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PHOT > SEC Filings for PHOT > Form 8-K on 30-Jan-2014All Recent SEC Filings

Show all filings for GROWLIFE, INC. | Request a Trial to NEW EDGAR Online Pro

Form 8-K for GROWLIFE, INC.


30-Jan-2014

Entry into a Material Definitive Agreement, Unregistered Sale of Equity Securities


Item 1.01. Entry into a Material Definitive Agreement

CEN TRANSACTION

Interest Purchase Agreement

On January 24, 2014, GrowLife, Inc. (the "Company") executed an Interest Purchase Agreement whereby Wise Phoenix LLC, a Nevada limited liability company ("WP"), and AJOA Holdings, LLC, a Nevada limited liability company ("AJOA") (WP and AJOA may be collectively referred to as "Sellers"), sold to Organic Growth International, LLC, a Nevada limited liability company ("'OGI"), 25% of the fully diluted outstanding equity of CEN Biotech, Inc., a corporation organized under the laws of Canada ("CEN"). OGI is the Company's previously announced joint venture with CANX USA, LLC, a Nevada limited liability company ("CANX"). The Company has a 45% ownership interest in OGI and there are conditions under which it may gain a majority interest in the joint venture. The Company is obligated to issue shares of common stock to the Sellers (see below). CEN, under the authority and inspection of the Canadian government, has been approved to build a medical marijuana growing facility in Canada, which could produce and deploy as much as 1.3 million pounds of dried marijuana annually. CEN is awaiting final approval to grow, harvest, or sell medical marijuana from the Canadian government.

In addition to the 25% equity interest in CEN, OGI is entitled to a preference should there be any Distributed Income. Distributed Income is defined as CEN's net income, after adding non-cash expenses less any reserves designated by CEN's Board of Directors. The reserves are not to exceed 20% of CEN's gross revenues. Under the terms of the Interest Purchase Agreement ("IPA"), Distributed Income is to be allocated 60% to OGI, 20% to AJOA, and 20% to WP until distributions have been made equal to $40,000,000. After the distribution of $40,000,000, any Distributed Income is to be allocated 40% to OGI, 30% to AJOA, and 30% to WP. It is the intention of the parties to the IPA that distributions from available funds are to be made at least on an annual basis.

CEN's obligations to OGI under the IPA are secured by all of CEN's assets, excluding personal property and inventory to be sold in the normal course of CEN's business. OGI shall retain this security interest until such time as CEN has distributed an amount equal to $40,000,000.

In exchange for the rights discussed above, the Company is obligated to issue a total of 235,294,118 restricted shares of its common stock ("Payment Shares") ($40,000,000 calculated at $0.17 per share), should certain conditions be satisfied. 117,647,059 of the Payment Shares will go to WP and the other 117,647,059 Payment Shares will go to AJOA upon the satisfaction of the issuance conditions. In addition to certain document delivery requirements (e.g., financial statements and other corporate records), GrowLife will issue the Payment Shares only if it receives documentary evidence that a Canadian government agency has by contract, license, or otherwise granted specific rights to Sellers or CEN to grow, harvest, sell, import or export cannabis and cannabis bi-products in an amount not less than 1.3 million pounds of dried cannabis annually. If CEN is not granted the right to grow, harvest, and sell at least 1.3 million pounds, then OGI has the right to rescind the IPA or reduce the Payment Shares proportionately. This transaction is also conditioned upon the Company's shareholders approving an increase in the Company's authorized common stock at the February meeting of shareholders.

Finally, the Payment Shares, should they ever be issued, are subject to registration rights. The Company is obligated use its best efforts to register the Payment Shares as quickly as possible under applicable state and federal securities laws.

The foregoing description of the IPA is qualified by reference to the complete terms of such agreement, the form of which is included herewith as Exhibit 10.1 and incorporated herein by reference.

- 2 -

CEN Biotech, Inc. Shareholder Agreement

On January 24, 2014, the Company entered into a Shareholder Agreement of CEN Biotech, Inc. (the "Shareholder Agreement"). The Shareholder Agreement contemplates OGI's transfer of the 25% equity interest in CEN to the Company and therefore notes that the Company has a 25% interest. The Company, AJOA, WP, Creative Edge Nutrition, Inc., and one individual, collectively representing 93% percent ownership of CEN, have signed the Shareholder Agreement as of January 24, 2014, as well as CEN itself. Another eight individuals representing the remaining 7% are expected to sign the Shareholder Agreement.

Under the Shareholder Agreement, WP, AJOA, and CANX each have the right to select one director to serve on CEN's Board of Directors. The Shareholder Agreement dictates that certain corporate actions cannot be taken without the affirmative vote of each director (e.g., incurring indebtedness in excess of $500,000 for matters outside of the then-current budget). Additionally, there shall be no new shareholders without the prior written consent of the CEN Board of Directors. If the Company, or any other shareholder, wants to sell their interest in CEN, then the Company must provide written notice of the terms and conditions of the proposed sale or transfer. This written notice must be provided to the CEN Board of Directors, which shall have a right of first refusal to acquire the selling shareholder's interest. If sixty days pass and the CEN Board of Directors has not exercised its right, the selling shareholder may consummate the noticed transaction.

The foregoing description of the Shareholder Agreement is qualified by reference to the complete terms of such agreement, the form of which is included herewith as Exhibit 10.2 and incorporated herein by reference.

Master Equipment, Procurement and Services Agreement

On January 24, 2014, OGI and CEN entered into a Master Equipment, Procurement and Services Agreement ("MEPS") dictating that the legal cannabis growing equipment needs of CEN shall be supplied by the Company on a primary basis, so long as specifications, price, and quality are substantially equal. This arrangement is required by the joint venture agreement that created OGI, which mandates that OGI purchase all of its necessary goods and services from the Company on an exclusive basis. The Company executed the MEPS to signal its acceptance. In addition to functioning as a supplier, OGI was granted the global right to distribute all products and services sold or licensed by CEN anywhere in the world. The MEPS shall remain in effect for so longer as OGI or the Company is a CEN shareholder or five years, whichever is longer.

The foregoing description of the MEPS is qualified by reference to the complete terms of such agreement, the form of which is included herewith as Exhibit 10.3 and incorporated herein by reference.

Profit Sharing Agreement

On January 24, 2014, WP, AJOA, OGI, and CEN entered into a Profit Sharing Agreement ("PSA"). Under the PSA, OGI is entitled to 7.7% of all Payments received by CEN. Payments are defined as total gross payments (including non-cash consideration), without setoff or deduction, paid directly or indirectly to CEN, its affiliates, or related parties. CEN has agreed to pay OGI the 7.7% of Payments on a quarterly basis until the cessation of CEN as an entity, subject to certain exceptions like mergers, acquisitions, and similar transactions. Lastly, when CEN's cumulative manufacturing and sales volume reaches 1 million pounds of cannabis, CEN is required to make a $100 million distribution to OGI.

The foregoing description of the PSA is qualified by reference to the complete terms of such agreement, the form of which is included herewith as Exhibit 10.4 and incorporated herein by reference.

- 3 -

RXNB TRANSACTION

RXNB Interest Purchase Agreement

On January 24, 2014, the Company executed an Interest Purchase Agreement ("RXNB IPA") whereby WP and AJOA sold to OGI 40% of the fully diluted outstanding equity of R.X.N.B., Inc., a Nevada corporation ("RXNB"). As discussed above, the Company has a 45% ownership interest in OGI, a joint venture with CANX, and there are conditions under which it may gain a majority interest in the joint venture. The Company is obligated to issue shares of common stock to the Sellers under the RXNB IPA (see below). Among other ventures, RXNB formulates, manufactures, and distributes prescription drugs and dietary supplements to pharmaceutical and/food grade standards. RXNB also owns and operates a laboratory and testing unit within the scope of its business operations. The pharmacy operations of RXNB supply approximately 50,000 patients per month, and directly or indirectly support the practices of over 2700 clinicians. RXNB intellectual property includes technology for manufacturing and growing legal, medical grade cannabis in accordance with current good manufacturing practices ("cGNP") to pharmaceutical standards.

In addition to the 40% equity interest in RXNB, OGI is entitled to a preference . . .



Item 3.02. Unregistered Sales of Equity Securities

See the disclosures made in Item 1.01 for both the CEN Transaction and the RXNB Transaction, which are incorporated herein by reference. The Company's securities were offered and sold to accredited investors in transactions exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D promulgated thereunder. The transactions did not involve a public offering and the offer and sale of the securities was completed without general solicitation or advertising. Furthermore, no underwriter was engaged and there were no underwriting commissions paid by the Company.



Item 9.01. Financial Statements and Exhibits

10.1 CEN Biotech, Inc. Interest Purchase Agreement dated January 24, 2014

10.2      CEN Biotech, Inc. Shareholder Agreement dated January
24, 2014

10.3      CEN Biotech, Inc. Master Equipment, Procurement and

Services Agreement dated January 24, 2014

10.4      CEN Biotech, Inc. Profit Sharing Agreement dated
January 24, 2014

10.5      RXNB Interest Purchase Agreement dated January 24,
2014

10.6      RXNB Shareholder Agreement dated January 24, 2014

10.7      RXNB Master Equipment, Procurement and Services

Agreement dated January 24, 2014

10.8 RXNB Profit Sharing Agreement dated January 24, 2014

10.9 The Purchased Assets of RXNB dated January 24, 2014

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