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PROMISSORY NOTE
AeroGrow International, Inc.
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Principal Balance: $1,500,000 or
so much thereof as actually advanced
pursuant to the terms hereof.
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Issue Date: May ___, 2008
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Interest Rate: 12% per annum
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Due Date: April 1, 2009
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1.
For Value Received, AeroGrow International, Inc. , a Nevada
corporation (“ Maker ”) with a
principal place of business located at 6075 Longbow Drive, Boulder,
Colorado 80301 hereby unconditionally promises to pay to the order
of WLoans,
LLC , a Colorado limited liability company with a principal
place of business located at 3100 Arapahoe, Suite 301, Boulder
Colorado 80303 (“ Lender ”), the
principal sum of One
Million Five Hundred Thousand Dollars ($1,500,000) (the
“ Principal
Amount ”) or so much thereof as may actually be
advanced from time to time pursuant to the terms of that certain
Loan Agreement of even date herewith (the “ Loan Agreement
”) and any other documents which may be executed in
connection with the loan evidenced by this Promissory Note (the
“ Note ”),
together with interest thereon, from and after the date hereof, at
an annual rate determined in accordance with the terms set forth
herein, on all unpaid balances until paid in full.
2.
Interest . Interest shall accrue on all principal
amounts advanced to Maker hereunder (the “ Outstanding Principal
”) at a rate of twelve
percent (12%) per annum from and after the date of each such
advance until paid in full (the “ Interest
”). Maker acknowledges that Lender does not intend
to reserve, charge or collect interest on money borrowed under this
Agreement at any rate in excess of the rates permitted by
applicable law and that, should any interest rate provided for in
this Agreement exceed the legally permissible rates(s), the rate
will automatically be reduced to the maximum rate permitted under
applicable law. If Lender should collect any amount from
Maker which, if it were interest, would result in the interest rate
charged hereunder exceeding the maximum rate permitted by
applicable law, such amount will be applied to reduce the balance
of the Outstanding Principal or, if no Outstanding Principal
remains outstanding, will be refunded to Maker.
3.
Holding Fee . A holding fee shall be paid
quarterly in advance on any portion of the Principal Amount which
has not been advanced to Maker (the “ Retained Funds
”) at a rate of one
percent (1%) of the Retained Funds until the Note is paid in
full (the “ Holding Fee
”).
4.
Payments . (a) Commencing August ___, 2008, and
every calendar quarter thereafter until April 1, 2009 (the “
Maturity
Date ”), Maker shall pay the Interest accrued on the
Outstanding Principal from the date of each advancement of funds
until the Maturity Date.
(b)
Commencing
May __, 2008, and every calendar quarter thereafter until the
Maturity Date, Maker shall pay the Holding Fee on the Retained
Funds.
(c)
On
the Maturity Date the entire unpaid Outstanding Principal, together
with all accrued and unpaid Interest, accrued and unpaid Holding
Fees and all other amounts due and owing under the terms of this
Note or the Loan Agreement shall become immediately due and
payable.
5.
Application of Payments . All payments made in
accordance with the terms hereof shall be applied, first to
collection costs, attorney fees and legal expenses due hereunder,
if any, second to accrued but unpaid Interest, third, to accrued
but unpaid Holding Fees and the balance, if any, to reduce the
Outstanding Principal.
6.
Prepayment . Maker may prepay the entire debt
evidenced by this Note or any portion thereof, at any time and from
time to time, without penalty or premium. In the event
Maker receives any equity financing, the entire Outstanding
Principal, accrued Interest and accrued Holding Fees shall become
immediately due and payable.
7.
Security . The full indebtedness evidenced by
this Note is secured by the grant of the security interest set
forth in the Loan Agreement pursuant to which Maker has granted to
the Company a perfected, third priority security interest in and to
all of the assets owned by Maker (the “ Collateral ”) as
more particularly described therein.
8.
Default; Remedies . Each of the following shall
be an “ Event of Default
”: (a) if any payment required by this Note is not
paid when such payment is due; (b) Maker breaches or defaults in
the performance of any other covenant, obligation, condition,
representation or warranty contained in this Note or the Loan
Agreement, which breach or default is not cured within twenty (20)
days after written notice thereof, or such other applicable cure
periods provided herein or therein; or (c) Maker breaches or
defaults in the performance of any covenant, obligation, condition,
representation or warranty contained in that certain loan with
First National Bank in the amount of $1,000,000 (the “
FNB Loan
”) or that certain loan with FCC, LLC d/b/a First Capital in
the amount of $12,000,000 (the “ First Capital Loan
” and together with the FNB Loan, the “ Related Loans
”), which breach or default is not cured within the
applicable cure periods as provided in the Related Loans,
thereafter, Lender may (x) cause the full Outstanding Principal
remaining unpaid hereunder, together with accrued and unpaid
Interest, acc
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