Form of Subscription Agent Agreement by and between GrowLife, Inc. and Direct Transfer, LLC

This Subscription and Information Agent Agreement (the “Agreement”) is entered into as of this _________ day of September, by and between GrowLife, Inc., organized and existing under the laws of Delaware (the “Corporation”), and Direct Transfer, LLC, a corporation having its principal offices in _______ (“Direct Transfer”).

 

WHEREAS, pursuant to a rights offering (the “Rights Offering”), the record and beneficial holders of the Corporation’s common stock, par value $0.0001 per share (the “Common Stock”) as of the Record Date (as defined in the applicable Offering Documents) (the “Eligible Holders”) will be given the right (the “Subscription Rights”) to subscribe for an aggregate of approximately 500,000,000 Units, each Unit consisting of one share of Common Stock and two ½ Warrants to purchase Common Stock, in each case as more fully set forth in a prospectus and related offering documents (the “Offering Documents”) to be prepared by the Corporation and filed with the Securities and Exchange Commission for the purpose of effecting the Rights Offering; and

 

WHEREAS, the Corporation has authorized and directed the Agent to hold funds submitted by the Eligible Holders who exercise Subscription Rights (the “Subscription Funds”) in accordance with the terms and provisions of this Agreement; and

 

WHEREAS, upon the terms and conditions set forth in the applicable Offering Documents, the Agent will record properly exercised Subscription Rights from Eligible Holders as of the Record Date (as defined in the applicable Offering Documents), as well as record and deposit the Subscription Funds for the purchase of the Units pursuant to the Rights Offering; and

 

WHEREAS, the Corporation desires that Direct Transfer act as both Subscription Agent and Information Agent under the Rights Offering (the “Agent”), and Direct Transfer has indicated its willingness to do so.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:

 

1.  Appointment of Subscription and Information Agent. The Corporation hereby confirms the appointment of Direct Transfer as Agent, and Direct Transfer hereby agrees to serve as Agent, upon the terms and conditions set forth herein.

 

2.  Acceptance and Receipt of Subscription Documents.

 

A.  After receiving from the Corporation acknowledgement of the commencement of the Rights Offering, the Agent shall promptly mail or otherwise deliver to each Eligible Holder as of the Record Date (a) the appropriate Offering Documents as approved by the Corporation (which shall specify that the exercise of Subscription Rights shall be effected, and risk of loss of Subscription Funds shall pass, only upon receipt by the Agent of the properly completed Subscription Rights Certificate (as defined in the Offering Documents) and Subscription Funds required to effect the exercise of Subscription Rights under the Rights Offering) and (b) an envelope addressed to the Agent for use by such holder in exercising his or her Subscription Rights (clauses (a) and (b) collectively, the “Mailing”).

 

B.           The Agent, upon receipt of Subscription Funds and duly, completely and correctly executed Subscription Rights Certificates and other documents for the exercise of Subscription Rights, shall make note of such Subscriptions and Subscription Funds with respect to the amount of shares subscribed for, including exercises of the Basic Subscription Rights (as defined in the applicable Offering Documents) and Over-Subscription Rights (as defined in the applicable Offering Documents), and shall report such results to the Corporation. Upon closing of the Rights Offering and as promptly as feasible upon the Agent’s receipt of the Corporation’s acceptance and approval of said Subscription Rights Certificates, (i) the Corporation will authorize the Agent to no longer accept any subscription documents and to prepare the final subscription list, representing the number of Units for which said Eligible Holder has subscribed, including exercises of the Basic Subscription Rights (as defined in the applicable Offering Documents) and Over-Subscription Rights (as defined in the applicable Offering Documents), and shall report such results to the Corporation, for the issuance of stock certificates by the Corporation’s Transfer Agent, (the “Certificates”) and (ii) the Agent will release to the Corporation the aggregate Subscription Funds minus any fees and expense reimbursements (incurred or reserved for disbursements) due to the Agent from the Corporation (sections (i) and (ii) directly preceding constituting the “Closing”). No interest on the Subscription Funds will accrue to either the Corporation, the Corporation’s Eligible Holders. 

 

 

3.  Notification and Processing. The Agent is hereby authorized and directed to, and hereby agrees to perform certain functions, including but not limited to the following:

 

A.  Accept and respond to all telephone requests from Eligible Holders for information relative to the exercise of Subscription Rights (except that Agent will not answer questions relating to the sufficiency of the consideration or the tax implications of the Rights Offering); answer questions regarding the proper method of exercising Subscription Rights, including the completion of Subscription Rights Certificates and other documents related to the Rights Offering; maintain a toll-free number to respond to inquiries; provide assistance to Eligible Holders and monitor the response to the Rights Offering; enclose and re-mail the Subscriptions to interested Eligible Holders; and provide periodic reports as requested to the Corporation as to the status of the Rights Offering.

 

B.  Date stamp each document relating to its duties hereunder when received;

 

C.  Receive and examine all documents submitted to it in connection with the exercise of rights under the Rights Offering and confirm whether such documents are properly completed and executed in accordance with the terms thereof. If Common Stock or warrants to purchase Common Stock applicable to a subscription is held by more than one record holder, the applicable Offering Documents must be signed by each such holder; if a holder or joint holders (registrants) hold more than one position in the Corporation, as indicated by different accounts on the relevant record holder list, then separate, properly completed and executed subscriptions must be submitted for each such position held by that or those joint holders (registrants).

 

D.  Retain or return to any holders (as applicable) those Offering Documents evidencing some deficiency in execution and make reasonable attempts to inform such holders of the need to correct any such deficiency. In any instance where the Agent cannot reconcile such deficiencies, the Agent shall consult with the Corporation for instructions as to whether the Agent may accept such exercise of Subscription Rights. In the absence of such instructions by Corporation in writing or email within twenty-four (24) hours after Agent first requests such instructions, Agent is authorized not to accept such exercise of Subscription Rights and shall notify the exercising stockholder that its exercise is deficient;

 

E.  Accept Subscription Rights Certificates and other documents signed by persons acting in a fiduciary or representative capacity only if such capacity is properly shown on the subscriptions and proper evidence of their authority so to act has been submitted;

 

F.  Accept subscriptions for Units to be issued other than in the name that appears on the Corporation record as Eligible Holder submitted for such subscription, where (i) the signature thereon is guaranteed by a financial institution Medallion Signature Guarantee, (ii) any necessary stock transfer taxes are paid and proof of such payment is submitted or funds therefor are provided to the Agent, or it is established by the holder that no such taxes are due and payable and (iii) the “Special Issuance Instructions” on the Subscription Rights Certificate have been properly completed;

 

G.  Retain all subscriptions accepted and retain such documents pending further instructions from the Corporation;

 

H.  Return at the Corporation’s request any and all necessary records, information and material concerning and representing unsubscribed Units under the Rights Offering; and

 

I.  Maintain on a continuing basis a list of Eligible Holders that have not yet subscribed pursuant to the Rights Offering.

 

 

4.  Concerning the Subscription and Information Agent.

 

The Agent:

 

 

 

 

 

 

 

 

This Agreement does not contemplate any service to be provided by Agent in the case where the conditions of the Rights Offering have not been met in a timely manner. If necessary, service to be provided by Agent under such circumstances and remuneration to Agent therefor, will be established in a mutual agreement between Agent and the Corporation, which will become a part of this Agreement.

 

No later than the business day after the Mailing, the Corporation will provide Agent with a list of talking points dealing with anticipated questions from Eligible Holders. It is understood and agreed that Agent will not provide tax advice, will not interpret tax regulations, will not opine regarding the merits of the Rights Offering, and will not provide any comments related to any legal proceedings related to the Corporation.

 

5.  Compensation of the Agent by the Corporation. The Corporation shall pay fees for the services rendered hereunder, as set forth in the Fee Schedule (attached hereto as Exhibit A). The Agent shall also be entitled to reimbursement from the Corporation for all reasonable and necessary expenses paid or incurred by it in connection with the administration by the Agent of its duties hereunder. The fees must be paid upon execution of this Agreement, before any services hereunder commence. An invoice for any out-of-pocket and/or per item fees incurred will be rendered to and payable by the Corporation within thirty (30) days of the date of said invoice, except for invoiced estimated postage, printing and mailing expenses, which funds must be received five (5) business days prior to the scheduled Mailing date. It is understood and agreed that all responsibilities and duties of, and services to be performed by Agent shall cease if full payment for its services has not been received in accordance with the above schedule, and said services will not commence thereafter until all payment due has been received by Agent.

 

 

6.  Reminder Mailings. The Corporation agrees that any follow up mailing program will be coordinated exclusively through Agent, either by Agent or using a vendor that Agent has previously approved. Agent may conduct follow up mailings through electronic mail, to the extent the email address of the intended recipient Eligible Holder has been provided by Corporation to Agent.

 

7.  Performance.

 

The Agent shall at all times act in good faith and agrees to use its commercially reasonable efforts within reasonable time limits to insure the accuracy and timeliness of all services performed under this Agreement.

 

8.  Indemnification, Limitation of Liability.

 

A.  The Corporation covenants and agrees to indemnify and to hold the Agent harmless against any claims, actions, judgments, liabilities, costs, expenses (including reasonable fees of its legal counsel), losses or damages, which may be paid, incurred or suffered by or to which it may become subject, arising from or out of its duties under this Agreement, except to the extent that such claims, actions, judgments, liabilities, costs, expenses, losses or damages are primarily a result of Agent’s gross negligence or willful misconduct. Promptly after the receipt by the Agent of notice of any demand or claim, or the commencement of any action, suit, proceeding or investigation, the Agent shall notify the Corporation thereof in writing. The Corporation shall be entitled to participate at its own expense in the defense of any such claim or proceeding, and, if it so elects at any time after receipt of such notice, it may assume the defense of any suit brought to enforce any such claim or of any other legal action or proceeding. Agent will not, without the Corporation’s prior consent, settle or compromise or consent to the entry of any judgment to any pending or threatened action in respect of which indemnification may be sought hereunder. For the purposes of this Section 8, the phrase “any costs, expenses (including reasonable fees of its legal counsel), losses or damages” means any amount paid or payable to satisfy any claim, demand, action, suit or proceeding settled, and all reasonable costs and expenses, including, but not limited to, reasonable counsel fees and disbursements, paid or incurred in investigating or defending against any such action, suit, proceeding or investigation.

 

B.  Agent’s aggregate liability during any term of this Agreement with respect to, arising from, or arising in connection with this Agreement, or from all services provided or omitted to be provided under this Agreement, whether in contract, or in tort, or otherwise, is limited to, and shall not exceed, the amounts paid or payable hereunder by the Corporation to Agent as fees and charges, but not including reimbursable expenses, except to the extent that such liability arises primarily as a result of Agent’s gross negligence or willful misconduct.

 

C.  In the event any question or dispute arises with respect to the proper interpretation of this Agreement or Agent’s duties hereunder or the rights of the Corporation or of any Eligible Holder exercising Subscription Rights, Agent shall not be required to act and shall not be held liable or responsible for refusing to act until the question or dispute has been judicially settled (and Agent may, if it deems it advisable, but shall not be obligated to, file a suit in interpleader or for a declaratory judgment for such purpose) by final judgment rendered by a court of competent jurisdiction, binding on all Eligible Holders and parties interested in the matter which is no longer subject to review or appeal, or settled by a written document in form and substance satisfactory to Agent and executed by the Corporation and each such stockholder and party. In addition, Agent may require for such purpose, but shall not be obligated to require, the execution of such written settlement by all the Eligible Holders and all other parties that may have an interest in the settlement.

 

9.  Further Assurance. From time-to-time and after the date hereof, the Corporation shall deliver or cause to be delivered to the Agent such further documents and instruments and shall do and cause to be done such further acts as the Agent shall reasonably request (it being understood that the Agent shall have no obligation to make any such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder.

 

10. Term. The Corporation may terminate this Agreement at any time by providing 30 days’ written notification to the Agent. The Agent may terminate this Agreement by providing the Corporation 30 days’ written notice, except that Agent may terminate this agreement upon 10 days’ written notice at any time Corporation has not paid in full an invoice from the Agent within the time period described in section five (5) herein and Corporation does not pay in full the invoice within 10 days following receipt of written notice of such outstanding invoice. Upon the effective date of termination of this Agreement, all cash and other payments, without interest, and all other property then held by the Agent on behalf of the Eligible Holders hereunder shall be delivered by it to such successor agent or as otherwise shall be designated in writing by the parties hereto. Upon termination of this Agreement, all subscription documents received and related documentation will be returned to the Corporation.

 

 

11. Notices. Until further notice in writing by either party hereto to the other party, all written reports, notices and other communications between the Agent and the Corporation required or permitted hereunder shall be delivered or mailed by first class mail, postage prepaid, addressed as follows:

 

 

12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the the State of Delaware and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of the parties hereto.

 

13. Assignment.

 

A.  Except as provided in Section 13(B) below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party.

 

B.  The Agent may, without further consent on the part of the Corporation, subcontract with subcontractors for systems, processing, telephone and mailing services, and reminder mailing activities, as may be required from time to time without (unless otherwise set forth herein) additional fees payable by the Corporation; provided, however, that the Agent shall be fully responsible to the Corporation for the acts and omissions of any subcontractor.

 

C.  Except as explicitly stated elsewhere in this Agreement, nothing under this Agreement shall be construed to give any rights or benefits in this Agreement to anyone other than the Agent and the Corporation and the duties and responsibilities undertaken pursuant to this Agreement shall be for the sole and exclusive benefit of the Agent and the Corporation. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns.

 

14. Amendment. This Agreement may not be modified, amended or supplemented without an express written agreement executed by each of the parties hereto.

 

 

15. Counterparts. This Agreement may be executed in separate counterparts, each of which, when executed and delivered, shall be an original, but all such counterparts shall together constitute but one and the same instrument.

 

16. No Joint Venture. This Agreement does not constitute an agreement for a partnership or joint venture between the Agent and the Corporation. Neither party shall make any commitments with third parties that are binding on the other party without the other party’s prior written consent.

 

17. Force Majeure. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage that is reasonably beyond its control, or other cause that is reasonably beyond its control (except, in the case of the Agent, for acts of subcontractors), such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. Performance under this Agreement shall resume when the affected party or parties are able to perform substantially that party’s duties.

 

18. Consequential Damages. Neither party to this Agreement shall be liable for any consequential, indirect, special or incidental damages under any provision of this Agreement or for any consequential, indirect, penal, special or incidental damages arising out of any act or failure to act hereunder even if that party has been advised of or has foreseen the possibility of such damages.

 

19. Severability. If any provision of this Agreement shall be held invalid, unlawful, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired.

 

20. Confidentiality. The Agent and the Corporation agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement, including the fees for services set forth in the attached schedule, shall remain confidential and shall not be voluntarily disclosed to any third party (except the party’s attorneys, advisors and affiliates), except with the written approval of the other party or as may be required by law or regulatory authority.

  

21. Survival. The provisions of Sections 4, 5, 7, 8, 9, 11, 12, 13, 18, 20, 21 and 22 shall survive any termination of this Agreement.

 

22. Merger of Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers, hereunto duly authorized, as of the day and year first above written.