Exhibit 10.2
 
 
THIS SUBORDINATED SECURED CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE 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 (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.

THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY ARE SUBJECT TO A SUBORDINATION
AND INTERCREDITOR AGREEMENT AMONG FCC, LLC, d/b/a FIRST CAPITAL, GVC CAPITAL LLC
(AS AGENT FOR THE INITIAL HOLDER OF THIS NOTE AND THE HOLDERS OF THE OTHER NOTES
OF THIS SERIES) AND THE COMPANY, AND SUCH SUBORDINATION AND INTERCREDITOR
AGREEMENT SHALL BE BINDING ON ALL FUTURE HOLDERS OF THIS NOTE AND ALL RENEWALS,
REPLACEMENTS AND MODIFICATIONS WITH RESPECT TO THIS NOTE.

 

  U.S.  $________ No. [2010-1]     Original Issue Date:  May 6, 2010

 
                                                                                                                                      

SUBORDINATED SECURED 8% CONVERTIBLE PROMISSORY NOTE
DUE May 6, 2013

           THIS PROMISSORY NOTE is one of a duly authorized issue of
Subordinated Secured Convertible Promissory Notes of  AEROGROW INTERNATIONAL,
INC., a Nevada corporation, (the “Company”), designated as its Series A
Subordinated Secured 8% Convertible Promissory Notes (the “Promissory Notes”)
due on May 6, 2013 (the “Maturity Date”), in an aggregate principal amount of up
to $8.4 million plus accrued but unpaid interest.

           FOR VALUE RECEIVED, the Company promises to pay to  , the registered
holder hereof (the "Holder"), the principal sum of _________and 00/100  Dollars
(US $________)  and to pay interest on the principal sum outstanding from time
to time in arrears at the rate of 8% per annum, accruing from May 6, 2010
(“Issue Date”) and payable in accordance with Section 4 hereof.  Accrual of
interest shall commence on the first such business day to occur after the Issue
Date and shall continue to accrue on a daily basis until payment in full of the
principal sum has been made or duly provided for.

           The Company shall pay principal and accrued interest on or before the
Maturity Date.

           This Promissory Note is being issued pursuant to the terms of the
Subscription Agreement (the “Subscription Agreement”), to which the Company and
the Holder (or the Holder’s predecessor in interest) are parties.  Capitalized
terms not otherwise defined herein shall have the meanings ascribed to them in
the Subscription Agreement.

           This Promissory Note is subject to the following additional
provisions.
 
 
 

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Section 1.       Collateral, and Pari Passu.

This Promissory Note is one of a series of Promissory Notes known as the Series
A Subordinated Secured 8% Convertible Promissory Notes in an aggregate principal
amount of up to $8.4 million plus accrued but unpaid interest.  No payments will
be made to the holder of this Promissory Note unless a proportional payment
(based on outstanding principal amount) is made with respect to all other
Promissory Notes of the Series.  Upon liquidation, this Promissory Note will be
treated in pari passu with all other Promissory Notes of the Series.

The repayment of this Promissory Note is secured by a subordinated security
interest in all of the tangible and intangible assets of the Company.  The
security interest is held under a Security Agreement dated May 6, 2010 for the
benefit of all holders of Promissory Notes issued as part of this Series.  The
rights of the Noteholders under the Security Agreement are further subject to
the provisions of a Collateral Agent Agreement executed concurrently therewith.
 
Section 2.       No Sale or Transfer.  This Promissory Note may not be sold,
transferred, assigned, hypothecated or divided into two or more Promissory Notes
of smaller denominations except to the extent such sale, transfer, assignment,
hypothecation or division is in compliance with federal and applicable state
securities laws, the compliance with which must be established to the reasonable
satisfaction of the Company.

Section 3.       Limitations on Debt.  Until all Promissory Notes issued in this
Series are repaid in full or converted into shares of Common Stock in accordance
with their terms, the Company may not create, incur, assume, or suffer to exist
any other indebtedness, except for (a) Indebtedness under the FCC, LLC loan
documents, together with any renewals, extensions, refinancing, substitutions or
modifications thereof; (b) indebtedness existing on the date hereof, together
with any renewals, extensions, refinancing, substitution or modifications
thereof, (c) Indebtedness that is subordinated to the Promissory Notes and (d)
indebtedness incurred in the ordinary course of business.

Section 4.       Provisions Regarding Payment of Interest.  Interest hereunder
will be paid to the Holder quarterly,on the last day of the months of January,
April, July and October, with the first interest payment due on or before
October 31, 2010.    If not paid previously, all interest will be payable at the
Maturity Date.  At the option of the Company, interest may be paid (i) in cash,
or (ii) in the form of shares of the Company’s common stock, provided that (A)
the resale of the shares of common stock by the Holder has been registered under
the Securities Act of 1933, as amended (the “Securities Act”) pursuant to an
effective registration statement filed under the Securities Act, and (B) the
shares of common stock are valued at the moving average Market Price, as defined
herein,  of the common stock as quoted on the OTC Bulletin Board or other
principal trading market of the shares over the 30 trading days immediately
preceding the interest payment date, but not to exceed $.25.

            Section 5.       (a)           “Event of Default” wherever used
herein, means any one of the following events (whatever the reason and whether
it shall be voluntary or involuntary or effected by operation of law or pursuant
to any judgment, decree or order of any court, or any order, rule or regulation
of any administrative or governmental body):

(i)           Any default in the payment of the principal of or interest on this
Promissory Note as and when the same shall become due and payable, (whether on
the Maturity Date or by acceleration or otherwise);
 
 
 

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(ii)         The Company shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach of, this
Promissory Note, the Security Agreement or any other agreement between the
Company and the holder hereof, and such failure or breach shall not have been
remedied within 30 days after the date on which notice of such failure or breach
shall have been given;
 
(iii)         The Company shall commence a voluntary case under the United
States Bankruptcy Code or insolvency laws as now or hereafter in effect or any
successor thereto (the “Bankruptcy Code”); or an involuntary case is commenced
against the Company under the Bankruptcy Code and the petition is not
controverted within 30 days, or is not dismissed within 60 days, after
commencement of such involuntary case; or a “custodian” (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or any substantial
part of the property of the Company or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced against the Company any such proceeding which remains undismissed
for a period of 60 days; or the Company is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding is
entered; or the Company suffers any appointment of any custodian or the like for
it or any substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or the Company makes a general assignment for
the benefit of creditors; or the Company shall fail to pay, or shall state that
it is unable to pay its debts generally as they become due; or the Company shall
call a meeting of all of its creditors with a view to arranging a composition or
adjustment of its debts; or the Company shall by any act or failure to act
indicate its consent to, approval of or acquiescence in any of the foregoing; or
any corporate or other action is taken by the Company for the purpose of
effecting any of the foregoing.

                        (b)           Remedies.  The Holder, together with all
other holders of Promissory Notes based on a majority vote by principal amount
of the Holders of all other Promissory Notes (a “Majority of the Holders”), may
declare a default under Section 5(a)(i) upon not less than 30 days’ written
notice to the Company.  If the Company fails to cure an Event of Default within
such period (or if the cure cannot be reasonably completed within such period,
commence the cure of the Event of Default and diligently pursue such cure), then
the principal amount hereof together with all accrued and unpaid interest shall
accrue interest at the rate of eighteen (18%), and a Majority of the Holders
may:

(i)          Declare all amounts due under the Promissory Notes immediately due
and owing and exercise all rights with respect thereto under the Security
Agreement or permitted by law;

(ii)          Apply to a court with its seat in Colorado that has jurisdiction
over the Company for the appointment of a receiver to manage the assets and
operations of the Company;

(iii)         Convert all of the Promissory Notes into common stock of the
Company; or

(iv)        Assert any other remedy available at law or in equity.

Section 6.       Prepayment.  The Company may prepay this Promissory Note in
whole or in part at any time prior to the Maturity Date upon not less than 30
days’ written notice to the Holder.
 
 
 

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Section 7.       Definitions.  For the purposes hereof, the following terms
shall have the following meanings:

“Business Day” means any day except Saturday, Sunday and any day which shall be
a legal holiday or a day on which banking institutions in the State of Colorado
are authorized or required by law or other government action to close.

“Company” means AeroGrow International, Inc., a Nevada corporation.

“Conversion Amount” shall mean the total of unpaid principal and accrued but
unpaid interest at the date such amount is determined.

“Conversion Price” shall mean $0.10 per share; provided, however, that in the
event that the Company consummates a financing or series of financings of equity
securities in the aggregate gross amount of more than $1.0 million at a price
per share or price per share equivalent of less than $.10 per share (the “Lower
Price”),  then the Conversion Price shall automatically be adjusted to the Lower
Price.

“Conversion Shares” shall mean the shares of the Company’s common stock issued
or issuable upon conversion of the Promissory Notes.

“Promissory Notes” means the Promissory Notes, or any of them, as the context
may require.

“Holder” means any Person who is a registered holder of this Promissory Note as
listed in the books of the Company.

“Interest Payment Date” is as defined in the paragraph entitled “FOR VALUE
RECEIVED,” above.

“Majority of the Holders” is as defined in Section 5(b).

“Market Price” at any date shall be deemed to be (i) if the principal trading
market for such securities is any exchange, the last reported sale price, on
each Trading Day for which determination is made as officially reported on any
consolidated tape, (ii) if the principal market for such securities is the
over-the-counter market, the closing prices (or, if no closing price, the
closing bid price) on such Trading Days as set forth by Nasdaq or other
registered exchange or the OTC Bulletin Board (whichever is the principal market
for the Company’s common stock) as reported at http://finance.yahoo.com or,
(iii) if the security is not quoted on Nasdaq or other registered exchange or
the OTC Bulletin Board, the average bid and asked price as set forth on
www.pinksheets.com or (if not available) in the National Quotation Bureau sheet
listing such securities for such day.  Notwithstanding the foregoing, if there
is no reported closing price or bid price, as the case may be, on any of the ten
trading days preceding the event requiring a determination of Market Price
hereunder, then the Market Price shall be determined in good faith by resolution
of the Board of Directors of the Company, based on the best information
available to it.

“Material Adverse Effect” means a material adverse effect upon the business,
operations, properties, assets or condition (financial or otherwise) of the
Company taken as a whole.
 
 
 

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“Maturity Date” means the date defined in the first paragraph or (if earlier)
the date of any prepayment or acceleration.

“Original Issue Date” shall mean the date this Promissory Note is purchased by
the initial holder.

“Person” means a corporation, an association, a partnership, organization, a
business, an individual, a government or political subdivision thereof or a
governmental agency.

“Strike Price” means the Conversion Price, as adjusted as set forth in Section
8(d), below.

“Trading Day” means a day in which the market on which shares of the Company’s
common stock are principally traded is open for trading, whether or not any
shares of the Company’s common stock are actually traded on that day.
 
Section 8.       Conversion.

a.           Voluntary Conversion.  At any time before this Promissory Note has
been paid, upon written notice to the Company, the Holder may convert the
Conversion Amount into shares of the Company’s common stock by dividing the
Conversion Amount by the Conversion Price.

b.           Mandatory Automatic Conversion.      The Conversion Amount shall
automatically  convert into shares of the Company’s common stock at the then
current Conversion Price upon ten (10) days’ written notice to the Holder
(“Conversion Notice”) in the event (i) a Registration Statement registering for
resale under the Securities Act, the Conversion Shares, has been filed with the
Securities and Exchange Commission and is in effect on the date of Conversion
Notice, or all of the Conversion Shares can be resold by the Holders at one time
pursuant to Rule 144 under the Securities Act,  (ii) there exists on the date of
written notice a public trading market for the Company's Common Stock and such
shares are listed for quotation on the NASDAQ Stock Market, a registered
exchange or OTC Bulletin Board,  (iii) the Market Price of the Company's Common
Stock has equaled or exceeded $.25 for twenty (20) out of the last thirty (30)
consecutive Trading Days immediately preceding the date of such notice, and (iv)
the average daily trading volume of the Common Stock for the twenty (20) out of
the last thirty (30) consecutive Trading Days immediately preceding the date of
such notice was at least 1,000,000 shares.  In the event of such automatic
conversion, the rights of Holder under this Note and collateral documents shall
immediately terminate, interest under this Note shall cease to accrue and
thereafter Holder’s sole right and the sole right evidenced by this Note shall
be to entitle the Holder, upon surrender of this Note to the Company, to receive
shares of the Company’s common stock as provided for herein.

 
 

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c.           Limitation on Conversion.   Notwithstanding any other provision
hereof, in no event (except (i) as specifically provided herein as an exception
to this provision, or (ii) while there is outstanding a tender offer for any or
all of the shares of the Company’s Common Stock or (iii) for a Holder who is
immediately prior to the conversion of this Promissory Note is the beneficial
owner of five  percent or more of the issued and outstanding shares of the
Company’s Common Stock) shall the Holder be entitled to convert any portion of
this Promissory Note, or shall the Company have the obligation to convert such
Promissory Note (and the Company shall not have the right to pay interest hereon
in shares of Common Stock) to the extent that, after such conversion or issuance
of stock in payment of interest, the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Promissory Notes or other convertible securities or
of the unexercised portion of warrants or other rights to purchase Common
Stock), and (2) the number of shares of Common Stock issuable upon the
conversion of the Promissory Notes with respect to which the determination of
this proviso is being made, would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common Stock
(after taking into account the shares to be issued to the Holder upon such
conversion).  For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, except as otherwise provided in
clause (1) of such sentence.  The Holder, by its acceptance of this Promissory
Note, further agrees that if the Holder transfers or assigns any of the
Promissory Notes to a party who or which would not be considered such an
affiliate, such assignment shall be made subject to the transferee’s or
assignee’s specific agreement to be bound by the provisions of this Section 8(c)
as if such transferee or assignee were the original Holder hereof.  Nothing
herein shall preclude the Holder from disposing of a sufficient number of other
shares of Common Stock beneficially owned by the Holder so as to thereafter
permit the continued conversion of this Promissory Note. . The provisions of
this paragraph 8(c) (i) shall not apply to any Holder who, without regard to
this Note and the underlying Conversion Shares is the beneficial owner, within
the meaning of Rule 13d-3) of 5% or more of the Company’s issued and outstanding
shares of common stock, (ii) can be waived by agreement of the Company and the
Holder, and (iii) shall terminate in the event the provisions of paragraph 8(b)
regarding mandatory automatic conversion are triggered and become operative.

d.           Manner of Converison. Voluntary conversion provided for in
paragraph 8(a) above shall be effectuated by faxing a Notice of Conversion (as
defined below) to the Company as provided in this paragraph.  The Notice of
Conversion shall be executed by the Holder of this Promissory Note and shall
evidence such Holder's intention to convert this Promissory Note or a specified
portion hereof in the form annexed hereto as Exhibit A. No fractional shares of
Common Stock or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share.  The date on which notice of conversion is given (the "Conversion
Date") shall be deemed to be the date on which the Holder faxes or otherwise
delivers the conversion notice ("Notice of Conversion") to the Company so that
it is received by the Company on or before such specified date, provided that,
if such conversion would convert the entire remaining principal of this
Promissory Note, the Holder shall deliver to the Company the original Promissory
Notes being converted no later than five (5) business days
thereafter.  Facsimile delivery of the Notice of Conversion shall be accepted by
the Company at facsimile number 303-350-4770, Attention : Greg
Clarke.  Certificates representing Common Stock upon conversion (“Conversion
Certificates”) will be delivered to the Holder at the address specified in the
Notice of Conversion (which may be the Holder’s address for notices as
contemplated by the Subscription Agreement or a different address), via express
courier, by electronic transfer or otherwise, as provided in Section 8(e)(iii)
below, and, if interest is paid by Common Stock, the Interest Payment Date. The
Holder shall be deemed to be the holder of the shares issuable to it in
accordance with the provisions of this Section 8(d) on the Conversion Date.
 
e.           Nature of Common Stock Issued.

 (i)               When issued upon conversion of the Promissory Notes pursuant
to Section 8(a) or (b) hereof, the Conversion Shares will be legally and validly
issued, fully-paid and non-assessable.

 (ii)             Upon any conversion, this Promissory Note will be deemed
cancelled and of no further force and effect, representing only the right to
receive the Conversion Shares, regardless whether the Holder delivers this
Promissory Note to the Company for cancellation.
 
 
 

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                      (iii)           As soon as possible after a conversion has
been effected (and subject to the Holder having returned the Promissory Note to
the Company for cancellation), the Company will deliver to the converting holder
a certificate or certificates representing the Conversion Shares issuable by
reason of such conversion in such name or names and such denomination or
denominations as the converting holder has specified.  If any fractional share
of common stock would be issuable upon any conversion, the Company will pay the
holder of the Conversion Shares an amount equal to the Market Price of such
fractional share.

                      (iv)           The issuance of certificates for shares of
Conversion Shares will be made without charge.

                      (v)           The Company will not close its books against
the transfer of the Conversion Shares issued or issuable in any manner which
interferes with the conversion of this Promissory Note.

f.           Conversion Price Dilution Adjustment.  In order to prevent dilution
of the conversion rights granted under this Section, the Conversion Price and
the Strike Price will be subject to adjustment from time to time pursuant to
this Section 8f.

                      (i)           If the Company at any time subdivides (by
any stock split, stock dividend or otherwise) its outstanding shares of common
stock into a greater number of shares, the Conversion Price and the Strike Price
in effect immediately prior to such subdivision will be proportionately reduced,
and if the Company at any time combines (by reverse stock split or otherwise)
its outstanding shares of common stock into a smaller number of shares, the
Conversion Price and the Strike Price in effect immediately prior to such
combination will be proportionately increased.

                      (ii)           In the event of a judicial or non-judicial
dissolution of the Company, the conversion rights and privileges of the Holder
shall terminate on a date, as fixed by the Board of Directors of the Company,
not more than 45 days and not less than 30 days before the date of such
dissolution. The reference to shares of common stock herein shall be deemed to
include shares of any class into which said shares of common stock may be
changed.

                      (iii)           Adjustment for Dividends.  In the event
the Company shall make or issue, or shall have issued, or shall fix a record
date for the determination of holders of common stock entitled to receive a
dividend or the distribution (other than a distribution otherwise provided for
herein) payable in (a) securities of the Company other than shares of common
stock or (b) assets (including cash paid or payable out of capital or capital
surplus or surplus created as a result of a revaluation of property, but
excluding the cumulative dividends payable with respect to an authorized series
of Preferred Stock), then and in each such event provision shall be made so that
the holders of Promissory Notes shall receive upon conversion thereof in
addition to the number of shares of common stock receivable thereupon, the
number of securities or such other assets of the Company which they would have
received had their Promissory Notes been converted into common stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities or such
other assets receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
paragraph  with respect to Holders.

                      (iv)           Adjustment for Capital Reorganization or
Reclassification.  If the common stock issuable upon the conversion of the
Promissory Notes shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise then and in each such event the holder of the
Promissory Notes shall have the right thereafter to convert such Promissory
Notes and receive the kind an amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change
by holders of the number of shares of common stock into which such Promissory
Note might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
 
 
 

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                      (v)           Adjustment of Number of Shares.  Anything in
this Certificate to the contrary notwithstanding, in case the Company shall at
any time issue Common Stock or convertible securities by way of dividend or
other distribution on any stock of the Company or subdivide or combine the
outstanding shares of Common Stock, the Strike Price shall be proportionately
decreased in the case of such issuance (on the day following the date fixed for
determining shareholders entitled to receive such dividend or other
distribution) or decreased in the case of such subdivision or increased in the
case of such combination (on the date that such subdivision or combination shall
become effective).

                      (vi)           No Adjustment for Small Amounts.  Anything
in this paragraph to the contrary notwithstanding, the Company shall not be
required to give effect to any adjustment in the Strike Price unless and until
the net effect of one or more adjustments, determined as above provided, shall
have required a change of the Strike Price by at least one cent, but when the
cumulative net effect of more than one adjustment so determined shall be to
change the actual Strike Price by at least one cent, such change in the Strike
Price shall thereupon be given effect.

Section 9.       No Impairment.  Except as expressly provided herein, no
provision of this Promissory Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Promissory Note at the time, place, and rate, and in the coin
or currency, herein prescribed.  This Promissory Note is a direct obligation of
the Company.

Section 10.      No Rights as a Shareholder.  This Promissory Note shall not
entitle the Holder to any of the rights of a stockholder of the Company,
including without limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings.

Section 11.      No recourse shall be had for the payment of the principal of,
or the interest on, this Promissory Note, or for any claim based hereon, or
otherwise in respect hereof, against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.

Section 12.     All payments contemplated hereby to be made “in cash” shall be
made in immediately available good funds of United States of America currency by
wire transfer to an account designated in writing by the Holder to the Company
(which account may be changed by notice similarly given).  All payments of cash
and each delivery of shares of Common Stock issuable to the Holder as
contemplated hereby shall be made to the Holder at the address last appearing on
the Promissory Note Register of the Company as designated in writing by the
Holder from time to time; except that the Holder can designate, by notice to the
Company, a different delivery address for any one or more specific payments or
deliveries.

Section 13.     The Holder of the Promissory Note, by acceptance hereof, agrees
that this Promissory Note is being acquired for investment and that such Holder
will not offer, sell or otherwise dispose of this Promissory Note or the shares
of Common Stock issuable upon conversion thereof except under circumstances
which will not result in a violation of the Act or any applicable state Blue Sky
or foreign laws or similar laws relating to the sale of securities.
 
 
 

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Section 14.     The Promissory Notes will initially be issued in denominations
determined by the Company, but are exchangeable for an equal aggregate principal
amount of Promissory Notes of different denominations, as requested by the
Holder surrendering the same.  No service charge will be made for such
registration or transfer or exchange.

Section 15.     The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Promissory Note any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.

Section 16      This Promissory Note has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws and the terms of
the Subscription Agreement.  In the event of any proposed transfer of this
Promissory Note, the Company may require, prior to issuance of a new Promissory
Note in the name of such other person, that it receive reasonable transfer
documentation that is sufficient to evidence that such proposed transfer
complies with the Act and other applicable state and foreign securities laws and
the terms of the Subscription Agreement.  Prior to due presentment for transfer
of this Promissory Note, the Company and any agent of the Company may treat the
person in whose name this Promissory Note is duly registered on the Company's
Promissory Note Register as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes, whether or not this
Promissory Note be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

Section 17.     Mutilated, Lost or Stolen Promissory Notes.  If this Promissory
Note shall be mutilated, lost, stolen or destroyed, the Company shall execute
and deliver, in exchange and substitution for and upon cancellation of a
mutilated Promissory Note, or in lieu of or in substitution for a lost, stolen
or destroyed Promissory Note, a new Promissory Note for the principal amount of
this Promissory Note so mutilated, lost, stolen or destroyed but only upon
receipt of evidence of such loss, theft or destruction of such Promissory Note,
and of the ownership hereof, and adequate indemnity, if requested, all
reasonably satisfactory to the Company.

Section 18.     Governing Law.  This Promissory Note shall be governed by and
construed in accordance with the laws of the State of Colorado.  Each of the
parties consents to the exclusive jurisdiction of the federal courts whose
districts encompass any part of Boulder, Colorado, or the state courts of the
State of Colorado sitting in Boulder County, Colorado in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
coveniens, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Holder for any
reasonable legal fees and disbursements incurred by the Holder in enforcement of
or protection of any of its rights under any of this Promissory Note.

Section 19.     Waiver of Jury Trial; No Other Waivers.    The Company and the
Holder hereby waive the right to a trial by jury in any action, proceeding or
counterclaim in respect of any matter arising out or in connection with this
Promissory Note.  Any waiver by the Company or the Holder of a breach of any
provision of this Promissory Note shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Promissory Note.  The failure of the Company or the Holder to
insist upon strict adherence to any term of this Promissory Note on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Promissory Note.  Any waiver must be in writing.
 
 
 

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Section 20.     Severability. If any provision of this Promissory Note is
invalid, illegal or unenforceable, the balance of this Promissory Note shall
remain in effect, and if any provision is inapplicable to any Person or
circumstance, it shall nevertheless remain applicable to all other Persons and
circumstances.

Section 21.     Obligations Due on a Business Day.  Whenever any payment or
other obligation hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next calendar month, the preceding Business
Day in the appropriate calendar month).

           IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer duly authorized for such purpose, as of the date first
above indicated.

                           AEROGROW INTERNATIONAL, INC.

                           By:________________________________
                                 Jack J. Walker, Chairman and CEO
 
 
 

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NOTICE OF CONVERSION
 

 
(To be Executed by the Registered Holder
in order to Convert the Note)
 
The undersigned hereby irrevocably elects to convert $__________ principal
amount of the Note (defined below) and $___________ in accrued and unpaid
interest due under the Note into shares of common stock, par value $.001 per
share (“Common Stock”), of AeroGrow International, Inc., a Nevada corporation
(the “Company”) according to the conditions of the Series A Subordinated Secured
Convertible Note of the Company (the “Note”), as of the date written below.  If
securities are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates.  No fee will be charged to the Holder for
any conversion, except for transfer taxes, if any.  The original certificate
evidencing the Note is delivered herewith (or evidence of loss, theft or
destruction thereof).
 
The Company shall electronically transmit the Common Stock issuable pursuant to
this Notice of Conversion to the account of the undersigned or its nominee with
DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
 
Name of DTC Prime
Broker:                                                                                                                     

Account
Number:                                                                                                                                     
 
In lieu of receiving shares of Common Stock issuable pursuant to this Notice of
Conversion by way of a DWAC Transfer, the undersigned hereby requests that the
Company issue a certificate or certificates for the number of shares of Common
Stock set forth below (which numbers are based on the Holder’s calculation
attached hereto) in the name(s) specified immediately below or, if additional
space is necessary, on an attachment hereto:
 
Name:                                                                                                                                                           
 

Address:                                                                                                                                                       
                                                                                                                    
 
The Company shall issue and deliver shares of Common Stock to an overnight
courier not later than three business days following receipt of the original
Note(s) to be converted, and shall make payments pursuant to the Notes for the
number of business days such issuance and delivery is late.
 
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Note shall be made pursuant to registration of the securities under the
Securities Act of 1933, as amended (the “Act”), or pursuant to an exemption from
registration under the Act.
 
Date of
Conversion:                                                                                                                      
                                       

Applicable Conversion
Price:                                                                                                       

Number of Shares of Common Stock to be Issued Pursuant to
Conversion of the Notes:___________________

Signature:___________________________________

Name:______________________________________

Address:____________________________________
 
___________________________________________
 
SS or Tax I.D. No.____________________________