Document:

ex10-3.htm

    Exhibit
10.3

     

    PROMISSORY
NOTE

     

    US$180,000.00                                                                                                November 1,
2009

     

    
      	
               
      

            	
              1.

            	
              Principal.

            

    

     

    For value
received, in installments as herein provided, AEROGROW INTERNATIONAL, INC.
(“Maker”),
promises to pay to the order of GRAD WURN LLC, or assignee (“Holder”), the
principal sum of One Hundred Eighty Thousand U.S. Dollars ($180,000.00),
together with accrued interest from the date of disbursement hereunder on the
unpaid principal balance at the rate of twenty percent (20.0%) 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.

     

    
      	
               
      

            	
              2.

            	
              Payment of Interest
      and Principal.

            

    

     

    (a)           Interest

     

    Payment
of interest shall be made concurrently with the payment of principal, in an
amount equal to the accrued interest due on the portion of the principal balance
being paid.

     

    (b)           Principal
Payments

     

    Maker
shall pay the principal balance of this Note in full on February 1,
2010.

     

    (c)           Guarantor

     

    Payment
of principal and interest is guaranteed by Jack J. Walker
(“Guarantor”).

     

    
      	
               
      

            	
              3.

            	
              Warrants.

            

    

     

    Maker
shall issue to the Holder a warrant to purchase 180,000 common shares of
AeroGrow International, Inc. at a purchase price of $0.25 per common
share.  The terms and conditions of the warrant will be documented in
a Common Stock Purchase Warrant to be issued by the Maker in favor of the
Holder, in a form and substance mutually agreed between the
parties.

     

    
      	
               
      

            	
              4.

            	
              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.

     

    
      	
               
      

            	
              5.

            	
              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.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              6.

            	
              Manner of
      Payment.

            

    

     

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

     

    
      	
               
      

            	
              7.

            	
              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 within ten (10) Business Days after receipt of notice from Holder of a
breach of the obligation to make such payment;

     

    (b)           any
indebtedness for money borrowed by Maker in an aggregate principal amount in
excess of US$250,000 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;
or

     

    (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.

     

    
      	
               
      

            	
              8.

            	
              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 7 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.

     

    
      	
               
      

            	
              9.

            	
              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.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              10.

            	
              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.

     

    
      	
               
      

            	
              11.

            	
              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 11 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 11.

     

    
      	
               
      

            	
              12.

            	
              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.

     

    
      	
               
      

            	
              13.

            	
              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.

     

    
      	
               
      

            	
              14.

            	
              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:                                              
            

    Name:  H.
MacGregor Clarke

    Title:  Chief
Financial Officer

    

    “Guarantor”

    

    JACK
J. WALKER

    

    

    By:                                                         

    Name: Jack
J. Walkerex10-4.htm

    Exhibit 10.4

     

    

    

    _________________
___, 20__

    

    

     

    FCC, LLC
d/b/a First Capital

    3520 NW
58th
Street

    Oklahoma
City, Oklahoma   73112

    

    

    
      	
               
      

            	
              Re:

            	
              AGREEMENT OF SUBORDINATION AND
      ASSIGNMENT

            

    

    

    __________________:

    

    The
undersigned, _____________________________ (“Creditor”), is a creditor of the
undersigned, Aerogrow International, Inc. (“Borrower”), whose Liabilities
(meaning herein any obligations of Borrower under any note, agreement, contract
of suretyship, guaranty or accommodation, claim or right of action, and any
other obligations of Borrower however and whenever created, arising or
evidenced, whether direct or indirect, through assignment from third parties,
absolute, contingent, or otherwise, now or hereafter existing, or due or to
become due, including all interest which accrues on any such obligations both
before and after the filing by or against Borrower of a petition under any
chapter of Title 11 of the United States Code, as amended (the “Bankruptcy
Code”), together with all collection costs and attorneys' fees), in favor of
Creditor as of the date hereof aggregate $____________, are described on
Schedule A attached hereto, and may in the future increase (all such
Liabilities of Borrower in favor of Creditor being collectively referred to
herein as the “Junior Claims”).

    

    For value
received, and to induce you to enter into financial transactions with Borrower,
including the making of a loan or loans to it or the entering into with it of
any agreement with regard to the assignment of accounts receivable or other
indebtedness in connection with the sale of goods or rendition of services made
or to be made by Borrower, or to purchase or take by assignment receivables
under any agreement with regard to the assignment of accounts receivable, or to
cause letters of credit to be issued for the account of Borrower (all
Liabilities of Borrower under any such loans and agreements, and all other
Liabilities of Borrower in favor of you, being collectively referred to herein
as the “Senior Claims”), Creditor hereby subordinates and postpones the Junior
Claims to the Senior Claims.

    

    In order
to effect and secure such subordination, Creditor hereby assigns to you all of
Creditor's right, title and interest in and to the Junior Claims and any
security held therefor, and will deliver to you from time to time any and all
instruments and documents (endorsed to you without recourse in the case of
negotiable instruments) evidencing such Junior Claims, or will have entered on
such instruments and documents such subordination legend as you may request, and
Creditor will execute such other instruments and documents as you may from time
to time require in connection therewith.  In the event that any Junior
Claim is not evidenced by a negotiable instrument, Creditor hereby agrees that
he will obtain an instrument or document from Borrower evidencing such Junior
Claim.  In the event that such debt is not evidenced by a document, it
shall nevertheless be deemed subordinated and assigned by virtue of this
Agreement.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Creditor
hereby grants to you irrevocable authority in the place and stead of Creditor
and in the name of Creditor or in your name but for your use and benefit, at any
time or times, after any default under the terms of any of the Senior Claims, in
your discretion to demand, collect, compromise, file proofs of claim with
respect to, receive (by way of dividends or otherwise) and take any and all
legal proceedings for the recovery of any and all moneys due or to become due on
account of the Junior Claims or any thereof, and to vote, give consents and take
any other steps with regard thereto.  Any and all moneys so collected
or received by you shall be retained indefeasibly by you for application to the
payment in full of the Senior Claims then outstanding; provided, however, that
upon termination of this Agreement by you and the indefeasible payment to you of
moneys collected or received on account of Junior Claims and on account of
Senior Claims aggregating an amount equivalent to all the matured and unmatured
Senior Claims, you shall pay over to Creditor the excess, if any, of all moneys
so received or collected on the Junior Claims and on the Senior Claims and
release the balance of the Junior Claims and the Senior Claims which are still
unpaid, and deliver to Creditor any and all instruments and documents, without
any warranties of any nature or type whatsoever in respect thereof (endorsed to
Creditor without recourse in the case of negotiable instruments) evidencing such
Junior Claims and Senior Claims.  If you receive notice of any claim
adverse to the rights or interests of Creditor in and to either the Junior
Claims or the Senior Claims, or any moneys held by you in respect thereof, you
shall be entitled to retain any and all such moneys, and documents and
instruments evidencing such Junior Claims and Senior Claims without incurring
any liability or debt to Creditor, until the adjudication or final settlement of
the rights of such claimant against Creditor, and Creditor hereby agrees to
indemnify and hold you harmless for any and all liability and expenses incurred
by you and arising from or connected with the assertion of such
claims.

    

    Creditor
hereby releases any lien on or security interest Creditor may have in any of
Borrower’s assets, and Creditor and Borrower acknowledge and agree that the
Junior Claims are and shall remain unsecured by any of Borrower’s assets unless
and until the Senior Claims are repaid in full in cash and any commitment of
yours to provide financing to Borrower is terminated.  Creditor hereby
authorizes you to terminate any UCC financing statements naming Creditor as
secured party and Borrower as debtor.

    

    Creditor
further agrees that so long as any Senior Claim remains unpaid, Creditor will
not accept from Borrower any payment on account of, or any security for, any
Junior Claim.  In case Borrower shall offer any payment on account of,
or any security for, any Junior Claim, Creditor will direct that the same be
made or delivered to you, and in the event of any moneys and/or security coming
into the hands of Creditor on account of any Junior Claim from any source
whatsoever, Creditor will receive the same solely as your agent in trust for you
and will immediately turn over to you the same, in the form
received.  If Creditor shall fail to endorse any instrument for the
payment of money payable to Creditor or to Creditor's order, which has been
turned over to you, you are hereby irrevocably constituted and appointed
attorney-in-fact for Creditor with full power to make any such endorsement, and
with full power of substitution.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    At your
request, Creditor hereby further agrees (i) to make notations on Creditor's
books to the effect that such Junior Claim is subject to the provisions of this
Agreement, (ii) to give you, upon request from time to time, access to
Creditor's books with respect to such accounts and the right to make copies of
such books, and (iii) to furnish you, upon request from time to time, with
statements of such accounts between Creditor and Borrower.

    

    Creditor
hereby represents to you that (i) Borrower is now indebted to Creditor,
without counterclaim, defense or offset on the Junior Claims described in
Schedule A, (ii) Creditor has not heretofore assigned, transferred, created
a security interest in, or otherwise encumbered such Junior Claims nor executed
or delivered any other instrument or document adversely affecting the Junior
Claims, (iii) the Junior Claims are not represented by any instruments or
documents except such as have been endorsed or assigned and delivered to you, or
which have been marked with such subordination legend as you have requested, and
(iv) Creditor is not insolvent within any meaning of that term as of the date
hereof.  Creditor agrees with you that Creditor will not assign,
transfer, create a security interest in, or otherwise encumber, or subordinate
in favor of any other creditor of Borrower, any Junior Claim and that any Junior
Claim now or hereafter existing will not be represented by any instruments or
documents other than those which have been endorsed or assigned and delivered to
you or marked with such subordination legend as you have requested.

    

    All
moneys received by you on account of any Junior Claims shall belong to you and
shall be retained indefeasibly by you for application to the payment of the
Senior Claims.

    

    For value
received, and to induce you to enter into financial transactions with Borrower
as described above, Borrower agrees that it will not pay or disburse any money
or transfer any property to Creditor in payment of any of the Junior Claims
until the Senior Claims are repaid in full and all financing arrangements
between you and Borrower are terminated, and Borrower agrees that any breach or
termination of this Agreement on Creditor's or Borrower's part shall constitute
a default under all of the Senior Claims with the same force and effect as if
this Agreement were incorporated into any such Senior Claims, and you may,
without notice or demand declare all of the Senior Claims immediately due and
payable.

    

    This
Agreement is a continuing agreement and, unless you shall have specifically
consented in writing to its revocation, shall remain in full force and effect in
all respects whether or not Borrower shall at any time be indebted to
you.  If, after the payment of all Senior Claims, Borrower thereafter
again becomes liable to you on account of any new Senior Claims, this Agreement
shall thereupon in all respects become effective with respect to any such new
Senior Claims without the necessity of any further act or understanding by
Borrower and/or you.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    If
Creditor receives any payment on account of, or any security for, any Junior
Claims at a time when there are no Senior Claims outstanding, Creditor will
immediately notify you in writing of the receipt thereof.  In the
event that Creditor fails to so notify you, and new Senior Claims are thereafter
created, and if Borrower defaults with respect to the payment or performance of
such new Senior Claims, in addition to and not in limitation of any other rights
or remedies available to you hereunder, you shall have the right to receive and
Creditor will immediately pay to you an amount equivalent to any such payment or
the value of any such security received by Creditor and not reported to
you.

    

    With or
without notice to or further assent from Creditor, you may at any time or times,
either prior to or after any default on the part of Borrower with respect to
either the Junior Claims or the Senior Claims:  (a) advance or
refuse to advance additional credit to Borrower, (b) extend, refuse to
extend, renew or change the Senior Claims or any thereof and waive any default
under any thereof, and modify, rescind or waive any provision of any related
agreement or collateral undertaking, including, but not by way of limitation,
any provision relating to acceleration of maturity, (c) fail to set off any
or all accrued balances or deposit balances or any part thereof on your books in
favor of Borrower and release the same, (d) release, exchange, fail to
resort to, or realize upon, or apply any security or any part thereof held by or
available to you for the Senior Claims, and (e) generally deal with
Borrower in such manner as you may see fit, all without impairing or affecting
your rights and remedies under this Agreement.  Each such action and
each such failure to act on your part shall be deemed to be at the request of
Creditor and in reliance upon this Agreement.  Creditor hereby waives
notice of the acceptance of this Agreement by you and of the effecting by you of
any loans or extensions of credit to Borrower, and further waives notice of any
default at any time or times on the part of Borrower.  This Agreement
is not to be affected or impaired by any extension, renewal, release,
arrangement, or composition which you may grant Borrower.

    

    This
Agreement revokes and supersedes any prior agreement of subordination or
assignment with respect to the Junior Claims which may have been executed by
Creditor in your favor.

    

    No delay
or failure on your part in exercising any right or remedy shall operate as a
waiver thereof; and no single or partial exercise of any right or remedy shall
preclude other or further exercises thereof or the exercise of any right or
remedy; and no notice to or demand on Borrower or Creditor shall be deemed a
waiver of any obligation or duty of Borrower or Creditor or of your right to
take further action without notice or demand; nor in any event shall any
modification, alteration or waiver of any of the provisions hereof be effective
unless in writing and signed for or on behalf of you and then only in the
specific instance for which given.

    

    ALL
PARTIES TO THIS AGREEMENT WAIVE TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF
OR RELATING TO THE JUNIOR CLAIMS OR THIS AGREEMENT, AND CREDITOR WAIVES ALL
RIGHTS TO INTERPOSE THEREIN COUNTERCLAIMS OR OFFSETS OF ANY KIND.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Your
rights and privileges hereunder shall inure to the benefit of your successors
and assigns, including without limitation any substitute or replacement
financier of Borrower, and this Agreement shall be binding upon the Creditor's
and Borrower's respective heirs and personal representatives and successors and
assigns.  Creditor and Borrower waive notice of assignment
hereof.

    

    This
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of Oklahoma.  Wherever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

    

    Notwithstanding
anything to the contrary contained in this Agreement, Borrower may pay, and
Creditor may take and receive, regularly scheduled payments of principal and
interest on the Junior Claims so long as (a) no default or event of default
exists under that certain Loan and Security Agreement dated June 23, 2008
between Borrower and you, as amended, modified and/or restated from time to time
(the “Loan Agreement”), or would otherwise be caused thereby; (b) after giving
effect to the proposed payment, Borrower would have unused borrowing
availability under the Loan Agreement of at least $_______________; and (c) at
least five (5) business days prior to making any such payment, Borrower shall
deliver to you a certificate of an officer of Borrower (i) setting forth the
amount of and the date of such proposed payment, (ii) certifying that no default
or event of default exists under the Loan Agreement, and (iii) setting forth
calculations, in detail reasonably satisfactory to you, demonstrating compliance
with the foregoing clauses (a) and (b).

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    

    IN WITNESS WHEREOF, Creditor and
Borrower have executed this Agreement this _____ day of ________________,
20__.

    

    

    CREDITOR:

    

    _________________________________________

    

    By:                                                                           

    Name:

    Title:

    

    

    BORROWER:

    

    AEROGROW INTERNATIONAL,
INC.

    

    

    By:                                                                          

          Jervis B.
Perkins, President and

          Chief
Executive Officer

    

    

    

    

    

    

    

    The foregoing Subordination Agreement
is accepted in Oklahoma City, Oklahoma this _____ day of ________________,
20__. 

    

    

    FCC, LLC d/b/a First
Capital

    

    

    By:                                                                       

          Lee E.
Elmore, Senior Vice President

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Schedule A

    

    Promissory
Note dated _________________, in the amount of $____________ executed by
Aerogrow International, Inc. and payable to
_______________________________.

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