (i) one hundred twenty percent (120%) of the outstanding Principal (plus all accrued and unpaid Interest, if any) and (ii) the product of (A) the highest closing price for the five (5) days on which the principal Primary Market is open for business (a “Trading Day”) immediately preceding the Holder’s acceleration and (B) a fraction, of which the numerator is the entire outstanding Principal, and of which the denominator is the Conversion Price as of the date such ratio is being determined.  After the occurrence and during the continuance of any Event of Default, the interest rate on this Note shall accrue at the applicable Default Rate.  Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by the Company.  In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately 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 the Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of this Note until such time, if any, as the Holder receives full payment pursuant to this Section 2(c).  No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

  

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3.      Conversion of Note.  This Note shall be convertible into shares of Common Stock, on the terms and conditions set forth in this Section 3.

 

(a)           Conversion Right.  Subject to the provisions of Section 3(c), at any time or times on or after the date set out above as the Issuance Date (the “Issuance Date”), the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(b), at the Conversion Price (as defined below) subject to the Conversion Minimum (as defined below).  The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 3(a) shall be equal to the quotient of dividing the Conversion Amount by the Conversion Price (“Conversion Shares”).  The Company shall not issue any fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.  The Company shall pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection with the issuance of shares of Common Stock to the Holder arising out of or relating to the conversion of this Note.

 

(i)           “Conversion Amount” means the portion of the Principal and Interest to be converted, plus any penalties, redeemed or otherwise with respect to which this determination is being made.

 

(ii)           For the period of time from the date of this note through and including September 30, 2014, “Conversion Price” shall equal the lesser of (A) $0.025 and (B) seventy percent (70%) of the average of the three (3) lowest daily VWAPs occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note, and for the period of time thereafter “Conversion Price” shall equal $0.025.

 

(iii)           “Conversion Minimum” shall, unless otherwise approved in writing by the Company, constitute any individual conversion of at least an amount equal to $25,000 of the Principal.

 

(iv)           “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Primary Market; (b) if the Common Stock is not then quoted for trading on the Primary Market and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

 

  

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(b)           Mechanics of Conversion.

 

(i)           Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York, NY Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the “Conversion Notice”) to the Company.  On or before the third (3rd) Business Day following the date of receipt of a Conversion Notice, the Company shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule 144”) and provided that the Company’s transfer agent is participating in the Depository Trust Company's (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC, or (B) if the Company’s transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144.  If this Note is physically surrendered for conversion and the outstanding Principal is greater than the Principal portion of the Conversion Amount being converted, then the Company shall, upon request of the Holder, as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note representing the outstanding Principal not converted.  The individual, corporation, partnership, limited liability company, limited liability partnership, trust, association, organization or other entity (each a “Person”) entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice.  For the purposes hereof, the term “Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of California are authorized or required by law or other governmental action to close.

 

(ii)           Company’s Failure to Timely Convert. If within three (3) Business Days after the Company’s receipt of the facsimile or email copy of a Conversion Notice, the Company shall fail to issue and deliver to Holder the number of shares of Common Stock to which the Holder is entitled upon such Holder's conversion of any Conversion Amount (a “Conversion Failure”), the Principal shall increase by $3,000 per day until the Company issues and delivers a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any Conversion Amount.  If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded Conversion Amount returned to the Principal with the rescinded Conversion Shares returned to the Company.

 

  

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(iii)           DTC Eligibility.  If the Company loses its status as “DTC Eligible” for any reason, the Conversion Price shall thereafter be redefined to mean the lesser of (A) $0.02 and (B) fifty percent (50%) of the lowest trade occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.

 

(iv)           Book-Entry.  Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note.  The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.

 

(c)           Limitations on Conversions.  The Company shall not effect any conversions of this Note and the Holder shall not have the right to convert any portion of this Note or receive shares of Common Stock as payment of interest hereunder to the extent that after giving effect to such conversion or receipt of such Interest payment, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of Interest.  Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder.  If the Holder has delivered a Conversion Notice for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with Section 3(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Note.  The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not less than sixty-five (65) days’ prior notice to the Company.  Other Holders shall be unaffected by any such waiver.

 

  

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(d)           Other Provisions.

 

(i)           Share Reservation.      The Company shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Note; and within five (5) Business Days following the receipt by the Company of a Holder’s notice that such minimum number of underlying shares of Common Stock is not so reserved, the Company shall promptly reserve a sufficient number of shares of Common Stock to comply with such requirement. The Company will at all times reserve at least 150,000,000 shares of Common Stock for conversion.

 

(ii)           Prepayment.  At any time after the twelve (12)-month period immediately following the Issuance Date, the Company shall have the option, upon ten (10) Business Days’ notice to Holder, to pre-pay the entire remaining outstanding principal amount of this Note in cash, provided that (A) the Company shall pay the Holder one hundred fifty percent (150%) of the Principal plus Interest outstanding in repayment hereof, (B) such amount must be paid in cash on the next Business Day following such ten (10) Business Day notice period, and (C) the Holder may still convert this Note pursuant to the terms hereof at all times until such prepayment amount has been received in full.  Except as set forth in this Section the Company may not prepay this Note in whole or in part.

 

(iii)           All calculations under this Section 3 shall be rounded up to the nearest $0.00001 or whole share.

 

(iv)           Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 2 herein for the Company’s failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, in each case without the need to post a bond or provide other security.  The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

4.      Adjustments to Conversion Price; Fundamental Transactions.  The Conversion Price and the number and kind of securities issuable upon conversion of this Note shall be subject to adjustment from time to time as set forth in this Section 4.

 

  

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(a)           Stock Dividends and Splits.  If at any time while this Note is outstanding the Company (i) declares or pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock (or securities convertible into or exercisable or exchangeable for capital stock) that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including, without limitation, by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company (including, without limitation, in connection with any merger or consolidation), then in each such case the Conversion Price then in effect shall be adjusted by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the number of shares of Common Stock outstanding immediately before such event, and (B) the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for such dividend or distribution, and any adjustment made pursuant to clauses (ii), (iii) or (iv) of this paragraph shall become effective immediately after the effective date of such subdivision, combination or reclassification.

 

(b)           Pro Rata Distributions.  Subject to Section 4(c) below, if at any time while this Note is outstanding the Company declares or pays any dividend or otherwise distributes any of its assets (including, without limitation, cash, properties, evidences of indebtedness, securities (including any options or other convertible securities but excluding a distribution of Common Stock covered by Section 4(a) above or Purchase Rights covered by Section 4(c) below) or options or rights to acquire any such assets) (in each case, “Distributed Property”) to all holders of Common Stock pro rata (and not to all Holders in their capacity as holders of Notes), whether by way of dividend, return of capital, spin-off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction, then in each such case the Conversion Price in effect immediately prior to the close of business on the record date for such dividend or distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Conversion Price by a fraction of which (i) the denominator shall be the closing price of Common Stock on the Primary Market on such record date (the “Market Price”), and (ii) the numerator shall be such Market Price minus the value of the Distributed Property on such date applicable to one outstanding share of Common Stock, as determined by the Company’s independent certified public accounting firm that regularly examines the financial statements of the Company.

 

  

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(c)           Rights Offerings Below Market.  Notwithstanding Section 4(b) above, if at any time while this Note is outstanding the Company grants, issues or sells pro rata to all holders of its outstanding shares of Common Stock, any options, convertible securities or other rights (the “Purchase Rights”) entitling them to directly or indirectly subscribe for or purchase shares of Common Stock at an effective price per share less than the Market Price on the record date of such grant, issuance or sale, then in each such case the Conversion Price in effect immediately prior to the close of business on such record date shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Conversion Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding as of the close of business on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares so offered for subscription or purchase (including and assuming receipt by the Company in full of all consideration payable upon both issuance and exercise of such Purchase Rights) would purchase at such Market Price, and (ii) the denominator shall be the number of shares of Common Stock outstanding as of the close of business on such record date plus the total number of additional shares of Common Stock so offered for subscription or purchase; provided, that in lieu of receiving such adjustment to the Conversion Price, the Holder shall have the option, upon written notice to the Company within thirty (30) days following its receipt of the notice of such adjustment, to elect to acquire, upon any conversion of this Note and in accordance with the terms applicable to the issuance of such Purchase Rights, the aggregate Purchase Rights which the Holder would have acquired if the Holder had converted such portion of this Note being converted (without regard to any limitations on ownership or conversion and regardless of whether this Note was then convertible) immediately prior to such record date.  To the extent that shares of Common Stock have not been delivered pursuant to such Purchase Rights specified in this Section upon the expiration or termination of such Purchase Rights, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustment made upon the issuance of such Purchase Rights been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In determining whether any Purchase Rights entitle the holder thereof to subscribe for or purchase shares of Common Stock at less than such Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such Purchase Rights, the value of such consideration (if other than cash) to be determined in good faith by the Company’s Board of Directors.

 

  

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(d)           Fundamental Transactions.  If at any time while this Note is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each, a “Fundamental Transaction”), then the Holder shall have the right thereafter to receive, upon any conversion of this Note, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same amount and kind of securities, cash and property as the Holder would have been entitled to receive upon the occurrence of such Fundamental Transaction if the Holder had been the record holder of one Conversion Share immediately prior to such Fundamental Transaction (without regard to any limitations or restrictions on conversion or acquisition of Conversion Shares and whether or not this Note was then convertible) (the “Alternate Consideration”), and the Conversion Price shall be appropriately and equitably adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction relative to the then Conversion Price.  The Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction.  In case of any such Fundamental Transaction, any successor to the Company, acquirer or surviving entity (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant, obligation, liability and condition under this Note to be performed and observed by the Company, subject to such modifications as may be reasonably deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of the number and kind of Conversion Shares for which this Note is convertible which shall be as nearly equivalent as practicable to the adjustments provided for in this Section.  Such assumption shall be pursuant to a written agreement in form and substance reasonably satisfactory to the Holder.  At the Holder’s request, any successor to the Company, acquirer or surviving entity in such Fundamental Transaction shall issue to the Holder a new Note from such entity substantially similar in form and substance to this Note and consistent with the foregoing provisions, which new Note shall be reasonably satisfactory to the Holder and include, without limitation, (A) the outstanding Principal and Interest owed to the Holder under this Note, (B) an interest rate equal to the Interest Rate, (C) similar ranking to this Note, and (D) the Holder’s right to convert the new Note into Alternate Consideration.  The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor, acquirer or surviving entity to comply with the provisions of this Section and ensuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.  Notwithstanding anything to the contrary contained herein, if a Fundamental Transaction (X) is an all cash transaction, (Y) constitutes or results in a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act (going private transaction), or (Z) otherwise results in the successor, surviving or acquiring entity not being traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market, then upon the written request of the Holder, delivered before the sixtieth (60th) day after such Fundamental Transaction, the Company (or any such successor, acquirer or surviving entity) shall redeem this Note from the Holder for a redemption price, payable in cash within five (5) Business Days after such request (or, if later, on the effective date of such Fundamental Transaction), equal to the value of this Note as determined using the Black-Scholes Option Pricing Model via Bloomberg.  The provisions of this Section shall similarly apply to successive Fundamental Transactions and shall be applied without regard to any limitations of this Note.

 

  

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5.           Reissuance of this Note.

 

(a)           Assignability.  The Company may not assign this Note. This Note will be binding upon the Company and its successors and will inure to the benefit of the Holder and its successors and assigns and may be assigned by the Holder to anyone of its choosing without the Company’s approval.

 

(b)           Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note representing the outstanding Principal.

 

6.      Notices.  Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (c) upon receipt, when sent by email; or (d) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be those set forth in the communications and documents that each party has provided the other immediately preceding the issuance of this Note or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change.  Written confirmation of receipt (x) given by the recipient of such notice, consent, waiver or other communication, (y) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (z) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (x), (y) or (z) above, respectively.

 

  

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  The addresses for such communications shall be:

 

If to the Company, to:

 

GROWLIFE, INC.

20301 Ventura Blvd., Suite 126

Woodland Hills, CA 91364

Attn:           Sterling C. Scott, CEO

Facsimile:  800-770-9788

Email:  sscott@growlifeinc.com

If to the Holder:

 

W-NET FUND I, L.P.

 

12400 Ventura Blvd. Suite 327

Studio City, California 91604

Attn:  David Weiner

Facsimile:  (818) 474-7589

Email:  dweiner@w-net.com

 

7.      Governing Law and Venue. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflict of laws thereof.  Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Note (whether brought against a party hereto or its respective affiliates, directors, officers, stockholders, employees or agents) shall be commenced in the state and federal courts sitting in the County of Los Angeles (the “Los Angeles Courts”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Los Angeles Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such Los Angeles Courts, or such Los Angeles Courts are improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses reasonably incurred in the investigation, preparation and prosecution of such action or proceeding.

 

  

12

  

 

8.      Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note.  The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note.  Any waiver by the Company or the Holder must be in writing.

 

9.      Severability.  If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.  If it shall be found that any Interest or other amount deemed Interest due hereunder violates the applicable law governing usury, the applicable rate of Interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

 

10.      Next Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

11.      Counterparts.  This Note may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” or other document image format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” or other document image format data file signature page were an original thereof.

 

[Signature Page Follows]

 

  

13

  

 

IN WITNESS WHEREOF, the parties hereto have executed this Note, effective as of the Issuance Date above written.

 

	  	  	
COMPANY:

	 	 
	  	  	  	 	 	 	 
	  	  	
GROWLIFE, INC.

	 
	  	  	  	 	 	 	 
	  	  	  	 	 	 	 
	  	
   

	
By: 

	 	 	 	 
	  	  	
Name:  Sterling C. Scott

	 
	  	  	
Its:  Chief Executive Officer

	 
	  	  	  	 	 	 	 
	  	  	  	 	 	 	 
	  	  	
HOLDER:

	 	 	 
	  	  	  	 	 	 	 
	  	  	
W-NET FUND I, L.P.

	 
	  	  	  	 	 	 	 
	  	
  

	By: 	W-Net Fund GP I, LLC	 
	  	  	
Its: General Partner

	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	  	  	 	 	By:    	 	 
	  	  	
   

	 	Name:  David Weiner 	 
	  	  	
    

	 	Its:  Manager	 

 

  

14

  

EXHIBIT A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 7% Convertible Note (the “Note”) due September 30, 2015 of GrowLife, Inc., a Delaware corporation (the “Company”), into shares of common stock (“Common Stock”) of the Company according to the conditions hereof, as of the date written below.

By the delivery of this Notice of Conversion, the undersigned represents and warrants to the Company that (check one):

________                      its ownership of the Common Stock does not exceed the amounts specified under Section 3(c) of the Note, as determined in accordance with Section 13(d) of the Exchange Act.

________                      immediately prior to giving effect to this Notice of Conversion, it owns more than 4.99% of the outstanding shares of Common Stock, as determined in accordance with Section 3(c) of the Note.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock pursuant to any prospectus.

	
Conversion calculations:

	
Date to Effect Conversion:

	  
	  	  	 	  
	  	
Principal to be Converted:

	  
	  	  	 	  
	  	
Interest Accrued on Account

	  	
of Conversion at Issue:

	  
	  	  	 	  
	  	
Number of shares of Common Stock to be issued (not less than

	  	
$25,000 of the Principal and any accrued but unpaid interest

	  	
 thereon:

	 	  
	  	  	 	  
	  	  	 	  
	  	  	 	  
	  	  	Signature:	
 

	 	 	 	 
	  	  	Name:	
 

	 	 	 	 
	  	  	 Address for Delivery of Common Stock Certificates:EXHIBIT 4.1

 

 

 

CHINA SHOUGUAN MINING CORPORATION

 

2013 EQUITY INCENTIVE PLAN

 

 

		1.	Purposes of the Plan. The purposes of this Plan are: to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants,
and to promote the success of the Company's business. The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock
Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares. The
Administrator may only award or grant those Awards that either comply with the applicable requirements of Code Section 409A, or
do not result in the deferral of compensation within the meaning of Code Section 409A.

 

2.Definitions. As used herein, the following definitions
will apply:

 

“Administrator”
means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4.

 

“Applicable Laws”
means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S. federal and
state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable
laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

 

“Award” means,
individually or collectively, a grant under the Plan of Options, SARs, Restricted Stock, Restricted Stock Units, Performance Units
or Performance Shares.

 

“Award Agreement”
means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan.
The Award Agreement is subject to the terms and conditions of the Plan.

 

“Board” means the
Board of Directors of the Company.

 

“Change in Control”
means the occurrence of any of the following events:

 

(i)Any “person” (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the
total voting power represented by the Company's then outstanding voting securities; provided however, that for purposes of this
subsection (i) any acquisition of securities directly from the Company shall not constitute a Change in Control; or

 

(ii)The consummation of the sale
or disposition by the Company of all or substantially all of the Company's assets;

 

(iii)A change in the composition
of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors.
“Incumbent Directors” means directors who either (A) are Directors as of the effective date of the Plan, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at
the time of such election or nomination (but will not include an individual whose election or nomination is in connection with
an actual or threatened proxy contest relating to the election of directors to the Company); or

 

    	1

    	 

    

 

(iv)The consummation of a merger
or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation.

 

“Code” means the
Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or
amended section of the Code.

 

“Committee” means
a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4
hereof.

 

“Common Stock”
means the common stock of the Company.

 

“Company” means
China Shoe Holdings, Inc., a Nevada corporation, or any successor thereto.

 

“Consultant” means
any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

 

“Director” means
a member of the Board.

 

“Disability” means
total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than ISOs,
the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Administrator from time to time.

 

“Employee” means
any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service
as a Director nor payment of a director's fee by the Company will be sufficient to constitute "employment" by the Company.

 

“Exchange Act”
means the Securities Exchange Act of 1933, as amended.

 

“Fair Market Value”
means, as of any date, the value of Common Stock determined as follows:

 

(i)If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the Nasdaq National Market or the Nasdaq SmallCap Market
of the Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;

 

(ii)If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of a Share will be the mean between the high bid and
low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source
as the Administrator deems reliable; or

 

(iii)In the absence of an established
market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.

    	2

    	 

    

 

“Fiscal Year” means
the fiscal year of the Company.

 

“Grant Date” means,
for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as
is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after
the date of such grant.

 

“ISO” means an
Option that by its terms qualifies and is otherwise intended to qualify as an incentive stock option within the meaning of Section
422 of the Code and the regulations promulgated thereunder.

 

“NSO” means an
Option that by its terms does not qualify or is not intended to qualify as an ISO.

 

“Officer” means
a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.

 

“Option” means
a stock option granted pursuant to the Plan.

 

“Optioned Stock”
means the Common Stock subject to an Award.

 

“Parent” means
a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

 

“Participant” means
the holder of an outstanding Award.

 

“Performance Share”
means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance goals or other vesting
criteria as the Administrator may determine pursuant to Section 10.

 

“Performance Unit”
means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator
may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section
10.

 

“Period of Restriction”
means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares
are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target
levels of performance, or the occurrence of other events as determined by the Administrator.

 

“Plan” means this
2013 Equity Incentive Plan.

 

“Restricted Stock”
means Shares issued pursuant to a Restricted Stock award under Section 7.

 

“Restricted Stock Unit”
means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 8. Each
Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.

 

“Rule 16b-3” means
Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.

    	3

    	 

    

 

“Section 16(b)”
means Section 16(b) of the Exchange Act.

 

“Service Provider”
means an Employee, Director or Consultant.

 

“Share” means a
share of the Common Stock, as adjusted in accordance with Section 13.

 

“Stock Appreciation Right”
or “SAR” means an Award, granted alone or in connection with an Option, that pursuant to Section 9 is designated as
a Stock Appreciation Right.

 

“Subsidiary” means
a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code.

 

“Ten Percent Owner”
means any Service Provider who is, on the grant date of an ISO, the owner of Shares (determined with application of ownership attribution
rules of Code Section 424(d)) possessing more than 10% of the total combined voting power of all classes of stock of the Company
or any of its Subsidiaries.

 

3.Stock Subject to the Plan.

 

		(a)	Stock Subject to the Plan. Subject to the provisions
                                                               of Section 13, the maximum aggregate number of Shares that may
                                                               be issued under the Plan under the Plan is twenty million (20,000,000)
                                                               Shares. The Shares may be authorized, but unissued, or reacquired
                                                               Common Stock.

 

		(b)	Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full or, with respect to
Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, is forfeited in whole or in part to the Company,
the unpurchased Shares (or for Awards other than Options and SARs, the forfeited or unissued Shares) which were subject to the
Award will become available for future grant or sale under the Plan (unless the Plan has terminated). With respect to SARs, only
Shares actually issued pursuant to an SAR will cease to be available under the Plan; all remaining Shares subject to the SARs will
remain available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued
under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the
Plan; provided, however, that if Shares issued pursuant to Awards of Restricted Stock, Restricted Stock Units, Performance Shares
or Performance Units are forfeited to the Company, such Shares will become available for future grant under the Plan. Shares withheld
by the Company to pay the exercise price of an Award or used to satisfy tax withholding obligations with respect to an Award will
become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than
Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan.

 

		(c)	Limitations

 

(i)Subject
to the provisions of Section 13, not more than an aggregate of 20,000,000 Shares shall be available
for issuance pursuant to grants of Restricted Stock under the Plan.

 

    	4

    	 

    

 

(ii)      Subject to the provisions
of Section 13, not more than 8,000,000 Shares (or for Awards denominated in cash, the Fair Market Value of 8,000,000 Shares on
the Grant Date), may be made subject to Awards under the Plan to any individual Participant in the aggregate in any one fiscal
year of the Company, such limitation to be applied in a manner consistent with the requirements of, and only to the extent required
for compliance with, the exclusion from the limitation on deductibility of compensation under Code Section 162(m).

 

(iii)      Subject to the provisions
of Section 13, to the extent consistent with Section 424 of the Code, not more than an aggregate of 20,000,000 Shares may be issued
under ISOs.

 

		(d)	Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of
Shares as will be sufficient to satisfy the requirements of the Plan.

 

4.Administration of the Plan.

 

		(a)	Procedure. The Plan shall be administered by the Board or a committee or committees (including subcommittees) appointed
by, and consisting of two or more members of, the Board. If and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, the Board shall consider in selecting the Plan Administrator and the membership of any committee acting
as Plan Administrator the provisions regarding (a) “outside directors” as contemplated by Section 162(m) of the Code;
(b) “nonemployee directors” as contemplated by Rule 16b-3 under the Exchange Act; and (c) “independent directors”
as contemplated by the listing requirements for any stock exchange on which Shares are listed. The Board may delegate the responsibility
for administering the Plan with respect to designated classes of eligible Participants to different committees consisting of two
or more members of the Board, subject to such limitations as the Board or the Plan Administrator deems appropriate. Committee members
shall serve for such term as the Board may determine, subject to removal by the Board at any time. To the extent consistent with
Applicable Laws, the Board may authorize one or more senior executive officers of the Company to grant Awards to designated classes
of eligible employees within the limits prescribed by the Board.

 

 

		(b)	Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific
duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:

 

(i)to determine the Fair Market
Value;

 

(ii)to select the Service Providers to whom Awards may
be granted hereunder;

    	5

    	 

    

 

    (iii)to determine the number of Shares to be covered
by each Award granted hereunder;

 

    (iv)to approve forms of agreement for use under the Plan;

 

(v)to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise
price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or
waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based
in each case on such factors as the Administrator will determine;

 

(vi)to construe and interpret the terms of the Plan
and Awards granted pursuant to the Plan, including the right to construe disputed or doubtful Plan and Award provisions;

 

   (vii)to prescribe, amend
and rescind rules and regulations relating to the Plan;

 

(viii)to modify or amend each Award (subject to Section
17(c)), including the discretionary authority to extend the post-termination exercisability period of Awards, to the extent that
such period can be extended without causing an award to become subject to Code Section 409A;

 

(ix)to allow Participants to satisfy withholding tax
obligations in such manner as prescribed in Section 14;

 

(x)to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Award previously granted by the Administrator; and

 

(xi)to make all other determinations deemed necessary
or advisable for administering the Plan.

 

(c) Effect of Administrator's
Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants
and any other holders of Awards. Any decision or action taken or to be taken by the Administrator, arising out of or in connection
with the construction, administration, interpretation and effect of the Plan and of its rules and regulations, shall, to the maximum
extent permitted by applicable law, be within its absolute discretion (except as otherwise specifically provided herein) and shall
be final, binding and conclusive upon the Company, all Participants and any person claiming under or through any Participant.

 

		5.	Eligibility. NSOs, Restricted Stock, Restricted Stock Units, SARs, Performance Units and Performance Shares may be granted
to Service Providers. ISOs may be granted only to Employees.

 

6.Stock Options.

 

(a)     Grants. Subject
to the terms and provisions of the Plan, Options may be granted to Service Providers at any time as determined by the Administrator
in its sole discretion. For purposes of the foregoing sentence, Service Providers shall include prospective employees or consultants
to whom options are granted in connection with written offers of employment or engagement of services, respectively, with the Company;
provided that no option granted to a prospective employee or consultant may be exercised prior to the commencement of employment
or services with the Company. The Administrator may grant ISOs, NSOs or any combination of the two.

 

    	6

    	 

    

(b)      Limitations.
Each Option will be designated in the Award Agreement as either an ISO or an NSO. Notwithstanding such designation, to the
extent that the aggregate Fair Market Value of the Shares with respect to which ISOs are exercisable for the first time by
the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred
thousand dollars ($100,000), Options will be treated as NSOs. For purposes of this Section 6(a), ISOs will be taken into
account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the
Option with respect to such Shares is granted.

 

(c)      Exercise
Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option will be no less than
the Fair Market Value per Share on the Grant Date, except that in the case of an ISO granted to a Ten Percent Owner, the per
Share exercise price will be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the Grant
Date.

 

(d)      Term of
Options. The term of each Option will be stated in the Award Agreement. Unless terminated sooner in accordance with the
remaining provisions of this Section 6, each Option shall expire either eight (8) years after the Grant Date, or after a
shorter term as may be fixed by the Board.

(e)     Exercise
Date. Each Award Agreement shall specify how and when shares covered by a Stock Option may be purchased. The Award Agreement
may specify waiting periods, the dates on which Options become exercisable or “vested” and, subject to the termination
provisions of this section, exercise periods. The Administrator may accelerate the exercisability of any Option or portion thereof.

(f)      Exercise of Option.
Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions
as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Administrator specify
from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which
the Option is exercised (together with an applicable withholding taxes). Full payment may consist of any consideration and method
of payment authorized by the Administrator and permitted by the Award Agreement and the Plan (together with an applicable withholding
taxes). Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant,
in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other
rights as a stockholder will exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company
will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend
or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13.

 

(g)      Form of Consideration.
The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment.
In the case of an ISO, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration
may consist entirely of:

 

(i)cash;

 

(ii)check;

 

(iii)to the extent not prohibited by Section 402 of
the Sarbanes-Oxley Act of 2002, a promissory note;

    	7

    	 

    

 

(iv)other Shares, provided Shares have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option will be exercised;

 

(v)to the extent not prohibited by Section 402 of the
Sarbanes-Oxley Act of 2002, consideration received by the Company under a cashless exercise program;

 

(vi)any combination of the foregoing methods of payment;
or

 

(vii)such other consideration and method of payment
for the issuance of Shares to the extent permitted by Applicable Laws.

 

(h)       Termination of Options.
An Option may terminate prior to the end of the term specified in an Award Agreement as follows:

 

(i)Termination of Relationship as a Service Provider.
If a Participant ceases to be a Service Provider, other than upon the Participant's death or Disability, the Participant may exercise
his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on
the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement).
In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the
Participant's termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not
vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will be forfeited and revert to
the Plan. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator,
the Option will terminate, and the Shares covered by such Option will be forfeited and revert to the Plan.

 

(ii)Disability of Participant. If a Participant
ceases to be a Service Provider as a result of the Participant's Disability, the Participant may exercise his or her Option within
such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in
no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified
time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant's termination.
Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option will be forfeited and revert to the Plan. If after termination
the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares
covered by such Option will be forfeited and revert to the Plan.

 

(iii)Death of Participant. If a Participant dies
while a Service Provider, the Option may be exercised following the Participant's death within such period of time as is specified
in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised
later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant's designated beneficiary,
provided such beneficiary has been designated prior to Participant's death in a form acceptable to the Administrator. If no such
beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant's
estate or by the person(s) to whom the Option is transferred pursuant to the Participant's will or in accordance with the laws
of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for
twelve (12) months following Participant's death. Unless otherwise provided by the Administrator, if at the time of death Participant
is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will be forfeited and revert
to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered
by such Option will be forfeited and revert to the Plan.

 

    	8

    	 

    

 

7.Restricted Stock.

 

(a)      Grant. Subject to the
terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to
Service Providers in such amounts as the Administrator, in its sole discretion, will determine.

 

(b)       Restricted
Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of
Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion,
will determine. Unless the Administrator determines otherwise, the Company as escrow agent will hold Shares of Restricted
Stock until the restrictions on such Shares have lapsed.

 

(c)       Transferability.
Except as provided in this Section, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated
or hypothecated until the end of the applicable Period of Restriction.

 

(d)     Period of Restriction.
The Administrator, in its sole discretion, may impose such conditions on the vesting of Shares of Restricted Stock as it may deem
advisable or appropriate, including but not limited to, achievement of Company-wide, business unit, or individual goals (including,
but not limited to, continued employment), or any other basis determined by the Administrator in its discretion. All restrictions
imposed on Restricted Stock shall lapse and the Period of Restriction shall end upon the satisfaction of vesting conditions imposed
by the Administrator. The Administrator may, in its discretion, also provide for such complete or partial exceptions to an employment
restriction as it deems equitable.

 

(e)     Removal of
Restrictions. Except as otherwise provided in this Section, Shares of Restricted Stock covered by each Restricted Stock
grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction
or at such other time as the Administrator may determine. The Administrator, in its discretion, may accelerate the time at
which any restrictions will lapse or be removed.

 

(f)      Voting Rights.
During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless the Administrator determines otherwise.

 

(g)   
  Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares of Restricted
Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares, unless the Administrator
determines otherwise. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions
on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.

 

(h)      Return of Restricted
Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed
will be forfeited and revert to the Company and again will become available for grant under the Plan.

 

8.Restricted Stock Units.

 

(a)     Grant.
Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Restricted
Stock Units to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.

 

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(b)     Vesting Criteria and
Other Terms. The Administrator shall set vesting criteria in its discretion, which, depending on the extent to which the criteria
are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator may set
vesting criteria based upon the achievement of Company-wide, business unit, or individual goals (including, but not limited to,
continued employment), or any other basis determined by the Administrator in its discretion. The Administrator will determine the
other terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units and the form of
payout, which, subject to Section 8(d), may be left to the discretion of the Administrator.

 

(c)      Earning
Restricted Stock Units. Upon satisfaction of the applicable vesting conditions, the Participant shall be entitled to
receive a payout at such time as the Administrator determines. At any time after the grant of Restricted Stock Units, the
Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.

 

(d)     Form and Timing of
Payment. Payment of earned Restricted Stock Units shall be made as soon as practicable after the date(s) determined by the
Administrator and set forth in the Award Agreement. The Administrator, in its sole discretion, may pay earned Restricted Stock
Units in cash, Shares, or a combination thereof. Restricted Stock Units that are fully paid in cash will not reduce the number
of Shares available for issuance under the Plan.

 

(e)     Cancellation.
On the date set forth in the Award Agreement, all unearned Restricted Stock Units shall be forfeited to the Company.

 

9.Stock Appreciation Rights.

 

(a)     Grant
of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Service Providers at any time and from time
to time as will be determined by the Administrator, in its sole discretion.

 

(b)      Number of Shares.
The Administrator will have complete discretion to determine the number of SARs granted to any Service Provider.

 

(c)     
Exercise Price and Other Terms. The per Share exercise price for the exercise of an SAR will be no less than the Fair Market
Value per Share on the Grant Date. The Administrator, subject to the provisions of the Plan, will have complete discretion to
determine the other terms and conditions of SARs granted under the Plan.

 

(d)     Award Agreement.
Each SAR grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the SAR, the conditions
of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.

 

(e)     Expiration of SARs.
An SAR granted under the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth
in the Award Agreement.

 

(f)      Payment
of SAR Amount. Upon exercise of an SAR, a Participant will be entitled to receive payment from the Company in an amount determined
by multiplying:

 

(i)The difference between the Fair Market Value of a
Share on the date of exercise over the exercise price; times

    	10

    	 

    

 

(ii)The number of Shares with respect to which the SAR
is exercised.

 

(g)      Form
of Payment. At the discretion of the Administrator, the payment upon SAR exercise may be in cash, in Shares of equivalent
value, or in some combination thereof.

 

10.      Performance Units and Performance Shares.

 

(a)     Grant of Performance
Units and Performance Shares. Performance Units or Performance Shares may be granted to Service Providers at any time and from
time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion
in determining the number of Performance Units and Performance Shares granted to each Participant.

 

(b)      Value of Performance
Units and Shares. Each Performance Unit will have an initial value that is established by the Administrator on or before the
Grant Date. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the Grant Date.

 

(c)     Performance Objectives
and Other Terms. The Administrator will set performance objectives or other vesting provisions (including, without limitation,
continued status as a Service Provider) in its discretion which, depending on the extent to which they are met, will determine
the number or value of Performance Units or Performance Shares that will be paid out to the Service Providers. The time period
during which the performance objectives or other vesting provisions must be met will be called the “Performance Period.”
Each Award of Performance Units or Performance Shares will be evidenced by an Award Agreement that will specify the Performance
Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may
set performance objectives based upon the achievement of Company-wide, divisional, or individual goals, applicable federal or state
securities laws, or any other basis determined by the Administrator in its discretion.

 

(d)      Earning of Performance
Units and Shares. After the applicable Performance Period has ended, the holder of Performance Units or Performance Shares
will be entitled to receive a payout of the number of Performance Units or Performance Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting
provisions have been achieved.

 

(e)      Form and Timing of
Payment of Performance Units or Shares. Payment of earned Performance Units or Performance Shares will be made as soon as practicable
after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance
Units and Performance Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the
earned Performance Units or Performance Shares at the close of the applicable Performance Period) or in a combination thereof.

 

(f)      Cancellation of Performance
Units and Performance Shares. On the date set forth in the Award Agreement, all unearned or unvested Performance Units or Performance
Shares will be forfeited to the Company, and again will be available for grant under the Plan.

 

		11.	Leaves of Absence/Transfer Between Locations.

 

			Unless the Administrator provides otherwise or as required by Applicable Law, vesting of Awards granted hereunder will be suspended
during any unpaid leave of absence. An Employee will not cease to be an Employee in the case of (i) any leave of absence approved
by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes
of ISOs, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute
or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three (3)
months following the ninety-first (91st) day of such leave any ISO held by the Participant will cease to be treated as an ISO and
will be treated for tax purposes as an NSO.

 

    	11

    	 

    

 

		12.	Transferability of Awards.

 

			Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime
of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional
terms and conditions as the Administrator deems appropriate.

 

13.Adjustments; Dissolution or Liquidation; Merger or Change
in Control.

 

(a)     Adjustments. In
the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs,
the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available
under the Plan, shall adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and
price of Shares covered by each outstanding Award, the numerical Share limit in Section 3.

 

(b)     Dissolution or
Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each
Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been
previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.

 

(c)       Change in Control.
In the event of a merger or Change in Control, any or all outstanding Awards may be assumed or replaced by the successor corporation,
which assumption or replacement shall be binding on all Participants. In the alternative, the successor corporation may substitute
equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking
into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of
the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less
favorable to the Participant.

 

          In the event
that the successor corporation does not assume or substitute for the Award, unless the Administrator provides otherwise, the
Participant will fully vest in and have the right to exercise all of his or her outstanding Options and SARs, including
Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and
Restricted Stock Units will lapse, and, with respect to Performance Shares and Performance Units, all Performance Goals or
other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. In addition, if an
Option or SAR is not assumed or substituted in the event of a Change in Control, the Administrator will notify the
Participant in writing or electronically that the Option or SAR will be exercisable for a period of time determined by the
Administrator in its sole discretion, and the Option or SAR will terminate upon the expiration of such period.

 

         For the purposes of this
subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers the right to purchase
or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash,
or other securities or property) or, in the case of an SAR upon the exercise of which the Administrator determines to pay cash
or a Performance Share or Performance Unit which the Administrator can determine to pay in cash, the fair market value of the consideration
received in the merger or Change in Control by holders

 

    	12

    	 

    

 

            of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the
Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent
of the successor corporation, provide for the consideration to be received upon the exercise of an Option or SAR or upon the payout
of a Restricted Stock Unit, Performance Share or Performance Unit, for each Share subject to such Award (or in the case of Restricted
Stock Units and Performance Units, the number of implied shares determined by dividing the value of the Restricted Stock Units
and Performance Units, as applicable, by the per share consideration received by holders of Common Stock in the Change in Control),
to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration
received by holders of Common Stock in the Change in Control.

 

          Notwithstanding anything in
this Section 13(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance
goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant's
consent; provided, however, a modification to such performance goals only to reflect the successor corporation's post-Change in
Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.

 

14.Tax Withholding.

 

(a)      Withholding
Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof), the Company will have
the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state, local, foreign or other taxes (including the Participant's FICA obligation) required to be withheld with respect
to such Award (or exercise thereof).

 

(b)    
Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from
time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation)
(i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal
to the amount required to be withheld, or (iii) delivering to the Company already-owned Shares having a Fair Market Value equal
to the amount required to be withheld. The amount of the withholding requirement will be deemed to include any amount which the
Administrator agrees may be withheld at the time the election is made. The Fair Market Value of the Shares to be withheld or delivered
will be determined as of the date that the taxes are required to be withheld.

 

		15.	No Effect on Employment or Service.

			

			Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant's relationship
as a Service Provider with the Company, nor will they interfere in any way with the Participant's right or the Company's right
to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.

 

16.Term of Plan.

 

			The Plan will terminate eight years following the earlier of (i) the date it was adopted by the Board or (ii) the
date it became effective upon approval by stockholders of the Company, unless sooner terminated by the Board pursuant to Section 17.

 

    	13

    	 

    

 

17.Amendment and Termination of the Plan.

 

(a)      Amendment and
Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

 

(b)      Stockholder Approval.
The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable
Laws.

 

(c)      Effect of Amendment
or Termination. No amendment, alteration, suspension or termination of the Plan will impair the rights of any Participant,
unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by
the Participant and the Company. Termination of the Plan will not affect the Administrator's ability to exercise the powers granted
to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.

 

18.Conditions Upon Issuance of Shares.

 

(a)      Legal
Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance
and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company
with respect to such compliance.

 

(b)     Investment Representations.
As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at
the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

 

19. Inability to Obtain Authority.

 

			The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by
the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of
any liability in respect of the failure to issue or sell such Shares as to which such requisite authority will not have been obtained.

 

		20.	Repricing Prohibited; Exchange And Buyout Of Awards. The repricing of Options or SARs is prohibited without prior stockholder
approval. The Administrator may authorize the Company, with prior stockholder approval and the consent of the respective Participants,
to issue new Option or SAR Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Administrator
may at any time buy from a Participant an Option previously granted with payment in cash, Shares or other consideration, based
on such terms and conditions as the Administrator and the Participant shall agree.

 

		21.	Governing Law. The Plan and all Agreements shall be construed in accordance with and governed
by the laws of the State of Nevada.

 

		22.	Effective Date. The Plan’s effective date is the date on which it is adopted by the
Board. 

 

 Adopted by the Board of Directors on [22nd
August], 2013.

 

    	14

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