Document:

ex4-1.htm

Exhibit 4.1

 

THIS SECURED PROMISSORY NOTE HAS 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.

No. [2011CC-__]                                                                                                                                          U.S.  $_____________

Original Issue Date:  October __, 2011

 SECURED 17% PROMISSORY NOTE

DUE October 1, 2012

           THIS PROMISSORY NOTE is one of a duly authorized issue of  Secured Promissory Notes of  AEROGROW INTERNATIONAL, INC., a Nevada corporation, (the “Company”), designated as its Series 2011CC  Secured 17% Promissory Notes (the “Promissory Notes”) due on October 1, 2012 (the “Maturity Date”), in an aggregate principal amount of up to $2.0 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 17% per annum, accruing from October __, 2011 (“Issue Date”) and payable in accordance with Section 4 hereof.  Accrual of interest shall commence on the first 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.

           Section 1.     Collateral, and Pari Passu.

This Promissory Note is one of a series of Promissory Notes known as the Series 2011CC Secured 17% Promissory Notes in an aggregate principal amount of up to $2.0 million plus accrued but unpaid interest.  No payments will be made to the holder of this Promissory Note unless a payment is made with respect to all other Promissory Notes of the Series determined in accordance with the Agreement Among Lenders and the Escrow and Account Control Agreement governing the right to payments under this Note and other Notes of this 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 an assignment of a portion of the Company’s credit card receivables.  The security interest is held under an Escrow and Account Control Agreement dated October __, 2011 for the benefit of all holders of Promissory Notes issued as part of this Series.  The rights of the Note holders under the Escrow and Account Control Agreement are further subject to the provisions of an Agreement Among Lenders 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 existing on the date hereof, together with any renewals, extensions, refinancing, substitution or modifications thereof, (b) indebtedness that is junior or subordinate to the Promissory Notes and the collateral given to secure the repayment of same, and (c) indebtedness incurred in the ordinary course of business.

 

Section 4.      Provisions Regarding Payment of Interest and Principal.     The Company will enter into an Escrow and Account Control Agreement with First Western Trust Bank pursuant to which all Company credit card receipts will be paid directly into the account and 20% of such receipts will be paid bi-weekly to the holders of the Series 2011CC Notes.  Payments will first be applied to accrued and unpaid interest, with the balance to outstanding principal. If not paid previously, all interest will be payable, in cash, to the Holder at the Maturity Date.

           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);

(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 Escrow and Account Control 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 seventeen percent (17%), and a Majority of the Holders may:

Declare all amounts due under the Promissory Notes immediately due and owing and exercise all rights with respect thereto under the Escrow and Account Control Agreement or permitted by law;

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;

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.

 

  

  

  

 

           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.

“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.

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

“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.

“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.

           Section 8.       Reserved.

           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.     Limitation of Recourse.  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.     Form of Payments.  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.     Investment Intent.  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 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.

           Section 14.     Denominations.  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.     Income Tax Withholding.  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      Limitation on Transfer.  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.

           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:____________________________________

                                 H. MacGregor Clarke, Chief Financial Officerex10-1.htm

Exhibit 10.1

 

REVENUE SHARING AGREEMENT

This REVENUE SHARING AGREEMENT ("Agreement") is entered into this ____ day of October, 2011, by and among the undersigned holders (“Lenders”) of Series CC2011 Secured Promissory Notes ("Notes”) issued by AEROGROW INTERNATIONAL, INC., a Nevada corporation; and AEROGROW INTERNATIONAL, INC., a Nevada corporation ("Borrower" or the “Company”).

RECITALS

A.           Borrower executed and delivered to Lenders its Series CC2011 Secured Promissory Notes, which Notes total, in the aggregate, $_________.

B.           During April through July 2011, the Company participated in a test designed to assess the desirability of offering the Company’s products for sale using a network marketing sales distribution method.  Network marketing, or multi-level marketing (“MLM”), involves person-to-person direct selling of products by independent distributors who receive a commission for sales made by them, and by other independent distributors that they enroll to sell products.

C.           The Company’s management determined that the results of the test of network marketing distribution suggested that there is an attractive market opportunity and that the Company should pursue an initiative to sell its products into the MLM channel of distribution (the “MLM Initiative”).

 

D.           The Lenders will, collectively and in aggregate, receive payments equal to 1.0% of the Company’s future sales into the MLM distribution channel (the “MLM Payments”).  The MLM Payments will continue until the earlier to occur of: (i) $500,000 in MLM Payments having been made to the Lenders; or (ii) the 36th month following the month of the Company’s first sale into the network marketing channel.

E.           The Company is in the process of developing its strategy and operational tactics for the MLM Initiative.  The details of the MLM Initiative and the timing of the MLM Initiative have not been finalized and the Company therefore cannot estimate the sales, if any, that may be generated if the MLM Initiative is undertaken at some point in the future.  No assurance can be given that, if undertaken, the MLM Initiative will be successful, or that the Company will ultimately choose to implement the MLM Initiative.  In the event the Company does not pursue the MLM Initiative, no MLM payments will be made to the Lenders.

AGREEMENT

NOW THEREFORE, for the mutual promises and covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Acknowledgement of Recitals.  Borrower represents that the foregoing Recitals are true and correct statements of fact.

2. MLM Payments.  Borrower will make the MLM Payments to each Lender individually out of its general operating funds.  The MLM Payments will be based on the Company’s revenue from sales into the MLM distribution channel, and will be subject to the following conditions and limitations.

	
a.  

	
The MLM Payments will be made monthly in arrears on the 15th day of each month.  In the event the 15th day of any given month falls on a day which is 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 (a “Non-Business Day”), then the MLM Payments for that month will be made on the next succeeding day that is not a Non-Business Day.

	
b.  

	
In aggregate, the MLM Payments made each month will equal one percent (1%) of the Company’s sales into the MLM distribution channel for the prior month.

	
c.  

	
Each Lender will receive a monthly payment equal to its pro rata share of the total MLM Payments for that month.  A Lender’s pro rata share will be calculated by dividing (i) the dollar amount of Notes purchased by the Lender, by (ii) the total amount of Notes issued by the Company.  (For example, if the Company issued $1,500,000 in Notes and an individual Lender purchased $300,000 in Notes, then the Lender’s pro rata share would equal 20 %.)

 

  

  

  

 

	
d.  

	
The MLM Payments will begin in the month following the month in which the Company records its initial sale into the MLM distribution channel and will continue until the earlier to occur of: (i) $500,000 in aggregate MLM Payments having been made to the Lenders; or (ii) the 36th month following the month of the Company’s first sale into the network marketing channel.

3. Lender Statements.  The Company will calculate its sales into the MLM distribution channel each month.  Concurrent with the MLM Payments each month the Company will provide a statement to each Lender detailing the MLM sales for the prior month, the aggregate MLM Payments being made for that month, the amount being paid to the Lender, the cumulative amount of MLM Payments in aggregate, and the cumulative amount of MLM Payments made to the Lender.  Until such time as the Company records its initial sale into the MLM distribution channel, it shall not be required to provide monthly statements to the Lenders.

4.  Events of Default.  An “Event of Default” 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):

	
a.  

	
Any failure to make the MLM Payments as and when the same shall become due and payable, and such failure has not been remedied within 15 days after the date on which notice of such failure has been given;

	
b.  

	
The Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of, this Agreement or any other agreement between the Company and the Lenders, 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;

	
c.  

	
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.

5. Remedies.  The Lenders, acting based on a majority vote by principal amount of the Notes purchased by the Lenders (a “Majority of the Holders”), may declare a default under Paragraph 4 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 amounts due to Lenders hereof shall accrue interest at the rate of seventeen percent (17%) per annum beginning as of the date of the Event of Default, and a Majority of the Holders may:

	
a.  

	
exercise all rights with respect to the amounts owed under this Agreement, or as permitted by law;

	
b.  

	
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;

	
c.  

	
Assert any other remedy available at law or in equity.

 

  

  

  

 

6. Authority to Enter into this Agreement.  Borrower hereby states that it has the requisite authority to enter into this Agreement and hereby indemnifies the Lenders from any and all claims or losses which the Lenders may incur as a result of any party lacking the necessary requisite authority to enter into this Agreement.  All parties agree to execute any additional documentation or provide any additional documentation as may be reasonably requested by the Lenders to properly and further effectuate the terms of this Agreement.

7. Governing Law.  This Agreement shall be governed by the laws of the State of Colorado.  The prevailing party in any litigation hereunder shall be entitled to recover reasonable legal fees and costs in addition to all other damages and remedies at law.

8. Successors Bound/Integration. The provisions of this Agreement shall bind the respective heirs, executors, personal representatives, administrators, successors and assigns of the parties hereto.  This Agreement incorporates all prior discussions and negotiations between the parties and may not be amended except in writing duly acknowledged by the parties.

9. Severability. The invalidity or unenforceability of any term or provision of this Agreement shall not affect the validity or enforceability of the remaining terms and provisions hereof and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

10. Counterparts.  This Agreement may be separately executed, each of which shall be considered an original, and when taken together shall constitute the entire agreement between the parties.

Signature Page Follows

  

  

  

 

IN WITNESS WHEREOF, the undersigned have caused this Revenue Sharing Agreement to be executed as of the day and year first above written.

AEROGROW INTERNATIONAL, INC.

__________________

By: J. Michael Wolfe

Its:  President and CEO

LENDERS

Name: _______________________________

Joint Holder (if applicable): __________________________

Principal Amount of Note Purchased: _______________

Signature: _____________________________

Joint Holder

Signature (if applicable): ____________________________

Name: _______________________________

Joint Holder (if applicable): __________________________

Principal Amount of Note Purchased: _______________

Signature: _____________________________

Joint Holder

Signature (if applicable): ____________________________

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