ex10-5.htm


EXHIBIT 10.5



 

PROMISSORY NOTE

 



	
US$1,388,190.79
	
June 30, 2009




 



	
  
	
1.
	
Principal and Letter Agreement.




 

For value received, in installments as herein provided, AEROGROW INTERNATIONAL, INC. (“Maker”), promises to pay to the order of MAIN POWER Electrical Factory Ltd, a Hong Kong Incorporated Company,(“Holder”) by wire transfer in immediately available
funds to a U.S. Dollar-denominated bank account that Holder may from time to time designate in writing, the principal sum of ONE MILLION THREE HUNDRED EIGHTY EIGHT THOUSAND ONE HUNDRED NINETY and 79/100 U.S. Dollars ($1,388,190.79), as the same may be increased pursuant to Paragraphs 2(a) and 2(b) below, together with accrued interest from the date of disbursement hereunder on the unpaid principal balance at the rate of eight percent (8.0%) per annum.  As used herein, the term “Holder” shall
mean Holder and any subsequent holder of this Note (this “Note”), whichever is applicable from time to time. The Holder and Maker acknowledge that this Note is being entered into in connection with a separate letter agreement dated this same date between the Holder and the Maker (“Letter Agreement”), which memorializes certain agreements that have been reached between the parties and pursuant to which this Note is being issued.

 


	
  
	
2.
	
Payment of Interest and Principal.




 

(a)           Interest; Capitalized Interest

 

Payments of interest only shall be made quarterly in arrears beginning on September 30, 2009, and on the same date every three months thereafter (each an “Interest Payment Date”), through and including June 30, 2011; provided,
that for any Interest Payment Date prior to and including June 30, 2010, Maker may, at its sole option, elect to capitalize any accrued interest for such Interest Payment Date and add it to the outstanding principal balance of this Note.

 

(b)           Tooling Costs.

 

Under the Letter Agreement, Maker is required to pay Holder the sum of One Hundred Seventy Eight Thousand Two Hundred Fifty Seven and 48/100ths U.S. Dollars (US$178,257.48) (“Tooling Costs”), on or before July 31, 2009. If Maker fails to make this payment, then the Principal value of this Note shall be increased by the
unpaid amount of the Tooling Costs and the maturity date of the Note accelerated,  so that the entire amount of this Note shall be immediately due and payable.



 

(c)           Principal Payments

 

Maker shall make payments of the principal balance of this Promissory Note in accordance with the following schedule:

 


	
  
	
January 31, 2011
	
US$150,000.00




 


	
  
	
February 28, 2011
	
US$150,000.00




 


	
  
	
March 31, 2011
	
US$150,000.00




 


	
  
	
April 30, 2011
	
US$150,000.00




 


	
  
	
May 31, 2011
	
US$150,000.00




 


	
  
	
June 30, 2011
	
All remaining unpaid amounts of the principal balance of this Note, together with accrued and unpaid interest thereon in accordance with Paragraph 2(a) above.




 


	
  
	
3.
	
Prepayment.




 

This Note may be prepaid in full or in part, at any time and from time to time, without premium or penalty.  Maker shall have no right to reborrow any such prepaid amounts.  All prepayments shall be applied by Holder first, to the payment of accrued and unpaid interest; and last to the payment of principal.

 



 



 







 



 


	
  
	
4.
	
Interest Rate Calculation.




 

Throughout the term of this Note, interest shall be calculated on the basis of a 365-day year, but shall be computed for the actual number of days in the period for which interest is charged.  If any payment of interest or principal to be made by Maker shall become due on a day other than a Business Day (as hereinafter defined),
such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing any interest with respect to such payment.  As used herein, the term “Business Day” shall mean a day other than Saturday or Sunday on which banks are open for business in Boulder, Colorado.

 


	
  
	
5.
	
Manner of Payment.




 

Principal and interest are payable in lawful money of the United States of America.


 


	
  
	
6.
	Covenants.



       


So long as the Note is outstanding:

 

(a)           Maker shall not make any payments under its Liquidity Performance Award Plan, adopted in March 2009, as the same may be amended;

 

(b)           Maker shall make no distributions to its Shareholders;

 

(c)           Maker will provide Holder with prompt notice of any material adverse change in its business or any material adverse event affecting the Maker;

 

(d)           Maker will advise the Holder immediately upon the occurrence of any Event of Default as described in Paragraph 8 below;

 

(e)           Maker shall advise the Holder immediately upon the occurrence of any default by Maker in payment of principle or interest on any of its indebtedness; and

 

(f)           Maker shall comply in all respects with the terms and conditions of the Letter Agreement.





 


	
  
	
7.
	
Security.




 

In order to secure all of Maker’s obligations under this Note, Maker hereby grants to Holder a security interest in the tools and molds in the possession of [Main Power] that are related to the manufacture of AeroGardens and all proceeds therefrom (the “Pledged
Collateral”).  After the occurrence and during the continuation of an Event of Default hereunder, Holder shall be entitled to cause any or all of the Pledged Collateral to be transferred or recorded into the name of Holder or its nominee.

 


	
  
	
8.
	
Event of Default.




 

The occurrence of any of the following shall be deemed to be an event of default (“Event of Default”) hereunder:

 

(a)           Maker’s failure to pay any payment of principal or interest due pursuant to the terms hereof or to observe the covenant set forth in Paragraph 6 above within ten (10) Business Days after receipt of notice from Holder of a breach of the obligation to
make such payments or to observe such covenant;

 

(b)           any indebtedness for money borrowed by Maker in an aggregate principal amount in excess of US$100,000 is not paid at final maturity or upon acceleration, if such acceleration is not cured or rescinded;

 

(c)           a decree or order by a court having jurisdiction in the premises shall have been entered adjudging Maker bankrupt or insolvent, or approving as properly filed a petition seeking liquidation or reorganization of Maker under any applicable bankruptcy, insolvency,
reorganization or other similar law, and such decree or order shall have continued unvacated and unstayed for a period of 90 days; an involuntary case shall be commenced under any applicable bankruptcy, insolvency, reorganization or other similar law in respect of Maker and shall continue undismissed for a period of 90 days or an order for relief in such case shall have been entered and such order shall have remained in force unvacated and unstayed for a period of 90 days; or a decree or order of a court having
jurisdiction in the premises shall have been entered for the appointment on the ground of insolvency or bankruptcy of a receiver, custodian, liquidator, trustee or assignee in bankruptcy or insolvency of Maker or of its property, or for the winding up or liquidation of its affairs, and such decree or order shall have remained in force unvacated and unstayed for a period of 90 days;

 



 



 







 



 

(d)           Maker shall institute proceedings to be adjudicated a voluntary bankrupt, shall consent to the filing of a bankruptcy proceeding against it, shall file a petition or answer or consent seeking liquidation or reorganization under any applicable bankruptcy, insolvency,
reorganization or other similar law, shall consent to the filing of any such petition or shall consent to the appointment on the ground of insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or assignee in bankruptcy or insolvency of it or of its property, or shall make a general assignment for the benefit of creditors; or

 

(e)           Failure on the part of Maker to perform any other covenant or agreement on the part of Maker contained in this Note for a period of ten (10) days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to
Maker by the Holder of this Note.

 


	
  
	
9.
	
Remedies.




 

Upon the occurrence of an Event of Default and without demand or notice, Holder shall have the option to declare the entire principal balance of this Note together with all accrued and unpaid interest thereon immediately due and payable; provided, however,
that upon the occurrence of an Event of Default under clauses (c) or (d) of Paragraph 8 above, the entire principal balance of this Note together with all accrued and unpaid interest thereon shall immediately become due and payable without any action on the part of Holder.  No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right.

 

10.           Payment of Expenses.

 

Maker promises to pay all reasonable costs and expenses (including reasonable attorneys’ fees) incurred in connection with the collection of this Note upon a default by Maker and declaration of acceleration pursuant to Paragraph 9 of this Note.

 

11.           Default Rate.

 

The entire balance of Principal, Interest, and other sums due upon the maturity hereof, by acceleration or otherwise, shall bear interest from the date due until paid at the rate of eighteen percent (18%) per annum.

 


	
  
	
12.
	
Waiver.




 

Maker hereby waives diligence, presentment, protest and demand, notice of protest, dishonor and nonpayment of this Note, and expressly agrees that, without in any way affecting the liability of Maker hereunder, Holder may extend any maturity date or the time for payment of any installment due hereunder, accept additional security,
release any party liable hereunder and release any security now or hereafter securing this Note.  Maker further waives, to the fullest extent permitted by law, the right to plead any and all statutes of limitations as a defense to any demand on this Note, or on any deed of trust, security agreement, lease assignment, guaranty or other agreement now or hereafter securing this Note.

 


	
  
	
13.
	
Severability.




 

Every provision of this Note is intended to be severable.  In the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions
shall remain binding and enforceable.

 


	
  
	
14.
	
Interest Rate Limitation.




 

In no event shall the rate of interest payable on the indebtedness evidenced hereby exceed the maximum rate permissible under applicable law.  If the rate of interest payable hereunder is ever reduced as a result of this Paragraph 14 and at any time thereafter the maximum rate permitted by applicable law shall exceed
the rate of interest  provided for in this Note, then the rate provided for in this Note shall be increased to the maximum rate provided by applicable law for such period as is required so that the total amount of interest received by Holder is that which would have been received by Holder but for the operation of the first sentence of this Paragraph 14.

 


	
  
	
15.
	
Number and Gender.




 

In this Note the singular shall include the plural and masculine shall include the feminine and neuter gender, and vice versa, if the context so requires.

 


	
  
	
16.
	
Headings.




 

Headings at the beginning of each numbered Paragraph of this Note are intended solely for convenience and are not to be deemed or construed to be a part of this Note.

 


	
  
	
17.
	
Choice of Law.




 

This Note shall be governed by and construed in accordance with the laws of the State of Colorado.

 

“Maker”





AEROGROW INTERNATIONAL, INC.









By:           /s/ H. MacGregor Clarke

Name:      H. MacGregor Clarke

Title:        Chief Financial Officer