Document:

Exhibit 10.2

 

EXECUTION VERSION

 

EXCHANGE AND TERMINATION AGREEMENT

 

This Exchange and Termination Agreement (this “Agreement”), is entered into as of August 16, 2017 (immediately following the occurrence of the H&E Termination (as defined below)), by and among United Rentals (North America), Inc., a Delaware corporation (“Parent”), Neff Corporation (“Company”), Neff Holdings LLC (“Holdings”), the holders of LLC Options (the “LLC Optionholders”) and Mark Irion (the “Management Representative”). The parties to this Agreement are referred to herein as the “Parties” or, each individually, a “Party.” Any capitalized terms used but not defined herein shall have the meanings set forth in the Agreement and Plan of Merger (the “Merger Agreement”), dated as of the date hereof, by and among Parent, Company, and UR Merger Sub III Corporation, a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), as the Merger Agreement is in effect on the date hereof.

 

RECITALS

 

WHEREAS, Company and Wayzata Opportunities Fund II, L.P. (“Opportunities Fund”), Wayzata Opportunities Fund Offshore II, L.P. (“Opportunities Fund Offshore” and, together with Opportunities Fund, the “Stockholders” and each individually, a “Stockholder”), are parties to that certain Second Amended and Restated Limited Liability Company Agreement of Holdings, dated as of November 26, 2014 (as amended, the “Holdings LLC Agreement”), pursuant to which, among other things, the parties thereto provided for Holdings to redeem, upon notice therefor by a Stockholder, Common Units of Holdings (“LLC Units”) owned by such Stockholder in exchange for shares of Company Class A Common Stock or for cash (a “Redemption”);

 

WHEREAS, in the event that a holder of LLC Units exercises its right to require Holdings to effect a Redemption, Company has the right to elect to require that such holder exchange its LLC Units subject to such Redemption directly with Company for an equal number of shares of Company Class A Common Stock or for cash (any such exchange, an “Exchange”);

 

WHEREAS, Company, the Stockholders, the LLC Optionholders, the Management Representative and other members of Holdings from time to time are parties to (a) that certain Tax Receivable Agreement, dated as of November 26, 2014 (as amended, the “Tax Receivable Agreement”), pursuant to which Company is obligated to make payments to certain parties thereto based on the reduction of Company’s liability for U.S. federal, state and local income and franchise taxes arising from adjustments to Holdings’ basis in its assets and imputed interest and (b) that certain Registration Rights Agreement, dated as of November 26, 2014 (as amended, the “Registration Rights Agreement”), pursuant to which such parties are entitled to certain rights with respect to the registration of shares of Company Class A Common Stock issuable in an Exchange or a Redemption;

 

WHEREAS, on the date hereof (prior to the time at which the Parties executed and delivered this Agreement), the Company terminated that Agreement and Plan of Merger, dated as of July 14, 2017, by and among H&E Equipment Services, Inc. (“H&E”), the Company and Yellow Iron Merger Co. in accordance with its terms (such termination, the “H&E Termination”);

 

WHEREAS, upon the occurrence of the H&E Termination in accordance with the terms thereof, the Exchange and Termination Agreement, dated as of July 14, 2017, by and among H&E, Company, Holdings, the LLC Optionholders and the Management Representative automatically terminated without further action by any of its parties;

 

 

WHEREAS, simultaneous with the execution and delivery of this Agreement, Company, Parent and Merger Sub are entering into the Merger Agreement, pursuant to which Merger Sub will be merged with and into Company, with Company surviving that merger (the “Merger”); and

 

WHEREAS, immediately prior to the effective time of the Merger, the Parties intend for (a) the Tax Receivable Agreement to be terminated by the parties thereto, (b) the Registration Rights Agreement to be terminated by the parties thereto, and (c) (i) the LLC Options to be exercised on a cashless basis immediately prior to the Effective Time for LLC Units and (ii) the LLC Optionholders to effect an Exchange of all such LLC Units resulting from the exercise of their respective LLC Options directly with Company for an equal number of shares of Company Class A Common Stock.

 

NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants and agreements contained in this Agreement, the Parties, intending to be legally bound, agree as follows:

 

1.             Exchange and Exercise.

 

(a)           Immediately prior to the Effective Time (but immediately after the Specified LLC Option Exercise (as defined below)) and pursuant to Sections 11.01 through 11.03 of the Holdings LLC Agreement, all of the LLC Units owned by each of the LLC Optionholders (after giving effect to the Specified LLC Option Exercise) shall be exchanged directly with Company on a one-for-one basis for shares of Company Class A Common Stock (the “Resulting Shares”) (each such Exchange shall be collectively referred to herein as the “Specified Exchange”).

 

(b)           Immediately prior to the Effective Time and simultaneous with the consummation of the Specified Exchange, Company shall (i) issue to each of the LLC Optionholders such LLC Optionholder’s Resulting Shares and (ii) duly deliver to each LLC Optionholder a certificate issued in the name of such LLC Optionholder representing such LLC Optionholder’s Resulting Shares, duly executed by the appropriate officers of Company and duly recorded on the books of Company or its transfer agent in the name of such LLC Optionholder. Company covenants that all shares of Company Class A Common Stock issuable to the LLC Optionholders in the Specified Exchange will, upon issuance, be validly issued, fully paid and non-assessable, free and clear of all taxes and Liens of any kind (except for transfer restrictions of general applicability as may be provided under the Securities Act and state securities laws).

 

(c)           The LLC Optionholders, Holdings and Company hereby (i) agree that this Agreement shall constitute the Redemption Notice, the Contribution Notice and the Exchange Election Notice for a Share Settlement pursuant to the Holdings LLC Agreement and (ii) irrevocably waive any notice periods required or permitted by the Holdings LLC Agreement in connection with the Specified Exchange and any obligation to deliver any other notices or elections thereunder. Subject to Section 6(a) hereof, the LLC Optionholders, Holdings and Company hereby irrevocably waive the right to, as applicable, deliver a Retraction Notice or otherwise revoke the Redemption Notice, Contribution Notice or Exchange Election Notice. Company irrevocably agrees that the Specified Exchange will be a Direct Exchange made by means of a Share Settlement. Any capitalized terms used but not defined in this Section 1(c) shall have the meanings set forth in the Holdings LLC Agreement. For the avoidance of doubt, if this Agreement is terminated, any elections hereunder shall be null and void ab initio, and neither the LLC Optionholders nor Company will be required to consummate any Exchange or Redemption.

 

(d)           Immediately prior to the consummation of the Specified Exchange, each LLC Option held by an LLC Optionholder that is outstanding and unexercised as of immediately prior to the Specified Exchange shall be exercised on a cashless basis (each such exercise shall be collectively referred to herein as the “Specified LLC Option Exercise”) and the number of LLC Units issued to each LLC Optionholder

 

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upon such exercise shall be reduced by the number of LLC Units having a value (equal to the Merger Consideration) equal to the sum of the aggregate exercise price of the LLC Options being exercised by such LLC Optionholder plus the minimum Tax withholding required in connection with the exercise of the LLC Options held by such LLC Optionholder (with such LLC Units so withheld to pay such exercise price and Tax withholding to be treated as if they were provided to the applicable LLC Optionholder). For the avoidance of doubt, if this Agreement is terminated, neither the LLC Optionholders nor Holdings will be required to consummate the Specified LLC Option Exercise.

 

2.             Terminations.

 

(a)           Effective immediately prior to the Effective Time, without the requirement for any further action by any of the Parties, the Tax Receivable Agreement shall be irrevocably terminated at no cost to the Management Representative, the LLC Optionholders, Company, the Surviving Corporation, Parent or any of their respective Subsidiaries and shall be of no further force or effect, and all liabilities of the Management Representative, the LLC Optionholders, Company, the Surviving Corporation, Parent and their respective Subsidiaries relating thereto shall be irrevocably cancelled, extinguished and waived. Notwithstanding anything to the contrary in the Tax Receivable Agreement (including Sections 4.1(b) and 4.3 thereof), none of the Management Representative, the LLC Optionholders, Company, the Surviving Corporation, Holdings, Parent or any of their respective Subsidiaries shall have any payment or other obligations under the Tax Receivable Agreement resulting from the consummation of the transactions contemplated by this Agreement, the Merger Agreement or otherwise. Each of Company and Parent hereby acknowledges and agrees that the substantial economic, financial and pecuniary benefits that the Stockholders are foregoing as a result of the termination of the Tax Receivable Agreement pursuant hereto is conferring substantial economic, financial and pecuniary benefits to Company and its stockholders.

 

(b)           Effective immediately prior to the Effective Time, without the requirement for any further action by any of the Parties, the Registration Rights Agreement shall be irrevocably terminated at no cost to the Management Representative, the LLC Optionholders, Company, the Surviving Corporation, Parent or any of their respective Subsidiaries and shall be of no further force or effect, and all liabilities of the Management Representative, the LLC Optionholders, Company, the Surviving Corporation, Parent and their respective Subsidiaries relating thereto shall be irrevocably cancelled, extinguished and waived.

 

(c)           In consideration of the mutual agreements herein contained, effective as of the Effective Time, the Management Representative and the LLC Optionholders, each on behalf of itself and its respective affiliates (excluding for this purpose Company and its Subsidiaries) and Releasing Representatives, fully, finally and forever releases, discharges and waives any and all civil actions, causes of action, claims, costs of suit, counterclaims, debts, demands, judgments, liabilities, obligations and actions for legal fees, in law or in equity, known or unknown, asserted or not, existing or not, of whatever kind or nature, in any jurisdiction, including in arbitration proceedings or any other forum, which have arisen or may arise in the future under the Tax Receivable Agreement, the Registration Rights Agreement or the Holdings LLC Agreement against Company, the Surviving Corporation, Holdings, Parent and their respective Subsidiaries and Releasing Representatives; provided, however, that nothing contained herein shall operate to release any claims, liabilities or obligations related to, or amend, modify or terminate, (A) any term or provision of the Holdings LLC Agreement (as in effect as of immediately prior to the date hereof) that provides any officer or manager of Holdings, or any officer or manager of Holdings that was serving at the request of Holdings as a manager, officer, director, principal, member, employee or agent of any direct or indirect Subsidiary of Holdings, with rights of indemnification or reimbursement or advancement of expenses, including, without limitation, any term or provision set forth in Section 7.04 of the Holdings LLC Agreement (as in effect on the date hereof) to the extent applicable to any such officer or manager of Holdings, (B) any term or provision of the Holdings LLC Agreement (as in effect as of

 

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immediately prior to the Effective Time) that provides the Company, the Management Representative, any LLC Optionholder or any of their respective affiliates, Subsidiaries or Releasing Representatives with rights of exculpation and/or limitation of liability (but expressly excluding any rights to indemnification, reimbursement or advancement of expenses other than as set forth in clause (A)), including, without limitation, any term or provision set forth in any of Sections 3.01(c), 3.07, 6.09(a), 7.01(a) and 7.01(c) of the Holdings LLC Agreement (as in effect on the date hereof), (C) the Surviving Reporting Obligation (as defined below), and (D) any term or provision of the Holdings LLC Agreement (as in effect on the date hereof) that provides for the maintenance of capital accounts or the allocation of items of income, gain, loss, deduction or credit, including, without limitation, any term or provision set forth in Article V of the Holdings LLC Agreement (as in effect on the date hereof) (in the case of this clause (D), solely with respect to any taxable period ending on or before the Closing Date, or any taxable period beginning before the Closing Date and ending after the Closing Date). The terms, provisions and obligations described in clauses (A), (B), (C) and (D) of the proviso of the immediately preceding sentence shall be collectively referred to herein as the “Continuing Provisions”. The term “Releasing Representatives” means the affiliates, agents, assigns, attorneys, directors, employees, officers, owners, parents, partners, representatives, members, shareholders, heirs, auditors, consultants, predecessors, divisions, managers, trustees and advisors (including past, present and future of any and all of the foregoing) of any Party or person.

 

3.             Representations and Warranties of the LLC Optionholders. Each of the LLC Optionholders hereby represents and warrants to each other Party as follows:

 

(a)           Authority; Binding Nature. Such LLC Optionholder has full power, authority and capacity to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby to be consummated by such LLC Optionholder. The execution and delivery of this Agreement by such LLC Optionholder, the performance of such LLC Optionholder’s obligations hereunder and the consummation by such LLC Optionholder of the transactions contemplated hereby to be consummated by such LLC Optionholder have been duly and validly authorized by all necessary action on the part of such LLC Optionholder. No other proceedings on the part of such LLC Optionholder are necessary to approve this Agreement by such LLC Optionholder or to consummate the transactions contemplated hereby to be consummated by such LLC Optionholder. This Agreement has been duly and validly executed and delivered by such LLC Optionholder and (assuming due authorization, execution and delivery by the other Parties) constitutes a valid and binding obligation of such LLC Optionholder, enforceable against such LLC Optionholder in accordance with its terms (except in all cases as such enforceability may be limited by the Enforceability Exceptions).

 

(b)           Ownership of LLC Options. As of the date hereof (after giving effect to the occurrence of the H&E Termination), such LLC Optionholder beneficially owns LLC Options set forth opposite the name of such LLC Optionholder on Exhibit A hereto free and clear of any proxy, voting or transfer restriction, adverse claim or other Lien (except for transfer restrictions imposed by Holdings LLC Agreement and transfer restrictions of general applicability as may be provided under the Securities Act and state securities laws). As of the date hereof, the LLC Options set forth opposite the name of such LLC Optionholder on Exhibit A hereto entitle such LLC Optionholder, upon exercise (and prior to giving effect to withholding for exercise price and taxes as contemplated by Section 1(d)), to the number of LLC Units set forth opposite the name of such LLC Optionholder on Exhibit A hereto. Such LLC Optionholder has the sole power to dispose of its LLC Options and good and valid title to such LLC Options. As of the date hereof, such LLC Optionholder does not own any securities of Holdings other than such LLC Options (for the avoidance of doubt, excluding securities of Holdings indirectly held by virtue of owning shares of Class A Common Stock).

 

(c)           No Conflicts. Neither the execution and delivery of this Agreement by such LLC

 

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Optionholder, nor the performance by such LLC Optionholder of its obligations under this Agreement, will (i) violate any Law applicable to such LLC Optionholder or any of its properties or assets, (ii) result in the creation by such LLC Optionholder of any Lien upon its LLC Options or (iii) violate, conflict with, result in the loss of any material benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, or accelerate the performance required by such LLC Optionholder under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, permit, lease, agreement or other instrument or obligation to which such LLC Optionholder is a party, or by which such LLC Optionholder or any of its properties or assets may be bound or affected, except for, in the case of clause (iii), any such violations, conflicts, losses, defaults, terminations, cancellations or accelerations that would not reasonably be expected to prevent the performance by such LLC Optionholder of its obligations under this Agreement.

 

(d)           Absence of Litigation. As of the date hereof, there is no suit, action, investigation, claim or proceeding pending or, to such LLC Optionholder’s knowledge, threatened against or involving or affecting, such LLC Optionholder or its LLC Options that would reasonably be expected to impair the ability of such LLC Optionholder to perform fully its obligations hereunder or to consummate on a timely basis the transactions contemplated hereby to be consummated by such LLC Optionholder.

 

(e)           Brokers. No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission that is payable by Company, the Surviving Corporation, Parent or any of their respective Subsidiaries in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of such LLC Optionholder (excluding, for the avoidance of doubt, any such broker, investment banker, financial advisor or other Person retained or engaged by Company).

 

4.             Representations and Warranties of Parent, Company, Holdings and the Management Representative. Parent, Company, Holdings and the Management Representative hereby represent and warrant, severally and not jointly, to each other Party as follows (provided, that (x) the representation and warranty made in Section 4(d) shall only be made by Parent, and (y) the representations and warranties made in Sections 4(e) and 4(f) shall only be made by Company and Holdings):

 

(a)           Authority; Binding Nature. Such Party has full power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby to be consummated by such Party. The execution and delivery of this Agreement by such Party, the performance of such Party’s obligations hereunder and the consummation by such Party of the transactions contemplated hereby to be consummated by such Party have been duly and validly authorized by all necessary action on the part of such Party. No other proceedings on the part of such Party are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by such Party and constitutes a valid and binding obligation of such Party, enforceable against such Party in accordance with its terms (except in all cases as such enforceability may be limited by the Enforceability Exceptions).

 

(b)           No Conflicts. Neither the execution and delivery of this Agreement by such Party, nor the performance by such Party of its obligations under this Agreement, will (i) violate any Law applicable to such Party or any of its properties or assets, or (ii) violate, conflict with, result in the loss of any material benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, or accelerate the performance required by such Party under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, permit, lease, agreement or other instrument or obligation to which such Party is a party, or by which such Party or its respective properties or assets may

 

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be bound or affected.

 

(c)           Absence of Litigation. As of the date hereof, there is no suit, action, investigation, claim or proceeding pending or, to such Party’s knowledge, threatened against or involving or affecting, such Party that would reasonably be expected to impair the ability of such Party to perform fully its obligations hereunder or to consummate on a timely basis the transactions contemplated hereby to be consummated by such Party.

 

(d)           Ownership of Equity Interests. Parent does not own, beneficially or of record, any securities of Company or Holdings.

 

(e)           LLC Units and LLC Options. As of the date hereof, the LLC Options owned by each of the LLC Optionholders (as set forth on Exhibit A) constitute all of the issued and outstanding LLC Options. As of the date hereof, there are no other Equity Interests of Holdings outstanding other than such LLC Options and LLC Units owned by the Stockholders.

 

(f)            H&E Termination.  Prior to the execution and delivery of this Agreement by the Parties, the H&E Termination occurred and became effective.

 

5.             Tax Matters.

 

Company shall and, following the Merger, Parent will cause Company and the Surviving Corporation to, comply with the obligations of Company under (i) Section 8.03 of the Holdings LLC Agreement as in effect as of the date hereof and (ii) the second and third sentences of Section 9.01 of the Holdings LLC Agreement as in effect as of the date hereof (such obligations, collectively, the “Surviving Reporting Obligation”). Effective immediately following the Effective Time, Company, the Surviving Corporation and Holdings shall have no further obligations or liabilities (other than obligations and/or liabilities under or with respect to the Continuing Provisions) to the LLC Optionholders or the Management Representative pursuant to or in respect of the Holdings LLC Agreement and the Surviving Company may amend, restate or terminate the Holdings LLC Agreement in its sole discretion; provided, however, that the Continuing Provisions shall continue in full force and effect.

 

6.             Miscellaneous.

 

(a)           Term. This Agreement shall remain in full force and effect unless and until the Support Agreement is terminated in accordance with its terms (except for a termination of the Support Agreement on account of the consummation of the Merger). In the event that the Merger Agreement is terminated in accordance with its terms, (i) this Agreement shall automatically and immediately terminate and be of no further force and effect, all without the need for any further action of the part of (or notice to) any person and (ii) there shall be no liability or obligation hereunder on the part of any Party or any of their respective affiliates, or any of their respective managers, directors, stockholders, members, partners, officers, employees, agents, consultants, accountants, attorneys, investment bankers, financial advisors, representatives, successors or assigns. Without limiting the immediately preceding sentence, if this Agreement is terminated then the Stockholders shall not be required to consummate the Specified Exchange. None of the representations or warranties made by any Party in Section 3 or Section 4 hereof, as applicable, shall survive the termination of this Agreement or the Effective Time.

 

(b)           Further Actions. Following the date hereof, the Parties shall take all actions reasonably necessary and execute and deliver all documents and instruments to each other and third parties (including Company’s stock transfer agent) reasonably requested by a Party to give effect to the transactions contemplated hereby immediately prior to the Effective Time. The Parties agree that the

 

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Effective Time shall not occur until such time as all of the transactions contemplated by Sections 1 and 2 have become effective.

 

(c)           Amendments and Waivers. This Agreement may not be amended, modified or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing specifically designated as an amendment hereto, signed on behalf of each of the Parties. No failure on the part of any Party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. Any agreement on the part of a Party to any such waiver shall be valid only if set forth in a written instrument signed on behalf of such Party, but such waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

 

(d)           Counterparts. This Agreement may be executed in two or more counterparts (including by facsimile or other electronic means, including signatures received as a .pdf attachment to electronic mail), all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart.

 

(e)           Applicable Law; Jurisdiction; Waiver of Jury Trial. This Agreement, and any Action, dispute or other controversy arising out of or relating hereto shall be governed by, and construed in accordance with, the Laws of the State of Delaware, without regard to any applicable conflicts of law principles thereof. Each Party agrees that any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby shall be brought, heard, tried and determined exclusively in the Chosen Courts, and, solely in connection with claims arising under this Agreement or the transactions that are the subject of this Agreement, (i) irrevocably and unconditionally submits to the exclusive jurisdiction of the Chosen Courts, (ii) irrevocably and unconditionally waives any objection to laying venue in any such action or proceeding in the Chosen Courts, (iii) irrevocably and unconditionally waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any Party and (iv) agrees that service of process upon such Party in any such action or proceeding that is given in accordance with Section 6(f) or in such other manner as may be permitted by applicable Law, shall be valid, effective and sufficient service thereof. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR OTHER PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT:  (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY SUCH ACTION, SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6(e).

 

(f)            Notices. All notices and other communications hereunder shall be in writing and shall be

 

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deemed duly given or received (i) when personally delivered, (ii) on the date sent by email of a “portable document format” (.pdf) document (so long as written notice of such transmission is sent within two (2) business days thereafter by another delivery method hereunder) or (iii) one (1) business day following the date sent if such notice is sent by FedEx or another nationally recognized overnight delivery service. All notices hereunder shall be delivered to the addresses set forth below, or pursuant to such other instructions as may be designated in writing by the Party to receive such notice:

 

	
(i)
    	
 
    	
if to Company or Holdings, to:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Neff Corporation
    
	
 
    	
 
    	
 
    	
3750 NW 87th Avenue
    
	
 
    	
 
    	
 
    	
Suite 400
    
	
 
    	
 
    	
 
    	
Miami, Florida 33178-2433
    
	
 
    	
 
    	
 
    	
Attention:
    	
Mark Irion
    
	
 
    	
 
    	
 
    	
Email:
    	
MIrion@Neffcorp.com
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
With a copy (which shall not constitute notice) to:
    
	
 
    
	
 
    	
 
    	
 
    	
Akin Gump Strauss Hauer & Feld LLP
    
	
 
    	
 
    	
 
    	
One Bryant Park
    
	
 
    	
 
    	
 
    	
Bank of America Tower
    
	
 
    	
 
    	
 
    	
New York, New York 10036-6745
    
	
 
    	
 
    	
 
    	
Attention: 
    	
Daniel I. Fisher
    
	
 
    	
 
    	
 
    	
 
    	
Zachary N. Wittenberg
    
	
 
    	
 
    	
 
    	
Email:
    	
dfisher@akingump.com
    
	
 
    	
 
    	
 
    	
 
    	
zwittenberg@akingump.com
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
(ii)
    	
 
    	
if to Parent, to:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
United Rentals (North America), Inc.
    
	
 
    	
 
    	
 
    	
100 First Stamford Place, Suite 700
    
	
 
    	
 
    	
 
    	
Stamford, CT 06902
    
	
 
    	
 
    	
 
    	
Attention: 
    	
Michael J. Kneeland
    
	
 
    	
 
    	
 
    	
 
    	
Craig A. Pintoff
    
	
 
    	
 
    	
 
    	
Email: 
    	
mkneelan@ur.com
    
	
 
    	
 
    	
 
    	
 
    	
cpintoff@ur.com
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
With a copy (which shall not constitute notice) to:
    
	
 
    
	
 
    	
 
    	
 
    	
Sullivan & Cromwell LLP
    
	
 
    	
 
    	
 
    	
125 Broad Street
    
	
 
    	
 
    	
 
    	
New York, New York 10004
    
	
 
    	
 
    	
 
    	
Attention: 
    	
Francis J. Aquila
    
	
 
    	
 
    	
 
    	
 
    	
Scott B. Crofton
    
	
 
    	
 
    	
 
    	
Email: 
    	
aquilaf@sullcrom.com
    
	
 
    	
 
    	
 
    	
 
    	
croftons@sullcrom.com
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
(iii)
    	
 
    	
if to the Management Representative or an LLC Optionholder,   to:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Neff Corporation
    
	
 
    	
 
    	
 
    	
3750 N.W. 87111 Avenue, Suite 400
    
	
 
    	
 
    	
 
    	
Miami, Florida 33178
    
	
 
    	
 
    	
 
    	
Attn: 
    	
Chief Financial Officer
    
	
 
    	
 
    	
 
    	
Facsimile: 
    	
(305) 513-4156
    
	
 
    	
 
    	
 
    	
E-mail: 
    	
mirion@neffcorp.com
    

 

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(g)           Entire Agreement. This Agreement (including the documents and the instruments referred to herein) constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings.

 

(h)           Assignment; Third Party Beneficiaries; Transferees. Neither this Agreement nor any of the rights, interests or obligations shall be assigned by any of the Parties (whether by operation of Law or otherwise) without the prior written consent of the other Parties; provided that Parent may assign this Agreement to one or more of its direct or indirect wholly-owned subsidiaries. No assignment shall relieve the assigning party of any of its obligations hereunder. Any purported assignment in contravention hereof shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns. This Agreement (including the documents and instruments referred to herein) is not intended to and does not confer upon any Person (other than the Parties and, solely with respect to Section 6(k) hereof, the No Recourse Parties (as defined below)) any rights or remedies hereunder, including the right to rely upon the representations and warranties set forth herein.

 

(i)            Severability. The provisions of this Agreement shall be deemed severable. Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction or the application of that provision, in any other jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction such that a suitable and equitable provision shall be substituted for that provision in order to carry out, so far as may be valid and enforceable, the intent and purpose of the invalid or unenforceable provision.

 

(j)            Enforcement. The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with its specific terms or were otherwise breached and that the Parties may not have an adequate remedy at Law in the event that any of the obligations of this Agreement were not performed in accordance with its specific terms or otherwise breached. Accordingly, the Parties shall be entitled to specific performance of the terms hereof, including an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof, in addition to any other remedy to which they are entitled at Law or in equity, including monetary damages. Each of the Parties hereby further waives (i) any defense in any action for specific performance that a remedy at Law would be adequate, (ii) an award of performance is not an appropriate remedy for any reason at Law or equity, and (iii) any requirement under any Law to post security or a bond or similar undertaking as a prerequisite to obtaining equitable relief.

 

(k)           Non-Recourse. Notwithstanding anything that may be expressed or implied in this Agreement, and notwithstanding the fact that the Stockholders may be partnerships, the Parties covenant, agree and acknowledge that no recourse under this Agreement shall be had against any former, current or future directors, officers, agents, affiliates, limited partners, general partners, members, managers, employees, stockholders or equity holders of any Stockholder, or any former, current or future directors, officers, agents, affiliates, employees, general or limited partners, members, managers, employees, stockholders or equity holders of any of the foregoing, as such (any such Person, a “No Recourse Party”), whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any

 

9

 

statute, regulation or other applicable Law, it being expressly agreed and acknowledged that no liability whatsoever shall attach to, be imposed on or otherwise be incurred by any No Recourse Party for any obligation of any Stockholder under this Agreement for any claim based on, in respect of or by reason of such obligations or their creation.

 

(l)            Obligations Several. The obligations of the LLC Optionholders under this Agreement shall be several and not joint and several.

 

(m)          Certain Acknowledgments. Parent, Holdings and Company hereby irrevocably acknowledge and agree that:

 

(i)            the consummation of the Specified Exchange by each of the LLC Optionholders shall be exempt from the operation of Section 16(b) of the Exchange Act; and

 

(ii)           the fair market value of each of the LLC Units owned each of the LLC Optionholders that are exchanged for shares of Company Class A Common Stock pursuant to the Specified Exchange is equal to the Merger Consideration and, as such, there is no profit or gain realized by any of the LLC Optionholders upon the sale or other disposition of any such shares of Company Class A Common Stock pursuant to the Merger.

 

[SIGNATURE PAGE FOLLOWS]

 

10

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

	
 
    	
UNITED RENTALS (NORTH   AMERICA), INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Michael J. Kneeland
    
	
 
    	
Name:
    	
Michael J. Kneeland
    
	
 
    	
Title:
    	
President & CEO
    

 

[Signature Page for Exchange and Termination Agreement]

 

 

	
 
    	
NEFF CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Mark Irion
    
	
 
    	
Name:
    	
Mark Irion
    
	
 
    	
Title:
    	
Chief Financial Officer
    

 

[Signature Page for Exchange and Termination Agreement]

 

 

	
 
    	
NEFF HOLDINGS, LLC
    
	
 
    	
By:  Neff Corporation, its managing member
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Mark Irion
    
	
 
    	
Name:
    	
Mark Irion
    
	
 
    	
Title:
    	
Chief Financial Officer
    

 

[Signature Page for Exchange and Termination Agreement]

 

 

	
 
    	
 
    	
/s/ Graham Hood
    
	
 
    	
 
    	
Graham Hood
    

 

[Signature Page for Exchange and Termination Agreement]

 

 

	
 
    	
 
    	
/s/ James Continenza
    
	
 
    	
 
    	
James Continenza
    

 

[Signature Page for Exchange and Termination Agreement]

 

 

	
 
    	
 
    	
/s/ Mark Irion
    
	
 
    	
 
    	
Mark Irion
    

 

[Signature Page for Exchange and Termination Agreement]

 

 

	
 
    	
 
    	
/s/ Robert Singer
    
	
 
    	
 
    	
Robert Singer
    

 

[Signature Page for Exchange and Termination Agreement]

 

 

	
 
    	
 
    	
/s/ Steve Michaels
    
	
 
    	
 
    	
Steve Michaels
    

 

[Signature Page for Exchange and Termination Agreement]

 

 

	
 
    	
 
    	
/s/ Westley Parks
    
	
 
    	
 
    	
Westley Parks
    

 

[Signature Page for Exchange and Termination Agreement]

 

 

	
 
    	
MANAGEMENT REPRESENTATIVE:
    
	
 
    	
Mark   Irion
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/ Mark Irion
    

 

[Signature Page for Exchange and Termination Agreement]

 

 

Exhibit A

 

	
Optionholder
    	
 
    	
Number of LLC
   Options
    	
 
    	
Number of LLC
   Units(1)
    	
 
    
	
Graham Hood
    	
 
    	
354,288
    	
 
    	
354,288
    	
 
    
	
James Continenza
    	
 
    	
20,433
    	
 
    	
20,433
    	
 
    
	
Mark Irion
    	
 
    	
211,272
    	
 
    	
211,272
    	
 
    
	
Robert Singer
    	
 
    	
14,303
    	
 
    	
14,303
    	
 
    
	
Steve Michaels
    	
 
    	
60,131
    	
 
    	
60,131
    	
 
    
	
Westley Parks
    	
 
    	
97,510
    	
 
    	
97,510
    	
 
    

 

(1)         Does not give effect to the exercise price and tax withholding contemplated by Section 1(d).Blueprint

 

Exhibit 10.1

Securities Purchase Agreement

 

This Securities Purchase
Agreement (this “Agreement”), dated as of August
11, 2017, is entered into by and between Growlife, Inc., a Delaware
corporation (“Company”), and Chicago Venture Partners, L.P., a
Utah limited partnership, its successors and/or assigns
(“Investor”).

 

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

 

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

 

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

 

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

 

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

 

1. Purchase and Sale of
Securities.

 

1.1. Purchase
of Securities. Company shall issue and sell to Investor and
Investor agrees to purchase from Company the Note. In consideration
thereof, Investor shall pay (i) the amount designated as the
initial cash purchase price on the signature page to this Agreement
(the “Initial
Cash Purchase Price”), and (ii) issue
to Company the Investor Notes (the sum of the initial principal
amounts of the Investor Notes, together with the Initial Cash
Purchase Price, the “Purchase
Price”). The Investor Notes will not be secured as of
the Closing Date (as defined below) but may become secured
subsequent to the Closing Date by such collateral and at such time
as determined by Investor in its sole discretion. The Purchase
Price, the OID (as defined below), and the Transaction Expense
Amount (as defined below) are allocated to the Tranches (as defined
in the Note) of the Note as set forth in the table attached hereto
as Exhibit
B.

 

 

 

1

 

 

 

1.2. Form
of Payment. On the Closing Date, (i) Investor shall pay the
Purchase Price to Company by delivering the following at the
Closing (as defined below) (or on such other date as shall be set
forth herein): (A) the Initial Cash Purchase Price, which shall be
delivered by wire transfer of immediately available funds to
Company in one (1) or more tranches, as shall be determined by
Investor in its sole discretion, within thirty (30) Trading Days
(as defined in the Note) of the Closing Date (as defined below)
(such date the, “Initial Cash
Purchase Price Payment Deadline”), in accordance with
Company’s written wiring instructions; (B) Investor Note #1
in the principal amount of $100,000.00 duly executed and
substantially in the form attached hereto as Exhibit C (“Investor Note #1”); (C) Investor
Note #2 in the principal amount of $100,000.00 duly executed and
substantially in the form attached hereto as Exhibit C (“Investor Note #2”); (D) Investor
Note #3 in the principal amount of $100,000.00 duly executed and
substantially in the form attached hereto as Exhibit C (“Investor Note #3”); (E) Investor
Note #4 in the principal amount of $100,000.00 duly executed and
substantially in the form attached hereto as Exhibit C (“Investor Note #4”); (F) Investor
Note #5 in the principal amount of $100,000.00 duly executed and
substantially in the form attached hereto as Exhibit C (“Investor Note #5”); (G) Investor
Note #6 in the principal amount of $100,000.00 duly executed and
substantially in the form attached hereto as Exhibit C (“Investor Note #6”); (H) Investor
Note #7 in the principal amount of $100,000.00 duly executed and
substantially in the form attached hereto as Exhibit C (“Investor Note #7”); (I) Investor
Note #8 in the principal amount of $100,000.00 duly executed and
substantially in the form attached hereto as Exhibit C (“Investor Note #8”); and (J)
Investor Note #9 in the principal amount of $100,000.00 duly
executed and substantially in the form attached hereto as
Exhibit C
(“Investor Note
#9”, and together with Investor Note #1, Investor Note
#2, Investor Note #3, Investor Note #4, Investor Note #5, Investor
Note #6, Investor Note #7 and Investor Note #8, the
“Investor
Notes”) and (ii) Company shall deliver the duly
executed Note on behalf of Company, to Investor, against delivery
of such Purchase Price. Investor and Company agree that in the
event Investor fails to deliver the full Initial Cash Purchase
Price to Company on or before the Initial Cash Purchase Price
Payment Deadline, Company shall have the option, exercisable within
five (5) Trading Days of the Initial Cash Purchase Price Payment
Deadline, as its sole and exclusive remedy for Investor’s
failure to deliver the Initial Cash Purchase Price prior to the
Initial Cash Purchase Price Payment Deadline, to unwind and
terminate the transactions contemplated in the Transaction
Documents. In order to exercise such right, Company must deliver to
Investor the following within five (5) Trading Days of the Initial
Cash Purchase Price Payment Deadline: (1) a written notice of its
intent to unwind and terminate the Transaction Documents; (2) all
cash previously delivered to Company pursuant to the Transaction
Documents, including without limitation any portion of the Initial
Cash Purchase Price that had previously been delivered to Company;
(3) originals of all Investor Notes; and (4) such other documents
as Investor may request in its reasonable discretion. If Company
fails to exercise such termination right within the timeframes set
forth in the preceding sentence, then the Transaction Documents
shall remain in full force and effect as if no breach thereof had
occurred and Investor and Company shall continue to have all rights
and obligations thereunder, provided that Investor shall have no
further obligation to fund the Initial Cash Purchase Price unless
it elects to do so in its sole and absolute
discretion.

 

1.3. Closing
Date. Subject to the satisfaction (or written waiver) of the
conditions set forth in Section 5 and Section 6 below, the date of
the issuance and sale of the Securities pursuant to this Agreement
(the “Closing
Date”) shall be August 11, 2017, or such other
mutually agreed upon date. The closing of the transactions
contemplated by this Agreement (the “Closing”) shall occur on the
Closing Date by means of the exchange by email of signed .pdf
documents, but shall be deemed for all purposes to have occurred at
the offices of Hansen Black Anderson Ashcraft PLLC in Lehi,
Utah.

 

1.4. Collateral
for the Note. The Note shall be
secured by the collateral set forth in that certain Security
Agreement attached hereto as Exhibit D listing all of
Company’s assets as security for Company’s obligations
under the Transaction Documents (the “Security Agreement”).

 

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

 

 

 

2

 

 

 

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

 

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

 

 

 

3

 

 

 

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

 

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

 

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

 

5.2. Investor
shall have delivered the Initial Cash Purchase Price to Company on
or before the Initial Cash Purchase Price Payment Deadline in
accordance with Section 1.2 above.

 

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

 

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

 

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

 

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

 

 

 

4

 

 

 

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

 

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

 

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

 

7. Reservation of Shares. At all
times during which the Note is convertible, Company will reserve
from its authorized and unissued Common Stock to provide for the
issuance of Common Stock upon the full conversion of the Note at
least three (3) times the number of shares of Common Stock obtained
by dividing the Outstanding Balance (as defined in the Note) by the
Redemption Conversion Price (as defined in the Note) (the
“Share
Reserve”), but in any event not less than 200,000,000
shares of Common Stock shall be reserved at all times for such
purpose (the “Transfer Agent
Reserve”). Company further agrees that it will cause
the Transfer Agent to immediately add shares of Common Stock to the
Transfer Agent Reserve in increments of 20,000,000 shares as and
when requested by Investor in writing from time to time, provided
that such incremental increases do not cause the Transfer Agent
Reserve to exceed the Share Reserve. In furtherance thereof, from
and after the date hereof and until such time that the Note has
been paid in full, Company shall require the Transfer Agent to
reserve for the purpose of issuance of Conversion Shares under the
Note, a number of shares of Common Stock equal to the Transfer
Agent Reserve. Company shall further require the Transfer Agent to
hold such shares of Common Stock exclusively for the benefit of
Investor and to issue such shares to Investor promptly upon
Investor’s delivery of a conversion notice under the Note.
Finally, Company shall require the Transfer Agent to issue shares
of Common Stock pursuant to the Note to Investor out of its
authorized and unissued shares, and not the Transfer Agent Reserve,
to the extent shares of Common Stock have been authorized, but not
issued, and are not included in the Transfer Agent Reserve. The
Transfer Agent shall only issue shares out of the Transfer Agent
Reserve to the extent there are no other authorized shares
available for issuance and then only with Investor’s written
consent.

 

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

 

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

 

 

 

5

 

 

 

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

 

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

 

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

 

 

 

6

 

 

 

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

 

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

 

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

 

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

 

 

 

7

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

8

 

 

 

If to
Company:

 

Growlife,
Inc.

Attn:
Marco Hegyi

5400
Carillon Point

Kirkland,
Washington 98033

 

If to
Investor:

 

Chicago
Venture Partners, L.P.

Attn:
John Fife

303
East Wacker Drive, Suite 1040

Chicago, Illinois
60601

 

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

 

Hansen
Black Anderson Ashcraft PLLC

Attn:
Jonathan Hansen

3051
West Maple Loop Drive, Suite 325

Lehi,
Utah 84043

 

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

 

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

 

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

 

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

 

 

 

9

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

10

 

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

 

SUBSCRIPTION AMOUNT:

 

Principal Amount of
Note:

$1,105,000.00

 

Initial Cash
Purchase Price:

$100,000.00

 

 

INVESTOR:

 

Chicago Venture Partners, L.P.

 

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

its
General Partner

 

By:       

CVM,
Inc., its Manager

 

 

 

             
By: /s/ John M.
Fife

                    
John
M. Fife, President

 

 

COMPANY:

 

Growlife, Inc.

 

 

By:            

/s/ Marco
Hegyi 

 

Printed Name:
Marco
Hegyi 

 

Title: Chief Executive
Officer  

 

[Signature Page to Securities Purchase
Agreement]

11

 

 

ATTACHED
EXHIBITS:

 

Exhibit
A

Note

Exhibit
B

Allocation of
Purchase Price

Exhibit
C

Form of Investor
Note

Exhibit
D

Security
Agreement

Exhibit
E

Officer’s
Certificate

Exhibit
F

Irrevocable
Transfer Agent Instructions

Exhibit
G

Secretary’s
Certificate

Exhibit
H

Share Issuance
Resolution

Exhibit
I

Arbitration
Provisions

 

 

12

 

EXHIBIT I

 

ARBITRATION PROVISIONS

 

1.       

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

 

2.       

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

 

3.       

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

 

4.       

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

 

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

 

 

 

13

 

 

 

4.2         Selection
and Payment of Arbitrator.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

14

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

15

 

 

 

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

 

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

 

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

 

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

 

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

 

 

 

16

 

 

 

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

 

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

 

5.       

Arbitration
Appeal.

 

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

 

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

 

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

 

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

 

 

 

17

 

 

 

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

 

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

 

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

 

5.3         

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

 

5.4         

Timing.

 

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

 

 

18

 

 

 

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

 

5.5         

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

 

5.6         

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

 

5.7         

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

 

6.   
Miscellaneous.

 

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

 

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

 

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

 

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

 

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

 

 

 

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19

 

 

FORM OF SECURED CONVERTIBLE PROMISSORY NOTE

 

 

	Effective Date:
August 11, 2017
	U.S.
$1,105,000.00

 

FOR
VALUE RECEIVED, Growlife,
Inc., a Delaware corporation (“Borrower”), promises to pay to
Chicago Venture Partners,
L.P., a Utah limited partnership, or its successors or
assigns (“Lender”), $1,105,000.00 and any
interest, fees, charges, and late fees on the date that is twelve
(12) months after the Purchase Price Date (the “Maturity Date”) in accordance with
the terms set forth herein and to pay interest on the Outstanding
Balance (including all Tranches (as defined below), both Conversion
Eligible Tranches (as defined below) and Subsequent Tranches (as
defined below) that have not yet become Conversion Eligible
Tranches) at the rate of ten percent (10%) per annum from the
Purchase Price Date until the same is paid in full. This Secured
Convertible Promissory Note (this “Note”) is issued and made
effective as of August 11, 2017 (the “Effective Date”). This Note is
issued pursuant to that certain Securities Purchase Agreement dated
August 11, 2017, as the same may be amended from time to time, by
and between Borrower and Lender (the “Purchase Agreement”). All interest
calculations hereunder shall be computed on the basis of a 360-day
year comprised of twelve (12) thirty (30) day months,
shall compound daily and shall be payable in accordance with the
terms of this Note. Certain capitalized terms used herein are
defined in Attachment
1 attached hereto and incorporated herein by this
reference.

 

This
Note carries an OID of $100,000.00. In addition, Borrower agrees to pay
$5,000.00 to Lender to cover Lender’s legal fees, accounting
costs, due diligence, monitoring and other transaction costs
incurred in connection with the purchase and sale of this Note (the
“Transaction Expense
Amount”), all of which amount is included in the
initial principal balance of this Note. The purchase price for this
Note shall be $1,000,000.00 (the “Purchase Price”), computed as
follows: $1,105,000.00 original principal balance, less the OID,
less the Transaction Expense Amount. The Purchase Price shall be
payable by delivery to Borrower at Closing of the Investor Notes
(as defined in the Purchase Agreement) and a wire transfer of
immediately available funds in the amount of the Initial Cash
Purchase Price (as defined in the Purchase Agreement). This Note
shall be comprised of ten (10) tranches (each, a
“Tranche”),
consisting of (i) an initial Tranche in an amount equal to
$115,000.00 and any interest, costs, fees or charges accrued
thereon or added thereto under the terms of this Note and the other
Transaction Documents (as defined in the Purchase Agreement) (the
“Initial Tranche”), and (ii) nine (9)
additional Tranches, each in the amount of $110,000.00, plus any
interest, costs, fees or charges accrued thereon or added thereto
under the terms of this Note and the other Transaction Documents
(each, a “Subsequent
Tranche”). The Initial Tranche shall correspond to the
Initial Cash Purchase Price, $10,000.00 of the OID and the
Transaction Expense Amount, and may be converted into shares of
Common Stock (as defined below) any time subsequent to the Purchase
Price Date. The first Subsequent Tranche shall correspond to
Investor Note #1 and $10,000.00 of the OID, the second Subsequent
Tranche shall correspond to Investor Note #2 and $10,000.00 of the
OID, the third Subsequent Tranche shall correspond to Investor Note
#3 and $10,000.00 of the OID, the fourth Subsequent Tranche shall
correspond to Investor Note #4 and $10,000.00 of the OID, the fifth
Subsequent Tranche shall correspond to Investor Note #5 and
$10,000.00 of the OID, the sixth Subsequent Tranche shall
correspond to Investor Note #6 and $10,000.00 of the OID; the
seventh Subsequent Tranche shall correspond to Investor Note #7 and
$10,000.00 of the OID; the eighth Subsequent Tranche shall
correspond to Investor Note #8 and $10,000.00 of the OID; and the
ninth Subsequent Tranche shall correspond to Investor Note #9 and
$10,000.00 of the OID. Lender’s right to convert any portion
of any of the Subsequent Tranches is conditioned upon
Lender’s payment in full of the Investor Note corresponding
to such Subsequent Tranche (upon the satisfaction of such
condition, such Subsequent Tranche becomes a “Conversion Eligible Tranche”). In
the event Lender exercises its Lender Offset Right (as defined
below) with respect to a portion of an Investor Note and pays in
full the remaining outstanding balance of such Investor Note, the
Subsequent Tranche that corresponds to such Investor Note shall be
deemed to be a Conversion Eligible Tranche only for the portion of
such Tranche that was paid for in cash by Lender and the portion of
such Investor Note that was offset pursuant to Lender’s
exercise of the Lender Offset Right shall not be included in the
applicable Conversion Eligible Tranche. For the avoidance of doubt,
subject to the other terms and conditions hereof, the Initial
Tranche shall be deemed a Conversion Eligible Tranche as of the
Purchase Price Date for all purposes hereunder and may be converted
in whole or in part at any time subsequent to the Purchase Price
Date, and each Subsequent Tranche that becomes a Conversion
Eligible Tranche may be converted in whole or in part at any time
subsequent to the first date on which such Subsequent Tranche
becomes a Conversion Eligible Tranche. For all purposes hereunder,
Conversion Eligible Tranches shall be converted (or redeemed, as
applicable) in order of the lowest-numbered Conversion Eligible
Tranche and Conversion Eligible Tranches may be converted (or
redeemed, as applicable) in one or more separate Conversions (as
defined below), as determined in Lender’s sole discretion. At
all times hereunder, the aggregate amount of any costs, fees or
charges incurred by or assessable against Borrower hereunder,
including, without limitation, any fees, charges or premiums
incurred in connection with an Event of Default (as defined below),
shall be added to the lowest-numbered then-current Conversion
Eligible Tranche.

 

1. Payment;
Prepayment.

 

1.1. Payment.
Provided there is an Outstanding Balance, on each Redemption Date
(as defined below), Borrower shall pay to Lender an amount equal to
the Redemption Amount (as defined below) due on such Redemption
Date in accordance with Section 8. All payments owing
hereunder shall be in lawful money of the United States of America
or Conversion Shares (as defined below), as provided for herein,
and delivered to Lender at the address or bank account furnished to
Borrower for that purpose. All payments shall be applied first to
(a) costs of collection, if any, then to (b) fees and charges, if
any, then to (c) accrued and unpaid interest, and thereafter, to
(d) principal.

 

1.2. Prepayment.
Notwithstanding the foregoing, so long as Borrower has not received
a Lender Conversion Notice (as defined below) or a Redemption
Notice (as defined below) from Lender where the applicable
Conversion Shares have not yet been delivered and so long as no
Event of Default has occurred since the Effective Date (whether
declared by Lender or undeclared and regardless of whether or not
cured), then Borrower shall have the right, exercisable on not less
than five (5) Trading Days prior written notice to Lender to prepay
the Outstanding Balance of this Note, in full, in accordance with
this Section 1. Any notice of prepayment hereunder (an
“Optional Prepayment
Notice”) shall be delivered to Lender at its
registered address and shall state: (i) that Borrower is exercising
its right to prepay this Note, and (ii) the date of prepayment,
which shall be not less than five (5) Trading Days from the date of
the Optional Prepayment Notice. On the date fixed for prepayment
(the “Optional Prepayment
Date”), Borrower shall make payment of the Optional
Prepayment Amount (as defined below) to or upon the order of Lender
as may be specified by Lender in writing to Borrower. If Borrower
exercises its right to prepay this Note, Borrower shall make
payment to Lender of an amount in cash equal to 125% (the
“Prepayment
Premium”) multiplied by the then Outstanding Balance
of this Note (the “Optional
Prepayment Amount”). In the event Borrower delivers
the Optional Prepayment Amount to Lender prior to the Optional
Prepayment Date or without delivering an Optional Prepayment Notice
to Lender as set forth herein without Lender’s prior written
consent, the Optional Prepayment Amount shall not be deemed to have
been paid to Lender until the Optional Prepayment Date. Moreover,
in such event the Optional Prepayment Liquidated Damages Amount
will automatically be added to the Outstanding Balance of this Note
on the day Borrower delivers the Optional Prepayment Amount to
Lender. In the event Borrower delivers the Optional Prepayment
Amount without an Optional Prepayment Notice, then the Optional
Prepayment Date will be deemed to be the date that is five (5)
Trading Days from the date that the Optional Prepayment Amount was
delivered to Lender and Lender shall be entitled to exercise its
conversion rights set forth herein during such five (5) day period.
In addition, if Borrower delivers an Optional Prepayment Notice and
fails to pay the Optional Prepayment Amount due to Lender within
two (2) Trading Days following the Optional Prepayment Date,
Borrower shall forever forfeit its right to prepay this
Note.

 

 

 

20

 

 

 

2. Security. This Note is secured
by a certain Security Agreement of even date herewith, as the same
may be amended from time to time (the “Security Agreement”), executed by
Borrower in favor of Lender encumbering all of Borrower’s
assets, as more specifically set forth in the Security Agreement,
all the terms and conditions of which are hereby incorporated into
and made a part of this Note.

 

3. Lender Optional
Conversion.

 

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

 

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

 

4. Defaults and
Remedies.

 

4.1. Defaults.
The following are events of default under this Note (each, an
“Event of
Default”): (a) Borrower fails to pay any principal,
interest, fees, charges, or any other amount when due and payable
hereunder; (b) Borrower fails to deliver any Lender Conversion
Shares in accordance with the terms hereof; (c) Borrower fails to
deliver any Redemption Conversion Shares (as defined below) or
True-Up Shares (as defined below) in accordance with the terms
hereof; (d) a receiver, trustee or other similar official shall be
appointed over Borrower or a material part of its assets and such
appointment shall remain uncontested for twenty (20) days or shall
not be dismissed or discharged within sixty (60) days; (e) Borrower
becomes insolvent or generally fails to pay, or admits in writing
its inability to pay, its debts as they become due, subject to
applicable grace periods, if any; (f) Borrower makes a general
assignment for the benefit of creditors; (g) Borrower files a
petition for relief under any bankruptcy, insolvency or similar law
(domestic or foreign); (h) an involuntary bankruptcy proceeding is
commenced or filed against Borrower; (i) Borrower defaults or
otherwise fails to observe or perform any covenant, obligation,
condition or agreement of Borrower contained herein or in any other
Transaction Document, other than those specifically set forth in
this Section 4.1 and Section 4 of the Purchase Agreement; (j) any
representation, warranty or other statement made or furnished by or
on behalf of Borrower to Lender herein, in any Transaction
Document, or otherwise in connection with the issuance of this Note
is false, incorrect, incomplete or misleading in any material
respect when made or furnished; (k) the occurrence of a Fundamental
Transaction without Lender’s prior written consent; (l)
Borrower fails to establish and/or maintain the Share Reserve as
required under the Purchase Agreement (including without limitation
failing to effect the Authorized Share Increase (as defined in the
Purchase Agreement) and establish the Share Reserve on or before
August 31, 2017); (m) Borrower effectuates a reverse split of its
Common Stock without twenty (20) Trading Days prior written notice
to Lender; (n) any money judgment, writ or similar process is
entered or filed against Borrower or any subsidiary of Borrower or
any of its property or other assets for more than $100,000.00, and
shall remain unvacated, unbonded or unstayed for a period of twenty
(20) calendar days unless otherwise consented to by Lender; (o)
Borrower fails to be DWAC Eligible; (p) Borrower fails to observe
or perform any covenant set forth in Section 4 of the Purchase
Agreement, or (q) Borrower breaches any covenant or other term or
condition contained in any Other Agreements.

 

 

 

21

 

 

 

4.2. Remedies.
At any time and from time to time after Lender becomes aware of the
occurrence of any Event of Default, Lender may accelerate this Note
by written notice to Borrower, with the Outstanding Balance
becoming immediately due and payable in cash at the Mandatory
Default Amount. Notwithstanding the foregoing, at any time
following the occurrence of any Event of Default, Lender may, at
its option, elect to increase the Outstanding Balance by applying
the Default Effect (subject to the limitation set forth below) via
written notice to Borrower without accelerating the Outstanding
Balance, in which event the Outstanding Balance shall be increased
as of the date of the occurrence of the applicable Event of Default
pursuant to the Default Effect, but the Outstanding Balance shall
not be immediately due and payable unless so declared by Lender
(for the avoidance of doubt, if Lender elects to apply the Default
Effect pursuant to this sentence, it shall reserve the right to
declare the Outstanding Balance immediately due and payable at any
time and no such election by Lender shall be deemed to be a waiver
of its right to declare the Outstanding Balance immediately due and
payable as set forth herein unless otherwise agreed to by Lender in
writing). Notwithstanding the foregoing, upon the occurrence of any
Event of Default described in clauses (d), (e), (f), (g) or (h) of
Section 4.1, the Outstanding Balance as of the date of acceleration
shall become immediately and automatically due and payable in cash
at the Mandatory Default Amount, without any written notice
required by Lender. At any time following the occurrence of any
Event of Default, upon written notice given by Lender to Borrower,
interest shall accrue on the Outstanding Balance beginning on the
date the applicable Event of Default occurred at an interest rate
equal to the lesser of 22% per annum or the maximum rate permitted
under applicable law (“Default Interest”); provided, however, that no Default
Interest shall accrue during the Fundamental Default Measuring
Period. For the avoidance of doubt, Lender may continue making
Lender Conversions at any time following an Event of Default until
such time as the Outstanding Balance is paid in full. Borrower
further acknowledges and agrees that Lender may continue making
Conversions following the entry of any judgment or arbitration
award in favor of Lender until such time that the entire judgment
amount or arbitration award is paid in full. Borrower agrees that
any judgment or arbitration award will, by its terms, be made
convertible into Common Stock. Any Conversions made following a
judgment or arbitration award shall be made pursuant to the
following formula: the amount of the judgment or arbitration award
being converted divided by 80% of the lowest Closing Bid Price in
the ten (10) Trading Days immediately preceding the date of
Conversion. In such event, Borrower and Lender agree that it is
their expectation that any such judgment amount or arbitration
award that is converted will tack back to the Purchase Price Date
for purposes of determining the holding period under Rule 144.
Borrower and Lender agree and stipulate that any judgment or
arbitration award entered against Borrower shall be reduced by
$1,000.00 and such $1,000.00 shall become the new Outstanding
Balance of this Note and this Note shall expressly survive such
judgment or arbitration award. Additionally, following the
occurrence of any Event of Default, Borrower may, at its option,
pay any Lender Conversion in cash instead of Lender Conversion
Shares by paying to Lender on or before the applicable Delivery
Date (as defined below) a cash amount equal to the number of Lender
Conversion Shares set forth in the applicable Lender Conversion
Notice multiplied by the highest intra-day trading price of the
Common Stock that occurs during the period beginning on the date
the applicable Event of Default occurred and ending on the date of
the applicable Lender Conversion Notice. In connection with
acceleration described herein, Lender need not provide, and
Borrower hereby waives, any presentment, demand, protest or other
notice of any kind, and Lender may immediately and without
expiration of any grace period enforce any and all of its rights
and remedies hereunder and all other remedies available to it under
applicable law. Such acceleration may be rescinded and annulled by
Lender at any time prior to payment hereunder and Lender shall have
all rights as a holder of the Note until such time, if any, as
Lender receives full payment pursuant to this Section 4.2. No such
rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon. Nothing herein
shall limit Lender’s right to pursue any other remedies
available to it at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief with
respect to Borrower’s failure to timely deliver Conversion
Shares upon Conversion of the Notes as required pursuant to the
terms hereof.

 

4.3. Fundamental
Default Remedies. Notwithstanding anything to the contrary
herein, in addition to all other remedies set forth herein, after
giving effect to the Lender Offset Right (as defined below), which
shall occur automatically upon the occurrence of any Fundamental
Default, the Fundamental Liquidated Damages Amount shall be added
to the Outstanding Balance upon Lender’s delivery to Borrower
of a notice (which notice Lender may deliver to Borrower at any
time following the occurrence of a Fundamental Default) setting
forth its election to declare a Fundamental Default and the
Fundamental Liquidated Damages Amount that will be added to the
Outstanding Balance.

 

4.4. Certain
Additional Rights. Notwithstanding anything to the contrary
herein, in the event Borrower fails to make any payment when due or
fails to deliver any Conversion Shares as and when required under
this Note, then (a) the Lender Conversion Price for all Lender
Conversions occurring after the date of such failure to pay shall
equal the lower of the Lender Conversion Price and the Market Price
as of any applicable date of Conversion, and (b) the true-up
provisions of Section 11 below shall apply to all Lender
Conversions that occur after the date of such failure to pay,
provided that all references to the “Redemption Notice”
in Section 11 shall be replaced with references to a “Lender
Conversion Notice” for purposes of this Section 4.4, all
references to “Redemption Conversion Shares” in Section
11 shall be replaced with references to “Lender Conversion
Shares” for purposes of this Section 4.4, and all references
to the “Redemption Conversion Price” in Section 11
shall be replaced with references to the “Lender Conversion
Price” for purposes of this Section 4.4. For the avoidance of
doubt, Lender’s exercise of the rights granted to it pursuant
to this Section 4.4 shall not relieve Borrower of its obligation to
continue paying the Redemption Amount on all future Redemption
Dates.

 

 

 

22

 

 

 

5. Unconditional Obligation; No
Offset. Borrower acknowledges that this Note is an
unconditional, valid, binding and enforceable obligation of
Borrower not subject to offset (except as set forth in Section 20
below), deduction or counterclaim of any kind. Borrower hereby
waives any rights of offset it now has or may have hereafter
against Lender, its successors and assigns, and agrees to make the
payments or Conversions called for herein in accordance with the
terms of this Note. Notwithstanding the foregoing, any sale,
assignment, hypothecation or other transfer of the Note or a
portion of the Note where in return Lender receives consideration,
the value of the consideration received by Lender will offset any
amounts owed by Borrower as of the date the consideration is
received by Lender.

 

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

 

7. Rights Upon Issuance of
Securities.

 

7.1. Subsequent
Equity Sales. Except with respect to Excluded Securities, if
Borrower or any subsidiary thereof, as applicable, at any time this
Note is outstanding, shall sell, issue or grant any Common Stock,
option to purchase Common Stock, right to reprice, preferred shares
convertible into Common Stock, or debt, warrants, options or other
instruments or securities to Lender or any third party which are
convertible into or exercisable or exchangeable for shares of
Common Stock (collectively, the “Equity Securities”), including
without limitation any Deemed Issuance, at an effective price per
share less than the then effective Lender Conversion Price (such
issuance is referred to herein as a “Dilutive Issuance”), then, the
Lender Conversion Price shall be automatically reduced and only
reduced to equal such lower effective price per share. If the
holder of any Equity Securities so issued shall at any time,
whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options, or rights per share which
are issued in connection with such Dilutive Issuance, be entitled
to receive shares of Common Stock at an effective price per share
that is less than the Lender Conversion Price, such issuance shall
be deemed to have occurred for less than the Lender Conversion
Price on the date of such Dilutive Issuance, and the then effective
Lender Conversion Price shall be reduced and only reduced to equal
such lower effective price per share. Such adjustments described
above to the Lender Conversion Price shall be permanent (subject to
additional adjustments under this section), and shall be made
whenever such Equity Securities are issued. Borrower shall notify
Lender, in writing, no later than the Trading Day following the
issuance of any Equity Securities subject to this Section 7.1,
indicating therein the applicable issuance price, or applicable
reset price, exchange price, conversion price, or other pricing
terms (such notice, the “Dilutive Issuance Notice”). For purposes of
clarity, whether or not Borrower provides a Dilutive Issuance
Notice pursuant to this Section 7.1, upon the occurrence of any
Dilutive Issuance, on the date of such Dilutive Issuance the Lender
Conversion Price shall be lowered to equal the applicable effective
price per share regardless of whether Borrower or Lender accurately
refers to such lower effective price per share in any subsequent
Redemption Notice or Lender Conversion Notice.

 

 

 

23

 

 

 

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

 

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

 

8. Borrower
Redemptions.

 

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

 

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

 

 

 

24

 

 

 

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

 

9.
    Method of Conversion Share
Delivery. On or before the close of business on the third
(3rd)
Trading Day following the Redemption Date or the third
(3rd)
Trading Day following the date of delivery of a Lender Conversion
Notice, as applicable (the “Delivery Date”), Borrower shall,
provided it is DWAC Eligible at such time, deliver or cause its
transfer agent to deliver the applicable Conversion Shares
electronically via DWAC to the account designated by Lender in the
applicable Lender Conversion Notice or Redemption
Notice. If Borrower is
not DWAC Eligible, it shall deliver to Lender or its broker (as
designated in the Lender Conversion Notice or Redemption Notice, as
applicable), via reputable overnight courier, a certificate
representing the number of shares of Common Stock equal to the
number of Conversion Shares to which Lender shall be entitled,
registered in the name of Lender or its designee. For the avoidance
of doubt, Borrower has not met its obligation to deliver Conversion
Shares by the Delivery Date unless Lender or its broker, as
applicable, has actually received the certificate representing the
applicable Conversion Shares no later than the close of business on
the relevant Delivery Date pursuant to the terms set forth above.
Moreover, and notwithstanding anything to the contrary herein or in
any other Transaction Document, in the event Borrower or its
transfer agent refuses to deliver any Conversion Shares to Lender
on grounds that such issuance is in violation of Rule 144 under the
Securities Act of 1933, as amended (“Rule 144”), Borrower shall deliver
or cause its transfer agent to deliver the applicable Conversion
Shares to Lender with a restricted securities legend, but otherwise
in accordance with the provisions of this Section 8.1. In
conjunction therewith, Borrower will also deliver to Lender a
written opinion from its counsel or its transfer agent’s
counsel opining as to why the issuance of the applicable Conversion
Shares violates Rule 144.

 

 

 

25

 

 

 

10. Conversion
Delays. If Borrower fails to deliver Conversion Shares or
True-Up Shares in accordance with the timeframes stated in Sections
8.1 or 11, as applicable, Lender, at any time prior to selling all
of those Conversion Shares or True-Up Shares, as applicable, may
rescind in whole or in part that particular Conversion attributable
to the unsold Conversion Shares or True-Up Shares, with a
corresponding increase to the Outstanding Balance (any returned
amount will tack back to the Purchase Price Date for purposes of
determining the holding period under Rule 144). In addition, for
each Lender Conversion, in the event that Lender Conversion Shares
are not delivered by the fourth Trading Day (inclusive of the day
of the Lender Conversion), a late fee equal to the greater of (a)
$500.00 and (b) 2% of the applicable Lender Conversion Share Value
rounded to the nearest multiple of $100.00 (but in any event the
cumulative amount of such late fees for each Lender Conversion
shall not exceed 200% of the applicable Lender Conversion Share
Value) will be assessed for each day after the third Trading Day
(inclusive of the day of the Lender Conversion) until Lender
Conversion Share delivery is made; and such late fee will be added
to the Outstanding Balance (such fees, the “Conversion Delay Late Fees”). For
illustration purposes only, if Lender delivers a Lender Conversion
Notice to Borrower pursuant to which Borrower is required to
deliver 100,000 Lender Conversion Shares to Lender and on the
Delivery Date such Lender Conversion Shares have a Lender
Conversion Share Value of $20,000.00, then in such event a
Conversion Delay Late Fee in the amount of $500.00 per day (the
greater of $500.00 per day and $20,000.00 multiplied by 2%, which
is $400.00) would be added to the Outstanding Balance of the Note
until such Lender Conversion Shares are delivered to Lender. For
purposes of this example, if the Lender Conversion Shares are
delivered to Lender twenty (20) days after the applicable Delivery
Date, the total Conversion Delay Late Fees that would be added to
the Outstanding Balance would be $10,000.00 (20 days multiplied by
$500.00 per day). If the Lender Conversion Shares are delivered to
Lender one hundred (100) days after the applicable Delivery Date,
the total Conversion Delay Late Fees that would be added to the
Outstanding Balance would be $40,000.00 (100 days multiplied by
$500.00 per day, but capped at 200% of the Lender Conversion Share
Value).

 

11. True-Up. On the date that is
twenty (20) Trading Days (a “True-Up Date”) from each date that
the Redemption Conversion Shares delivered by Borrower to Lender
become Free Trading, there shall be a true-up where Borrower shall
deliver to Lender additional Redemption Conversion Shares
(“True-Up
Shares”) if the Redemption Conversion Price as of the
True-Up Date is less than the Redemption Conversion Price used in
the applicable Redemption Notice. In such event, Borrower shall
deliver to Lender within three (3) Trading Days of the True-Up Date
(the “True-Up Share Delivery
Date”) a number of True-Up Shares equal to the
difference between the number of Redemption Conversion Shares that
would have been delivered to Lender on the True-Up Date based on
the Redemption Conversion Price as of the True-Up Date and the
number of Redemption Conversion Shares originally delivered to
Lender pursuant to the applicable Redemption Notice. For the
avoidance of doubt, if the Redemption Conversion Price as of the
True-Up Date is higher than the Redemption Conversion Price set
forth in the applicable Redemption Notice, then Borrower shall have
no obligation to deliver True-Up Shares to Lender, nor shall Lender
have any obligation to return any excess Redemption Conversion
Shares to Borrower under any circumstance. For the convenience of
Borrower only, Lender may, in its sole discretion, deliver to
Borrower a notice (pursuant to a form of notice substantially in
the form attached hereto as Exhibit C) informing Borrower
of the number of True-Up Shares it is obligated to deliver to
Lender as of any given True-Up Date, provided that if Lender does
not deliver any such notice, Borrower shall not be relieved of its
obligation to deliver True-Up Shares pursuant to this Section 11.
Notwithstanding the foregoing, if Borrower fails to deliver any
required True-Up Shares on or before any applicable True-Up Share
Delivery Date, then in such event the Outstanding Balance of this
Note will automatically increase by a sum equal to the number of
True-Up Shares deliverable as of the applicable True-Up Date
multiplied by the Market Price for the Common Stock as of the
applicable True-Up Date (under Lender’s and Borrower’s
expectations that any such increase will tack back to the Purchase
Price Date for purposes of determining the holding period under
Rule 144).

 

 

 

26

 

 

 

12. Ownership Limitation.
Notwithstanding anything to the contrary contained in this Note or
the other Transaction Documents, if at any time Lender shall or
would be issued shares of Common Stock under any of the Transaction
Documents, but such issuance would cause Lender (together with its
affiliates) to beneficially own a number of shares exceeding 4.99%
of the number of shares of Common Stock outstanding on such date
(including for such purpose the shares of Common Stock issuable
upon such issuance) (the “Maximum Percentage”), then
Borrower must not issue to Lender shares of Common Stock which
would exceed the Maximum Percentage. For purposes of this section,
beneficial ownership of Common Stock will be determined pursuant to
Section 13(d) of the 1934 Act. The shares of Common Stock issuable
to Lender that would cause the Maximum Percentage to be exceeded
are referred to herein as the “Ownership Limitation Shares”. Borrower will reserve the
Ownership Limitation Shares for the exclusive benefit of Lender.
From time to time, Lender may notify Borrower in writing of the
number of the Ownership Limitation Shares that may be issued to
Lender without causing Lender to exceed the Maximum Percentage.
Upon receipt of such notice, Borrower shall be unconditionally
obligated to immediately issue such designated shares to Lender,
with a corresponding reduction in the number of the Ownership
Limitation Shares. Notwithstanding the forgoing, the term
“4.99%” above shall be replaced with
“9.99%” at such time as the Market Capitalization is
less than $10,000,000.00. Notwithstanding any other provision
contained herein, if the term “4.99%” is replaced with
“9.99%” pursuant to the preceding sentence, such
increase to “9.99%” shall remain at 9.99% until
increased, decreased or waived by Lender as set forth below. By
written notice to Borrower, Lender may increase, decrease or waive
the Maximum Percentage as to itself but any such waiver will not be
effective until the 61st day after delivery thereof. The foregoing
61-day notice requirement is enforceable, unconditional and
non-waivable and shall apply to all affiliates and assigns of
Lender.

 

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

 

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

 

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

 

16. Resolution of
Disputes.

 

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

 

16.2. Calculation
Disputes. Notwithstanding the Arbitration Provisions,
in the case of a dispute as to any
Calculation (as defined in the Purchase Agreement), such
dispute will be resolved in the manner set forth in the Purchase
Agreement.

 

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

 

 

 

27

 

 

18.   
Amendments. The
prior written consent of both parties hereto shall be required for
any change or amendment to this Note.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

28

 

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

 

BORROWER:

 

Growlife, Inc.

 

 

By: /s/ Marco
Hegyi                

Name: Marco
Hegyi      

Title: Chief Executive
Officer 

 

ACKNOWLEDGED, ACCEPTED AND AGREED:

 

LENDER:

 

Chicago Venture Partners, L.P.

 

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

its
General Partner

 

By:
CVM, Inc., its Manager

 

 

By:
/s/ John M. Fife

      John
M. Fife, President

 

 

 

 

 

 
[Signature Page to Secured Convertible
Promissory Note]

 

 

29

 

 

ATTACHMENT 1

DEFINITIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Conversion
Factor” means 65%,
subject to the following adjustments. If at any time after the
Effective Date, Borrower is not DWAC Eligible, then the
then-current Conversion Factor will automatically be reduced by 5%
for all future Conversions. If at any time after the Effective
Date, the Conversion Shares are not DTC Eligible, then the
then-current Conversion Factor will automatically be reduced by an
additional 5% for all future Conversions. Finally, in addition to
the Default Effect, if any Major Default occurs after the Effective
Date, the Conversion Factor shall automatically be reduced for all
future Conversions by an additional 5% for each of the first three
(3) Major Defaults that occur after the Effective Date (for the
avoidance of doubt, each occurrence of any Major Default shall be
deemed to be a separate occurrence for purposes of the foregoing
reductions in Conversion Factor, even if the same Major Default
occurs three (3) separate times). For example, the first time
Borrower is not DWAC Eligible, the Conversion Factor for future
Conversions thereafter will be reduced from 65% to 60% for purposes
of this example. Following such event, the first time the
Conversion Shares are no longer DTC Eligible, the Conversion Factor
for future Conversions thereafter will be reduced from 60% to 55%
for purposes of this example. If, thereafter, there are three (3)
separate occurrences of a Major Default pursuant to Section 4.1(c),
then for purposes of this example the Conversion Factor would be
reduced by 5% for the first such occurrence, and so on for each of
the second and third occurrences of such Major
Default.

 

 

 

30

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Equity Conditions
Failure” means that any
of the following conditions has not been satisfied during any
applicable Equity Conditions Measuring Period (as defined below):
(a) with respect to the applicable date of determination all
of the Conversion Shares would be freely tradable under Rule 144 or
without the need for registration under any applicable federal or
state securities laws (in each case, disregarding any limitation on
conversion of this Note); (b) on each day during the period
beginning one month prior to the applicable date of determination
and ending on and including the applicable date of determination
(the “Equity Conditions Measuring
Period”), the Common
Stock is listed or designated for quotation (as applicable) on any
of NYSE, NASDAQ, OTCQX, OTCQB, or OTC Pink Current Information
(each, an “Eligible
Market”) and shall not
have been suspended from trading on any such Eligible Market (other
than suspensions of not more than two (2) Trading Days and
occurring prior to the applicable date of determination due to
business announcements by Borrower); (c) on each day during
the Equity Conditions Measuring Period, Borrower shall have
delivered all shares of Common Stock issuable upon conversion of
this Note on a timely basis as set forth in Section 8.1 hereof
and all other shares of capital stock required to be delivered by
Borrower on a timely basis as set forth in the other Transaction
Documents; (d) any shares of Common Stock to be issued in
connection with the event requiring determination may be issued in
full without violating Section 12 hereof (Lender acknowledges
that Borrower shall be entitled to assume that this condition has
been met for all purposes hereunder absent written notice from
Lender); (e) any shares of Common Stock to be issued in
connection with the event requiring determination may be issued in
full without violating the rules or regulations of the Eligible
Market on which the Common Stock is then listed or designated for
quotation (as applicable); (f) on each day during the Equity
Conditions Measuring Period, no public announcement of a pending,
proposed or intended Fundamental Transaction shall have occurred
which has not been abandoned, terminated or consummated;
(g) Borrower shall have no knowledge of any fact that would
reasonably be expected to cause any of the Conversion Shares to not
be freely tradable without the need for registration under any
applicable state securities laws (in each case, disregarding any
limitation on conversion of this Note); (h) on each day during
the Equity Conditions Measuring Period, Borrower otherwise shall
have been in material compliance with each, and shall not have
breached any, term, provision, covenant, representation or warranty
of any Transaction Document; (i) without limiting clause (j)
above, on each day during the Equity Conditions Measuring Period,
there shall not have occurred an Event of Default or an event that
with the passage of time or giving of notice would constitute an
Event of Default; (k) on each Redemption Date, the average and
median daily dollar volume of the Common Stock on its principal
market for the previous twenty (20) Trading Days shall be greater
than $50,000.00; (l) the ten (10) day average VWAP of the Common
Stock is greater than $0.005, and (m) the Common Stock shall be
DWAC Eligible as of each applicable Redemption Date or other date
of determination.

 

 

 

31

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Fundamental
Transaction” means that
(a) (i) Borrower or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, consolidate or
merge with or into (whether or not Borrower or any of its
subsidiaries is the surviving corporation) any other person or
entity, or (ii) Borrower or any of its subsidiaries shall,
directly or indirectly, in one or more related transactions, sell,
lease, license, assign, transfer, convey or otherwise dispose of
all or substantially all of its respective properties or assets to
any other person or entity, or (iii) Borrower or any of its
subsidiaries shall, directly or indirectly, in one or more related
transactions, allow any other person or entity to make a purchase,
tender or exchange offer that is accepted by the holders of more
than 50% of the outstanding shares of voting stock of Borrower (not
including any shares of voting stock of Borrower held by the person
or persons making or party to, or associated or affiliated with the
persons or entities making or party to, such purchase, tender or
exchange offer), or (iv) Borrower or any of its subsidiaries
shall, directly or indirectly, in one or more related transactions,
consummate a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with any other
person or entity whereby such other person or entity acquires more
than 50% of the outstanding shares of voting stock of Borrower (not
including any shares of voting stock of Borrower held by the other
persons or entities making or party to, or associated or affiliated
with the other persons or entities making or party to, such stock
or share purchase agreement or other business combination), or
(v) Borrower or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, reorganize,
recapitalize or reclassify the Common Stock, other than an increase
in the number of authorized shares of Borrower’s Common
Stock, or (b) any “person” or “group”
(as these terms are used for purposes of Sections 13(d) and 14(d)
of the 1934 Act and the rules and regulations promulgated
thereunder) is or shall become the “beneficial owner”
(as defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding voting stock of
Borrower.

 

 

 

32

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“OID” means an original issue
discount.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

33

 

EXHIBIT A

 

Chicago
Venture Partners, L.P.

303
East Wacker Drive, Suite 1040

Chicago,
Illinois 60601

 

	

Growlife,
Inc.

	
 

	

Date:
__________________

	

Attn:
Marco Hegyi, CEO

	
 

	
 

	

500
Union Street, Suite 810

	
 

	
 

	

Seattle,
Washington 98101

	
 

	
 

LENDER CONVERSION NOTICE

 

The
above-captioned Lender hereby gives notice to Growlife, Inc., a
Delaware corporation (the “Borrower”), pursuant to that
certain Secured Convertible Promissory Note made by Borrower in
favor of Lender on August 11, 2017 (the “Note”), that Lender elects to
convert the portion of the Note balance set forth below into fully
paid and non-assessable shares of Common Stock of Borrower as of
the date of conversion specified below. Said conversion shall be
based on the Lender Conversion Price set forth below. In the event
of a conflict between this Lender Conversion Notice and the Note,
the Note shall govern, or, in the alternative, at the election of
Lender in its sole discretion, Lender may provide a new form of
Lender Conversion Notice to conform to the Note. Capitalized terms
used in this notice without definition shall have the meanings
given to them in the Note.

 

A.  Date of
Conversion: _______________

B.  Lender
Conversion #: _______________

C.  Conversion
Amount: _______________

D.  Lender
Conversion Price: _______________

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

F.  Remaining
Outstanding Balance of Note: ____________*

G.  Remaining
Balance of Investor Notes: ____________*

H.
Outstanding Balance of Note Net of Balance of Investor Notes:
____________* (F minus G)

 

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

 

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

 

	

Conversion Amount

	

Tranche No.

	
 

	
 

	
 

	
 

	
 

	
 

 

 

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

 

 

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

	

Broker:

	
 

	
 

	

Address:

	
 

	

DTC#:

	
 

	
 

	
 

	
 

	

Account
#:

	
 

	
 

	
 

	
 

	

Account
Name:

	
 

	
 

	
 

	
 

 

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

_____________________________________

_____________________________________

_____________________________________

 

Sincerely,

 

Lender:

 

Chicago Venture Partners, L.P.

 

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

its
General Partner

 

By:
CVM, Inc., its Manager

 

 

By:                                                      

        
John M. Fife, President 

 

34

 

EXHIBIT B

 

Growlife,
Inc.

500 Union Street, Suite 810

Seattle, Washington 98101

 

	

Chicago
Venture Partners, L.P.

	
 

	

Date:
__________________

	

Attn:
John
Fife

	
 

	
 

	

303 East Wacker Drive, Suite 1040

	
 

	
 

	Chicago,
Illinois 60601	
 

	
 

  

REDEMPTION NOTICE

 

The
above-captioned Borrower hereby gives notice to Chicago Venture
Partners, L.P., a Utah limited partnership (the “Lender”), pursuant to that certain
Secured Convertible Promissory Note made by Borrower in favor of
Lender on August 11, 2017 (the “Note”), of certain Borrower
elections and certifications related to payment of the Redemption
Amount of $_________________ due on ___________, 201_ (the
“Redemption
Date”). In the event of a conflict between this
Redemption Notice and the Note, the Note shall govern, or, in the
alternative, at the election of Lender in its sole discretion,
Lender may provide a new form of Redemption Notice to conform to
the Note. Capitalized terms used in this notice without definition
shall have the meanings given to them in the Note.

 

REDEMPTION CONVERSION AND CERTIFICATIONS

AS OF THE REDEMPTION DATE

 

A. REDEMPTION
CONVERSION

 

A. 

Redemption Date:
____________, 201_

B. 

Redemption
Amount: 

____________

C. 

Portion of
Redemption Amount to be Paid in Cash: ____________

D. 

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

E. 

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

F. 

Redemption
Conversion Shares: _______________ (D divided by E)

G. 

Remaining
Outstanding Balance of Note: ____________ *

H. 

Remaining Balance
of Investor Notes: ____________*

I. 

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

 

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

 

B. EQUITY
CONDITIONS CERTIFICATION

 

1.

Market
Capitalization:________________

 

(Check One)

 

2.

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

 

3.

_________ Borrower
hereby gives notice that an Equity Conditions Failure has occurred
and requests a waiver from Lender with respect thereto. The Equity
Conditions Failure is as follows:

 

 

 

 

 

Sincerely,

 

Borrower:

 

Growlife, Inc.

 

 

 

By:                                                       

 

Name:                                                                 

 

Title:                                                                 

 

 

 

ACKNOWLEDGED
AND CERTIFIED BY:

 

Lender:

 

Chicago Venture Partners, L.P.

 

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

its
General Partner

 

By:
CVM, Inc., its Manager

 

 

By:                                                      

      John M. Fife,
President

 

35

 

EXHIBIT C

 

Chicago
Venture Partners, L.P.

303
East Wacker Drive, Suite 1040

Chicago,
Illinois 60601

	

Growlife,
Inc.

	
 

	

Date:
__________________

	

Attn:
Marco Hegyi, CEO

	
 

	
 

	

500
Union Street, Suite 810

	
 

	
 

	

Seattle,
Washington 98101

	
 

	
 

  

TRUE-UP NOTICE

 

The
above-captioned Lender hereby gives notice to Growlife, Inc., a
Delaware corporation (the “Borrower”), pursuant to that
certain Secured Convertible Promissory Note made by Borrower in
favor of Lender on August 11, 2017 (the “Note”), of True-Up Conversion
Shares related to _____________, 201_ (the “Redemption Date”). In the event of
a conflict between this True-Up Notice and the Note, the Note shall
govern, or, in the alternative, at the election of Lender in its
sole discretion, Lender may provide a new form of True-Up Notice to
conform to the Note. Capitalized terms used in this notice without
definition shall have the meanings given to them in the
Note.

 

TRUE-UP CONVERSION SHARES
AND CERTIFICATIONS

AS OF THE TRUE-UP DATE

 

1.

TRUE-UP
CONVERSION SHARES

 

A.

Redemption Date:
____________, 201_

 

B.

True-Up Date:
____________, 201_

 

C.

Portion of
Redemption Amount Converted into Common
Stock:                                                                                                                       
_____________

 

D.

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

 

E.

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

 

F.

Redemption
Conversion Shares Delivered: ________________

 

G.

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

 

2.

EQUITY
CONDITIONS CERTIFICATION (Section to be completed by
Borrower)

 

A.

Market
Capitalization:________________

 

(Check
One)

 

B.

_________ Borrower
herby certifies that no Equity Conditions Failure exists as of the
applicable True-Up Date.

 

C.

_________ Borrower
hereby gives notice that an Equity Conditions Failure has occurred
and requests a waiver from Lender with respect thereto. The Equity
Conditions Failure is as follows:

 

 

 

 

 

 

Sincerely,

 

Lender:                       

 

Chicago Venture Partners, L.P.

 

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

its
General Partner

 

By:
CVM, Inc., its Manager

 

 

By:                                                      

      
John M. Fife, President

 

 

36

 

EXHIBIT D

 

Growlife,
Inc.

500 Union Street, Suite 810

Seattle, Washington 98101

 

	
Chicago Venture
Partners, L.P.

	
 

	
Date:
__________________

	
Attn:
John
Fife

	
 

	
 

	
303
East Wacker Drive, Suite 1040 

	
 

	
 

	
Chicago,
Illinois 60601

	
 

	
 

 

 

NOTICE OF EXERCISE

OF BORROWER OFFSET RIGHT

 

The
above-captioned Borrower hereby gives notice to Chicago Venture
Partners, L.P., a Utah limited partnership (the “Lender”), pursuant to that certain
Secured Convertible Promissory Note made by Borrower in favor of
Lender on August 11, 2017 (the “Note”), of Borrower’s
election to exercise the Borrower Offset Right as set forth below.
In the event of a conflict between this Notice of Exercise of
Borrower Offset Right and the Note, the Note shall govern.
Capitalized terms used in this notice without definition shall have
the meanings given to them in the Note.

 

A.  Effective
Date of Offset: ____________, 201_

B.  Amount of
Offset:

C.  Investor
Note(s) Being Offset: _______________

 

 

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

 

Sincerely,

 

Borrower:

 

Growlife, Inc.

 

 

 

By:                                                       

 

Name:                                                 

 

Title:                                                    

 

 Exhibit
D to Secured Convertible Promissory Note, Page 1

37

 

 

EXHIBIT E

 

Chicago
Venture Partners, L.P.

303
East Wacker Drive, Suite 1040

Chicago,
Illinois 60601

 

	
Growlife,
Inc.

	
 

	
Date:
__________________

	
Attn: Marco Hegyi,
CEO

	
 

	
 

	
500 Union Street,
Suite 810

	
 

	
 

	
Seattle, Washington
98101

	
 

	
 

 

LENDER CONVERSION NOTICE

 

The
above-captioned Lender hereby gives notice to Growlife, Inc., a
Delaware corporation (the “Borrower”), pursuant to that
certain Secured Convertible Promissory Note made by Borrower in
favor of Lender on August 11, 2017 (the “Note”), that Lender elects to
convert the portion of the Note balance set forth below into fully
paid and non-assessable shares of Common Stock of Borrower as of
the date of conversion specified below. Said conversion shall be
based on the Conversion Price set forth below. In the event of a
conflict between this Conversion Notice and the Note, the Note
shall govern, or, in the alternative, at the election of Lender in
its sole discretion, Lender may provide a new form of Conversion
Notice to conform to the Note. Capitalized terms used in this
notice without definition shall have the meanings given to them in
the Note.

 

A.  Date of
Conversion: _______________

B.  Lender
Conversion #: _______________

C.  Conversion
Amount: _______________

D.  Par Value
Adjustment Amount: _______________

E.  Lender
Conversion Price: _______________ (Par Value)

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

G.  Remaining
Outstanding Balance of Note: ____________*

H.  Remaining
Balance of Investor Notes: ____________*

I. 
Outstanding Balance of Note Net of Balance of Investor Notes:
____________* (F minus G)

 

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

 

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

 

	

Conversion Amount

	

Tranche No.

	
 

	
 

	
 

	
 

	
 

	
 

 

 

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

 

 

 

 

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

	

Broker:

	
 

	
 

	

Address:

	
 

	

DTC#:

	
 

	
 

	
 

	
 

	

Account
#:

	
 

	
 

	
 

	
 

	

Account
Name:

	
 

	
 

	
 

	
 

 

 

38

 

 

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

_____________________________________

_____________________________________

_____________________________________

 

 

The Par
Value Adjustment Amount must be paid in cash within one (1) Trading
Day of your receipt of this Conversion Notice.

 

Sincerely,

 

Lender:

 

Chicago Venture Partners, L.P.

 

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

its
General Partner

 

By:
CVM, Inc., its Manager

 

 

By:                                                      

      John
M. Fife, President

 

 

 

 

 

 

39

 

 

 

EXHIBIT B

 

ALLOCATION OF PURCHASE PRICE

 

	

Purchase Price

	

Tranche

	

OID/Transaction Expense

	

Initial Cash Purchase Price

 

	

Initial Tranche

 

	

$15,000.00

	

Investor Note #1

 

	

Subsequent Tranche #1

 

	

$10,000.00

	

Investor Note #2

 

	

Subsequent Tranche #2

 

	

$10,000.00

	

Investor Note #3

 

	

Subsequent Tranche #3

 

	

$10,000.00

	

Investor Note #4

 

	

Subsequent Tranche #4

 

	

$10,000.00

	

Investor Note #5

 

	

Subsequent Tranche #5

 

	

$10,000.00

	

Investor Note #6

 

	

Subsequent Tranche #6

 

	

$10,000.00

	

Investor Note #7

 

	

Subsequent Tranche #7

 

	

$10,000.00

	

Investor Note #8

 

	

Subsequent Tranche #8

 

	

$10,000.00

	

Investor Note #9

 

	

Subsequent Tranche #9

 

	

$10,000.00

 

 

 

 

 

40

 

 

Security Agreement

 

This Security Agreement (this
“Agreement”),
dated as of August 11, 2017, is executed by Growlife, Inc., a Delaware
corporation (“Debtor”), in favor of Chicago Venture Partners, L.P., a
Utah limited partnership (“Secured Party”).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

41

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

5. Additional Covenants. Debtor
hereby agrees:

 

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

 

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

 

 

 

42

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

43

 

 

 

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

 

7. Default and
Remedies.

 

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

 

 

 

44

 

 

 

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

 

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

 

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

 

 

 

45

 

 

 

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

 

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

 

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

 

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

 

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

 

8. Miscellaneous.

 

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

 

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

 

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

 

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

 

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

 

 

 

46

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

47

 

 

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

 

 

SECURED
PARTY:

 

Chicago Venture Partners, L.P.

 

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

 

     By:
CVM, Inc., its Manager

 

 

 

     By:
/s/ John M. Fife

    John
M. Fife, President

 

 

 

DEBTOR:

 

Growlife, Inc.

 

 

By:               

/s/ Marco Hegyi

Name: Marco Hegyi

Title: Chief Executive
Officer

 

 

SCHEDULE
A

TO
SECURITY AGREEMENT

 

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

 

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

 

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

 

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

 

 

48

 

 

 

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

 

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

 

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

 

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

 

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

 

 

49

 

 

GROWLIFE, INC.

OFFICER’S CERTIFICATE

 

The
undersigned, Marco Hegyi, Chief Executive Officer of Growlife,
Inc., a Delaware corporation (“Company”), in connection with the
issuance of that certain Secured Convertible Promissory Note issued
by Company on August 11, 2017 (the “Note”) in the original principal
amount of $1,105,000.00 in favor of Chicago Venture Partners, L.P.,
a Utah limited partnership (“Investor”), pursuant to that
certain Securities Purchase Agreement dated August 11, 2017 between
Investor and Company (the “Purchase Agreement”), personally
and in his capacity as an officer of Company, hereby represents,
warrants and certifies that:

 

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

 

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

 

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

 

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

 

IN
WITNESS WHEREOF, the undersigned, personally and in his capacity as
an officer of Company, has executed this Officer’s
Certificate as of August 11, 2017.

 

                                                                                            /s/
Marco Hegyi

_________________________________

Marco
Hegyi, Chief Executive Officer

 

 

50

 

 

 

 

IRREVOCABLE
LETTER OF INSTRUCTIONS TO TRANSFER AGENT

 

Date:
August 11, 2017

 

To the
transfer agent of Growlife, Inc.

 

Re:           

Instructions to Reserve and Issue Shares

 

Ladies
and Gentlemen:

 

Reference is made
to that certain Secured Convertible Promissory Note dated as of
August 11, 2017 (as the same may be amended or exchanged from time
to time, the “Note”), made by Growlife, Inc., a
Delaware corporation (“Company”), pursuant to which
Company agreed to pay to Chicago Venture Partners, L.P., a Utah
limited partnership, its successors and/or assigns
(“Investor”),
the aggregate sum of $1,105,000.00, plus interest, fees, and
collection costs. The Note was issued pursuant to that certain
Securities Purchase Agreement dated August 11, 2017, by and between
Company and Investor (the “Purchase Agreement”, and together
with the Note and all other documents entered into in conjunction
therewith, including any amendments thereto, the
“Transaction
Documents”). Pursuant to the terms of the Note, the
Outstanding Balance (as defined in the Note) of the Note may be
converted into shares of the common stock, par value $0.0001 per
share, of Company (the “Common Stock”, and the shares of
Common Stock issuable upon any conversion or otherwise under the
Note, the “Shares”).

 

Pursuant to the
terms of the Purchase Agreement, until all of Company’s
obligations under the Purchase Agreement and the Note are paid and
performed in full, Company has agreed to at all times establish and
maintain a reserve of shares of authorized but unissued Common
Stock equal to the amount calculated as follows (such calculated
amount is referred to herein as the “Share Reserve”): three (3) times
the number of Shares obtained by dividing the Outstanding Balance
by the Redemption Conversion Price (as defined in the
Note).

 

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

 

1. From and after the
date hereof and until all of Company’s obligations under the
Purchase Agreement and the Note are paid and performed in full, (a)
you shall establish a reserve of shares of authorized but unissued
Common Stock in an amount not less than 200,000,000 shares (the
“Transfer Agent
Reserve”), (b) you shall maintain and hold the
Transfer Agent Reserve for the exclusive benefit of Investor, (c)
you shall issue the shares of Common Stock held in the Transfer
Agent Reserve to Investor or its broker only (subject to the
immediately following clause (d)), (d) when you issue shares of
Common Stock to Investor or its broker under the Note pursuant to
the other instructions in this Letter, you shall issue such shares
from Company’s authorized and unissued shares of Common Stock
to the extent the same are available and not from the Transfer
Agent Reserve unless and until there are no authorized shares of
Common Stock available for issuance other than those held in the
Transfer Agent Reserve, at which point, and upon your receipt of
written authorization from Investor, you shall then issue any
shares of Common Stock deliverable to Investor under the Note from
the Transfer Agent Reserve, (e) you shall not otherwise reduce the
Transfer Agent Reserve under any circumstances, unless Investor
delivers to you written pre-approval of such reduction, and (f) you
shall immediately add shares of Common Stock to the Transfer Agent
Reserve in increments of 20,000,000 shares as and when requested by
Company or Investor in writing from time to time, provided that
such incremental increases do not cause the Transfer Agent Reserve
to exceed the Share Reserve.

 

 

 

51

 

 

 

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

 

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

 

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

 

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

 

 

 

52

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

53

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

16. This Letter is
governed by Utah law.

 

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

 

 

 

54

 

 

 

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

 

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

Very
truly yours,

 

Growlife, Inc.

 

 

By: /s/ Marco
Hegyi   

Name: Marco
Hegyi   

Title: Chief Executive
Officer

 

 

ACKNOWLEDGED
AND AGREED:

 

INVESTOR:

 

Chicago Venture Partners, L.P.

 

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

its
General Partner

 

By:
CVM, Inc., its Manager

 

 

By:
/s/ John M. Fife

      John
M. Fife, President

 

 

TRANSFER
AGENT:

 

Direct Transfer, LLC

 

 

By: /s/
Eddie Tobler

Name:
Eddie Tobler

Title:
VP Stock Transfer

 

 

Attachments:

 

Exhibit
J     Form of Lender Conversion
Notice

Exhibit
K   Form of Redemption Notice

Exhibit
L   Form of True-Up Notice

 

 

55

 

 

GROWLIFE, INC.

SECRETARY’S CERTIFICATE

 

I, Mark
Scott, hereby certify that I am the duly elected, qualified and
acting Secretary of Growlife, Inc., a Delaware corporation
(“Company”), and
I am authorized to execute this Secretary’s Certificate (this
“Certificate”)
on behalf of Company. This Certificate is delivered in connection
with that certain Securities Purchase Agreement dated August 11,
2017 (the “Purchase
Agreement”), by and between Company and Chicago
Venture Partners, L.P., a Utah limited partnership.

 

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

 

IN
WITNESS WHEREOF, I have made this Secretary’s Certificate
effective as of August 11, 2017.

 

Growlife,
Inc.

 

 

/s/ Mark Scott

Printed
Name:Mark
Scott             

Title:
Secretary

 

 

56

 

 

Schedule 1

 

BOARD RESOLUTIONS

 

[attached]

 

 

GROWLIFE, INC.

RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS

________________________

 

Effective
August 11, 2017

________________________

 

APPROVAL
OF FINANCING

 

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

 

WHEREAS, the terms
of the Financing are reflected in a Securities Purchase Agreement
substantially in the form attached hereto as Exhibit A (the
“Purchase
Agreement”), a Secured Convertible Promissory Note
issued by Company to Investor in the original principal amount of
$1,105,000.00 substantially in the form attached hereto as
Exhibit B (the
“Note”), an
Irrevocable Letter of Instructions to Transfer Agent substantially
in the form attached hereto as Exhibit C, a Share Issuance
Resolution substantially in the form attached hereto as
Exhibit D
(“Share Issuance
Resolution”), a series of nine (9) Investor Notes made
by Investor in favor of Company substantially in the form attached
hereto as Exhibit
E, a Security Agreement made by Company in favor of Investor
substantially in the form attached hereto as Exhibit F, and all other
agreements, certificates, instruments and documents being or to be
executed and delivered under or in connection with the Financing
(collectively, the “Financing
Documents”); and

 

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

 

NOW,
THEREFORE, BE IT:

 

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

 

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

 

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

 

 

57

 

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

 

RESOLVED FURTHER,
that Company shall take all action necessary to, beginning on
August 31, 2017 and at all times thereafter, have authorized and
reserved for the purpose of issuance under the Note such number of
shares of Company’s common stock required under the Purchase
Agreement (the “Share
Reserve”);

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

58

 

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

 

EXHIBITS
ATTACHED TO BOARD RESOLUTIONS:

 

Exhibit
M

PURCHASE
AGREEMENT

Exhibit
N

NOTE

Exhibit
O

TRANSFER AGENT
LETTER

Exhibit
P

SHARE ISSUANCE
RESOLUTION

Exhibit
Q

FORM OF INVESTOR
NOTE

Exhibit
R

SECURITY
AGREEMENT

[Remainder
of page intentionally left blank]

 

 

 

59

 

Share Issuance Resolution

Authorizing The Issuance Of New Shares Of Common Stock
In

 

Growlife, Inc.

___________________________

 

Effective
August 11, 2017

___________________________

 

The
undersigned, as a qualified officer of Growlife, Inc., a Delaware
corporation (“Company”), hereby certifies that
this Share Issuance Resolution is authorized by and consistent with
the resolutions of Company’s board of directors
(“Board
Resolutions”) regarding that certain Secured
Convertible Promissory Note in the face amount of $1,105,000.00
with an original issuance date of August 11, 2017 (the
“Note”), made by
Company in favor of Chicago Venture Partners, L.P., a Utah limited
partnership, its successors and/or assigns (“Investor”), pursuant to that
certain Securities Purchase Agreement dated August 11, 2017, by and
between Company and Investor (the “Purchase Agreement”).

 

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

 

(i)

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

 

(ii)

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

 

(iii)

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

 

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

 

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

 

(i)

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

 

(ii)

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

 

(iii)

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

 

(iv)

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

 

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

 

 

 

60

 

RESOLVED FURTHER,
that consistent with the terms of the Purchase Agreement, the
Transfer Agent is authorized and directed to, on or before August
31, 2017, create a share reserve equal to 500,000,000 shares of
Company’s Common Stock for the benefit of Investor (the
“Share
Reserve”); provided
that the Share Reserve may increase in increments of
50,000,000 shares from time to time by written instructions
provided to the Transfer Agent by Company or Investor as required
by the Purchase Agreement and as contemplated by the Board
Resolutions.

 

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

 

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

 

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

 

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

 

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

 

	

/s/
Marco Hegyi

	

August 11,
2017

	

Officer’s
Signature

	

          Date

	
 

	
 

	

Marco Hegyi, Chief
Executive Officer

	
 

	

Printed
Name and Title

	
 

 

 

EXHIBITS
ATTACHED TO SHARE ISSUANCE RESOLUTION:

 

Exhibit
A

Lender Conversion
Notice

Exhibit
B

Redemption
Notice

Exhibit
C

True-Up
Notice

 

 

 

 

61

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