October 15, 2018 Mr. Marco Hegyi
Exhibit
5.1
October
15, 2018
▇▇.
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▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Dear
▇▇. ▇▇▇▇▇:
The
purpose of this letter (“Letter Agreement”) is to
memorialize the terms and conditions upon which we have agreed that
you will extend your employment by GrowLife, Inc. (the
“Company,”
“we” or
“us”).
1. Title; Responsibilities.
Commencing on October 15, 2018 (the “Commencement Date”), you
will be employed as the Company’s Chief Executive Officer and
will report to the Board of Directors (the “Board”) of the Company.
You will report to and take direction from at least 75% of the
Board. In addition, subject to this Agreement, you may be
terminated by at least 75% of the Board. You agree to perform such
duties and responsibilities commensurate with your position and as
may be reasonably requested by the Board from time to time. Without
limiting the generality of the foregoing, you will be involved in
planning, developing, implementing and expanding the operations of
the Company.
2. Board Seat. The Company,
together with the Board, hereby elects you, and vests you with the
power and authority the same as all other members, as a member of
the Board. You hereby agree to serve as a member of the Board
effective as of the Commencement Date. We agree that the foregoing
election to the Board and your role as a member of the Board is
separate from your role as Chief Executive Officer of the Company.
You may only be removed from the Board by a vote that equals at
least 75% of the Board. This Section 2 shall survive the expiration
or earlier termination of this Agreement and does not and shall not
impact in any manner your Board seat.
3. Term of Employment. Subject to
the rights of termination by you and the Company set forth in this
Letter Agreement, your employment will be extended on the
Commencement Date and continue for a period of three (3) years
thereafter (the “Term”), subject to
renewal for an additional one-year period (the “Renewal Term”) upon
approval by the Board, unless your employment has been terminated
prior thereto by either you or the Company. If you desire to extend
your employment for the Renewal Term, you will submit a written
request for such renewal to the Board no sooner than twelve (12)
months and no later than two (2) months prior to the expiration of
the Term. Within thirty (30) days of receipt of such written
request, the Board (in consultation with the Company’s
Compensation Committee) will advise you whether such renewal has
been approved.
4.
Place of Employment. You will
be responsible for establishing a Company office in Kirkland,
Washington. You will work primarily out of the Washington office
and you will not be required to relocate your residence during the
Term (including any Renewal Term) of your employment with the
Company. However, you may be required to travel as
needed.
5.
Full-time Employment. Subject
to the other provisions of this Section 4, you agree to work
full-time on your responsibilities as Chief Executive Officer of
the Company. Without limiting the generality of the foregoing, you
agree not to render full-time services of a business, professional
or commercial nature to any other person, firm or corporation;
however, you may serve as an advisor or a board director to any
other unrelated companies so long as such service does not
interfere with your ability to comply with this Letter Agreement
and is not competitive with or otherwise in conflict with the
operations of the Company.
6.
Base Salary Compensation. You
will receive, as a guaranteed base salary for your full time
employment, annual compensation of Two Hundred Seventy-five
Thousand Dollars ($275,000) for the Term. If your employment is
extended for the Renewal Term, your annual base compensation for
the Renewal Term will be determined at that time by the Board or
the Compensation Committee, but in no event shall it be less than
$275,000. Your base compensation will be paid in accordance with
the Company’s standard payroll practices as in effect from
time to time, but in no event less frequently than
monthly.
1
7.
Bonus Compensation. In addition
to your base salary, you will be entitled to receive an annual
bonus equal to four percent (4%) of the Company’s EBITDA for
that year. The annual bonus shall be paid no later than 31 days
(i.e., by January 31st) following the end
of each calendar year and the completion of the annual audit. If
your employment is terminated for any reason prior to the
expiration of the Term or the Renewal Term, as applicable, your
annual bonus will be prorated for that year based on the number of
days worked in that year.
8.
Equity Participation. At the
extension of your employment, you (or to a trust or other related
or affiliated entity designated by you for estate planning
purposes) are entitled to a Warrant to purchase up to Sixteen
Million (16,000,000) shares of common stock of the Company at an
exercise price of $0.012 per share with a cashless exercise option
as well which shall vest immediately and shall be exercisable for a
period of 5 years (the “▇▇▇▇▇ Warrant 3”). Previous
warrants (the “▇▇▇▇▇ Warrant”) will be extended another
5 years from its original expiration date. The warrants issued to
you shall include demand rights, wherein on demand the Company will
assume the cost of registration proportional to all shares being
registered from other parties, and further the warrants shall have
usual and customary piggyback rights at no cost to you for
registration. In addition to the ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇, you are entitled
to two additional warrants, as follows: 1) a warrant to purchase up
to Sixteen Million (16,000,000) shares of the common stock of the
Company at an exercise price of $0.012 per share which shall vest
on October 15, 2019, and 2) warrant to purchase up to Sixteen
Million (16,000,000) shares of the common stock of the Company at
an exercise price of $0.012 per share which shall vest on October
15, 2020 (“Additional Warrants”). In the event of a
“Change in Control” as defined by below, all warrants
including Additional Warrants shall vest immediately. The form of
Warrant Agreement is attached hereto as Exhibit A.
9.
Expense Reimbursement. The
Company will reimburse you for all reasonable and necessary travel
and other out-of-pocket business expenses incurred by you in the
performance of your duties and responsibilities, subject to and
consistent with the Company’s business expense reimbursement
policies in effect from time to time, including an itemized list of
the expenses incurred and appropriate receipts and supporting
documentation. When you travel via airplane on Company business,
you will be entitled to first class or business class commercial
airplane accommodations.
10.
Vacation. You will be entitled
to paid vacation of not less than four (4) weeks per year in
accordance with the Company’s vacation policy in effect from
time to time. Your vacation will be planned consistent with your
duties and obligations as Chief Executive Officer.
11.
Other Benefits. You will be
entitled to participate in all group employment benefits that are
offered by the Company to the Company’s senior executives and
management employees from time to time, subject to the terms and
conditions of such benefit plans, including any eligibility
requirements. In addition, the Company will purchase and maintain
during the Term (including any Renewal Term) an insurance policy on
your life in the amount of Two Million Dollars ($2,000,000),
payable to your named heirs or estate as the
beneficiary.
12.
Directors and Officers
Insurance. The Company will maintain a policy of
directors’ and officer’s liability insurance with broad
form coverage, insuring you as both an officer and director of the
Company and with coverage limits of not less than Two Million
Dollars ($2,000,000) per occurrence. Company will pay for up to
$1,000,000 in errors and omission insurance, if D&O coverage is
less than $2,000,000.
13.
Termination by Company for Cause;
Termination by Employee without Good Reason; Death of
Employee. If, prior to the expiration of the Term (including
any Renewal Term), the Company terminates your employment for
“Cause”
(as defined below), or if you voluntarily terminate your employment
without “Good
Reason” (as defined in Section 13(c) below), or if
your employment is terminated by reason of your death, then all of
the Company’s obligations hereunder shall cease immediately,
and you will not be entitled to any further compensation beyond any
pro-rated base salary due and bonus amounts earned through the
effective date of termination. All warrants which have vested shall
survive the termination of your employment for any reason. You will
be reimbursed for any expenses incurred prior to the date of
termination for which you were not previously reimbursed. For
purposes of this Letter Agreement, “Cause” is defined as any
one or more of the following:
(a) You
are convicted of or plead nolo
contendere to any felony or gross misdemeanor involving
fraud, dishonesty, or moral turpitude as a result of your
commission of any act during the Term (or any Renewal Term), which
conviction or plea prevents you from performing your duties or
other obligations to the Company hereunder or has an adverse effect
on the reputation or business activities of the
Company.
(b)
You have engaged in
fraud, embezzlement, theft, or willful deception, or have engaged
in other dishonest acts during the Term (or any Renewal Term),
which are detrimental to the business of the Company.
(c)
You have breached
the non-solicitation or non-competition covenants set forth in
Section 13 of this Letter Agreement, have willfully engaged in the
diversion of any corporate opportunity or other similar, serious
conflict of interest or self-dealing inuring to your benefit and to
the Company's detriment.
(d)
You have
excessively used alcohol or have used illegal drugs, which
substantially and materially interferes with the performance of
your duties under this Letter Agreement after receipt of written
notice from the Company demanding substantial performance, setting
forth the nature of the failure, and your failure to remedy within
a reasonable time thereafter, not to exceed thirty (30)
days.
2
(e)
You have violated
state, federal or local laws and ordinances requiring equal
employment opportunity and prohibiting discrimination and
harassment based on race, creed, color, national origin, sex,
honorably discharged veteran or military status, sexual
orientation, or the presence of any sensory, mental, or physical
disability, or any other category protected by law.
14.
Termination by Company without Cause;
Termination by Employee for Good Reason or Due to
Disability.
(a) If
the Company terminates your employment at any time prior to the
expiration of the Term (including any Renewal Term) without Cause,
or if you terminate your employment at any time for
“Good
Reason” or due to a “Disability” (as such
terms are defined below), you will be entitled to receive:
(i) your base salary amount through the end of the Term (or
the Renewal Term, as applicable); and (ii) your annual bonus
amount for each year during the remainder of the Term (including
the Renewal Term, as applicable), which bonus amount shall be equal
to the greater of (A) the annual bonus amount for the
immediately preceding year, or (B) the bonus amount that would
have been earned for the year of termination, absent such
termination; and (iii) your ▇▇▇▇▇ Warrant 3 is fully and
immediately available.
(b)
If the Company
terminates your employment without Cause, the Company shall give
you not less than thirty (30) days advance written notice of such
termination. If you elect to terminate your employment for Good
Reason or due to your Disability, you shall give the Company not
less than thirty (30) days advance written notice of such
termination.
(c) For
purposes of this Letter Agreement, “Good Reason” means any
one or more of the following:
(i) a
material breach by the Company of any provision of this Letter
Agreement, including without limitation, the Company’s
failure to pay you any salary, bonus or benefits, which breach is
not cured within fifteen (15) days after receipt of written notice
from you to the Board specifying the breach or, if notice and cure
have previously taken place regarding the same or a substantially
similar breach, if the breach recurs;
(ii) a
requirement by the Company that you change your primary work
locations from Kirkland, Washington, without your consent to such
change;
(iii) the
creation and continuation of a hostile work environment which
continues without corrective action being taken by the Company for
a period of more than fifteen (15) days following written notice by
you to the Company identifying the nature and cause of such hostile
work environment; or
(iv) the
Company, without your consent (A) changes your title or
position, (B) makes any material change or reduction in your
duties or responsibilities, (C) reduces your salary and/or
benefits, or (D) assigns duties or responsibilities to you
that are inconsistent with your position as Chief Executive Officer
of the Company;
(d)
For purposes of
this Letter Agreement, “Disability” means you are
unable to perform the essential functions of your position as Chief
Executive Officer of the Company, with reasonable accommodation,
due to mental or physical illness or incapacity for an aggregate of
ninety (90) days during any period of three hundred sixty (360)
consecutive days during the Term (or any applicable Renewal
Term).
15.
Termination Due to Change in
Control.
(a) Termination
at Time of Change in Control. If there has been a
“Change in
Control” (as defined below) and the Company (or its
successor or the surviving entity) terminates your employment
without Cause as part of or in connection with such Change in
Control (including any such termination occurring within one (1)
month prior to the effective date of such Change in Control), then
in addition to the benefits set forth in Section 13(a) above, you
will be entitled to the following: (i) an increase of $300,000
in your annual base salary amount (or an additional $25,000 per
month) through the end of the Term (or the Renewal Term, as
applicable); plus (ii) a gross-up in the annual base salary
amount each year to account for and to offset any tax that may be
due by you on any payments received or to be received by you under
this Letter Agreement that would result in a “parachute
payment” as described in Section 280G of the Internal Revenue
Code of 1986, as amended (the “Code”); and
(iii) the ▇▇▇▇▇ Warrant 3 and additional warrants shall be
fully and immediately available.
(b) Termination
After Change in Control. If the Company (or its successor or
the surviving entity) terminates your employment without Cause
within twelve (12) months after the effective date of any Change in
Control, or if you terminate your employment for Good Reason within
twelve (12) months after the effective date of any Change in
Control, then in addition to the benefits set forth in Section
13(a), you will be entitled to the following: (i) an increase
of $300,000 in your annual base salary amount (or an additional
$25,000 per month), which increased annual base salary amount shall
be paid for the remainder of the Term (or the Renewal Term, as
applicable) or for two (2) years following the Change in Control,
whichever is longer; (ii) a gross-up in the annual base salary
amount each year to account for and to offset any tax that may be
due by you on any payments received or to be received by you under
this Letter Agreement that would result in a “parachute
payment” as described in Section 280G of the Code;
(iii) payment of your annual bonus amount as set forth in
Section 13(a)(ii) for each year during the remainder of the Term
(including the Renewal Term, as applicable) or for two (2) years
following the Change in Control, whichever is longer;
(iv) health insurance coverage provided for and paid by the
Company for the remainder of the Term (including the Renewal Term,
as applicable) or for two (2) years following the Change in
Control, whichever is longer; and (v) the ▇▇▇▇▇ Warrant 3 and
additional warrants shall be fully and immediately
available.
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(c) Change
in Control Definition. For purposes of this Letter
Agreement, “Change
in Control” means any one of the following
occurrences: (i) the Company is party to a merger or
consolidation with or into another entity or group of entities
(except a merger or consolidation in which the holders of capital
stock of the Company immediately prior to such merger or
consolidation continue to hold solely in respect of their interests
in the Company’s capital stock immediately prior to such
merger or consolidation) at least fifty percent (50%) of the voting
power of the capital stock of the Company or the surviving or
acquiring entity); (ii) the closing of the transfer (whether
by merger, consolidation or otherwise), in one transaction or a
series of related transactions, to a corporation, person or group
of affiliated persons (other than either CANX USA, LLC, which is an
existing affiliate of the Company, or an underwriter of the
Company’s securities), of the Company’s securities if,
after such closing, such person or group of affiliated persons
would hold fifty percent (50%) or more of the outstanding voting
stock of the Company; or (iii) a sale, lease, assignment,
transfer or disposal of all or substantial majority of the assets
of the Company (other than a pledge of such assets or grant of a
security interest therein to a commercial lender in connection with
a commercial lending or similar transaction);; provided, however, that an equity financing by
the Company in which the Company issues warrants, shares of its
common stock or preferred stock , shall not be considered a Change
of Control.
16.
Non-Solicitation;
Non-Competition. You agree that during the term of your
employment with the Company and for a period of one (1) year
following termination of your employment, you will not:
(a) solicit or induce any employee of the Company to leave the
employ of the Company; (b) cause or attempt to cause any
existing or prospective customer, client, distributor, vendor,
supplier or provider of services to the Company who then has a
relationship with the Company for current or prospective business,
to terminate, limit, discontinue or in any manner modify, or fail
to enter into, any actual or potential business relationship with
the Company; or (c) provide any services, whether as an
employee, consultant, officer, director, partner, manager, member
or otherwise, to any individual, company or other entity that
competes with, or is a competitor of, the Company in the legal
cannabis industry, including hydroponic growing equipment and
retail support software. Notwithstanding the foregoing provisions,
none of the restrictive covenants contained in this section 15
shall apply at any time following your termination of employment
if: (i) your employment is terminated by the Company without
Cause; (ii) you terminate your employment with Good Reason; or
(iii) the Company fails to extend your employment for the
Renewal Term.
17.
Confidential Information. You
acknowledge that your services to be rendered hereunder will place
you in a position of confidence and trust with the Company and will
allow you access to “Confidential Information”
(as defined below). You agree that at all times during and after
the term of your employment hereunder, you will maintain the
Confidential Information in strictest confidence and will not,
unless required to do so in the ordinary course of the
Company’s operations, disclose to any person, or use for your
own personal use or financial gain, whether individually or on
behalf of another person, any Confidential Information. Without
limiting the generality of the foregoing, you acknowledge that the
Company may have agreements and/or relationships with other persons
that may impose obligations or restrictions regarding the
confidential nature of work or information relating to such
persons, and you agree to be bound by all such obligations and
restrictions. As used herein, the term “Confidential Information”
means any non-public information relating to the Company and its
businesses including, but not limited to, information regarding any
trade secrets, proprietary knowledge, business plans, operating
procedures, finances, financial condition, customers, clients,
suppliers, distributors, agents, business activities, budgets,
strategic or financial plans, objectives, marketing plans,
products, services, price and price lists, operating and training
materials, data bases and analyses; provided, however, that Confidential
Information shall not include information: (i) already known
to you prior to its disclosure to you, or (ii) that is or
becomes generally known to the public through no act or omission by
you, or (iii) becomes available to you from a source other
than the Company, provided that such source is not subject to or
bound by any duty or obligation of confidentiality with respect to
such information.
18.
Executive’s Attorney
Fees. The Company shall pay for your incurrence of legal
fees in connection with the evaluation, negotiation and preparation
of this Letter Agreement and associated estate planning services,
but in no event shall such payment exceed the sum of Five Thousand
dollars ($5,000).
19.
Entire Agreement. This Letter
Agreement, including any exhibits hereto, embodies all of the
representations, warranties, covenants and agreements in relation
to the subject matter hereof. No other representations, warranties,
covenants, understandings or agreements in relation hereto exist
between the parties except as otherwise expressly provided
herein.
20.
Amendment. This Letter
Agreement may not be amended, and the compensation and employee
benefits made available to you pursuant to this Letter Agreement
may not be changed, except by an instrument in writing signed by
both parties hereto.
21.
Applicable Law. This Letter
Agreement has been made and executed under, and will be construed
and interpreted in accordance with, the laws of the State of
Washington, without giving effect to its conflict of law principles
for the purpose of applying the laws of another
jurisdiction.
22.
Provisions Severable. Every
provision of this Letter Agreement is intended to be severable from
every other provision of this Letter Agreement. If any provision of
this Letter Agreement is held to be void or unenforceable, in whole
or in part, or unreasonable or excessive in scope or duration with
the result that such provision (or portion thereof) as drafted is
void or unenforceable, such provision shall be deemed to be
reformed to the minimum extent necessary so that such provision as
reformed may and shall be legally enforceable. If any provision of
this Letter Agreement is held to be void or unenforceable, in whole
or in part, and cannot be reformed and made enforceable as provided
in the immediately preceding sentence, the remaining provisions
will remain in full force and effect.
23.
Non-Waiver of Rights and
Breaches. Any waiver by a party of any breach of any
provision of this Letter Agreement will not be deemed to be a
waiver of any subsequent breach of that provision, or of any breach
of any other provision of this Letter Agreement. No failure or
delay in exercising any right, power, or privilege granted to a
party under any provision of this Letter Agreement will be deemed a
waiver of that or any other right, power, or privilege. No single
or partial exercise of any right, power, or privilege granted to a
party under any provision of this Letter Agreement will preclude
any other or further exercise of that or any other right, power, or
privilege.
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24.
Resolution of
Disputes.
(a)
Arbitration. All claims and
disputes between the parties hereto regarding any provision of this
Letter Agreement or otherwise arising out of this Letter Agreement
shall be settled by final and binding arbitration held in Seattle,
Washington, under the then effective Comprehensive Arbitration
Rules and Procedures of JAMS. Judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction. The
award rendered by the arbitrator shall be final and binding on the
parties. The arbitrator shall have the authority to award any
remedy or relief that a court in the State of Washington could
order or grant, including specific performance of any obligation
created under this Agreement, the issuance of an injunction or
other provisional relief, or the imposition of sanctions for abuse
or frustration of the arbitration process. The arbitrator shall
apply the law of the State of Washington in deciding the merits of
any dispute. The arbitrator shall provide a written and reasoned
explanation for any award rendered in the arbitration. By agreeing
to arbitration, the parties do not intend to deprive any court of
its jurisdiction to issue a pre-arbitral injunction, pre-arbitral
attachment, or other order in aid of arbitration proceedings and
the enforcement of any award.
(b) Costs
and Fees. The prevailing party (as determined by the
arbitrator or other trier of fact) in any dispute resolved under
Section 23(a) shall be entitled to be indemnified and held harmless
by the other party thereto for all costs incurred in the
arbitration or litigation, including but not limited to the cost of
the record or transcripts thereof, arbitration or court fees,
reasonable attorneys’ and expert witnesses’ costs and
fees, and all other costs and fees incurred therein.
(c) Equitable
Remedies. You acknowledge that: (i) it would be
difficult to calculate damages to the Company from any breach of
your obligations under Sections 15 and 16 of this Letter Agreement,
(ii) that injury to the Company from any such breach would be
irreparable and impracticable to measure, and (iii) that the
remedy at law for any breach or threatened breach of the provisions
of Sections 15 and 16 of this Letter Agreement would therefore be
an inadequate remedy and, accordingly, the Company shall, in
addition to all other available remedies set forth herein, be
entitled to specific performance, injunctive and other similar
equitable remedies without posting bond or proving actual
damages.
25.
Interpretation of Agreement.
Each of the parties has had the opportunity to be represented by
legal counsel in the negotiation and preparation of this Letter
Agreement, and the parties agree that this Letter Agreement is to
be construed as jointly drafted. Accordingly, this Letter Agreement
will be construed according to the fair meaning of its language,
and the rule of construction that ambiguities are to be resolved
against the drafting party will not be employed in the
interpretation of this Letter Agreement.
26.
Survival of Provisions. All
provisions of this Letter Agreement which by their terms are
intended to survive any termination of your employment shall
survive in accordance with their respective terms.
27.
Assignment. This Letter
Agreement is binding upon and inures to the benefit of the parties
and their respective heirs, executors, administrators, personal
representatives, successors, and permitted assigns. This Letter
Agreement is personal to you and the availability of you to perform
services and the covenants provided by you hereunder have been a
material consideration for the Company to enter into this Letter
Agreement. Accordingly, you may not assign any of your rights or
delegate any of your duties under this Letter Agreement, either
voluntarily or by operation of law, without the prior written
consent of the Company, which may be given or withheld by the
Company in its sole and absolute discretion.
28.
Counterparts. This Letter
Agreement and any amendment or supplement to this Letter Agreement
may be executed in counterparts, each of which will constitute an
original but all of which will together constitute a single
instrument. Transmission by facsimile or electronically of an
executed counterpart signature page hereof by a party hereto shall
constitute due execution and delivery of this Letter Agreement by
such party.
Please
confirm your agreement with the foregoing by signing and returning
to the undersigned a copy of this Letter Agreement.
Very
truly yours,
/s/▇▇▇▇▇▇▇ ▇▇▇▇▇
By:
▇▇▇▇▇▇▇ ▇▇▇▇▇
Its:
Director
Agreed
to:
/s/▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇
Date
5
EXHIBIT “A”
WARRANT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND, ACCORDINGLY, MAY NOT BE
TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR
SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH
SECURITIES MAY BE SOLD PURSUANT TO RULE 144, OR (III) THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.
PURSUANT TO THE TERMS OF SECTION 1 OF THIS WARRANT, ALL OR A
PORTION OF THIS WARRANT MAY HAVE BEEN EXERCISED, AND THEREFORE THE
ACTUAL NUMBER OF WARRANT SHARES REPRESENTED BY THIS WARRANT MAY BE
LESS THAN THE AMOUNT SET FORTH ON THE FACE HEREOF.
FORM OF
Warrant To Purchase Common Stock
Warrant
No.: _______________
Number
of Shares of Common Stock per Warrant No.: 16,000,000
Date of
Issuance: October 15, 2018 (“Issuance
Date”)
GrowLife, Inc., a
Delaware corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ▇▇▇▇▇ ▇▇▇▇▇, the
registered holder hereof or its permitted assigns (the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company,
at the Exercise Price (as defined below) then in effect, upon
surrender of this Warrant to Purchase Common Stock (including any
Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the “Warrant”), at any time or
times on or after the date hereof (the “Exercisability Date”), but
not after 11:59 p.m., New York time, on the Expiration Date (as
defined below), October 15, 2023 fully paid nonassessable shares of
Common Stock (as defined below) (the “Warrant Shares”). Except as
otherwise defined herein, capitalized terms in this Warrant shall
have the meanings set forth in Section 15. Capitalized terms
used but not otherwise defined in this Warrant shall have the
meanings set forth in the Letter Agreement (as defined below). This
Warrant is the Warrant to purchase Common Stock (this “Warrant”) issued pursuant
to (i) the Letter Agreement (the “Letter Agreement”), dated
as of October 15, 2018 (the “Subscription Date”), by and
among the Company and ▇▇▇▇▇ ▇▇▇▇▇ (“▇▇▇▇▇”) or to a
trust or other related or affiliated entity designated by ▇▇▇▇▇ for
estate planning purposes.
1. EXERCISE
OF WARRANT.
(a) Mechanics of Exercise. Subject
to the terms and conditions hereof, this Warrant may be exercised
by the Holder on any day on or after the Exercisability Date, in
whole or in part (but not as to fractional shares), by (i) delivery
of a written notice, in the form attached hereto as Exhibit A (the
“Exercise
Notice”), of the Holder’s election to exercise
this Warrant and (ii) if the Holder is not electing a Cashless
Exercise (as defined below) pursuant to Section 1(d) of this
Warrant, payment to the Company of an amount equal to the
applicable Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (the
“Aggregate Exercise
Price”) in cash or wire transfer of immediately
available funds (a “Cash
Exercise”) (the items under (i) and (ii) above, the
“Exercise Delivery
Documents”). The Holder shall not be required to
surrender this Warrant in order to effect an exercise hereunder;
provided, however, that in the event that this Warrant is exercised
in full or for the remaining unexercised portion hereof, the Holder
shall deliver this Warrant to the Company for cancellation within a
reasonable time after such exercise. On or before the first Trading
Day following the date on which the Company has received the
Exercise Delivery Documents (the date upon which the Company has
received all of the Exercise Delivery Documents, the
“Exercise
Date”), the Company shall transmit by facsimile or
e-mail transmission an acknowledgment of confirmation of receipt of
the Exercise Delivery Documents to the Holder and the
Company’s transfer agent for the Common Stock (the
“Transfer
Agent”). The Company shall deliver any objection to
the Exercise Delivery Documents on or before the second Trading Day
following the date on which the Company has received all of the
Exercise Delivery Documents. On or before the second Trading Day
following the date on which the Company has received all of the
Exercise Delivery Documents (the “Share Delivery Date”), the Company
shall, (X) provided
that the Transfer Agent is participating in The Depository Trust
Company (“DTC”)
Fast Automated Securities Transfer Program (the “FAST Program”) and so long as the
certificates therefor are not required to bear a legend regarding
restriction on transferability, upon the request of the Holder,
credit such aggregate number of shares of Common Stock to which the
Holder is entitled pursuant to such exercise to the Holder’s
or its designee’s balance account with DTC through its
Deposit Withdrawal Agent Commission system, or (Y), if the Transfer
Agent is not participating in the FAST Program or if the
certificates are required to bear a legend regarding restriction on
transferability, issue and dispatch by overnight courier to the
address as specified in the Exercise Notice, a certificate,
registered in the Company’s share register in the name of the
Holder or its designee, for the number of shares of Common Stock to
which the Holder is entitled pursuant to such exercise. Upon
delivery of the Exercise Delivery Documents, the Holder shall be
deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date such Warrant Shares are
credited to the Holder’s DTC account or the date of delivery
of the certificates evidencing such Warrant Shares, as the case may
be. If this Warrant is submitted in connection with any exercise
pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than
the number of Warrant Shares being acquired upon an exercise, then
the Company shall as soon as practicable and in no event later than
three Trading Days after any such submission and at its own
expense, issue a new Warrant (in accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant,
less the number of Warrant Shares with respect to which this
Warrant has been and/or is exercised. The Company shall pay any and
all taxes and other expenses of the Company (including overnight
delivery charges) that may be payable with respect to the issuance
and delivery of Warrant Shares and a replacement Warrant (if
necessary) upon exercise of this Warrant; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder
or an affiliate thereof. The Holder shall be responsible for all
other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
6
(b) Exercise Price. For purposes of
this Warrant, “Exercise
Price” means $0.012, subject to adjustment as provided
herein.
(c) Company’s Failure to Timely
Deliver Securities. If the Company shall fail for any reason
or for no reason to issue to the Holder within three (3) Business
Days of the Exercise Date a certificate for the number of shares of
Common Stock to which the Holder is entitled and register such
shares of Common Stock on the Company’s share register or to
credit the Holder’s balance account with DTC for such number
of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant, and if on or after such
Trading Day the Holder purchases, or another Person purchasers on
the Holder’s behalf or for the Holder’s account (in an
open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common
Stock issuable upon such exercise that the Holder anticipated
receiving from the Company (a “Buy-In”), then the Company
shall, within three (3) Business Days after the Holder’s
written request and in the Holder’s discretion, either (i)
pay in cash to the Holder the amount, if any, by which (x) the
Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the amount obtained by multiplying (1) the number of
Warrant Shares that the Company was required to deliver to the
Holder in connection with the exercise at issue times (2) the price
at which the sell order giving rise to such purchase obligation was
executed, and (ii) at the option of the Holder, either reinstate
the portion of the Warrant and equivalent number of Warrant Shares
for which such exercise was not honored (in which case such
exercise shall be deemed rescinded) or deliver to the Holder the
number of shares of Common Stock that would have been issued had
the Company timely complied with its exercise and delivery
obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted exercise of shares of Common Stock
with an aggregate sale price giving rise to such purchase
obligation of $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the
Buy-In and, upon request of the Company, evidence of the amount of
such loss. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the
Company’s failure to timely deliver shares of Common Stock
upon exercise of the Warrant as required pursuant to the terms
hereof.
(d) Cashless Exercise.
Notwithstanding anything contained herein to the contrary, the
Holder may, in its sole discretion, exercise this Warrant in whole
or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive
upon such exercise the “Net
Number” of shares of Common Stock determined according
to the following formula (a “Cashless
Exercise”):
Net
Number = (A x B) - (A x
C)
B
For
purposes of the foregoing formula:
A= the
total number of shares with respect to which this Warrant is then
being exercised.
B= the
arithmetic average of the Closing Sale Prices of the shares of
Common Stock for the five (5) consecutive Trading Days ending on
the date immediately preceding the date of the Exercise
Notice.
C= the
Exercise Price then in effect for the applicable Warrant Shares at
the time of such exercise.
(e) Rule 144. For purposes of Rule
144(d) promulgated under the Securities Act of 1933, as amended, as
in effect on the date hereof, assuming the Holder is not an
affiliate of the Company, it is intended that the Warrant Shares
issued in a Cashless Exercise shall be deemed to have been acquired
by the Holder, and the holding period for the Warrant Shares shall
be deemed to have commenced, on the Issuance Date.
(f) Disputes. In the case of a
dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are
not disputed.
(g) Beneficial Ownership.
Beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).
For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in the
most recent of (1) the Company’s most recent Form 10-K, Form
10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more
recent public announcement by the Company or (3) any other notice
by the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding. For any reason at any time,
upon the written or oral request of the Holder, the Company shall
within two (2) Business Days confirm to the Holder the number of
shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock
was reported.
7
(h) No Fractional Shares or Scrip.
No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. As to any fraction of
a share which the Holder would otherwise be entitled to purchase
upon such exercise, the Company shall, at its election, either pay
a cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the Exercise Price or round up
to the next whole share.
2. ADJUSTMENT OF EXERCISE PRICE AND
NUMBER OF WARRANT SHARES. The Exercise Price and the number
of Warrant Shares shall be adjusted from time to time as
follows:
(a) Adjustment upon Subdivision or
Combination of Common Stock. If the Company at any time on
or after the Subscription Date subdivides (by any stock split,
stock dividend, recapitalization, reorganization, scheme,
arrangement or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time on or after
the Subscription Date combines (by any stock split, stock dividend,
recapitalization, reorganization, scheme, arrangement or otherwise)
one or more classes of its outstanding shares of Common Stock into
a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately
decreased. Any adjustment under this Section 2(a) shall become
effective at the close of business on the date the subdivision or
combination becomes effective.
(b) Other Events. If any event
occurs of the type contemplated by the provisions of this Section 2
but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights or
phantom stock rights), then the Company’s Board of Directors
will make an appropriate adjustment in the Exercise Price and the
number of Warrant Shares so as to protect the rights of the Holder;
provided that no such adjustment pursuant to this Section 2(b) will
increase the Exercise Price or decrease the number of Warrant
Shares as otherwise determined pursuant to this Section
2.
(c) Voluntary Adjustment By
Company. The Company may, in its sole discretion, at any
time during the term of this Warrant reduce the then current
Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
(d) Calculations. All calculations
under this Section 2 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of
this Section 2, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if
any) issued and outstanding.
3. RIGHTS UPON DISTRIBUTION OF
ASSETS.
(a) If the Company, at
any time while this Warrant is outstanding, shall distribute to all
holders of Common Stock (and not to the Holders) evidences of its
indebtedness or assets (including cash and cash dividends) or
rights or warrants to subscribe for or purchase any security other
than the Common Stock (including, without limitation, any
distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction),
then in each such case the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator
shall be the Weighted Average Price determined as of the record
date mentioned above, and of which the numerator shall be such
Weighted Average Price on such record date less the then per share
fair market value at such record date of the portion of such assets
or evidence of indebtedness so distributed applicable to one
outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be
described in a statement provided to the Holder of the portion of
assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned
above.
4. PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.
(a) Purchase Rights. In addition to
any adjustments pursuant to Section 2 above, if at any time the
Company grants, issues or sells any Options, Common Stock
Equivalents or rights to purchase stock, warrants, securities or
other property pro rata to all of the record holders of any class
of Common Stock (the “Purchase Rights”), then the Holder
will be entitled to acquire, upon the exercise of this Warrant and
on the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the
date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as
of which the record holders of shares of Common Stock are to be
determined for the grant, issue or sale of such Purchase
Rights.
8
(b) Fundamental Transactions. In
the event of a Fundamental Transaction, the Warrants held by
Holder, if not yet vested, shall vest immediately and shall be
fully exercisable in accordance with the terms of this Warrant. The
Company shall not enter into or be party to a Fundamental
Transaction unless the Successor Entity assumes in writing (unless
the Company is the Successor Entity) all of the obligations of the
Company under this Warrant and the other Transaction Documents in
accordance with the provisions of this Section (4)(b) pursuant to
written agreements in form and substance reasonably satisfactory to
the Required Holders and approved by the Required Holders prior to
such Fundamental Transaction, including agreements to deliver to
each holder of the Warrants in exchange for such Warrants a
security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to
the value for the shares of Common Stock reflected by the terms of
such Fundamental Transaction, and exercisable for a corresponding
number of shares of capital stock equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this
Warrant) prior to such Fundamental Transaction, and reasonably
satisfactory to the Required Holders. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and
be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant referring
to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this
Warrant with the same effect as if such Successor Entity had been
named as the Company herein. Upon consummation of the Fundamental
Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon exercise of this
Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of Common Stock (or other
securities, cash, assets or other property) issuable upon the
exercise of the Warrant prior to such Fundamental Transaction, such
shares of the publicly traded common stock or common shares (or its
equivalent) of the Successor Entity (including its Parent Entity)
which the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction had this Warrant been
converted immediately prior to such Fundamental Transaction, as
adjusted in accordance with the provisions of this Warrant. In
addition to and not in substitution for any other rights hereunder,
prior to the consummation of any Fundamental Transaction pursuant
to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for
shares of Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of the Corporate Event
but prior to the Expiration Date, in lieu of shares of Common Stock
(or other securities, cash, assets or other property) purchasable
upon the exercise of this Warrant prior to such Corporate Event,
such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to
receive upon the happening of such Corporate Event had this Warrant
been exercised immediately prior to such Corporate Event. Provision
made pursuant to the preceding sentence shall be in a form and
substance reasonably satisfactory to the Required Holders. The
provisions of this Section 4(b) shall apply similarly and equally
to successive Fundamental Transactions and Corporate Events and
shall be applied without regard to any limitations on the exercise
of this Warrant.
(c) Applicability to Successive
Transactions. The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and
Corporate Events and shall be applied without regard to any
limitations on the exercise of this Warrant.
5. NONCIRCUMVENTION. The Company
hereby covenants and agrees that the Company will not, by amendment
of its Certificate of Incorporation, Bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, and will at all
times in good faith comply with all the provisions of this Warrant
and take all actions consistent with effectuating the purposes of
this Warrant. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the
Exercise Price then in effect, (ii) shall take all such
actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (iii)
shall, so long as this Warrant is outstanding, take all action
necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of
effecting the exercise of this Warrant, 100% of the number of
shares of Common Stock issuable upon exercise of this Warrant then
outstanding (without regard to any limitations on
exercise).
6. WARRANT HOLDER NOT DEEMED A
STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person’s capacity as a
holder of this Warrant, shall not be entitled to vote or receive
dividends or be deemed the holder of share capital of the Company
for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in such Person’s
capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue
of stock, reclassification of stock, consolidation, merger,
conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is
then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities
(upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company
or by creditors of the Company.
7. REISSUANCE OF
WARRANTS.
(a) Transfer of Warrant. If this
Warrant is to be transferred, the Holder shall surrender this
Warrant to the Company and deliver the completed and executed
Assignment Form, in the form attached hereto as Exhibit B, whereupon the
Company will forthwith issue and deliver upon the order of the
Holder a new Warrant (in accordance with Section 7(d)), registered
as the Holder may request, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if
less then the total number of Warrant Shares then underlying this
Warrant is being transferred, a new Warrant (in accordance with
Section 7(d)) to the Holder representing the right to purchase the
number of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated
Warrant. Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to
the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company shall
execute and deliver to the Holder a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the Warrant Shares
then underlying this Warrant.
9
(c) Exchangeable for Multiple
Warrants. This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of
Warrant Shares then underlying this Warrant, and each such new
Warrant will represent the right to purchase such portion of such
Warrant Shares as is designated by the Holder at the time of such
surrender; provided, however, that no Warrants for fractional
shares of Common Stock shall be given.
(d) Issuance of New Warrants.
Whenever the Company is required to issue a new Warrant pursuant to
the terms of this Warrant, such new Warrant (i) shall be of like
tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares
then underlying this Warrant (or in the case of a new Warrant being
issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares
designated by the Holder which, when added to the number of shares
of Common Stock underlying the other new Warrants issued in
connection with such issuance, does not exceed the number of
Warrant Shares then underlying this Warrant), (iii) shall have an
issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same
rights and conditions as this Warrant.
8. NOTICES. Whenever notice is
required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance the employment
agreement between the Company and ▇▇▇▇▇ ▇▇▇▇▇ dated October 15,
2018.
9. AMENDMENT AND WAIVER. Except as
otherwise provided herein, the provisions of this Warrant may be
amended and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only
if the Company has obtained the written consent of the Required
Holders. Any such amendment shall apply to all Warrants and be
binding upon all registered holders of such Warrants.
10. GOVERNING
LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. This
Warrant shall be governed by, and construed in accordance with, the
internal laws of the State of Washington, without reference to the
choice of law provisions thereof. The Company and, by accepting
this Warrant, the Holder, each irrevocably submits to the exclusive
jurisdiction of the United States District Court sitting in the
state of Washington for the purpose of any suit, action, proceeding
or judgment relating to or arising out of this Warrant and the
transactions contemplated hereby. Service of process in connection
with any such suit, action or proceeding may be served on each
party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Warrant. The Company
and, by accepting this Warrant, the Holder, each irrevocably
consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. The
Company and, by accepting this Warrant, the Holder, each
irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably
waives any claim that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum.
EACH OF THE COMPANY AND, BY ITS
ACCEPTANCE HEREOF, THE HOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A
TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.
11. CONSTRUCTION; HEADINGS. This
Warrant shall be deemed to be jointly drafted by the Company and
the Holder and shall not be construed against any person as the
drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation
of, this Warrant.
12. DISPUTE RESOLUTION. In the case
of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall
submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the
Holder. If the Holder and the Company are unable to agree upon such
determination or calculation of the Exercise Price or the Warrant
Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the
Company shall, within two (2) Business Days submit via facsimile
(a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and
approved by the Holder, which approval shall not be unreasonably
withheld, or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company’s independent, outside accountant. The
Company shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and
notify the Company and the Holder of the results no later than ten
Business Days from the time it receives the disputed determinations
or calculations. The prevailing party in any dispute resolved
pursuant to this Section 12 shall be entitled to the full amount of
all reasonable expenses, including all costs and fees paid or
incurred in good faith, in relation to the resolution of such
dispute. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
13. REMEDIES, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF. The remedies provided in this Warrant
shall be cumulative and in addition to all other remedies available
under this Warrant, at law or in equity (including a decree of
specific performance and/or other injunctive relief), and nothing
herein shall limit the right of the Holder to pursue actual damages
for any failure by the Company to comply with the terms of this
Warrant.
14. TRANSFER. Subject to applicable
laws, this Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company
15. CERTAIN DEFINITIONS. For
purposes of this Warrant, the following terms shall have the
following meanings:
(a) “Bloomberg” means Bloomberg,
L.P.
10
(b) “Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks
in The City of New York are authorized or required by law to remain
closed.
(c) “Closing Bid Price” and
“Closing Sale
Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively,
for such security on the Principal Market, as reported by
Bloomberg, or, if the 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 the last trade price, respectively, of such security prior
to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if
the Principal Market is not the principal securities exchange or
trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal
securities exchange or trading market where such security 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 such security in the over-the-counter market on
the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any
market makers for such security as reported in the “pink
sheets” by Pink Sheets LLC (formerly the National Quotation
Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale
Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the
Holder. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.
(d) “Common Stock” means
(i) the Company’s shares of Common Stock, par value
$0.0001 per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting
from a reclassification of such Common Stock.
(e) “Eligible Market” means the
Principal Market, The New York Stock Exchange, Inc., The NYSE MKT,
The NASDAQ Global Market, The NASDAQ Global Select Market, or The
NASDAQ Capital Market.
(f) “Expiration Date” means the
fifth anniversary of the Exercisability Date or, if such date falls
on a day other than a Trading Day or on which trading does not take
place on the Principal Market, or, if the Principal Market is not
the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the
Common Stock is then traded (a “Holiday”), the next date that is
not a Holiday.
(g) “Fundamental Transaction”
means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into
(whether or not the Company is the surviving corporation) another
Person (but excluding a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the
Company), or (ii) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of
the Company to another Person, or (iii) allow another Person to
make a purchase, tender or exchange offer that is accepted by the
holders of more than the 50% of the outstanding shares of Common
Stock (not including any shares of Common Stock held by the Person
or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange
offer), or (iv) consummate a stock purchase agreement or other
business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires
more than 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or
other Persons making or party to, or associated or affiliated with
the other Persons making or party to, such stock purchase agreement
or other business combination), (v) reorganize, recapitalize or
reclassify its Common Stock, or (vi) any “person” or
“group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act) is or shall become
the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Common
Stock.
(h) “Options” means any rights,
warrants or options to subscribe for or purchase shares of Common
Stock or Common Stock Equivalents.
(i) “Parent Entity” of a Person
means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is
more than one such Person or Parent Entity, the Person or Parent
Entity with the largest public market capitalization as of the date
of consummation of the Fundamental Transaction.
(j) “Person” means an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization,
any other entity and a government or any department or agency
thereof.
(k) “Principal Market” means The
OTC Market.
(l) “Required Holders” means, as
of any date, the holders of at least a majority of the Warrants
outstanding as of such date.
(m) “Successor Entity” means the
Person (or, if so elected by the Holder, the Parent Entity) formed
by, resulting from or surviving any Fundamental Transaction or the
Person (or, if so elected by the Holder, the Parent Entity) with
which such Fundamental Transaction shall have been entered
into.
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(n) “Trading Day” means any day
on which shares of Common Stock are traded on the Principal Market,
or, if the Principal Market is not the principal trading market for
the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock are then traded;
provided that
“Trading Day” shall not include any day on which the
Common Stock are scheduled to trade on such exchange or market for
less than 4.5 hours or any day that the Common Stock are suspended
from trading during the final hour of trading on such exchange or
market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during
the hour ending at 4:00:00 p.m., New York time).
(o) “Weighted Average Price”
means, for any security as of any date, the dollar volume-weighted
average price for such security on the Principal Market during the
period beginning at 9:30:01 a.m., New York time (or such other time
as the Principal Market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York time (or such other
time as the Principal Market publicly announces is the official
close of trading), as reported by Bloomberg through its
“Volume at Price” function or, if the foregoing does
not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin
board for such security during the period beginning at 9:30:01
a.m., New York time (or such other time as the Principal Market
publicly announces is the official open of trading), and ending at
4:00:00 p.m., New York time (or such other time as the Principal
Market publicly announces is the official close of trading), as
reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours,
the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported
in the “pink sheets” by OTC Markets LLC. If the
Weighted Average Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Weighted Average
Price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved
pursuant to Section 12 with the term “Weighted Average
Price” being substituted for the term “Exercise
Price.” All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation
period.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has
caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.
By:
/s/
▇▇▇▇▇▇▇ ▇▇▇▇▇
Name:
▇▇▇▇▇▇▇
▇▇▇▇▇
Title:
Director
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EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS
WARRANT TO PURCHASE COMMON STOCK
The
undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock (“Warrant Shares”) of
GrowLife, Inc., a Delaware corporation (the “Company”), evidenced by the
attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized
terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.
1.
Form of Exercise
Price. The Holder intends that payment of the Exercise Price
shall be made as:
____________
a “Cash Exercise” with respect to
_________________ Warrant Shares; and/or
____________
a “Cashless Exercise” with respect to _______________
Warrant Shares.
2.
Payment of Exercise
Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the Aggregate Exercise
Price in the sum of $___________________ to the Company in
accordance with the terms of the Warrant.
3.
Delivery of Warrant
Shares. The Company shall deliver to the holder __________
Warrant Shares in accordance with the terms of the Warrant and,
after delivery of such Warrant Shares, _____________ Warrant Shares
remain subject to the Warrant.
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Date:
_______________ __, ______
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Name of
Registered Holder
By:
Name:Title:
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|
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Address:
Tax
I.D.#
|
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EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply
required information. Do not use this form to purchase
shares.)
FOR
VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
|
Name:
|
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|
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(Please
Print)
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Address:
|
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(Please
Print)
|
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Dated:
_______________ __, ______
|
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Holder’s
Signature:
|
|
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Holder’s
Address:
|
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NOTE:
The signature to this Assignment Form must correspond with the name
as it appears on the face of the Warrant, without alteration or
enlargement or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative capacity should
file proper evidence of authority to assign the foregoing
Warrant.
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