CONVERTIBLE NOTE
MODIFICATION AGREEMENT
THIS
CONVERTIBLE NOTE MODIFICATION AGREEMENT (the “Modification
Agreement”) is made as of this ___ day of January , 2006 by
and among Aero Grow International, Inc., a Nevada corporation (the
“Company”) and each of the investors identified on the
signature page to this Agreement (the “Investors”
and individually an “Investor”).
RECITALS
WHEREAS, the
Company completed the sale of 300 units (“Units”) to
the Investors during the period beginning July 12, 2005 and ending
September 13, 2005 (“Closing Date”) in a private
placement offering (“Offering”) in accordance with the
terms set forth in the Confidential Private Placement Memorandum
dated June 6, 2005, as amended and supplemented
(“Memorandum”);
WHEREAS, each Unit consisted of a 10% unsecured
convertible promissory note in the principal amount of $10,000 due
June 30, 2006 (“Note”) and 2,000 five-year warrants,
each warrant providing for the purchase of one share of the
Company’s common stock (“Common Stock”) at the
exercise price equal to the lesser of: (i) $5.01 per share, or (ii)
if a registered public offering of securities by the Company is
declared effective under the Securities Act of 1933, as amended
(“Securities Act”) prior to the payment or conversion
of the Note (“Registered Offering”), 100% of the per
share offering price of the Company’s common stock in the
Registered Offering (“Public Offering Price”)
(“Warrants”);
WHEREAS, the principal amount of the Notes are
convertible at any time, at the Investor’s election, into the
shares of Common Stock at a conversion price (“Conversion
Price”) equal to the lesser of: (i) $4.00 per share, or (ii)
if a Registered Offering is declared effective under the Securities
Act prior to the payment or conversion of the Notes, 80% of the
Public Offering Price;
WHEREAS, upon conversion of the Notes, the
Investor was entitled to receive additional five-year warrants to
purchase 2,000 shares of Common Stock for each $10,000 of principal
amount so converted (“Conversion Warrants”), with each
Conversion Warrant being exercisable at any time at an exercise
price equal to the lesser of: (i) $6.00 per share, or (ii) 120% of
the Public Offering Price in the Registered Offering;
WHEREAS, during the 15 day period following the
date upon which the Registered Offering was declared effective and
the Company had received its funds from the Registered Offering,
each Investor had the right, on one occasion only, to demand full
and complete payment in cash of the outstanding principal amount of
all Notes held by such Investor, together with all accrued interest
thereon;
WHEREAS, the Company agreed to register: (i) the
Common Stock into which the Notes may be converted
(“Conversion Shares”), and (ii) the Common Stock
underlying the Warrants and the Conversion Warrants
(“Underlying Common Stock”), on the registration
statement to be filed by the Company with respect to the securities
being offered in the Registered Offering (“Registration
Statement”);
WHEREAS, the Registration Statement was required
to be filed within 60 days following the Closing Date and to be
declared effective within 150 days from the Closing
Date;
WHEREAS, the Company is required to pay
Investors an amount equal to 1% of the purchase price of each Unit
held by Investors for every 30 day period (or part) after the
relevant date, in each case until the Registration Statement is
filed or declared effective, as the case may be
(“Registration Penalty”), if the Registration Statement
is not filed or does not become effective on a timely basis, for
any reason, other than adverse market conditions as determined by
the Placement Agent in its sole discretion;
WHEREAS, each Investor is contractually
prohibited from selling or transferring any Conversion Shares or
Underlying Common Stock until the 180 th day following
the closing of the Registered Offering;
WHEREAS, the Company filed the Registration
Statement with the U.S. Securities and Exchange Commission
(“SEC”) on November 4, 2005;
WHEREAS, the Company received a comment letter
from the SEC on December 22, 2005 with respect to the Registration
Statement filed on November 4, 2005;
WHEREAS, during December 2005, the Company had
been notified by several of its warrant holders from prior
offerings that they desired to exercise certain warrants held by
them before such warrants expired on December 31, 2005 and, to
comply with its contractual requirements under the said warrants,
and to comply with the policies of federal securities laws, and in
accordance with the advice of its attorneys, the Company’s
board of directors approved the withdrawal of the Registration
Statement and the abandonment of the Registered Offering on
December 30, 2005;
WHEREAS, the Company filed the withdrawal of the
Registration Statement with the SEC on January 4, 2006;
WHEREAS, the Company and Wentworth I, Inc.
(“Wentworth”) entered into a certain Agreement and Plan
of Merger (the “Merger Agreement”) on January 12, 2006
by which Wentworth will merge with and into the Company, with the
Company being the surviving corporation
(“Merger”);
WHEREAS, the Merger has been approved by the
directors and stockholders of Wentworth, and Wentworth has filed a
Schedule 14C information statement with the SEC on January 13,
2006, a copy of which has been made available to the Investor on
the SEC website at www.sec.gov ;
WHEREAS, the
consummation of the Merger is contingent on the closing of a
“best efforts” $5,000,000 minimum, $12,000,000 maximum
private placement offering for units (“Equity Units”)
to investors (“Equity Investors”), at $5.00 per Equity
Unit, consisting of one share of Common Stock (“New Common
Stock”) and one warrant (“New Warrant”)
exercisable for a period of five years after the closing, for one
share of Common Stock, at $6.25 per share (“Equity
Offering”);
WHEREAS, the
Equity Offering will be commenced by the Company on or after
February 6, 2006;
WHEREAS, the
Company desires to complete the Merger and the Equity Offering on
or about February 24, 2006;
WHEREAS, upon
completion of the Merger, the Company will become a Section 12(g)
reporting company under the Exchange Act with its shares of Common
Stock becoming registered securities under Section 12(g) of the
Exchange Act;
WHEREAS, depending on the number of Equity Units
sold in the Equity Offering, the Company intends to use its
commercially reasonable best efforts to have its shares of Common
Stock commence quotation on either (i) Nasdaq Capital Markets
(“Nasdaq”); or (ii) the Over-the-Counter Bulletin Board
(“OTC BB”);
WHEREAS, there can be no assurance as to when
and if the shares of Common Stock will become quoted on either
Nasdaq or the OTC BB and, even if the shares of Common Stock are
quoted on either venue, there can be no assurance that an active
trading market will develop for such shares;
WHEREAS, as part of the Equity Offering, the
Company has agreed to register for resale the shares of New Common
Stock issued in the Equity Offering (together with the shares of
Common Stock underlying the New Warrants) on a registration
statement to be filed with the SEC;
WHEREAS, the Company and the Investor hereby
desire to modify the terms and conditions of that certain
subscription agreement executed by and between the Company and the
Investor with respect to the Offering (“Subscription
Agreement”) and the Note issued by the Company to the
Investor in the Offering as set forth herein;
NOW, THEREFORE,
for and in consideration of the mutual premises contained herein
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows: